<PAGE>
As filed with the Securities and Exchange Commission on August 23, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
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)
DELAWARE 6793 13-3716393
(State of Organization) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification Number)
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.
---------------------
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933 (the "Securities Act") check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class of Amount of
Additional Securities Additional Amount Maximum Offering Maximum Aggregate Additional
to be Registered being Registered Price Per Unit Offering Price Registration Fee*
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units of Limited 500,000 Net Asset Value $50,000,000 $17,242
Partnership Interest
- ---------------------------------------------------------------------------------------------------
</TABLE>
* ML GLOBAL HORIZONS L.P. HAS APPROXIMATELY 700,000 REGISTERED BUT UNSOLD
UNITS AND HAS PREVIOUSLY PAID $57,922 IN REGISTRATION FEES TO THE SECURITIES AND
EXCHANGE COMMISSION.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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.
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
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 AUGUST __, 1996
TO
PROSPECTUS DATED AUGUST __, 1996
The Prospectus sets forth more detailed information concerning the "core"
Advisors. The non-"core" Advisors are identified below. As of July 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 JULY 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% 21.7% $121.5 million Technical;
Gamma Program (15%) trend-following
Chesapeake Capital Corporation (10.98)%/15.99% 17.9% $757 million Technical;
Diversified Trading Program (38%) trend-following
John W. Henry & Company, Inc. (18.0)%/39.4% 31.6% $881 million Technical;
Financial and Metals Portfolio (38%) trend-following
NON-"CORE" ADVISORS
Di Tomasso Group Inc. (23.95)%/31.45% 31.7% $50.6 million Discretionary;
Turbo Trading Program/4/ (under 10%) fundamental
West Course Capital Inc. (7.86)%/14.12% 17.0% $112 million Discretionary;
Higher Leverage Program (under 10%) 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 "Leverage Considerations"
and "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 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 July 1, 1996 for
the program traded for the Fund/4/ 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/4/ and covers the period
beginning with January 1, 1991 (or the inception of trading if later)
through July 1, 1996.
3 Assets under management in the program used for the Fund/4/ ("notional"
funds excluded).
4 The Fund's account is the first to be traded by Di Tomasso Group Inc.
pursuant to its Turbo Trading Program. Accordingly, this performance
summary reflects the results of the Equilbrum Trading Program from May 1,
1991 through July 1, 1996. The Turbo Trading Program differs from the
Equilbrium Trading Program in that it includes the trading of options on
the S&P 500 Stock Index futures contract and utilizes slightly more
leverage, resulting in greater volatility.
_________________________
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>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Preliminary Prospectus dated August 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 July 1, 1996,
the Fund's aggregate capitalization was approximately $87,370,477 million, and
the Net Asset Value per Unit, originally $100, was $127.71.
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 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 VOLATILITY -- SIGNIFICANTLY REDUCE THE
ADVISORS' ABILITY TO TRADE SUCCESSFULLY.
SEE "RISK FACTORS" BEGINNING AT PAGE 8.
------------------------------------------------
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 commit ment, 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 53 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, MLAM, 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,
PROXIES 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 31 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO
"BREAKEVEN," THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT
PAGE 6.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER
FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL.
THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU
SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION
OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGES 8-11.
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................................ 5
The Fund and Its Objectives................. 5
Charges..................................... 6
Federal Income Tax Consequences............. 7
Suitability................................. 7
RISK FACTORS..................................... 8
(1) Investors May Lose All or
Substantially All of Their Investment.. 8
(2) Past Performance........................ 8
(3) Volatile Markets; Highly Leveraged
Trading................................ 8
(4) Substantial Charges..................... 8
(5) Importance of General Market
Conditions............................. 8
(6) No Diversification Benefits if the
the Fund Is Not Profitable............. 8
(7) Combining Independent Strategies........ 8
(8) Systematic Strategies................... 9
(9) Discretionary Strategies................ 9
(10) Increased Assets Under Management....... 9
(11) No Assurance of Advisors' Continued
Services............................... 9
(12) Changes in Trading Strategy............. 9
(13) Illiquid Markets........................ 9
(14) Non-Correlation Not
Negative Correlation................... 9
(15) Redemptions Restricted.................. 10
(16) Trading on Non-U.S. Exchanges........... 10
(17) Conflicts of Interest................... 10
(18) Use of Graphs........................... 10
(19) Limited Partners Taxed Currently........ 10
(20) "Investment Advisory Fees".............. 10
(21) Taxation of Interest Income............ 10
(22) Tax Audit.............................. 11
(23) Bankruptcy or Default.................. 11
(24) Regulatory Change...................... 11
INVESTMENT FACTORS............................... 11
PERFORMANCE OF THE FUND.......................... 13
PERFORMANCE OF THE OTHER MLIP
MULTI-ADVISOR FUNDS............................. 14
SELECTED FINANCIAL DATA.......................... 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS................................... 19
THE ADVISOR SELECTION PROCESS.................... 22
THE ADVISORS..................................... 25
MLIP AND MLF..................................... 27
Background...................................... 27
Principals...................................... 27
MLF............................................. 28
FIDUCIARY OBLIGATIONS OF MLIP.................... 29
USE OF PROCEEDS.................................. 30
CHARGES.......................................... 31
Charges Paid by the Fund........................ 32
Brokerage Commissions......................... 33
Administrative Fees........................... 34
"Bid-Ask" Spreads............................. 34
Service Fees; "EFP" Differentials............. 34
Incentive Overrides........................... 34
Profit Shares................................. 36
Extraordinary Expenses........................ 38
Charges Paid by Merrill Lynch................... 38
Selling Commissions; Ongoing
Compensation................................. 38
Consulting Fees.............................. 38
Redemption Charges.............................. 39
CERTAIN LITIGATION............................... 39
CONFLICTS OF INTEREST............................ 44
Merrill Lynch Affiliated Entities............ 44
General...................................... 44
MLIP......................................... 44
MLF; MLIB.................................... 45
The Trading Advisors......................... 45
Financial Consultants........................ 46
Proprietary Trading.......................... 46
THE LIMITED PARTNERSHIP AGREEMENT................ 46
FEDERAL INCOME TAX CONSEQUENCES.................. 48
PLAN OF DISTRIBUTION............................. 51
General......................................... 51
Subscription Procedure.......................... 51
Purchases by Employee Benefit Plans............. 52
Selling Agent Compensation...................... 53
</TABLE>
-2-
<PAGE>
ML GLOBAL HORIZONS L.P.
TABLE OF CONTENTS (CONT'D)
PROSPECTUS SECTION PAGE
- ------------------ ----
LEGAL MATTERS........................... 53
EXPERTS................................. 53
ADDITIONAL INFORMATION.................. 54
RECENT FINANCIAL INFORMATION............ 54
INDEX OF DEFINED TERMS.................. 55
INDEX TO FINANCIAL STATEMENTS........... 56
PERFORMANCE OF THE "CORE" ADVISORS...... 74
PERFORMANCE OF THE PUBLIC
SINGLE-ADVISOR FUTURES FUNDS
OPERATED BY MLIP..................... 103
THE ROLE OF MANAGED FUTURES
IN AN INVESTMENT PORTFOLIO........... 106
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)
____________________
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
objectives 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 on a continuous
basis as of the first day of each calendar month. A total of an
additional $81,899,694 was invested in the Units through July 1, 1996, and
Units with an aggregate Net Asset Value of $44,577,764 had been redeemed.
As of July 1, 1996, the aggregate Net Asset Value of the Fund was
$87,370,476, and the Net Asset Value per Unit, originally $100 as of
January 4, 1994, was $127.71. As of July 1, 1996, the Fund had 3,135
Limited Partners.
Through July 1, 1996, the net gain in the Net Asset Value per
Unit was 27.71%. The highest month-end Net Asset Value per Unit was
$128.54 and the lowest $97.36. See "Performance of the Fund" at page 13
and "Selected Financial Data" at page 18.
-----------------------------------------------
MONTHLY RATES OF RETURNS
-----------------------------------------------
MONTH 1996 1995 1994
-----------------------------------------------
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 N/A (3.15)% (2.23)%
-----------------------------------------------
August N/A (0.29)% (1.96)%
-----------------------------------------------
September N/A (1.21)% 1.52%
-----------------------------------------------
October N/A (0.11)% 2.06%
-----------------------------------------------
November N/A 1.89% (0.37)%
-----------------------------------------------
December N/A 6.12% 0.18%
-----------------------------------------------
Compound Annual 2.70% 19.48% 4.08%
Rate of Return (6 mos.) (6 mos.)
-----------------------------------------------
-4-
<PAGE>
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 22 AND "RISK
FACTOR (1) -- INVESTORS MAY LOSE ALL OR SUBSTANTIALLY ALL OF THEIR
INVESTMENT" AT PAGE 8.
. 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 FACTOR (2) -- PAST
PERFORMANCE" AT PAGE 8.
. THE FUND TRADES WITH A HIGH DEGREE OF LEVERAGE IN VOLATILE MARKETS.
SEE "RISK FACTOR (3) -- VOLATILE MARKETS; HIGHLY LEVERAGED TRADING" AT
PAGE 8.
. 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 6, "CHARGES" AT PAGE 31 AND "RISK
FACTOR (4) -- SUBSTANTIAL CHARGES" AT PAGE 8.
. CERTAIN GENERAL TYPES OF MARKET CONDITIONS -- IN PARTICULAR,
TRENDLESS PERIODS WITHOUT MAJOR PRICE MOVEMENTS -- SIGNIFICANTLY REDUCE
THE ADVISORS' ABILITY TO TRADE SUCCESSFULLY. SEE "RISK FACTOR (5) --
IMPORTANCE OF GENERAL MARKET CONDITIONS" AT PAGE 8.
NO SUBSCRIBER SHOULD INVEST MORE THAN 10% OF HIS OR
HER READILY MARKETABLE ASSETS IN THE FUND.
SEE "RISK FACTORS" AT PAGES 8 THROUGH 11.
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 3 or 4 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 106.
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
August 1, 1996, MLIP was serving as sponsor or trading manager for futures
funds with total capital of approximately $1.6 billion.
-5-
<PAGE>
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 July 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 $2.3 billion in managed futures accounts in which
their clients (and in certain cases the Advisors themselves) had invested,
and approximately $1.8 billion in the trading programs used for the Fund.
See "Performance of the 'Core' Advisors" at page 74 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.
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 7.50% $ 375.00
- -------------------------------------------------------------------------------------------
F/X Desk Service and Related Fees/(1)/ 0.25% $ 12.50
- -------------------------------------------------------------------------------------------
Profit Shares/(2)/ 2.00% $ 100.00
- -------------------------------------------------------------------------------------------
Incentive Override/(3)/ 0.31% $ 15.50
- -------------------------------------------------------------------------------------------
Redemption Charge/(4)/ 3.10% $ 155.00
- -------------------------------------------------------------------------------------------
Interest Income/(5)/ (5.00)% $(250.00)
- -------------------------------------------------------------------------------------------
RETURN ON $5,000 INITIAL
INVESTMENT REQUIRED FOR 8.16% $ 408.00
"BREAKEVEN"
- -------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
SUMMARY (CONT'D)
NOTES TO "BREAKEVEN TABLE"
(1) 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
31.
(2) 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 2.00% of average month-end capitalization is a
reasonable estimate of "breakeven" Profit Share expense, but actual
Profit Shares could differ.
(3) 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 34. However, for purposes of the "Breakeven Table,"
the Incentive Override has been estimated at 10% of such 3.1% gain.
(4) 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 5% redemption charge.
(5) 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 OBJECTIVES OR
AVOID SUBSTANTIAL LOSSES.
NO SUBSCRIBER MAY 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.
-7-
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE FUND IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK.
NO ONE 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
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.
-8-
<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 serve 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.
-9-
<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 44.
(18) USE OF GRAPHS
"The Role of Managed Futures in an Investment Portfolio" at page
106 uses graphs to compare (i) the performance of the Fund and (ii) the
performance of an index of MLIP-managed futures funds to the broad-based
stock and bond market indices as well as the 91-day Treasury bill return.
Such graphs must be reviewed only in conjunction with the accompanying
textual disclosures and qualifications, which are an integral part of such
graphs. The comparison of managed futures performance to passive indices
of securities returns has certain inherent and material limitations.
(19) 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.
(20) "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.
(21) 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.
-10-
<PAGE>
(22) 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 48.
(23) 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.
(24) 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 8.
____________________
(1) MLIP
MLIP is a major sponsor of futures funds. MLIP's experience and
familiarity with the industry assists 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 terms of achieving significantly high cumulative rates of return
through a variety of different market cycles, while maintaining what MLIP
regards as an acceptable level of performance volatility), and are full-
time professionals, specializing in the trading strategies they implement
for the Fund. The diversification of the Fund's Advisor group has the
potential to increase profit opportunities as well as risk control.
(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 "Performance of
the 'Core' Advisors -- Futures Trading Methods in General" at pages 74-75.
-11-
<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.
(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 will be 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 ($5,000,
if less), and the minimum additional investment for existing Limited
Partners only 20 Units ($2,000, if less). Investments in excess of these
minimums are permitted in any whole Unit multiples.
(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.)
(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 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.
-12-
<PAGE>
PERFORMANCE OF THE FUND
ML GLOBAL HORIZONS L.P.
JULY 1, 1996
Type of Pool: Selected-Advisor/Publicly-Offered/Non-"Principal Protected"
Inception of Trading: January 4, 1994
Aggregate Subscriptions: $117,734,694
Current Capitalization: $87,370,476
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 (July 1, 1996): $127.71
<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 N/A (3.15)% (2.23)%
--------------------------------------------
August N/A (0.29)% (1.96)%
--------------------------------------------
September N/A (1.21)% 1.52%
--------------------------------------------
October N/A (0.11)% 2.06%
--------------------------------------------
November N/A 1.89% (0.37)%
--------------------------------------------
December N/A 6.12% 0.18%
--------------------------------------------
Compound Annual 2.70% 19.48% 4.08%
Rate of Return (6 mos.)
--------------------------------------------
DURING JULY 1996 THE FUND'S MONTHLY RATE OF RETURN WAS
APPROXIMATELY (3.12)% FOR A COMPOUND ANNUAL RATE OF RETURN FOR 1996 (SEVEN
MONTHS) OF APPROXIMATELY (0.50)%.
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 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.
SEE ALSO "PERFORMANCE OF THE 'CORE' ADVISORS -- NOTES TO THE PERFORMANCE
SUMMARIES,"
NOTES 10 AND 11 ON PAGE 76.
-13-
<PAGE>
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 103. 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(SM) (see page 17) 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.
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>
</TABLE>
<TABLE>
<CAPTION>
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
WITHOUT "PRINCIPAL PROTECTION" FEATURES
JULY 1, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
1996
WORST WORST COMPOUND
MONTHLY PEAK-TO-VALLEY RATE OF
INCEPTION DRAWDOWN DRAWDOWN CUMULATIVE RETURN
TYPE OF OF AGGREGATE CURRENT % % RATE OF (6
NAME OF FUND OFFERING TRADING SUBSCRIPTIONS CAPITALIZATION MONTH PERIOD RETURN MONTHS)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ML Global Horizons Ltd.
