<PAGE>
As filed with the Securities and Exchange Commission on January 14,
1997
REGISTRATION NO. 333-10749
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________
ML GLOBAL HORIZONS L.P.
(Exact name of registrant as specified in its charter)
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)
________
COPIES TO:
Kathleen H. Pender
Steven Zoric
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
________
PURSUANT TO THE PROVISIONS OF RULE 429 OF THE RULES AND REGULATIONS OF THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, THE FORM OF
PROSPECTUS SET FORTH HEREIN ALSO RELATES TO THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM S-1 (REG. NO. 33-80202) DECLARED EFFECTIVE JUNE 17, 1994 AND
TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-1 (REGISTRATION NO. 33-
88994) DECLARED EFFECTIVE ON MARCH 1, 1995. THIS REGISTRATION STATEMENT
CONSTITUTES POST-EFFECTIVE AMENDMENT NO. 5 WITH RESPECT TO REGISTRATION
STATEMENT NO. 33-80202 AND POST-EFFECTIVE AMENDMENT NO. 4 WITH RESPECT TO
REGISTRATION STATEMENT NO. 33-88994.
================================================================================
<PAGE>
ML GLOBAL HORIZONS L.P.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-1 ITEM NO. PROSPECTUS HEADING
- ---------------- ----------------------
<S> <C> <S>
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 and Interest Income
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;
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 and Interest
Income; Charges; Certain Litigation; 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 JANUARY __, 1997
TO
PROSPECTUS DATED JANUARY __, 1997
__________________________
As of December 1, 1996, the Net Asset Value per Unit of the Fund had risen to
$146.22 from the initial $100 Net Asset Value per Unit as of January 4,
1994.
__________________________
As of the date of this Prospectus Supplement, the Fund's Advisors were as
follows. The allocation of the Fund's assets among such Advisors as of such
date is set forth below in the parentheses following each Advisor's name. The
accompanying Prospectus includes more detailed information concerning the core
Advisors. See "The Advisors" and "The Core Advisors" in the Prospectus.
Core Advisors is the term used by MLIP to identify Advisors allocated 10% or
more of the Fund's assets for management.
<TABLE>
<CAPTION>
ANNUALIZED ASSETS UNDER
WORST/BEST STANDARD MANAGEMENT GENERAL
MONTHLY DEVIATION IN STRATEGY
RATE OF RETURN/1/ OF RETURN/2/ FUND PROGRAM/3/ CLASSIFICATION/4/
----------------- ------------ --------------- -----------------
<S> <C> <C> <C> <C>
CORE ADVISORS
ARA Portfolio Management Company, L.L.C. (14.46)%/5//14.48% 21.3% $97 million Technical;
Gamma Program (13.5%) trend-following
Chesapeake Capital Corporation (10.98)%/15.99% 17.6% $811 million Technical;
Diversified Program (37%) trend-following
John W. Henry & Company, Inc. (27.7)%/6//39.4% 31.4% $1.1 billion Technical;
Financial and Metals Portfolio (24%) trend-following
NON-CORE ADVISORS
Di Tomasso Group Inc. (10.4)%/6.97% 20.0% $9 million Discretionary;
Turbo Trading Program (6.5%) fundamental
Graham Capital Management, L.P. 2.05% N/A $12 million Mean reversion;
Natural Resources Program (9.5%)/7/ (one month trading) trend-following
Willowbridge Associates Inc. (13.7)%/32.01% 27.02% $236 million Discretionary;
XLIM Program (9.5%) fundamental
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
PERFORMANCE AND ASSETS UNDER MANAGEMENT INFORMATION IS CURRENT AS OF OCTOBER 31,
1996.
PERFORMANCE FIGURES ARE NOT AUDITED.
Futures trading is highly leveraged, as is each Advisor's trading program.
No Advisor has been asked to make any special adjustments to its leveraging
policies in the case of the Fund. See "Risk Factors" in the Prospectus.
In considering the leverage at which the different Advisors trade and the
volatility of their performance, prospective investors should recognize that due
to the limited percentage of the Fund's assets allocated to each of them, none
of the non-core Advisors, individually, is likely to have a material effect,
over the short-term, on either the overall return or the overall performance
volatility of the Fund.
The current non-core Advisors each receive Consulting Fees of up to 2% per
annum of the Fund's assets managed by each of them, respectively, plus quarterly
or annual Profit Shares of between 20% and 25% of any cumulative New Trading
Profit achieved by each such Advisor.
__________________________
/1/ The lowest and the highest monthly rate of return for the program traded
for the Fund. All performance information is presented for the period from
January 1, 1991 (or inception, if later) through October 31, 1996.