(Series A) (offshore Private Jan. 1994 $ 87,173,843 $49,526,196 (6.29)% (6.29)% (2/96)28.53% 3.04%
counterpart of the Fund) (2/96)
- -----------------------------------------------------------------------------------------------------------------------------------
ML Global Horizons Ltd.
(Series B) Private Sept. 1994 $ 3,708,415 $ 2,380,400 (5.66)% (5.73)% 30.23% 2.26%
(2/96) (6/95-9/95)
- -----------------------------------------------------------------------------------------------------------------------------------
ML Futures Investments II
L.P. Public May 1988 $269,809,880 $14,669,077 (10.34)% (17.81)% 25.57% (1.48)%
(1/91) (11/90-8/91)
- -----------------------------------------------------------------------------------------------------------------------------------
Canadian Diversified
Futures Fund Limited Public July 1989 $ 13,060,222 ceased trading (6.42)% (18.38)% (15.21)% N/A
Partnership 12/31/93 (4/91) 12/90-8/91)
- -----------------------------------------------------------------------------------------------------------------------------------
The John W. Henry &
Co./Millburn L.P. Public Jan. 1990 $ 18,182,000 $12,258,393 (15.99)% (34.39)% 56.98% (1.47)%
Series A Units (1/92) (1/92-5/92)
- -----------------------------------------------------------------------------------------------------------------------------------
The John W. Henry &
Co./Millburn L.P. Public Jan. 1991 $ 50,636,000 $26,272,483 (15.01)% (32.38)% 68.66% (1.38)%
Series B Units (1/92) (1/92-5/92)
- -----------------------------------------------------------------------------------------------------------------------------------
The John W. Henry &
Co./Millburn L. P. Public Jan. 1992 $ 40,000,000 $14,287,153 (9.54)% (24.13)% 31.79% (1.52)%
Series C Units (2/96) (1/92-5/92)
- -----------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy
Fund(SM) IV L.P. Public July 1992 $ 13,353,600 $ 1,030,016 (7.04)% (11.10)% 17.93% (5.57)%
Series B Units (2/96) (6/95-10/95)
- -----------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy
Fund(SM) International IV Private July 1992 $ 9,131,000 $ 515,780 (7.32)% (10.79)% 22.80% (1.79)%
Ltd. Series B Shares (2/96) (1/94-1/95)
- -----------------------------------------------------------------------------------------------------------------------------------
ML Futures Investments L.P. Public Mar. 1989 $ 86,500,700 $24,807,137 (5.09)% (8.33)% 36.13% (5.00)%
(2/91) (6/95-10/95)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
RATE OF RATE OF RATE OF RATE OF RATE OF
NAME OF FUND RETURN RETURN RETURN RETURN RETURN
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ML Global Horizons Ltd.
(Series A) (offshore 19.77% 4.15% N/A N/A N/A
counterpart of the Fund)
- -----------------------------------------------------------------------------------
ML Global Horizons Ltd.
(Series B) 22.62% 3.86% N/A N/A N/A
(4 mos.)
- -----------------------------------------------------------------------------------
ML Futures Investments II
L.P. 17.07% (1.36)% 18.67% (3.17)% (3.95)
- -----------------------------------------------------------------------------------
Canadian Diversified
Futures Fund Limited N/A N/A N/A N/A (15.21)%
Partnership
- -----------------------------------------------------------------------------------
The John W. Henry &
Co./Millburn L.P. 34.89% (8.64)% 20.64% (16.65)% 28.57%
Series A Units
- -----------------------------------------------------------------------------------
The John W. Henry &
Co./Millburn L.P. 34.49% (8.43)% 19.74% (13.88)% 34.67%
Series B Units
- -----------------------------------------------------------------------------------
The John W. Henry &
Co./Millburn L. P. 35.08% (7.88)% 14.78% (6.30)% N/A
Series C Units
- -----------------------------------------------------------------------------------
The SECTOR Strategy
Fund IV L.P. 12.01% (7.44)% 19.56% 0.76% N/A
Series B Units (6 mos.)
- -----------------------------------------------------------------------------------
The SECTOR Strategy
Fund(SM) International IV 14.51% (9.37)% 19.56% 0.76% N/A
Ltd. Series B Shares (6 mos.)
- -----------------------------------------------------------------------------------
ML Futures Investments L.P. 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.
6
-15-
<PAGE>
<TABLE>
<CAPTION>
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
WITHOUT "PRINCIPAL PROTECTION" FEATURES
JULY 1, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE
RATE OF
RETURN
WORST JAN. 1991 -
WORST MONTHLY PEAK-TO-VALLEY JUNE 30,
TYPE OF INCEPTION AGGREGATE CURRENT DRAWDOWN DRAWDOWN 1996 (OR
NAME OF FUND OFFERING OF TRADING SUBSCRIPTION CAPITALIZATION % MONTH % PERIOD DISSOLUTION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
dissolved as
ML Futures Investments Ltd. Private Mar. 1989 $ 68,202,237 of 8/31/94 (6.17)% (11.10)% 13.39%
(2/94) (1/94-2/94)
- -----------------------------------------------------------------------------------------------------------------------------------
dissolved as
Currency Investment Private April $ 55,114,566 of 8/31/94 (5.13)% (16.10)% (14.25)%
Partners Ltd. 1991 (8/91) (7/91-5/94)
- -----------------------------------------------------------------------------------------------------------------------------------
dissolved as
The Managed Futures Trust Private May 1991 $ 11,090,759 of 9/24/93 (6.22)% (14.50)% 36.19%
Fund L.P. (7/91) (1/92-5/92)
- -----------------------------------------------------------------------------------------------------------------------------------
dissolved as
Commodity Trading Company, Private July 1991 $ 25,797,626 of 10/31/94 (6.47)% (23.31)% (14.46)%
Ltd. (2/94) (1/92-12/92)
- -----------------------------------------------------------------------------------------------------------------------------------
Permal F/X, Financials & Private July 1992 $106,495,710 MLIP ceased (5.67)% (12.24)% 21.22%
Futures Ltd. functioning (2/94) (2/94-4/94)
as trading
manager
as of 3/31/96
- -----------------------------------------------------------------------------------------------------------------------------------
dissolved as
ML Institutional Partners Public Feb. 1992 57,312,700 of 12/31/94 (3.58)% (8.78)% (0.35)%
L.P. (1/94) (10/93-4/94)
- -----------------------------------------------------------------------------------------------------------------------------------
dissolved as
Futures Opportunities Private Dec. 1988 $ 45,310,202 of 7/31/92 (8.94)% (17.34)% (1.86)%
- -----------------------------------------------------------------------------------------------------------------------------------
dissolved as
Daiwa Hudson River Fund Private Feb. 1994 $ 7,044,701 of 2/29/96 (4/72)% (17.21)% 0.65%
(3/94) (2/94-1/95)
- -----------------------------------------------------------------------------------------------------------------------------------
The JLI Trading Co. Fund Private Mar. 1995 $ 14,300,136 $15,131,079 (6.93)% (6.93)% 5.79%
(2/96) (2/96)
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1996
COMPOUND 1995 1994 1993 1992 1991
RATE OF COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
RETURN RATE OF RATE OF RATE OF RATE OF RATE OF
NAME OF FUND 6 MONTHS) RETURN RETURN RETURN RETURN RETURN
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ML Futures Investments Ltd. N/A N/A 3.78% 15.26% 3.12% (0.85)%
(8 mos.)
- ----------------------------------------------------------------------------------------------------
Currency Investment N/A N/A (4.05)% (2.06)% 1.57% (7.52)%
Partners Ltd. (8 mos.) (9 mos)
- ----------------------------------------------------------------------------------------------------
The Managed Futures Trust N/A N/A N/A 20.58% 2.63% 10.06%
Fund L.P. (8 mos)
- ----------------------------------------------------------------------------------------------------
Commodity Trading Company, N/A N/A 6.21% 14.91% 23.31% 3.50%
Ltd. (10 mos) (6 mos)
- ----------------------------------------------------------------------------------------------------
Permal F/X, Financials & 6.63% 14.78% (5.33%) 11.05% 5.79% N/A
Futures Ltd. (3 mos) (6 mos)
- ----------------------------------------------------------------------------------------------------
ML Institutional Partners N/A N/A 4.06% 7.75% (3.51)% N/A
L.P. (11 mos)
- ----------------------------------------------------------------------------------------------------
Futures Opportunities N/A N/A N/A N/A (13.56)% 13.54%
Limited (7 mos)
- ----------------------------------------------------------------------------------------------------
Daiwa Hudson River Fund 0.26% 19.82% (16.22)% N/A N/A N/A
(2 mos.) (11 mos)
- ----------------------------------------------------------------------------------------------------
The JLI Trading Co. Fund 3.28% 2.43% N/A N/A N/A N/A
(10 mos.)
- ----------------------------------------------------------------------------------------------------
</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.
-16-
<PAGE>
<TABLE>
<CAPTION>
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
WITH "PRINCIPAL PROTECTION" FEATURES
JULY 1, 1996
- ---------------------------------------------------------------------------------------------------------------------
WORST WORST
INCEPTION 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>
The S.E.C.T.O.R. Strategy Public July 1990 $125,853,001 $ 31,003,630 (6.09)% (13.78)%
Fund L.P. (2/96) (1/92-5/92)
- ---------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund Public Dec. 1990 $136,410,000 $ 15,352,414 (4.73)% (15.93)%
II L.P. (2/96) (8/93-1/95)
- ---------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund Public July 1991 $194,005,000 $ 28,365,600 (8.64)% (14.25)%
II L.P. (SECTOR III Units) (2/96) (1/92-5/92)
- ---------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund Public July 1992 $ 75,646,400 $ 4,376,421 (6.41)% (8.98)%
IV L.P. (Series A Units) (2/96) (6/95-10/95)
- ---------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund Public Jan. 1993 $137,500,000 $ 14,756,091 (7.51)% (10.14)%
V L.P. (2/96) (2/96-6/96)
- ---------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund Public Sept. $108,693,900 $ 35,708,601 (3.91)% (7.29)%
VI L.P. 1993 (2/96) (9/93-4/94)
- ---------------------------------------------------------------------------------------------------------------------
ML Principal Protection Public Oct. 1994 $ 93,726,380 $ 83,708,660 (3.70)% (3.70)%
L.P. (2/96) (2/96)
(formerly, ML Principal
Protection Plus L.P.)
- ---------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund Private Dec. 1990 $ 55,181,600 dissolved as of (4.56)% (16.49)%
International II Ltd. 12/31/95 (8/94) (8/93-1/95)
- ---------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund Private July 1991 $ 85,701,800 $ 8,476,250 (7.10)% (14.25)%
International II Ltd. (1/92) (1/92-5/92)
(SECTOR III Shares)
- ---------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund Private July 1992 $ 55,189,400 $ 6,545,231 (6.22)% (8.32)%
International IV Ltd. (2/96) (1/94-1/95)
(Series A Shares)
- ---------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund Private Jan. 1993 $ 81,252,600 $ 6,194,127 (3.41)% (8.00)%
International V Ltd. (7/95) (6/95-10/95)
- ---------------------------------------------------------------------------------------------------------------------
ML Japan Investment Private Aug. 1993 (Yen)1,050,000,000 dissolved as of (3.52)% (7.32)%
Partners Ltd. 06/30/96 (7/94) (1/94-2/95)
- ---------------------------------------------------------------------------------------------------------------------
SECTOR(SM) International Ltd. Private Sept. $163,806,100 $ 15,897,200 (4.60)% (10.43)%
1993 (2/94) (9/93-2/94)
- ---------------------------------------------------------------------------------------------------------------------
ML Principal Protection Private Oct. 1994 $388,508,666 $321,934,613 (3.72)% (3.72)%
Plus Ltd. (offshore (2/96) (2/96)
counterpart of the ML
Principal Protection L.P.)
- ---------------------------------------------------------------------------------------------------------------------
Yen Linked ML PPP Ltd. Private Oct. 1995 (Yen)8,723,000,000 (Yen)8,765,721,567 (1.67)% (1.67)%
(2/96) (2/96)
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1996
COMPOUND 1995 1994 1993 1992 1991
CUMULATIVE RATE OF COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
RATE RETURN RATE OF RATE OF RATE OF RATE OF RATE OF
NAME OF FUND OF RETURN (6 MONTHS) RETURN RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The S.E.C.T.O.R. Strategy 56.23% 1.72% 19.25% (9.29)% 19.36% (3.43)% 23.18%
Fund L.P.
- --------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund 22.86% (2.77)% 13.50% (9.93)% 5.49% (2.76)% 20.50%
II L.P.
- --------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund 23.53% (3.69)% 9.30% (3.22)% 15.99% (8.30)% 13.99%
II L.P. (SECTOR III Units) (6 mos.)
- --------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund 11.57% (5.42)% 9.78% (5.73)% 13.40% 0.51% N/A
IV L.P. (Series A Units) (6 mos.)
- --------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund 3.83% (10.11)% 14.22% (3.68)% 4.99% N/A N/A
V L.P. (6 mos.)
- --------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund 4.48% 0.42% 6.72% (0.80)% (1.72)% N/A N/A
VI L.P. (4 mos.)
- --------------------------------------------------------------------------------------------------------
ML Principal Protection (2/96 4.91% 2.13% 10.55% 1.76% N/A N/A N/A
L.P. (composite) (2 1/2
(formerly, ML Principal mos)
Protection Plus L.P.)
- --------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund 34.45% N/A 21.27% (9.64)% 5.49% (2.76)% 20.50%
International II Ltd.
- --------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund 24.33% (1.06)% 2.84% 0.77% 15.99% (8.30)% 13.99%
International II Ltd. (6 mos.)
(SECTOR III Shares)
- --------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund 16.41% (1.58)% 11.84% (7.21)% 13.40% 0.51% N/A
International IV Ltd. (6 mos.)
(Series A Shares)
- --------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund 6.08% (5.34)% 11.11% (3.94)% 4.99% N/A N/A
International V Ltd.
- --------------------------------------------------------------------------------------------------------
ML Japan Investment (2.80)% (1.65)% 3.95% (5.95)% 1.13% N/A N/A
Partners Ltd. (5 mos.)
- --------------------------------------------------------------------------------------------------------
SECTOR International Ltd. 1.53% 1.53% 7.65% (3.99)% (3.25)% N/A N/A
(3-2/3
mos.)
- --------------------------------------------------------------------------------------------------------
ML Principal Protection (2/96) 5.46% 2.41% 11.10% 1.48% N/A N/A N/A
Plus Ltd. (offshore (composite) (2 1/2
counterpart of the ML mos.)
Principal Protection L.P.)
- --------------------------------------------------------------------------------------------------------
Yen Linked ML PPP Ltd. (2/96)0.75% 0.59% 0.16% N/A N/A N/A N/A
(3 mos.)
- --------------------------------------------------------------------------------------------------------
</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.
-17-
<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 June 30, 1996 (unaudited) and January 1, 1995 to June
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
56), 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
JUNE 30, 1996 JUNE 30, 1995 TO TO
(UNAUDITED) (UNAUDITED) DECEMBER 31,1995 DECEMBER 31, 1994
--------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Realized Gain $ 5,631,792 $16,898,661 $17,455,764 $ 453,726
Change in Unrealized (1,782,387) (3,301,695) 299,233 5,331,556
----------- ----------- ----------- -----------
Total Trading Results 3,849,405 13,596,966 17,754,997 5,785,282
Interest Income 2,039,705 1,784,632 3,786,925 1,972,722
----------- ----------- ----------- -----------
Total Revenues 5,889,110 15,381,598 21,541,922 7,758,004
----------- ----------- ----------- -----------
Expenses:
Profit Shares 314,633 1,492,857 1,492,857 1,103,649
Incentive Override 31,454 920,309 965,454 41,867
Brokerage Commissions 3,374,978 2,689,807 5,723,755 3,859,267
----------- ----------- ----------- -----------
Total Expenses 3,721,065 5,102,973 8,182,066 5,004,783
----------- ----------- ----------- -----------
Net Income $ 2,168,045 $10,278,625 $13,359,856 $ 2,753,221
=========== =========== =========== ===========
JUNE 30, 1996 JUNE 30, 1995
BALANCE SHEET DATA* (UNAUDITED) (UNAUDITED) DECEMBER 31, 1995 DECEMBER 31, 1994
- ------------------------------- --------------------- ------------- ----------------- -----------------
Aggregate Net Asset Value $85,666,315 $81,194,327 $92,761,068 $67,055,115
Net Asset Value per Unit $127.71 $120.69 $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 N/A N/A N/A 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.
-18-
<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 July 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 22. 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.
Effective October 1, 1996, 0.25% of the 7.50% annual brokerage
commissions will be recharacterized as an Administrative Fee, at no
additional cost to 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.
-19-
<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 22. 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.
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 organizational 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 organizational 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 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
-20-
<PAGE>
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 (6 months)
STATISTICS. From January 1, 1996 through June 30, 1996, the
Fund's average month-end Net Assets equalled $90,721,650. The Fund
recognized gross trading gains of $3,849,405, and incurred brokerage
commissions of $3,374,978, Profit Shares of $314,633 and Incentive
Overrides of $31,454 (or 4.24%, 3.72%, 0.35% and 0.03%, respectively, of
average month-end Net Assets). Interest income of $2,039,705 or 2.25% of
average month-end Net Assets resulted in a net gain of $2,168,045 and a
2.70% increase in the Net Asset Value per Unit.
OVERVIEW. The first six 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 May and
June, 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 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.
-21-
<PAGE>
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 Unit.
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.
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
-22-
<PAGE>
technical, Advisors may be retained. See "Performance of the 'Core'
Advisors -- Futures Trading Methods in General" at pages 74-75. 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.
ACCESS TO GLOBAL MARKETS
The Fund has access to global markets including, but not limited
to, the following:
CURRENCIES
----------------------------------------------------
Australian Dollar Irish Punt
Belgian Franc Italian Lira
British Pound Japanese Yen
Canadian Dollar New Zealand Dollar
Danish Krone Norwegian Krone
Deutsche Mark 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.)
-23-
<PAGE>
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
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.
CONSOLIDATION OF TRADING ACCOUNTS
MLIP is in the process of consolidating the trading accounts of
a significant number of its funds, so that instead of each such fund
having to maintain an individual futures trading account with each of its
advisors, all such funds will place their assets under the management of
the same advisor by investing in a single private entity sponsored by
MLIP. Investing in such entitites rather than through individual accounts
should have no adverse, or even noticeable, effect on any fund. On the
other hand, this consolidation of trading accounts is expected to produce
significant administrative and transactional savings for MLF while
ensuring that even the smaller MLIP funds continue to have access to the
full advisor combinations selected for them by MLIP. In the near future,
MLIP anticipates that a substantial portion of its asset allocations will
be effected by investing, redeeming and reinvesting the funds' assets in
the securities issued by these private entities sponsored by MLIP.
-24-
<PAGE>
THE ADVISORS
ADVISOR SUMMARIES
As of July 1, 1996, the three "core" Advisors which were, in the
aggregate, managing 91% of the Fund's assets were responsible for
approximately $2.3 billion of customer assets in the futures, cash and
forward markets, of which in excess of $1.8 billion was being traded in
the programs used for the Fund.
THE CURRENT "CORE"* ADVISORS ARE AS FOLLOWS:
<TABLE>
<CAPTION>
APPROXIMATE ASSETS
JULY 1, 1996 UNDER MANAGEMENT**
ADVISOR ALLOCATION JULY 1, 1996
------- ---------- ------------
<S> <C> <C>
ARA Portfolio 15% $160.3 million (total)
Management $121.5 million (Gamma Program)
Company, L.L.C.
Chesapeake Capital 38% $809 million (total)
Corporation $757 million (Diversified Trading Program)
John W. Henry 38% $1.3 billion (total)
& Company, Inc. $881 million (Financial and Metals Portfolio)
</TABLE>
_______________
* A "core" Advisor is a term used by MLIP to refer to Advisors managing
10% or more of the Fund's assets.
** 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
JULY 1, 1996) -- ARA Portfolio Management Company, L.L.C. ("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 July 1, 1996, ARA was managing approximately $121.5
million ("notional" funds excluded) of customer funds in the Gamma Program
and approximately $160.3 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 (5.2)% (6 months),
respectively. During such period, the largest monthly drawdown was
(13.3)% (2/96) and the largest peak-to-valley drawdown (31.26)% (1/96-
2/96). ("Largest" drawdown is the equivalent for Advisors of "worst"
drawdown in the case of the Fund; see "Performance of the Fund" at page
13.
See pages 79 through 81 for performance information relating to ARA.
-25-
<PAGE>
CHESAPEAKE CAPITAL CORPORATION (38% ALLOCATION AS OF JULY 1,
1996) -- Chesapeake Capital Corporation ("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 Trading 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
July 1, 1996, Chesapeake was managing approximately $757 million of
customer funds in the Diversified Trading Program and approximately $809
million of customer funds in all of its programs.
Chesapeake has traded the Diversified Trading Program since
February 1988. The compound annual rates of return achieved by the
Diversified Trading Program since January 1, 1991 have been 12.51%,
1.81%, 61.82%, 15.87%, 14.09% and 7.33% (6 months), 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 84 through 87 for performance information relating to
Chesapeake.
JOHN W. HENRY & COMPANY, INC. (38% ALLOCATION AS OF JULY 1,
1996) - John W. Henry & Company, Inc. ("JWH") operates thirteen trading
programs for U.S. and non-U.S. investors. These programs, other than the
InterRate^ program, emphasize long-term, technical, trend-following
systems. The Financial and Metals Portfolio which is used for the Fund
uses a technical, trend-following system which participates in four major
market sectors - global interest rates, foreign exchange, global stock
indices and precious metals - and initiates trades according to trend-
emergence and computerized determination of relative risk. As of July 1,
1996, JWH was trading approximately $881 million of customer funds in the
Financial and Metals Portfolio and approximately $1.3 billion 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 3.56% (6 months), respectively. During such
period the largest monthly drawdown was (18.0)% (1/92) and the largest
peak-to-valley drawdown (39.5)% (12/91-5/92).
See pages 94 through 102 for performance information relating to JWH.
MORE COMPLETE DESCRIPTIONS AND THE PERFORMANCE SUMMARIES FOR THE "CORE"
ADVISORS ARE INCLUDED UNDER "PERFORMANCE OF THE 'CORE' ADVISORS." SEE "RISK
FACTORS -- (2) PAST PERFORMANCE" AT PAGE 8.
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).
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.
-26-
<PAGE>
In general, MLIP requires Advisors to invest at least $10,000 in
the Fund, as a token of their commitment to it.
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 August 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., Merrill Lynch Investments
II L.P. (formerly, The Futures Dimension Fund II L.P.), Merrill Lynch
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(SM) L.P., The
SECTOR Strategy Fund(SM) II L.P., The SECTOR Strategy Fund(SM) IV L.P.,
The SECTOR Strategy Fund(SM) V L.P., The SECTOR Strategy Fund(SM) 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
Allen N. Jones Chairman and Director
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<PAGE>
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 July 1, 1996, the principals of MLIP had a $99,230 total
investment in the Fund, and MLIP's interest in the Fund was valued at
$1,087,692. 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.
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<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 44.
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
F/X Desk. See "Charges" at page 31. 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.
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,
-29-
<PAGE>
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
SUBSCRIPTION PROCEEDS
MLIP pays from its own funds all selling commissions incurred on
the sale of the Units. 100% of the proceeds of such sales are available
to the Fund.
The Fund uses the proceeds of the Units to support, both as
margin and reserve funds, the speculative trading of the Advisors.
The Fund's margin commitments to date have averaged
approximately 30% of its Net Assets.
CUSTODY OF FUNDS; INTEREST INCOME
All of the Fund's assets are deposited with MLF.
<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>
_________________
The assets of the Fund held to margin futures contracts traded
on United States exchanges are deposited, together with the assets of
numerous other MLF customers, in CFTC-regulated "customer segregated funds
accounts" at MLF. MLF credits the Fund with interest on any of the assets
so deposited (i.e., the cash on deposit adjusted to include open-trade
equity -- both negative and positive -- and funds in collection or
settlement) at prevailing 91-day Treasury bill rates less 0.50% per annum.
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<PAGE>
The assets of the Fund used for trading on foreign futures
exchanges are deposited, together with the assets of numerous other MLF
customers, in the "foreign futures and foreign options secured amount
account" at MLF. All such assets are held in U.S. dollars, and earn
interest on the same basis as Fund assets held in customer segregated
funds accounts.
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 are 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.
CHARGES
The following table summarizes the charges incurred by the Fund
during 1994, 1995 and 1996 (6 months).
<TABLE>
<CAPTION>
1/1/96-6/30/96 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>
Brokerage Commissions $3,374,978 7.44% $5,723,755 7.72% $3,859,267 7.27%
Incentive Override 31,454 0.07 965,454 1.30 41,867 0.08
Profit Shares 314,633 0.69 1,492,857 2.01 1,103,649 2.08
---------- ---- ---------- ----
Total $3,721,065 8.20 $8,182,066 11.03% $5,004,783 9.43%
========== ==== ========== ===== ========== ====
</TABLE>
The Fund's average month-end Net Assets during 1994, 1995 and
1996 (6 months) equalled $53,119,205, $74,120,244 and $90,721,650,
respectively.
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<PAGE>
The foregoing table does not reflect the "bid-ask" spreads paid
by the Fund on its forward trading.
During 1994, 1995 and 1996 (6 months), the Fund earned
$1,972,722, $3,786,925 and $2,039,705, respectively, in interest income,
or approximately 3.71%, 5.11% and 2.25%, respectively, of the Fund's
average month-end Net Assets.
See also the "Breakeven Table" included in the "Summary" at page
6.
______________________________
CHARGES PAID BY THE FUND
<TABLE>
<CAPTION>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
- --------- ----------------- -----------------
<S> <C> <C>
Merrill Lynch Brokerage commissions A flat-rate monthly commission of 0.625 of 1% of
Futures the month-end assets committed to trading (a
7.50% annual rate).
As of October 1, 1996 the brokerage commission
payable by the Fund will be reduced to 7.25%
annually, and the Fund will pay 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 MLIB with which the
Counterparties 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.
</TABLE>
-32-
<PAGE>
<TABLE>
<S> <C> <C>
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 perfor-mance
the Fund.
MLF; Extraordinary charges Actual costs; none incurred to date, and expected to
Others be negligible.
</TABLE>
_____________________
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
0.625 of 1% (a 7.50% 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 unpaid Profit Shares, Incentive
Overrides or the brokerage commissions being calculated. The Fund could
obtain lower rates for similar brokerage services at other firms.
During 1994, 1995 and 1996 (6 months), the Fund paid brokerage
commissions of $3,859,267, $5,723,755 and $3,374,978, respectively; these
flat-rate brokerage commissions were the approximate equivalent of per-
trade commissions of $13, $88 and $67, 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 7.5% annual "wrap fee" (which as of October 1, 1996 will include 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 Fee (to
take effect October 1, 1996) 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"
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<PAGE>
AND "ADMINISTRATIVE FEES" (TO TAKE EFFECT OCTOBER 1, 1996) 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 will begin charging flat-rate
monthly Administrative Fees of 0.020833 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 will be 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
will not increase the costs paid by the Fund.
"BID-ASK" SPREADS
Many of the Fund's currency trades are executed in the forward
markets, in which participants 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
-34-
<PAGE>
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.
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.
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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
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 June 30, 1996, MLIP
received or had accrued to its benefit Incentive Overrides of $41,867,
$965,454 and $31,454, respectively, or approximately 0.08%, 1.30% and
0.03% 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 44.
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%.
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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, respec tively, 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 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
a 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 a 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
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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 two quarters of 1996, the Net
Asset Value per Unit increased approximately 4.08%, 19.48% and 2.70%,
respectively, and total Profit Shares of $1,103,649, $1,492,857 and
$314,633, or approximately 2.08%, 2.01% and 0.35% of the Fund's average
month-end Net Assets in each period, were paid. (The 1996 figure, when
annualized, equals the 0.69% 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.
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 53.
Through June 30, 1996, MLIP had paid a total of $5,493,890 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 June 30, 1996, MLIP paid a total of $840,606 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.
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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 (6 months), MLF paid consulting fees
of $1,376,882, $2,156,311 and $1,265,763, respectively, or approximately
2.59%, 2.91% and 2.79% 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.
Receipt of redemption charges does not reduce the Fund's
reimbursement obligations to MLIP for organizational and initial offering
costs.
During 1994, 1995 and 1996 (6 months), MLIP received a total of
$53,976, $132,030 and $24,533, respectively, in redemption charges.
CERTAIN LITIGATION
ML&Co. -- the sole stockholder of Merrill Lynch Group, Inc.
(which is the sole stockholder 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 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 ML&Co. may
have in the master repurchase agreements. This agreement may be
terminated by ML&Co. upon 30 days' written notice.
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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, the Superior Court for the State of
California, Orange County, 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 for the State of California, San Francisco County, by twelve
California public entities (the "Atascadero State Court Action"). Named
as defendants are ML&Co., certain subsidiaries of ML&Co. and an employee
of ML&Co. The complaint alleges, among other things, that the defendants
committed fraud and deceit, negligence and negligent misrepresentation,
breached fiduciary duties, aided and abetted breaches of fiduciary duty,
and violated California Penal Code Section 496 and the California Unfair
Business Practices Act, 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. 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 the Racketeer Influenced and Corrupt Organizations Act ("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. The complaint in this action
has not been served.
In the Atascadero Federal Court Action and the Atascadero State
Court Action, the two employees of ML&Co. who were added as defendants in
the amended complaints were dismissed as defendants without prejudice on
May 15, 1996, and July 5, 1996, respectively.
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 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 defendant in these actions. Damages in an unspecified amount are
sought on behalf of ML&Co. against the individuals named as defendants. On
August 7, 1996, the Wilson Actions were dismissed.
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 June 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,
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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. Incorporated, 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 Federal Court Action and 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
money market mutual funds managed by Kemper Financial Services, Inc.
(namely, the Cash Account Trust, Cash Equivalent Fund, Kemper Investors
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 has been stayed until June 30, 1996.