/2/ An annualized standard deviation of 2% and a mean return of 1% would mean
that 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
returns. In general, the more variable an Advisor's historical returns, the
greater the risk that substantial losses have been included within the
historical range of returns.
/3/ Assets under management in the program used for the Fund (notional funds
excluded).
/4/ See "The Core Advisors" in the Prospectus for a description of these
strategy classifications.
/5/ (14.46)% is the worst Monthly Rate of Return of any individual account, not
of the Gamma Program on a composite basis.
/6/ (27.7)% is the worst Monthly Rate of Return of any individual account, not
of the Financial and Metals Portfolio on a composite basis.
/7/ Graham Capital Management, L.P. began trading client accounts pursuant to
the Natural Resources Program on September 27, 1996.
_________________________
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 SUPPLEMENT.
_________________________
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 SUPPLEMENT. 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>
ML GLOBAL HORIZONS L.P.
$100,000,000
UNITS OF LIMITED PARTNERSHIP INTEREST
ML GLOBAL HORIZONS L.P. (THE "FUND"), a limited partnership, trades in
the international futures and forward markets under the direction of multiple
independent professional advisors (THE "TRADING ADVISORS" OR THE "ADVISORS")
applying proprietary strategies. The Fund's objective is achieving, through
speculative trading, 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
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 December 1,
1996, the Fund's aggregate capitalization was $89,312,943, and the Net Asset
Value per Unit, originally $100, had risen to $146.22 during almost 3 years of
trading.
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 by MLIP.
_________________________
THE UNITS ARE SPECULATIVE SECURITIES.
AN INVESTMENT IN THE FUND INVOLVES SIGNIFICANT RISKS.
_________________________
THE FOLLOWING ARE CERTAIN OF THE SIGNIFICANT RISKS OF THIS INVESTMENT.
. INVESTORS MAY LOSE ALL OR SUBSTANTIALLY ALL OF THEIR INVESTMENT IN THE
FUND. THE FUND HAS NO "PRINCIPAL PROTECTION" FEATURE ASSURING THE RETURN OF
SUBSCRIBERS' INITIAL INVESTMENTS AS OF A SPECIFIED FUTURE DATE.
. THE PAST PERFORMANCE OF THE FUND AND ITS ADVISORS IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS.
. THE FUND TRADES WITH A HIGH DEGREE OF LEVERAGE IN VOLATILE MARKETS.
. THE FUND IS SUBJECT TO SUBSTANTIAL CHARGES. ESTIMATED GROSS TRADING PROFITS
OF APPROXIMATELY 8.16% OF THE FUND'S AVERAGE MONTH-END NET ASSETS MUST BE
EARNED DURING THE FIRST YEAR AFTER A UNIT IS SOLD IN ORDER FOR THE
REDEMPTION VALUE OF SUCH UNIT TO EQUAL ITS INITIAL SUBSCRIPTION PRICE.
. CERTAIN GENERAL TYPES OF MARKET CONDITIONS -- IN PARTICULAR, TRENDLESS
PERIODS WITHOUT MAJOR PRICE MOVEMENTS -- MAKE IT DIFFICULT FOR THE ADVISORS
TO TRADE SUCCESSFULLY.
SEE "RISK FACTORS" BEGINNING AT PAGE 9.
____________________________
SUBSCRIBERS WILL BE REQUIRED TO MAKE CERTAIN REPRESENTATIONS AND
WARRANTIES IN THEIR SUBSCRIPTION AGREEMENTS AND POWERS 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>
======================================================================================================
UNITS OF LIMITED
PARTNERSHIP INTEREST 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 JANUARY __, 1997
<PAGE>
NOTES TO COVER PAGE
- -------------------
(1) The Units are continuously offered on a best efforts basis
without any firm underwriting commitment exclusively through MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED AND ITS AFFILIATES ("MLPF&S" OR THE "SELLING
AGENT").
All Units for which subscriptions are accepted during a month are
issued as of 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 subscriptions on a
designated settlement date approximately five business days after such closing
date.
There is no minimum number of Units that must be sold as of the
beginning of any given calendar month for any Units then to be sold.
(2) See "Plan of Distribution -- Selling Agent Compensation"
beginning at page 57 for information relating to indemnification arrangements
with respect to the Selling Agent.
(3) No selling commissions are paid from the proceeds of
subscriptions. MLIP credits the Selling Agent with production credits of 5% per
Unit on all Units at the time of sale. No such initial production credits are
payable on sales to officers and employees of MERRILL LYNCH & CO., INC.