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 November 3, 1995, a purported derivative action on behalf of
ML&Co. was filed in the Supreme Court of the State of New York, New York
County, naming 12 present or past directors of ML&Co. as defendants.
Damages in an unspecified amount are sought on behalf of ML&Co. The
complaint alleges, among other things, claims for breach of fiduciary
duty, indemnification and corporate waste in connection with (i) certain
of ML&Co.'s municipal finance activities, including certain contractual
arrangements that led to a civil settlement of approximately $12 million
with the United States Attorney for the District of Massachusetts, the
Massachusetts Attorney General and the SEC and to the issuance by the SEC
of an order censuring MLPF&S and an order directing MLPF&S to cease and
desist from committing or causing any violation or future violation of
Rule G-17 of the Municipal Securities Rulemaking Board (as to which MLPF&S
consented without admitting or denying any of the findings or allegations
contained in the orders) and (ii) certain basket trading activities in
Japan that led to administrative sanctions by Japanese securities
regulators consisting of a 48-hour suspension of arbitrage trading by
ML&Co. for its own account in Japan. The Supreme Court of the State of
New York, New York County, dismissed this action on July 2, 1996.
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On December 16, 1994, a consolidated amended complaint was filed
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 June 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 State
Department of Justice filed a civil antitrust complaint against firms that
make markets in NASDAQ securities, including Merrill Lynch, Pierce, Fenner
& Smith Incorporated. 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
has been granted will be dismissed.
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
GSLIC's 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.
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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. 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, Messrs. Miller and Steiner commenced derivative
actions, now consolidated, purportedly brought on behalf of ML&Co., in New
York State Supreme Court, 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. The plaintiffs 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) 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
[FLOW CHART 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.
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.
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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 more 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 revenues is
the Incentive Override 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 38
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.
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.
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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 their Units.
PROPRIETARY TRADING
The Trading Advisors, MLIP, 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.
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
otherwise 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).
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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-6). 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).
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 performance reports to all
Limited Partners. All tax information relating to the Fund necessary for
the preparation of Limited Partners' federal income tax are 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).
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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 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.
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Because of the limitations imposed upon the deductibility of
capital losses (see "-- Tax on Capital Gains and Losses," at page 49
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
as 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).
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," at page 50 or 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 -- (22) Taxation of Interest Income" at page 10.
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
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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
deductions 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 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 49 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.
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"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.
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 the first day of the immediately following calendar
quarter. 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
-51-
<PAGE>
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."
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 responsibility 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 RETIREMENT
ACCOUNTS OR OTHER EMPLOYEE BENEFIT PLANS IS IN NO RESPECT A REPRESENTATION
BY ANY PARTY THAT AN INVESTMENT IN THE UNITS IS APPROPRIATE OR AUTHORIZED
FOR ANY PARTIC ULAR PLAN. EACH PLAN FIDUCIARY CONSIDERING ACQUIRING UNITS
MUST CONSULT WITH ITS OWN LEGAL AND TAX ADVISERS BEFORE DOING SO.
-52-
<PAGE>
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.
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.
-53-
<PAGE>
ADDITIONAL INFORMATION
This Prospectus constitutes part of the Registration Statement
filed by the Fund with the Securities and Exchange Commission 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 Securities and
Exchange Commission, 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 Commission in Washington, D.C., and
copies of all or part thereof may be obtained from the Commission 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.
-54-
<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.
PAGE(S)
-------
Adjusted NAV........................... 34
Advisors............................... Cover
"Bid-ask" spreads...................... 34
CFTC................................... i
"Concentrated" multi-advisor approach.. 106
Consulting fees........................ 39
Differential........................... 34
EFP.................................... 34
Employee benefit plan.................. 51
Forward contracts...................... 31
Fund................................... Cover
F/X Desk............................... 63
High Water Mark NAV.................... 35
Incentive Override..................... 34
Investment advisory fees............... 10
Limited Partner........................ LPA-1
Merrill Lynch Futures.................. Cover
MLF.................................... Cover
MLIP................................... Cover
MLPF&S................................. i
MLIB................................... 27
Net New Gain........................... 34
New Trading Profit..................... 36
NFA.................................... 27
Profit Share........................... 36
Redemption charges..................... 39
Round-turn commissions................. 33
SEC.................................... ii
Selling Agent.......................... i
Service fee............................ 34
Standard deviation..................... Prospectus Supplement
Unadjusted NAV......................... 35
Variation margin....................... 22
Worst monthly drawdown................. 104
Worst peak-to-valley drawdown 13
-55-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
ML GLOBAL HORIZONS L.P.
Independent Auditors' Report................ 57
Statements of Financial Condition........... 58
Statements of Income........................ 59
Statements of Changes in Partners' Capital.. 60
Notes to Financial Statements............... 61
MERRILL LYNCH INVESTMENT PARTNERS INC.
Independent Auditors' Report................... 69
Balance Sheets................................. 70
Notes to Balance Sheets........................ 71
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.
-56-
<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
-57-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1996 (UNAUDITED), DECEMBER 31, 1995
AND DECEMBER 31, 1994
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1996
(UNAUDITED) 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Accrued interest (Note 2) $ 335,727 $ 357,496 $ 280,548
Equity in commodity futures trading accounts:
Cash and option premiums 87,959,553 85,254,980 63,196,166
Net unrealized gain on open contracts 3,848,402 5,630,789 5,331,556
Other receivable -- -- 23,418
----------- ----------- -----------
TOTAL $92,143,682 $91,243,265 $68,831,688
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Redemptions payable $ 5,585,397 $ 674,724 $ 1,021,962
Brokerage commissions payable (Note 2) 568,210 551,853 315,671
Profit shares payable 292,306 -- 355,030
Incentive override payable (Note 2) 31,454 855,796 41,867
Organization and initial offering costs payable (Note 1) -- 20,399 243,899
----------- ----------- -----------
Total liabilities 6,477,367 2,102,772 1,978,429
----------- ----------- -----------
PARTNERS' CAPITAL:
General Partner (8,580; 8,530; and 6,456 Units) 1,087,692 1,052,896 669,580
Limited Partners (675,578; 737,413; and 638,063 Units) 86,282,785 91,708,172 66,183,679
Subscriptions receivable (13,344; 29,116; and 0 Units) (1,704,162) (3,620,575) --
----------- ----------- -----------
Total partners' capital 85,666,315 89,140,493 66,853,259
----------- ----------- -----------
TOTAL $92,143,682 $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.
-58-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
STATEMENTS OF INCOME
FOR THE PERIOD FROM JANUARY 1, 1996 TO
JUNE 30, 1996 (UNAUDITED), JANUARY 1, 1995 TO
JUNE 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
JUNE 30, 1996 JUNE 30, 1995
(UNAUDITED) (UUNAUDITED) 1995 1994
---------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Trading profit (loss):
Realized $ 5,631,792 $16,898,661 $17,455,764 $ 453,726
Change in Unrealized (1,782,387) (3,301,695) 299,233 5,331,556
----------- ----------- ----------- ----------
Total trading results 3,849,405 13,596,966 17,754,997 5,785,282
Interest income (Note 2) 2,039,705 1,784,632 3,786,925 1,972,722
----------- ----------- ----------- ----------
Total revenues 5,889,110 15,381,598 21,541,922 7,758,004
----------- ----------- ----------- ----------
EXPENSES:
Profit shares 314,633 1,492,857 1,492,857 1,103,649
Incentive override (Note 2) 31,454 920,309 965,454 41,867
Brokerage commissions (Note 2) 3,374,978 2,689,807 5,723,755 3,859,267
----------- ----------- ----------- ----------
Total expenses 3,721,065 5,102,973 8,182,066 5,004,783
----------- ----------- ----------- ----------
NET INCOME $ 2,168,045 $10,278,625 $13,359,856 $2,753,221
=========== =========== =========== ==========
NET INCOME PER UNIT:
Weighted average number of units 739,545 628,051 663,663 523,953
outstanding (Note 5) =========== =========== =========== ==========
Weighted average net income $2.93 $16.37 $20.13 $5.25
per unit =========== =========== =========== ==========
</TABLE>
See Notes to Financial Statements.
___________________
Past performance is not necessarily indicative of future results.
-59-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD FROM JANUARY 1, 1996 TO JUNE 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 118,593 11,132,762 6,296 3,620,575 14,759,633
Subscriptions receivable (13,344) -- -- (1,704,162) (1,704,162)
Redemptions (151,262) (18,697,694) -- -- (18,697,694)
Net Income -- 2,139,545 28,500 -- 2,168,045
-------- ------------ ---------- ------------- ------------
PARTNER'S CAPITAL
JUNE 30, 1996
(Unaudited) 670,814 $ 86,282,785 $1,087,692 $(1,704,162) $ 85,666,315
======== ============ ========== ============= ============
</TABLE>
__________________
Past performance is not necessarily indicative of future results.
-60-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1996 TO JUNE 30, 1996 (UNAUDITED),
JANUARY 1, 1995 TO JUNE 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's
interest of at least 1% of the total capital in the Partnership. MLIP and
each Limited Partner share in the profits and losses of the Partnership in
proportion to their respective interests in it.
MLIP selects independent advisors (the "Advisors" or the
"Trading Advisors") to manage the Partnership's assets, and allocates and
reallocates the Partnership's assets among existing, replacement and
additional Advisors.
ESTIMATES
---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements 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 COSTS 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.
-61-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1996 TO JUNE 30, 1996 (UNAUDITED),
JANUARY 1, 1995 TO JUNE 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 December 31, 1995.
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. 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 six months ended June 30, 1996 and the years ended
December 31, 1995 and 1994 was approximately $67, $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.
-62-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1996 TO JUNE 30, 1996 (UNAUDITED),
JANUARY 1, 1995 TO JUNE 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, totaled 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.
-63-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1996 TO JUNE 30, 1996 (UNAUDITED),
JANUARY 1, 1995 TO JUNE 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 June 30, 1996,
December 31, 1995 and 1994, the Net Asset Value per Unit was $127.71,
$124.35 and $103.73 for financial reporting purposes and $127.71, $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 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>
June 30, 1996 December 31, 1995
Total Trading Results Total Trading Results
---------------------- ----------------------
<S> <C> <C>
Interest Rates $ (524,818) $11,850,333
Stock Indices (385,457) 1,309,308
Commodities 357,334 (2,344,653)
Currencies 3,264,595 9,620,327
Energy 1,046,509 1,362,895
Metals 91,242 (4,043,213)
---------- -----------
$3,849,405 $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.
-64-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1996 TO JUNE 30, 1996 (UNAUDITED),
JANUARY 1, 1995 TO JUNE 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 June 30,
1996, December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
June 30, 1996
--------------------------------------------
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------- ----------------------
<S> <C> <C>
Interest rate $219,411,446 $163,577,429
Stock indices 26,240,684 9,332,184
Commodities 35,312,175 21,250,643
Currencies 86,918,893 134,413,111
Energy 18,994,858 0
Metals 4,913,163 66,611,733
------------ ------------
Totals $391,791,219 $395,185,100
============ ============
</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
------------ ------------ ------------------ ------------
</TABLE>
_________________
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 JUNE 30, 1996 (UNAUDITED),
JANUARY 1, 1995 TO JUNE 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
(CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
Total $482,563,271 $266,979,007 $220,890,868 $370,173,739
============ ============ ============ ============
</TABLE>
Substantially all of the Partnership's derivative instruments
outstanding as of December 31, 1995 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
June 30, 1996 and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
June 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 $344,846,188 $318,448,316 $451,632,138 $210,729,655
Non-Exchange-
Traded 46,945,031 76,736,784 30,931,133 56,249,352
------------ ------------ ------------ ------------
Total $391,791,219 $395,185,100 $482,563,271 $266,979,007
============ ============ ============ ============
</TABLE>
_________________
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 JUNE 30, 1996 (UNAUDITED),
JANUARY 1, 1995 TO JUNE 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 June 30, 1996 and December 31, 1995 was as follows:
<TABLE>
<CAPTION>
June 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 $192,753,905 $379,807,196 $392,684,358 $ 52,525,025
Stock indices 27,558,851 5,908,851 11,263,970 4,597,664
Commodities 41,064,835 14,506,783 23,210,531 11,584,575
Currencies 89,126,269 183,819,599 96,987,577 95,012,878
Energy 11,114,225 992,948 8,271,275 6,430,540
Metals 24,557,296 31,433,977 12,245,216 31,011,275
------------ ------------ ------------ ------------
Total $386,175,381 $616,469,354 $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.
As of June 30, 1996, December 31, 1995 and 1994, $69,753,718,
$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.
_________________
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 JUNE 30, 1996 (UNAUDITED),
JANUARY 1, 1995 TO JUNE 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 gross unrealized gain and the net unrealized gain (loss) on
the Partnership's open derivative instrument positions as of June 30, 1996
and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------------------- ------------------------------
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Gain Gains (Loss) Gain Gain (Loss)
----------- ------------ ----------- ------------------
<S> <C> <C> <C> <C>
Exchange-Traded $4,486,182 $2,913,234 $7,029,085 $5,952,033
Non-Exchange-
Traded 2,230,467 935,168 338,067 (321,244)
---------- ---------- ---------- ----------
$6,716,649 $3,848,402 $7,367,152 $5,630,789
========== ========== ========== ==========
</TABLE>
The Partnership controls credit risk by dealing almost
exclusively with Merrill Lynch entities as brokers and counterparties.
-68-
<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
-69-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
BALANCE SHEETS
DECEMBER 29, 1995 AND JUNE 28, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 28, 1996
(UNAUDITED) DECEMBER 29,1995
------------- ----------------
<S> <C> <C>
ASSETS
Cash $ 111,073 $ 17,738
Investments in affiliated partnerships 8,232,847 8,397,789
Other investments 556,762 579,127
Due from parent and affiliate 72,549,530 69,476,980
Receivables from affiliated partnerships 3,480,242 3,525,337
Deferred charges 16,703,592 11,759,885
Advances and other receivables 16,352,534 7,742,943
Fixed assets-net of accumulated depreciation of $1,073,865 and $1,016,602 135,373 119,823
Other assets 100,000 130,000
------------ ------------
TOTAL ASSETS $118,221,953 $101,749,622
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 1,906,937 $ 1,759,019
Due to affiliate 4,309,567 1,568,396
Current and deferred income taxes 9.681,414 7,162,014
------------ ------------
Total liabilities 15,897,918 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 85,408,035 74,344,193
------------ ------------
Total stockholder's equity 102,324,035 91,260,193
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $118,221,953 $101,749,622
============ ============
</TABLE>
See Notes to Balance Sheet.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-70-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
NOTES TO BALANCE SHEETS
DECEMBER 29, 1995 AND JUNE 28, 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(SM) L.P., The
SECTOR Strategy Fund(SM) II L.P., The JWH Global Asset Fund L.P., The
SECTOR Strategy Fund(SM) IV L.P., The SECTOR Strategy Fund(SM) V L.P., ML
Global Horizons L.P., ML Chesapeake L.P., The SECTOR Strategy Fund(SM) VI
L.P., RXR Defensive Equity Alternative Account L.P. I, 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 June 28, 1996, approximately $69,500,000 and
$72,500,000, respectively, was subject to this agreement.
At December 29, 1995 and June 28, 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 organizational and initial
offering costs paid on behalf of such funds which are being reimbursed to
the Company over various time periods (not exceeding three years).
During 1995 and the first six months of 1996, the Company did not declare
or pay a dividend.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-71-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
NOTES TO BALANCE SHEETS
DECEMBER 29, 1995 AND JUNE 28, 1996 (UNAUDITED)
(CONTINUED)
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 June 28, 1996 and December 29, 1995, the Company's investments in its
Affiliated Partnerships were as follows:
<TABLE>
<CAPTION>
June 28, 1996 December 29, 1995
<S> <C> <C>
ML Principal Protection L.P. (formerly ML Principal Protection Plus L.P.).. $2,759,628 $2,324,996
ML Global Horizons L.P..................................................... 1,083,939 1,068,112
The SECTOR Strategy Fund(SM) II L.P........................................ 743,405 770,619
John W. Henry & Company/Millburn L.P....................................... 683,846 728,350
The SECTOR Strategy Fund(SM) VI L.P........................................ 726,289 725,174
RXR Defensive Equity Alternative Account L.P. I............................ -0- 546,428
The JWH Global Asset Fund L.P.............................................. 509,635 492,278
The S.E.C.T.O.R. Strategy Fund(SM) L.P..................................... 418,243 441,992
ML Futures Investments L.P................................................. 330,535 356,788
The SECTOR Strategy Fund(SM) V L.P......................................... 306,173 339,622
ML Futures Investments II L.P.............................................. 201,051 213,181
The Growth and Guarantee Fund L.P.......................................... 175,566 155,787
The Futures Expansion Fund Limited Partnership............................. 117,880 121,808
The SECTOR Strategy Fund(SM) IV L.P........................................ 95, 427 111,654
ML JWH Strategic Allocation Fund L.P....................................... 1,000 1,000
ML Chesapeake L.P.......................................................... 80,230 --
---------- ----------
Total...................................................................... $8,232,847 $8,397,789
========== ==========
</TABLE>
The following represents condensed combined financial information of the
Affiliated Partnerships as of June 28, 1996 and December 29, 1995 (in
thousands):
<TABLE>
<CAPTION>
June 28, 1996 December 29, 1995
<S> <C> <C>
Assets............. $454,724 $528,180
======== ========
Liabilities........ 21,540 15,836
Partners' capital.. 433,184 512,344
-------- --------
Total......... $454,724 $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.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-72-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
NOTES TO BALANCE SHEETS
DECEMBER 29, 1995 AND JUNE 28, 1996 (UNAUDITED)
(CONTINUED)
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 June 28, 1996 and December 29, 1995, the Company had no deferred tax
assets. Deferred tax liabilities consisted of the following:
<TABLE>
<CAPTION>
June 28, 1996 December 29, 1995
<S> <C> <C>
State and local $1,670,500 $1,176,130
Federal 5,261,738 3,704,471
---------- ----------
$6,932,238 $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 six months of 1996, the Company transferred $10,707,045 and
$4,639,743, respectively, in current taxes payable to ML&Co. At June 28,
1996 and December 29, 1995, the Company had a current tax payable with
ML&Co. of $2,749,176 and $2,281,413, respectively.
5. NET WORTH AGREEMENTS
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
$90,600,000 and $79,337,000 at June 28, 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 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
-73-
<PAGE>
PERFORMANCE OF THE "CORE" ADVISORS
____________
AS OF JULY 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 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.
-74-
<PAGE>
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.
__________________________
Chesapeake Capital Corporation and John W. Henry & Company, Inc., two 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 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 Chesapeake, these numbers include client
funds only. With respect to JWH, these numbers may also include
proprietary funds (as described in 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
-75-
<PAGE>
NOTES TO THE PERFORMANCE SUMMARIES
(CONT.)
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 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.
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
Chesapeake, these numbers include client funds only. With respect to
JWH, these numbers may also include proprietary funds (as described
in 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.
10. Largest monthly drawdown is the largest monthly loss experienced by
------------------------
the relevant program on a composite basis in any calendar month
covered by the performance summary. "Loss" for these purposes is
calculated on the basis of the loss experienced by the program as a
composite, expressed as a percentage of the total equity (including
"notional" equity) in the program. Individual accounts of a "core"
Advisor may have experienced larger monthly drawdowns. Largest
monthly drawdown information includes the month and year of such
drawdown.
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 equaled or
exceeded as of a subsequent month-end. Largest peak-to-valley
drawdown is calculated on the basis of the loss experienced by the
program as a composite, expressed as a percentage of the total equity
(including "notional" equity) in the program. Individual accounts
managed by a "core" Advisor may have exper ienced 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.
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 Chesapeake's Diversified Trading 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
-76-
<PAGE>
NOTES TO THE PERFORMANCE SUMMARIES
(CONT.)
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.
-77-
<PAGE>
ARA PORTFOLIO MANAGEMENT COMPANY, L.L.C.
JULY 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. ("ARA"), 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. 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.
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 June 30, 1996, ARA was managing approximately
$160.3 million
-78-
<PAGE>
(excluding "notional" funds) of customer funds in the futures and forward
markets. All performance information is current as of June 30, 1996.
As both ARA Trading Programs have been trading for less than
five years, performance information is set forth from the inception of
trading.
The "Notes to the Performance Summaries" are set forth on pages
75 through 77.
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, 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."
-79-
<PAGE>
ARA PORTFOLIO MANAGEMENT COMPANY, L.L.C.
GAMMA PROGRAM
JUNE 1992 - JUNE 1996
The following performance summary and chart reflect the
composite performance results from June 1992 through June 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 June 30, 1996, 17 accounts had been closed and 28 accounts remained
open. Of the closed accounts, 13 were profitable and 4 were unprofitable
at their closing. Of the 28 open accounts, 21 were profitable and 7
unprofitable as of June 30, 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: 28
Aggregate assets (excluding "notional" equity) overall: $160.3 million
Aggregate assets (including "notional" equity) overall: $160.3 million
Aggregate assets (excluding "notional" equity) in program: $ 121.5 million
Aggregate assets (including "notional" equity) in program: $121.5 million
Largest monthly drawdown: (13.30)% (2/96)
Largest peak-to-valley drawdown: (31.26)% (1/96-2/96)
<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 5.96 (0.30) 11.90 3.58 11.69%
- ------------------------------------------------------------------------
July (6.75) (1.92) 3.18 4.51
- ------------------------------------------------------------------------
August (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 (5.2)% 27.3%
Rate of Return (6 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 75 THROUGH 77.
-80-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER ARA PORTFOLIO MANAGEMENT COMPANY, L.L.C. PROGRAM
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NAME OF CTA: ARA Portfolio
Management Company,
L.L.C.
- ------------------------------------------------------------------------------------------------------------------------------------
NAME OF PROGRAM: Alpha Trading Program
- ------------------------------------------------------------------------------------------------------------------------------------
INCEPTION OF CLIENT ACCOUNT June 1992
TRADING BY CTA:
- ------------------------------------------------------------------------------------------------------------------------------------
INCEPTION OF CLIENT ACCOUNT February 1993
TRADING IN PROGRAM:
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPEN ACCOUNTS: 6
- ------------------------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING $160.3 million
"NOTIONAL" EQUITY) OVERALL:
- ------------------------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING $38.8 million
"NOTIONAL" EQUITY) IN PROGRAM:
- ------------------------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS (INCLUDING $160.3 million
"NOTIONAL" EQUITY) OVERALL:
- ------------------------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS (INCLUDING $38.8 million
"NOTIONAL" EQUITY) IN PROGRAM:
- ------------------------------------------------------------------------------------------------------------------------------------
LARGEST MONTHLY DRAWDOWN: (6.7)% (2/96)
- ------------------------------------------------------------------------------------------------------------------------------------
LARGEST PEAK-TO-VALLEY (12.2)% (1/96-2/96)
DRAWDOWN:
- ------------------------------------------------------------------------------------------------------------------------------------
1996 COMPOUND RATE OF RETURN: (0.9)% (6 months)
- ------------------------------------------------------------------------------------------------------------------------------------
1995 COMPOUND RATE OF RETURN: 8.9%
- ------------------------------------------------------------------------------------------------------------------------------------
1994 COMPOUND RATE OF RETURN: 24.1%
- ------------------------------------------------------------------------------------------------------------------------------------
1993 COMPOUND RATE OF RETURN: 13.9%
(11 months)
- ------------------------------------------------------------------------------------------------------------------------------------
1992 COMPOUND RATE OF RETURN: N/A
- ------------------------------------------------------------------------------------------------------------------------------------
1991 COMPOUND RATE OF RETURN: N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT IS NOT TRADED PURSUANT TO THE FOREGOING PROGRAM.
----------------
SEE THE "NOTES TO THE PERFORMANCE SUMMARIES" ON PAGES 75 THROUGH 77.
-81-
<PAGE>
CHESAPEAKE CAPITAL CORPORATION
JULY 1, 1996 ALLOCATION OF TRADED ASSETS: 38%
BACKGROUND
Chesapeake Capital Corporation ("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.
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
-82-
<PAGE>
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 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.
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.
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<PAGE>
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 Trading Program on behalf of the Fund. As of July
1, 1996, Chesapeake was managing approximately $809 million (excluding
"notional" funds) of customer funds in the futures and forwards markets.
All performance information is current as of June 30, 1996.
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 to
approximately $50 per round-turn. 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
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
75 through 77.
The information presented has not been audited. However,
Chesapeake believes that such information is accurate and fairly
presented.
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<PAGE>
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."
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<PAGE>
CHESAPEAKE CAPITAL CORPORATION
DIVERSIFIED PROGRAM
JANUARY 1991 - JUNE 1996
The following performance summary and chart reflect the
composite performance results from January 1991 through June 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 176 accounts since January 1991. As of June 30, 1996, 113
accounts had been closed and 63 accounts remained open. Of the closed
accounts, 97 were profitable and 16 were unprofitable at their closing.
Of the 63 open accounts, all were profitable of June 30, 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: $809 million
Aggregate assets (excluding "notional" equity) in program: $757 million
Aggregate assets (including "notional" equity) overall: $982 million
Aggregate assets (including "notional" equity) in program: $925 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 2.92 0.88 7.02 0.98 6.52 (1.25)
- -----------------------------------------------------------------------------
July (3.09) (1.70) 9.49 12.96 (1.75)
- -----------------------------------------------------------------------------
August (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 7.33% 14.09% 15.87% 61.82% 1.81% 12.51%
Rate of Return (6 months)
- -----------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
SEE THE "NOTES TO THE PERFORMANCE SUMMARIES" ON PAGES 75 THROUGH 77.
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<PAGE>
<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 Pacific Rim Program Diversified 2XL 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 June 1994 April 1994 June 1992
TRADING IN PROGRAM: ceased trading 8/95 ceased trading 6/94
- -------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPEN ACCOUNTS: 6 0 4 0
- -------------------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING $809 million $809 million $809 million $809 million
"NOTIONAL" EQUITY) OVERALL:
- -------------------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING $29 million N/A $23 million N/A
"NOTIONAL" EQUITY) IN PROGRAM:
- -------------------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS (INCLUDING $982 million $982 million $982 million $982 million
"NOTIONAL" EQUITY) OVERALL:
- -------------------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS (INCLUDING $34 million N/A $23 million N/A
"NOTIONAL" EQUITY) IN PROGRAM:
- -------------------------------------------------------------------------------------------------------------------------------
LARGEST MONTHLY DRAWDOWN: (5.65)% (2/94) (3.30)% (7/95) (9.38)% (2/96) (5.77)% (9/92)
- -------------------------------------------------------------------------------------------------------------------------------
LARGEST PEAK-TO-VALLEY (10.36)% (1/94-2/94) (3.30)% (7/95) (15.07)% (1/95-2/95) (5.77)% (9/92)
DRAWDOWN:
- -------------------------------------------------------------------------------------------------------------------------------
1996 COMPOUND RATE OF RETURN: 3.95% (6 months) N/A 9.45% (6 months) N/A
- -------------------------------------------------------------------------------------------------------------------------------
1995 COMPOUND RATE OF RETURN: 12.61% 37.04% (8 months) 18.77% N/A
- -------------------------------------------------------------------------------------------------------------------------------
1994 COMPOUND RATE OF RETURN: 3.22% (2.76)% (7 months) 26.88% (9 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>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT IS NOT TRADED PURSUANT TO THE FOREGOING PROGRAM.
----------------
SEE THE "NOTES TO THE PERFORMANCE SUMMARIES" ON PAGES 75 THROUGH 77.
-87-
<PAGE>
JOHN W. HENRY & COMPANY, INC.
JULY 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. ("JWH"), 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 $1.3
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 the 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 the MFA and the Executive Committee of
the Law and Compliance Division of the FIA. In 1985, he received the
Richard P. Donchian Award for Outstanding Contributions to the Field of
Commodity Money Management. He has been an editor of Futures
International Law Letter and its predecessor publication, Commodities Law
Letter. He received an A.B. with honors from Dartmouth College and a J.D.
from the University of California at Los Angeles, where he was named to
the Order of the Coif, the national legal honorary society.
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 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.
-88-
<PAGE>
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 for approximately six months from that date. 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 the FIA since 1984 and a
member of its executive committee since 1988. Mr. Karpen was chairman of
the 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 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
-89-
<PAGE>
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. 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.
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
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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..
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 of its
discussions and decisions by non-members, may vary over time.
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 thirteen 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 traded 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,
contracts traded, contract month selection, margin utilization and
effective trade execution.
PROGRAM MODIFICIATIONS
In an effort to maintain and improve trading 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.
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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
part 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 OR
FUND 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, and may cause
one series of Units to under- or outperform other series during the same
time periods.
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 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, world currencies, stock indices
and precious metals -- and initiates trades according to trend-emergence
and computerized determination of relative risk.
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.
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Other JWH Programs
In addition to the Financial and Metals Portfolio, JWH currently
operates twelve 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. With the exception of InterRate^, a yield
enhancement strategy, 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 proprietary capital in June 1994. This
program is designed to capitalize on price movements in the U.S. Dollar
utilizing intermediate-term and long-term quantitative trend analysis
models, and takes outright positions in the Japanese yen, German mark,
Swiss franc, and British pound versus the U.S. dollar. (No performance
summary is included for the Dollar Program because no client accounts had
been managed pursuant to that Program as of June 30, 1996.)
The Worldwide Bond Program (WWB) began trading proprietary
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. Although WWB concentrates on one sector, diversification is
achieved by trading the interest rate instruments of numerous countries.
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. (No performance
summary is included for WWB because no client accounts had been managed
pursuant to this program as of June 30, 1996.)
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.
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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 June 30, 1996, JWH was managing approximately
$1.3 billion (excluding "notional" funds) of customer funds in the futures
and forwards markets. All performance information is current as of June
30, 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.
The "Notes to the Performance Summaries" are set forth on pages
75 through 77.
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 (even if 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; and (j) trading instructions/restrictions of
the client.
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 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.
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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.
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.
ADDITIONAL NOTE TO THE SUMMARIES PRESENTED WHICH UTILIZE THE FULLY-FUNDED
-------------------------------------------------------------------------
SUBSET METHOD -- I.E., THE GLOBAL DIVERSIFIED PORTFOLIO, ORIGINAL
-----------------------------------------------------------------
INVESTMENT PROGRAM 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.
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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.
These computations have been performed for the Original
Investment Program since June 1, 1996, the Global Diversified Portfolio
from January 1, 1992 and JWH Investments, Inc.'s InterRate^ 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.
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INTERRATE(TM) IS QUALITATIVELY DIFFERENT FROM THE METHODS WHICH
GENERATED THE COMPOSITE PERFORMANCE SUMMARIES OF OTHER JWH INVESTMENT
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."
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JOHN W. HENRY & COMPANY, INC.
FINANCIAL AND METALS PORTFOLIO
JANUARY 1991 - JUNE 1996
The following performance summary and chart reflect the
composite performance results from January 1991 through June 1996 of the
Financial and Metals Portfolio. JWH trades this program on behalf of the
Fund. The program has been utilized in trading for 355 accounts since its
inception. As of June 30, 1996, 279 accounts had been closed and 76
client accounts remained open. Of the closed accounts, 242 were
profitable and 37 were unprofitable at their closing. Of the 76 open
client accounts, 74 were profitable and 2 were unprofitable as of June 30,
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 client accounts: 76
Aggregate assets (excluding "notional" equity) overall: $1.3 billion
Aggregate assets (excluding "notional" equity) in program: $881 million
Aggregate assets (including "notional" equity) overall: $1.3 billion
Aggregate assets (including "notional" equity) in program: $881 million
Largest monthly drawdown: (18.0)% (1/92)
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 (2.3) (6.1) 9.7 25.5 (13.4)
- ---------------------------------------------------------------------------
August 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 3.56% 38.53% (5.32)% 46.82% (10.89)% 61.88%
Rate of Return (6 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 75 THROUGH 77.
-98-
<PAGE>
<TABLE>
<CAPTION>
OTHER JOHN W. HENRY & COMPANY, INC. PROGRAMS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NAME OF CTA: John W. Henry John W. Henry John W. Henry John W. Henry John W. Henry John W. Henry
& Company, Inc. & Company, & Company, Inc. & Company, & Company, Inc. & Company, Inc.
Inc. Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
NAME OF PROGRAM: Original Global International The World Global Financial Delevered Yen
Investment Diversified Currency and Financial Portfolio Denominated
Program Portfolio Bond Portfolio Perspective Financial and
Metals Profile
- ----------------------------------------------------------------------------------------------------------------------------------
INCEPTION OF CLIENT October 1982 October 1982 October 1982 October 1982 October 1982 October 1982
ACCOUNT TRADING BY CTA:
- ----------------------------------------------------------------------------------------------------------------------------------
INCEPTION OF CLIENT October 1982 June 1988 January 1993 April 1987 June 1994 October 1995
ACCOUNT TRADING IN
PROGRAM:
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPEN ACCOUNTS: 25 17 1 5 3 1
- ----------------------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS $1.3 billion $1.3 billion $1.3 billion $1.3 billion $1.3 billion $1.3 billion
(EXCLUDING "NOTIONAL"
EQUITY) OVERALL:
- ----------------------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS $109 million $91 million $2 million $15 million $21 million (Yen)554,486,748
(EXCLUDING "NOTIONAL"
EQUITY) IN PROGRAM:
- ----------------------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS $1.3 billion $1.3 billion $1.3 billion $1.3 billion $1.3 billion $1.3 billion
(INCLUDING "NOTIONAL"
EQUITY) OVERALL:
- ----------------------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS $130 million $111 million $2 million $15 million $51 million (Yen)554,486,748
(INCLUDING "NOTIONAL"
EQUITY) IN PROGRAM:
- ----------------------------------------------------------------------------------------------------------------------------------
LARGEST MONTHLY DRAWDOWN: (14.1)% (16.8)% (6.7)% (21.6)% (17.4)% (3.2)%
(10/94) (7/91) (7/94) (1/92) (11/92) (2/96)
- ----------------------------------------------------------------------------------------------------------------------------------
LARGEST PEAK-TO-VALLEY (26.2)% (29.1)% (20.1)% (32.0)% (46.0)% (3.7)%
DRAWDOWN: (6/94-10/94) (12/91-5/92) (6/94-1/95) (12/91-10/92) (6/94-1/95) (1/96-5/96)
- ----------------------------------------------------------------------------------------------------------------------------------
1996 COMPOUND RATE OF (3)% (6 months) (11)% (6 months) (1)% (6 months) 12% (6 months) 4% (6 months) (0.7)% (6 months)
RETURN:
- ----------------------------------------------------------------------------------------------------------------------------------
1995 COMPOUND RATE OF 53% 20% 37% 32% 86% 0.2% (3 months)
RETURN:
- ----------------------------------------------------------------------------------------------------------------------------------
1994 COMPOUND RATE OF (6)% 10% (2)% (15)% (38)% (7 months) N/A
RETURN:
- ----------------------------------------------------------------------------------------------------------------------------------
1993 COMPOUND RATE OF 41% 60% 15% 14% N/A N/A
RETURN:
- ----------------------------------------------------------------------------------------------------------------------------------
1992 COMPOUND RATE OF 11% (13)% N/A (23)% N/A N/A
RETURN:
- ----------------------------------------------------------------------------------------------------------------------------------
1991 COMPOUND RATE OF 5% 40% N/A 15% N/A N/A
RETURN:
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
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 75 THROUGH 77.
</FN>
</TABLE>
-99-
<PAGE>
<TABLE>
<CAPTION>
OTHER JOHN W. HENRY & COMPANY, INC. PROGRAMS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NAME OF CTA: John W. Henry John W. Henry John W. Henry John W. Henry JWH JWH
& Company, & Company, & Company, & Company, Investments, Investments,
Inc. Inc. Inc. Inc. Inc. Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
NAME OF PROGRAM: International G-7 Currency InterRate/SM/ KT Financial and InterRate/SM/
Foreign Portfolio Diversified Metals Portfolio
Exchange Program
Program
- ----------------------------------------------------------------------------------------------------------------------------------
INCEPTION OF CLIENT October 1982 October 1982 October 1982 October 1982 September 1991 September 1991
ACCOUNT TRADING BY CTA:
- ----------------------------------------------------------------------------------------------------------------------------------
INCEPTION OF CLIENT August 1986 February 1991 December 1988 January 1984; September 1991; February 1992;
ACCOUNT TRADING IN ceased ceased trading ceased trading
PROGRAM: trading 2/94 7/95 11/93
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPEN ACCOUNTS: 7 8 1 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS $1.3 billion $1.3 billion $1.3 billion $1.3 billion $1.3 billion $1.3 billion
(EXCLUDING "NOTIONAL"
EQUITY) OVERALL:
- ----------------------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS $75 million $86 million $18 million N/A N/A N/A
(EXCLUDING "NOTIONAL"
EQUITY) IN PROGRAM:
- ----------------------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS $1.3 billion $1.3 billion $1.3 billion $1.3 billion $1.3 billion $1.3 billion
(INCLUDING "NOTIONAL"
EQUITY) OVERALL:
- ----------------------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS $75 million $86 million $18 million N/A N/A N/A
(INCLUDING "NOTIONAL"
EQUITY) IN PROGRAM:
- ----------------------------------------------------------------------------------------------------------------------------------
LARGEST MONTHLY DRAWDOWN: (12.0)% (10.7)% (9.71)% (19.2)% (16.6)% (9.3)%
(1/92) (1/92) (9/92) (7/91) (1/92) (9/92)
- ----------------------------------------------------------------------------------------------------------------------------------
LARGEST PEAK-TO-VALLEY (24.1)% (19.5)% (17.8)% (40.6)% (34.4)% (20.6)%
DRAWDOWN: (12/91-4/92) (7/93-1/95) (8/92-2/94) (1/91-3/92) (12/91-5/92) (8/92-11/93)
- ----------------------------------------------------------------------------------------------------------------------------------
1996 COMPOUND RATE OF 4% (3)% 8% N/A N/A N/A
RETURN: (6 months) (6 months) (6 months)
- ----------------------------------------------------------------------------------------------------------------------------------
1995 COMPOUND RATE OF 17% 32% 5% N/A 30% (7 months) N/A
RETURN:
- ----------------------------------------------------------------------------------------------------------------------------------
1994 COMPOUND RATE OF (6)% (5)% 3% (14)% (1)% N/A
RETURN: (2 months)
- ----------------------------------------------------------------------------------------------------------------------------------
1993 COMPOUND RATE OF (5)% (6)% (5)% 21% 46% (10)%
RETURN: (11 months)
- ----------------------------------------------------------------------------------------------------------------------------------
1992 COMPOUND RATE OF 5% 15% (1)% (12)% (4)% (3)%
RETURN: (11 months)
- ----------------------------------------------------------------------------------------------------------------------------------
1991 COMPOUND RATE OF 39% 49% 9% (2)% 59% (4 months) N/A
RETURN: (11 months)
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
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 75 THROUGH 77.
</FN>
</TABLE>
-100-
<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: $1.3 billion
Aggregate assets (including "notional" equity) overall: $1.3 billion
Aggregate assets (excluding "notional" equity) in program: $38 million
Aggregate assets (including "notional" equity) in program: $38 million
See Additional Note on p. 95
<TABLE>
<CAPTION>
AGGREGATE LARGEST LARGEST
ACCOUNT NO. INCEPTION OF ASSETS COMPOUND RATE MONTHLY PEAK-TO-VALLEY
TRADING JUNE 30, 1996 OF RETURN (%) DRAWDOWN % DRAWDOWN %
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 1/92 $6 million 1996: (15.4) (6 months) (14.4)-2/92 (26.8) - 5/95-5/96
1995: 20.6
1994: (13.0)
1993: 76.4
1992: 20.1
- ---------------------------------------------------------------------------------------------------------------------------------
2 1/93 $1 million 1996: (15.2) (6 months) (6.9) - 7/95 (25.9) - 4/95-6/96
1995: 21.0
1994: (8.8)
1993: 71.4
- ---------------------------------------------------------------------------------------------------------------------------------
3 1/94 $900,000 1996: (12.8) (6 months) (6.0) - 7/95 (23.0) - 4/95-5/96
1995: 22.4
1994: (7.5)
- ---------------------------------------------------------------------------------------------------------------------------------
4 6/94 $22 million 1996: (11.0) (6 months) (6.5) - 7/95 (19.6) - 4/95-5/96
1995: 24.2
1994: (1.6) (6 months)
- ---------------------------------------------------------------------------------------------------------------------------------
5 8/94 $4 million 1996: (13.3) (6 months) (7.1) - 7/95 (27.3) - 4/95-5/96
1995: 21.1
1994: (4.3) (5 months)
- ---------------------------------------------------------------------------------------------------------------------------------
6 1/95 $2 million 1996: (17.4) (6 months) (7.5) - 8/95 (32.1) - 5/95-6/96
1995: 13.2
- ---------------------------------------------------------------------------------------------------------------------------------
7 3/94 (Yen)176 1996: (6.7) (6 months) (4.6) - 5/95 (12.8) - 3/94-1/95
million 1995: 28.1
1994: (11.2) (10 months)
- ---------------------------------------------------------------------------------------------------------------------------------
8 4/92 closed - 9/93 1993: 62.6 (11.7) - 5/92 (11.7) - 4/92-5/92
1992: 27.0 (9 months)
- ---------------------------------------------------------------------------------------------------------------------------------
9 2/92 closed - 1992: 32.7 (11 months) (11.5) - 2/92 (11.5) - 2/92
12/92
- ---------------------------------------------------------------------------------------------------------------------------------
10 3/94 closed - 1994: (7.4) (10 months) (5.4) - 5/94 (10.5) - 4/94-12/94
12/94
- ---------------------------------------------------------------------------------------------------------------------------------
11 11/93 closed - 8/95 1995: 20.0 (8 months) (9.0) - 8/95 (18.8) - 4/95-8/95
1994: (13.4)
1993: 5.2 (2 months)
- ---------------------------------------------------------------------------------------------------------------------------------
12 11/93 closed - 1/95 1995: (0.7) (1 month) (6.3) - 5/94 (16.5) - 4/94-1/95
1994: (15.1)
1993: 4.8 (2 months)
- ---------------------------------------------------------------------------------------------------------------------------------
13 12/92 closed - 3/96 1996: (4.1) (3 months) (4.9) - 7/95 (15.8) - 12/93-1/95
1995: 31.4
1994: (14.1)
1993: 69.2
1992: 0.1 (1 month)
- ---------------------------------------------------------------------------------------------------------------------------------
14 1/93 closed - 1995: (10.9) (6.2) - 6/95 (15.8) - 4/95-12/95
12/95 1994: (4.1)
1993: 43.6
- ---------------------------------------------------------------------------------------------------------------------------------
15 4/93 closed - 9/94 1994: (19.0) (9 months) (5.8) - 5/94 (19.9) - 11/93-9/94
1993: 25.3 (9 months)
- ---------------------------------------------------------------------------------------------------------------------------------
16 1/94 closed - 8/94 1994: (6.7) (8 months) (5.5) - 5/94 (11.0) - 4/94-8/94
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
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 75 THROUGH 77.
</FN>
</TABLE>
-101-
<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: $1.3 billion
Aggregate assets (including "notional" equity) overall: $1.3 billion
Aggregate assets (excluding "notional" equity) in program: $38 million
Aggregate assets (including "notional" equity) in program: $38 million
See Additional Note on p. 95
<TABLE>
<CAPTION>
AGGREGATE LARGEST LARGEST
ACCOUNT NO. INCEPTION OF ASSETS COMPOUND RATE MONTHLY PEAK-TO-VALLEY
TRADING JUNE 30, 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: 26.6
1994: (5.1)
1993: 73.9
1992: (1.0) (1 month)
- --------------------------------------------------------------------------------------------------------------------
18 3/94 closed - 4/96 1996: (6.3) (4 months) (6.2) - 7/95 (18.5) - 4/95-4/96
1995: 18.5
1994: (10.1) (10 months)
- --------------------------------------------------------------------------------------------------------------------
19 12/94 closed 1996: (7.8) (4 months) (6.6) - 7/95 (21.1) - 4/95-4/96
1995: 18.3
1994: 0.2 (1 month)
- --------------------------------------------------------------------------------------------------------------------
20 6/94 closed - 12/94 1994: (7.9) (6 months) (5.1) - 7/94 (10.4) - 6/94-11/94
- --------------------------------------------------------------------------------------------------------------------
21 6/94 closed - 3/95 1995: 48.1 (3 months) (3.6) - 7/94 (9.9) - 6/94-1/95
1994: (6.6) (7 months)
- --------------------------------------------------------------------------------------------------------------------
22 4/94 closed - 9/94 1994: (4.6) (6 months) (4.7) - 5/94 (7.0) - 4/94-9/94
- --------------------------------------------------------------------------------------------------------------------
23 3/94 closed - 9/94 1994: (9.8) (7 months) (6.3) - 5/94 (11.0) - 4/94-9/94
- --------------------------------------------------------------------------------------------------------------------
24 4/94 closed - 9/94 1994: (9.8) (6 months) (9.1) - 5/94 (12.9) - 4/94-9/94
- --------------------------------------------------------------------------------------------------------------------
25 4/93 closed - 12/94 1994: (16.6) (6.1) - 5/94 (17.9) - 11/93-12/94
1993: 26.5 (9 months)
- --------------------------------------------------------------------------------------------------------------------
26 9/93 closed - 12/94 1994: (12.5) (6.0) - 5/94 (14.1) - 4/94-12/94
1993: 3.2 (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 PAGES 75 THROUGH 77.
-102-
<PAGE>
PERFORMANCE OF THE
PUBLIC SINGLE-ADVISOR FUTURES FUNDS OPERATED BY MLIP
GENERAL
The following is summary performance information for the four single-
advisor funds which MLIP has distributed other than as part of its "Managed
Account Program" -- 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 June 1, 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.
Two of the funds presented (The Futures Expansion Fund Limited
Partnership and World Currencies Limited) 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 APPENDIX II 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 four
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 June 1, 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.
____________________________
-103-
<PAGE>
"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.
-104-
<PAGE>
MLIP PUBLIC SINGLE-ADVISOR FUNDS
July 1,1996
<TABLE>
<CAPTION>
Worst Monthly
Type Of Inception of Aggregate Current Drawdown
NAME OF FUND Offering Trading Subscriptions Capitalization Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Futures Expansion Fund Public Jan. 1987 $56,741,035 $9,012,399 (10.92)% (2/96)
Limited Partnership
- ------------------------------------------------------------------------------------------------------------------------------------
The Growth & Guarantee Fund Public Aug. 1987 $148,349,450 $9,000,141 (4.28)% (6/91)
L.P. - Series A Units
- ------------------------------------------------------------------------------------------------------------------------------------
The Growth & Guarantee Fund Public Sept. 1987 $84,282,707 dissolved as (3.65)% (4/92)
L.P. - Series B Units of 12/31/91
- ------------------------------------------------------------------------------------------------------------------------------------
World Currencies Limited Private Aug. 1987 $47,814,293 dissolved as (10.08)% (9/92)
of 4/11/96
- ------------------------------------------------------------------------------------------------------------------------------------
InterRate (TM) Limited Private Dec. 1988 $7,429,200 dissolved as
of 1/31/94
<CAPTION>
Cumulative
Rate of
Return
Worst Jan. 1991 to 1996 1995 1994
Peak-to-valley June 1996 Compound Compound Compound
Drawdown (or Rate of Rate of Rate of
NAME OF FUND Period dissolution) Return Return Return
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Futures Expansion Fund (17.32)% (1/91-11/91) 35.93% (4.76)% 21.95% 5.55%
Limited Partnership (6 months)
- ------------------------------------------------------------------------------------------------------------------------------------
The Growth & Guarantee Fund (6.93)% (2/94-6/94) 85.75% 7.06% 32.01% (2.34)%
L.P. - Series A Units (6 months)
- ------------------------------------------------------------------------------------------------------------------------------------
The Growth & Guarantee Fund (4.29)% (9/91-11/91) 11.77% N/A N/A N/A
L.P. - Series B Units
- -----------------------------------------------------------------------------------------------------------------------------------
World Currencies Limited (35.81)% (9/92-1/95) 16.19% 1.20% 12.23% (12.84)%
(3 1/2 Months)
- ------------------------------------------------------------------------------------------------------------------------------------
InterRate (TM) Limited (13.49)% (9/92-1/93) 1.07% N/A N/A 0.55%
(1 month)
<CAPTION>
1993 1992 1991
Compound Compound Compound
Rate of Rate of Rate of
NAME OF FUND Return Return Return
- ----------------------------------------------------------------------------
The Future Expansion Fund
Limited Partnerhsip 3.36% 9.23% (1.79)%
- ----------------------------------------------------------------------------
The Growth & Guarantee Fund 5.20% 3.75% 23.30%
L.P. - Series A Units
- ----------------------------------------------------------------------------
The Growth & Guarantee Fund N/A N/A 11.77%
L.P. - Series B Units
- ----------------------------------------------------------------------------
World Currencies Limited (10.46)% (3.10)% 35.28%
- ----------------------------------------------------------------------------
InterRate (TM) Limited (7.02)% (2.63)% 11.03%
</TABLE>
PURCHASERS OF UNITS 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.
-105-
<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 while attempting to control portfolio risk. The
internationalization 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 consistent growth may be increasingly difficult to achieve.
Over the long term, portfolios must have 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 a portfolio
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, real estate and hard
assets (among a variety of alternatives). The goal, on an overall
portfolio basis, 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 are
principal factors taken into account in allocating assets. Different
investment components are expected to respond differently to changing
economic conditions. 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 advisor selected, an investment in
managed futures has the potential to offer access to professionally
managed trading in a variety of commodity markets, and national economies.
These markets may be traded through futures, options on futures and
forward contracts, and generally offer the ability to trade either side of
a market. The Fund does not trade in all, or even most, of the available
markets, and its positions may frequently be concentrated in particular
markets or market sectors. 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.
-106-
<PAGE>
FUTURES VOLUME BY MARKET SECTOR
[Pie Graphs Appear 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. The assets invested in managed futures are invested in a
wide range of different products, including single-advisor and multi-
advisor funds, "funds of funds," "principal protection" pools (in which
only a fraction of the assets invested are committed to trading) and
individual managed accounts. Many of these investments are materially
different from the Fund in design and fee structure as well as in investor
base, performance and risk control objectives.
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<PAGE>
NON-CORRELATION -- A POTENTIALLY IMPORTANT COMPONENT OF RISK REDUCTION
Historically, the returns of many managed futures investments
have exhibited a substantial degree of non-correlation with the
performance of the general equity and debt markets, suggesting that a
managed futures component, if successful, may provide a valuable
complement to a traditional portfolio. Modern portfolio theory suggests
that investments with positive returns and low correlation with other
elements of a portfolio can improve the risk/reward characteristics of an
investor's overall holdings. Consequently, allocating a limited portion of
the risk segment of a portfolio to managed futures can, if the managed
futures performance is, in fact, profitable as well as non-correlated with
stocks and bonds, add a valuable aspect of diversification to a
traditionally structured portfolio. There can be no assurance that any
managed futures investment will be successful, avoid substantial losses or
generate performance non-correlated with the equity or debt markets. Even
if the performance of the Fund is, in fact, non-correlated with these
markets (of which there can be no assurance), this does not mean that the
Fund's results will not parallel general stock and bond price levels
during significant periods of time. Non-correlation is not negative
correlation. The Fund may well incur losses at the same time as an
investor's traditional holdings, increasing, rather than mitigating,
overall portfolio losses. Furthermore, even if a managed futures
investment is non-correlated to general equity and debt prices, it must
also be profitable to add value as an element of diversification in a
portfolio.
Allocating assets to non-traditional investments ("alternative
investments") is based on the premise that while securities (e.g., stocks
and bonds) prices are often affected by overall market price trends,
alternative investments may not be, at least to the same degree. In
addition, the results of many types of alternative investments have
historically been largely non-correlated with each other. This creates
the possibility of assembling a portfolio whose various investments have
been selected with the objective of participating successfully in
different economic cycles and national financial markets, potentially
multiplying profit opportunities while decreasing the effect of price
movements in any given market on the overall volatility of the portfolio.
The purely speculative nature of the return recognized from a managed
futures investment such as the Fund indicates that prospective investors
must not rely on such investment either to generate profits or to help
diversify a portfolio, because the actual results of such an investment
are entirely unpredictable.
The following chart depicts the performance of the MLIP Index,
the 91-day Treasury bill, the S&P 500(R) Stock Index and the ML Domestic
Master Bond Index. The MLIP Index is a composite of the performance of
all funds for which MLIP has acted or acts as trading manager or sponsor.
The MLIP Index represents the composite return of all such funds,
weighting their respective performance as of the end of each month on the
basis of relative capitalization. The MLIP Index includes single-advisor,
multi-advisor, "principal protection" and non-"principal protection"
funds. Forty-five different funds, including 9 which have been closed,
are included in the MLIP Index, certain of which are simply "feeder funds"
through which Merrill Lynch clients invest in funds sponsored by third
parties. Certain of these funds are materially different investment
products from the Fund, and their fee structures vary. The MLIP Index
does not reflect the historical results of any actual futures fund, and
combining the performance of funds with materially different investment
characteristics has certain inherent and material limitations. In
addition, due to the unusually wide range of leverage factors at which
futures funds trade, compositing their performance on the basis of month-
end-capitalization may have certain distorting effects.
As the performance summaries of the MLIP multi-advisor funds set
forth herein demonstrate, the past performance of a particular MLIP fund
during any period of time is not necessarily indicative of how such fund
will perform in the future. Neither the past performance of any single
MLIP fund, nor of any composite of such funds (such as the MLIP Index or
the MAR Public Funds Index -- see below), is indicative of how any
particular MLIP fund will perform in the future. The MLIP Index and the
MAR Public Funds Index are included herein, not as being representative of
how the Fund can be expected to perform, but as an indication of how a
variety of different managed futures investments have performed.
-108-
<PAGE>
COMPARISON OF MLIP INDEX AND CERTAIN GENERAL
SECURITIES MARKET INDICES
JAN. 1990 - JUNE 1996
[Graph Appears Here]
Past performance is not necessarily indicative of future results. The
compilation of any index of actively managed futures funds as well as the
comparison of such index to passive indices of securities returns has
certain inherent material limitations. There can be no assurance that a
managed futures investment will, in fact, perform in a manner non-
correlated with traditional portfolio components. The Fund's performance
is included in the MLIP Index beginning with the first quarter of 1994.
COMPARISON OF ML GLOBAL HORIZONS L.P. AND
CERTAIN GENERAL SECURITIES MARKET INDICES
JAN. 1994 - JUNE 1996
[Graph Appears Here]
Past performance is not necessarily indicative of future results. The
inherently speculative character of managed futures trading results in the
Fund's performance to date not being predictive of its prospects for the
future.
-109-
<PAGE>
The preceding chart depicts the performance of the Fund, the 91-
day Treasury bill, the S&P 500(R) Stock Index and the ML Domestic Master
Bond Index. The 91-day Treasury bill performance is included in the graph
to indicate both the performance and non-correlation which investors could
obtain investing the capital otherwise committed to the Fund on a riskless
basis. Many investors measure the value added by a portfolio component by
the extent to which its return exceeds the risk free rate of return. The
S&P 500(R) Stock Index is a capitalization-weighted index of the common
stocks of publicly-traded United States issuers. The ML Domestic Master
Bond Index is a total-return index comprised of 6,471 investment grade
corporate bonds, Treasuries and mortgage issues; average maturity 12.65
years (calculated on a market-weighted basis as of June 30, 1996).
The graph reflects the percentage overall returns recognized by
the Fund as well as by the 91-day Treasury bill and the stock and bond
indices.
All of the performance information in this section, as well as
elsewhere in this Prospectus, is presented on a pre-tax basis. The tax
costs of investing in the Fund are materially higher than those that would
be applicable to an investment in either of the indices included in the
foregoing graph.
Investors could obtain the 91-day Treasury bill, the S&P
500(R) Stock Index and ML Domestic Master Bond Index return with minimal
expense, whereas the total charges to the Fund in 1995 were approximately
10% of its average Net Assets.
The 91-day Treasury bill, the S&P 500(R) Stock Index and the
ML Domestic Master Bond Index reflect the price movements of selected,
unmanaged groups of securities. The Fund is, on the other hand, actively
managed. Although it is common to evaluate the performance of financial
assets against general "cash equivalent" or stock and bond indices, there
are material differences between passive securities indices and managed
products, as well as between leveraged and unleveraged accounts. In
addition, the futures markets are fundamentally different from the
securities markets in a number of respects, and any comparison between
them is subject to certain inherent and material limitations.
MLIP INDEX COMPARED TO THE MAR PUBLIC FUNDS INDEX
The MAR Public Funds Index represents a combination of the
performance of a large number of publicly-offered futures funds,
weighting the return recognized by each such fund on the basis of relative
capitalization. The funds included in the MAR Public Funds Index
represent a wide variety of materially different products, including
single and multi-advisor funds, as well as funds with and without
"principal protection" features. As in the case of the MLIP Index,
combining the results of funds with materially different performance
objectives and fee structures into a single index is subject to certain
inherent and material limitations. Nevertheless, the MAR Public Funds
Index is one of several widely-used benchmarks of general managed futures
industry performance. The following chart depicts the relative movements
of the MLIP Index and the MAR Public Funds Index over the January 1990
through June 1996 period.
COMPARSION OF MLIP INDEX TO
MAR PUBLIC FUNDS INDEX
JAN. 1990 - JUNE 1996
[Graph Appears Here]
Past performance is not necessarily indicative of future results.
Neither the MLIP nor the MAR Public Funds Index purports to indicate
either the results or the objectives of any actual or proposed fund.
Furthermore, there can be no assurance that the MAR Public Funds Index is,
in fact, representative of the performance of the managed futures industry
as a whole.
-110-
<PAGE>
The MAR Public Funds Index represents the composite performance
of a large group of single and multi-advisor public futures funds with
widely disparate performance objectives, "principal protection" parameters
and fee structures, trading pursuant to a broad range of different and
independent strategies. While reference to the MAR Public Funds Index may
indicate certain performance characteristics which may reasonably be
considered as objectives of a managed futures investment, there can be no
assurance that the MAR Public Funds Index provides any meaningful
indication of how the Fund, or managed futures investments in general,
have performed in the past or will perform in the future. The MAR Public
Funds Index does not reflect the historical results of any actual futures
fund, and combining the performance of funds with different investment
characteristics has certain inherent and material limitations. The
distorting effect of composite treatment may be greater in the case of the
MAR Public Funds Index than in the case of the MLIP Index, due to the
inclusion in the former of a wider, and to some extent self-selecting,
variety of funds as well as of funds operated by independent sponsors.
While graphic presentation of comparative performance results
facilitates illustrating certain performance characteristics, -- e.g.,
non-correlation, relative profitability and volatility -- prospective
investors must be aware that different graphic presentations of the same
information may appear materially different. Investors must not review
the foregoing graphs without also considering the accompanying textual
disclosures and qualifications which are an integral part of such graphs.
SUMMARY
Participation in a professionally managed futures program,
obtaining access to the experience and expertise of a professional trading
managers and trading advisors involves significant risks but offers the
opportunity to potentially:
. Diversify into new markets;
. Profit (or incur losses) in rising as well as falling markets;
. Increase portfolio returns as well as reduce total portfolio risk
(through adding an investment component with the potential for
performance non-correlated with other portfolio components); and
. Participate in the highly leveraged futures, options on
futures and forward markets with liability limited to the amount
invested, plus any undistributed profits.
There are a number of different "alternative investments" to
which one could commit assets with the objective of diversifying and
improving the overall risk/reward ratio of a traditional portfolio --
venture capital, natural resources, real estate, private lending and
managed futures are only certain of the options available. Many
"alternative investments" are likely from time to time to generate results
largely non-correlated with those of the debt and equity markets. A
managed futures investment is typically more liquid and more readily
valued than many other alternative investments but unlike many such
investments, does not involve the acquisition of any assets with an
intrinsic value. Although the commodities and instruments which underlie
the Fund's futures and forward contracts have value, the success of its
managed futures program depends on the results of purely speculative
trading. The Fund acquires market exposures hoping to profit from price
movements in commodities and financial instruments which the Fund, in
fact, never owns. A fundamental characteristic of a managed futures
investment is that it is a commitment to trading rather than investing; to
speculating on price differences, not to acquiring assets which grow in
value over time.
A managed futures investment is not suitable for all investors,
and different managed futures investments have materially different
objectives and risk/reward profiles. However, for the investor who can
tolerate the risks, a managed futures investment, if successful, has the
potential to yield important benefits in portfolio diversification. See
"Risk Factors."
-111-
<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 34.
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.
INCENTIVE OVERRIDE REVERSALS
APPI-2
<PAGE>
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.
Organizational 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 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.
APPII-2
<PAGE>
EXHIBIT A
ML GLOBAL HORIZONS L.P.
THIRD AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
DATED AS OF
DECEMBER 6, 1995
MERRILL LYNCH INVESTMENT PARTNERS INC.
GENERAL PARTNER
<PAGE>
ML GLOBAL HORIZONS L.P.
THIRD AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Formation and Name ........................................... LPA-1
2. Principal Office ............................................. LPA-1
3. Business ..................................................... LPA-1
4. Term, Dissolution, Fiscal Year and Net Asset Value ........... LPA-1
(a) Term .................................................. LPA-1
(b) Dissolution ........................................... LPA-1
(c) Fiscal Year ........................................... LPA-2
(d) Net Asset Value ....................................... LPA-2
5. Net Worth of General Partner ................................. LPA-2
6. Capital Contributions; Units ................................. LPA-2
7. Allocation of Profits and Losses ............................. LPA-2
(a) Capital Accounts and Allocations ...................... LPA-2
(b) Allocation of Profit and Loss for Federal Income
Tax Purposes ........................................ LPA-3
(c) Incentive Overrides; Profit Shares .................... LPA-4
(d) Expenses .............................................. LPA-5
(e) Limited Liability of Limited Partners ................. LPA-5
(f) Return of Capital Contributions ....................... LPA-5
8. Management of the Partnership ................................ LPA-5
9. Audits and Reports to Limited Partners ....................... LPA-7
10. Assignability of Units ....................................... LPA-8
11. Redemptions .................................................. LPA-8
12. Offering of Units ............................................ LPA-9
13. Additional Offerings ......................................... LPA-9
14. Special Power of Attorney .................................... LPA-10
15. Withdrawal of a Partner ...................................... LPA-10
16. Standard of Liability; Indemnification ....................... LPA-10
(a) Standard of Liability for the General Partner ......... LPA-10
(b) Indemnification of the General Partner by the
Partnership ......................................... LPA-11
(c) Indemnification of the Partnership by the Partners .... LPA-12
17. Amendments; Meetings ......................................... LPA-12
(a) Amendments with Consent of the General Partner ........ LPA-12
(b) Amendments and Actions without Consent of the
</TABLE>
LPA-i
<PAGE>
<TABLE>
<S> <C> <C> <C>
General Partner .............................. LPA-12
(c) Meetings; Other Voting Matters .................... LPA-12
18. Governing Law ............................................ LPA-13
19. Miscellaneous ............................................ LPA-13
(a) Notices ........................................... LPA-13
(b) Binding Effect .................................... LPA-13
(c) Captions .......................................... LPA-13
20. Certain Definitions ...................................... LPA-13
</TABLE>
LPA-ii
<PAGE>
ML GLOBAL HORIZONS L.P.
THIRD AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
This Third Amended and Restated Limited Partnership Agreement
(the "Limited Partnership Agreement") is made as of December 6, 1995, 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 Third 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 Partners agree in writing to continue the
business of the Partnership and to the appointment, effective as of the
date of such
LPA-1
<PAGE>
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, and
none of the General Partner's "overhead" expenses incurred in connection
with the administration of the Partnership (including, but not limited to,
salaries, rent and travel expenses) shall be charged to 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 known 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 prior written notice to Limited Partners within sufficient time
for the exercise of their redemption rights prior to such increase
LPA-6
<PAGE>
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.
Organizational 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 Third
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 hereafter admitted
PARTNERS INC. 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 August
__, 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 ADDI TIONAL 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 Third 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 IS 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 AUGUST ___, 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 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 August ___, 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>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Financial Consultant [ ][ ][ ][ ][ ][ ] [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ]
Name First M.I Last
[ ][ ][ ][ ][ ] [ ]
Sub. Order Ref.#
Financial Consultant [ ][ ][ ]-[ ][ ][ ]-[ ][ ][ ][ ] Financial Consultant Number [ ] [ ] [ ] Branch Wire [ ][ ][ ]
Phone Number Code
- -----------------------------------------------------------------------------------------------------------------------
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 Merrill Lynch Account #
appropriate box (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
6 Joint Partner Name
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
First Name M.I. Last Name
Partnership, Corporate or Trust Limited Partner Name
7 [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Partner, Officer, Trustee, Beneficiary, Power of Attorney or Custodian Under
UGMA/UTMA
8 [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Additional Information
9 [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Residence Address of Limited Partner (P.O. Box Numbers Are Not Acceptable For
Residence Address)
[ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ]
Street Number Street Name Apt. Number
[ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ] [ ][ ][ ][ ][ ][ ]
Bldg. No. City State Zip Code
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Country (If Other Than U.S.A.)
Mailing Address of Limited Partner (If Other Than Residence Address)
[ ][ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ]
Street Number Street Name Apt. Number
[ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ] [ ][ ][ ][ ][ ][ ]
Bldg. No. 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 Name Apt. Number
[ ][ ][ ][ ] [ ] [ ] [ ] [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ] [ ][ ][ ][ ][ ][ ]
Bldg. No. P.O. Box No. City State Zip Code
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Country (If Other Than U.S.A.)
</TABLE>
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
- --------------------------------------------------------------------------------
Date Country Additional Control
Received Code Order Number
For Office Use Only [ ][ ][ ][ ][ ][ ] [ ][ ] [ ] [ ][ ][ ][ ][ ]
SA-4
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
1 Financial Consultant [ ][ ][ ][ ][ ][ ] [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ]
Name First M.I. Last
[ ][ ][ ][ ][ ]
Sub. Order Ref.#
Financial Consultant [ ][ ][ ]-[ ][ ][ ]-[ ][ ][ ][ ] Branch Wire [ ][ ][ ]
Phone Number Code
- --------------------------------------------------------------------------------
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 Merrill Lynch Account #
appropriate box (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
6 Joint Partner Name
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
First Name M.I. Last Name
Partnership, Corporate or Trust Limited Partner Name
7 [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Partner, Officer, Trustee, Beneficiary, Power of Attorney or Custodian under
UGMA/UTMA
8 [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Additional Information
9 [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Residence Address of Limited Partner (P.O. Box Numbers Are Not Acceptable For
Residence Address)
[ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ]
Street Number Street Name Apt. Number
[ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ] [ ][ ][ ][ ][ ][ ]
Bldg. No. City State Zip Code
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Country (If Other Than U.S.A.)
Mailing Address of Limited Partner (If Other Than Residence Address)
[ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ]
Street Number Street Name Apt. Number
[ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ] [ ][ ][ ][ ][ ][ ]
Bldg. No. City State Zip Code
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Country (If Other Than U.S.A.)
[ ] Check box if Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") is custodian.
Mailing Address of Custodian, If Other Than Merrill Lynch
[ ][ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ]
Street Number Street Name Apt. Number
[ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ] [ ][ ][ ][ ][ ][ ]
Bldg. 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 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
- --------------------------------------------------------------------------------
Date Country Additional Control
Received Code Order Number
For Office Use Only [ ][ ][ ][ ][ ][ ] [ ][ ] [ ] [ ][ ][ ][ ][ ]
SA-6
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
------ -----------------------
The following exhibits are filed herewith.
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.
EX-3.02c Third 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.
EX-23.03 Consent of ARA Portfolio Management Company, L.L.C.
EX-23.04 Consent of Chesapeake Capital Corporation.
EX-23.05 Consent of John W. Henry & Company, Inc.
EX-23.06 Consent of Di Tomasso Group Inc.
EX-23.07 Consent of West Course Capital Inc.
------------------------------------------
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).
<PAGE>
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>
EX-1.01C
--------
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
$_________________________
UNITS OF LIMITED PARTNERSHIP INTEREST
FORM OF AMENDMENT TO THE SELLING AGREEMENT
------------------------------------------
Dated as of _____________________
MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10080-6106
Dear Sirs:
Your affiliate, Merrill Lynch Investment Partners Inc., a Delaware
corporation, formerly ML Futures Investment Partners Inc. (referred to herein in
its individual corporate capacity and as general partner as the "General
Partner"), and an initial limited partner have caused the formation of a limited
partnership pursuant to the Revised Uniform Limited Partnership Act of the State
of Delaware (the "DRULPA") under the name ML GLOBAL HORIZONS L.P. (the
"Partnership"), for the purpose of engaging in speculative trading of futures
and forward contracts and commodity options. As described in the Prospectus
referred to below, the Partnership has entered into Advisory Agreements with
certain commodity trading advisors (collectively, the "Trading Advisors"). The
Partnership engages in speculative trading in the commodities markets as
aforesaid, and the Trading Advisors direct such trading; the initial commodity
broker and forward contract dealer for the Partnership is Merrill Lynch Futures
Inc., a Delaware corporation, and certain of its affiliates (the "Commodity
Broker") or such other brokers as approved of in writing by Merrill Lynch
Futures Inc.; and the exclusive selling agent for the Partnership is yourself,
including, without limitation, Merrill Lynch International & Co., C.V.O.A., and
certain of your affiliates (herein sometimes collectively referred to as the
"Selling Agent").
The undersigned hereby agree to be bound by all terms and conditions
of the Selling Agreement between the Partnership, the General Partner, the
Commodity Broker, the Selling Agent and certain trading advisors dated October
4, 1993 and [list all amendments] (collectively, the "Selling Agreement").
References in the Selling Agreement to the Registration Statement and Prospectus
shall, for purposes of this Amendment to the Selling Agreement, mean the
Partnership's [insert latest Registration Statement and Prospectus dates], and
any subsequent amendments or prospectuses.
<PAGE>
If the foregoing is in accordance with each party's understanding of
its agreement, each party is requested to sign and return to the General Partner
a counterpart hereof, whereupon this instrument along with all counterparts will
become a binding agreement among them in accordance with its terms.
Very truly yours,
ML GLOBAL HORIZONS L.P.
BY: MERRILL LYNCH INVESTMENT
PARTNERS INC., General Partner
By:______________________________
Name:
Title:
[TRADING ADVISORS]
By:______________________________
Name:
Title:
MERRILL LYNCH FUTURES INC.
By:______________________________
Name:
Title:
MERRILL LYNCH INVESTMENT
PARTNERS INC.
By:______________________________
Name:
Title:
Confirmed and Accepted as of
the date first above written
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
Selling Agent
By:____________________________
Name:
Title:
-2-
<PAGE>
EX-5.01
-------
Sidley & Austin
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
LOS ANGELES One First National Plaza LONDON
______ Chicago, Illinois 60603 ______
NEW YORK Telephone 312: 853-7000 SINGAPORE
______ Telex 25-4364 ______
WASHINGTON, D.C. Facsimile 312: 853-7036 TOKYO
Founded 1866
WRITER'S DIRECT NUMBER
August 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 Registration Statement on Form S-1 (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.
<PAGE>
SIDLEY & AUSTIN CHICAGO
Merrill Lynch Investment Partners Inc.
August 22, 1996
Page 2
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 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
-------
Sidley & Austin
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
LOS ANGELES 875 Third Avenue LONDON
______ New York, New York 10022 ______
CHICAGO Telephone 212: 906-2000 SINGAPORE
______ Facsimile 212: 906-2021 ______
WASHINGTON, D.C. TOKYO
Founded 1866
WRITER'S DIRECT NUMBER
August 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: 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 Commis sion (the "SEC") under the
Securities Act of 1933, as amended, of the Registration Statement on Form S-1 to
be filed with the SEC on or about August 23, 1996, (the "Registration
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")
consti tuting 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
<PAGE>
Merrill Lynch Investment Partners Inc.
August 22, 1996
Page 2
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>
EXHIBIT 23.01
-------------
Sidley & Austin
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
LOS ANGELES One First National Plaza LONDON
______ Chicago, Illinois 60603 ______
NEW YORK Telephone 312: 853-7000 SINGAPORE
______ Telex 25-4364 ______
WASHINGTON, D.C. Facsimile 312: 853-7036 TOKYO
Founded 1866
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 August 23, 1996.
Date: August 22, 1996
Very truly yours,
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
August 23, 1996
New York, New York
<PAGE>
EX-23.03
--------
CONSENT
OF
ARA PORTFOLIO MANAGEMENT COMPANY, L.L.C.
---------------------------------------
ARA Portfolio Management Company, L.L.C. hereby consents to all of the
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 August 23,
1996.
Dated: August 22, 1996
ARA PORTFOLIO MANAGEMENT COMPANY,
L.L.C.
By: /s/ A.R. Arulpragasm
---------------------------
A.R. Arulpragasam
President
<PAGE>
EX-23.04
--------
CONSENT
OF
CHESAPEAKE CAPITAL CORPORATION
------------------------------
Chesapeake Capital Corporation hereby consents to all of the
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 August 23,
1996.
Dated: August 22, 1996
CHESAPEAKE CAPITAL CORPORATION
By: /s/ John Hoade
-----------------------------
John Hoade
Executive Vice President & Secretary
<PAGE>
EX-23.05
--------
CONSENT
OF
JOHN W. HENRY & COMPANY, INC.
----------------------------
John W. Henry & Company, Inc. hereby consents to all of the 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 August 23, 1996.
Dated: August 22, 1996
JOHN W. HENRY & COMPANY, INC.
By: /s/ David Bailin
----------------------------
David Bailin
Executive Vice President
<PAGE>
EX-23.06
--------
CONSENT
OF
DI TOMASSO GROUP INC.
--------------------
Di Tomasso Group Inc. hereby consents to all of the 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 August 23, 1996.
Dated: August 22, 1996
DI TOMASSO GROUP, INC.
By: /s/ John Di Tomasso
-----------------------
John Di Tomasso
President
<PAGE>
EX-23.07
--------
CONSENT
OF
WEST COURSE CAPITAL INC.
-----------------------
West Course Capital Inc. hereby consents to all of the 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 August 23, 1996.
Dated: August 22, 1996
WEST COURSE CAPITAL INC.
By: /s/ Michael C. Aronstein
-------------------------
Michael C. Aronstein
President
<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>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 92143682
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 92143682
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 92143682
<CURRENT-LIABILITIES> 6477367
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 85666315
<TOTAL-LIABILITY-AND-EQUITY> 92143682
<SALES> 0
<TOTAL-REVENUES> 5889110
<CGS> 0
<TOTAL-COSTS> 3721065
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2168045
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2168045
<EPS-PRIMARY> 2.93
<EPS-DILUTED> 2.93
</TABLE>