("ML&CO.") and its affiliates (COLLECTIVELY, "MERRILL LYNCH"), who purchase
Units at 97% rather than 100% of the Net Asset Value per Unit, with MLIP
contributing the difference to the Fund to avoid diluting other investors'
interests.
Beginning with the thirteenth full month after Units are sold (Units
are sold as of the beginning of the month immediately following the month in
which the related subscriptions were accepted), the Selling Agent receives
ongoing production credits on all such Units which remain outstanding (including
Units purchased at a 3% discount by officers and employees of Merrill Lynch) and
which were sold by Financial Consultants (the individual MLPF&S brokers)
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. These ongoing production
credits equal 2% per annum of the average month-end Net Asset Value per
Unit.
MLIP provides all initial and ongoing production credits to the
Selling Agent at no additional cost to the Fund.
_________________________
REGULATORY NOTICES
- ------------------
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 THE UNITS OR TO MAKE ANY REPRESENTATION
CONCERNING THE FUND OR THE UNITS 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, MLF, MLPF&S, ANY TRADING ADVISOR OR ANY OTHER
PERSON.
_________________________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF 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 STATUS
AS LIMITED PARTNERS.
_________________________
MLIP DISTRIBUTES MONTHLY REPORTS INCLUDING SUMMARY FINANCIAL
INFORMATION FOR THE FUND TO ALL LIMITED PARTNERS. LIMITED PARTNERS ALSO RECEIVE
CERTIFIED AUDITED FINANCIAL STATEMENTS AND ALL TAX INFORMATION RELATING TO THE
FUND NECESSARY FOR THE PREPARATION OF LIMITED PARTNERS' ANNUAL FEDERAL INCOME
TAX RETURNS.
_________________________
THE FUND IS SUBJECT TO THE INFORMATIONAL REQUIREMENTS OF THE
SECURITIES EXCHANGE ACT OF 1934, AND IN ACCORDANCE THEREWITH FILES REPORTS AND
OTHER INFORMATION WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC").
REPORTS, PROXIES (IF ANY), INFORMATION STATEMENTS (IF ANY), AND OTHER
INFORMATION FILED BY THE FUND CAN BE INSPECTED AND COPIED AT THE PUBLIC
REFERENCE FACILITIES MAINTAINED BY THE SEC AT 450 FIFTH STREET, N.W. WASHINGTON,
DC 20549 AND AT ITS REGIONAL OFFICES LOCATED AT 7 WORLD TRADE CENTER, SUITE
1300, NEW YORK, NY 10048 AND CITICORP CENTER, 500 WEST MADISON STREET, SUITE
1400, CHICAGO, IL 60661. COPIES OF SUCH MATERIAL CAN BE OBTAINED FROM THE PUBLIC
REFERENCE SECTION OF THE SEC, 450 FIFTH STREET, N.W., WASHINGTON, DC 20549, AT
PRESCRIBED RATES. THE FUND IS AN ELECTRONIC FILER. THE SEC MAINTAINS A WEB SITE
THAT CONTAINS REPORTS, PROXY AND INFORMATION STATEMENTS, AND OTHER INFORMATION
REGARDING REGISTRANTS THAT FILE ELECTRONICALLY WITH THE SEC, AT
HTTP://WWW.SEC.GOV.
_________________________
ML GLOBAL HORIZONS L.P. IS NOT A "MUTUAL FUND" OR ANY OTHER TYPE OF
"INVESTMENT COMPANY" WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940,
AND IS NOT SUBJECT TO REGULATION THEREUNDER.
_________________________
-ii-
<PAGE>
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS
YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE
POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO
AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT
CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGES
34-42 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAKEVEN, THAT IS,
TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 7.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT, AT PAGES 9-11.
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....................................................... 4
Performance of the Fund............................................ 5
Fund Operations.................................................... 6
Breakeven Table.................................................... 7
Federal Income Tax Consequences.................................... 8
Suitability........................................................ 8
RISK FACTORS......................................................... 9
(1) Investors May Lose All or
Substantially All of Their Investment....................... 9
(2) Past Performance Not Necessarily
Indicative of Future Results................................ 9
(3) Volatile Markets; Highly Leveraged
Trading..................................................... 9
(4) Substantial Charges.......................................... 9
(5) Importance of General Market
Conditions.................................................. 9
(6) No Diversification Benefits if the
Fund is Not Profitable...................................... 9
(7) No Assurance of Non-Correlation;
Limited Value of Non-Correlation
Even if Achieved............................................ 9
(8) Combining Independent Trading
Strategies.................................................. 10
(9) Systematic Strategies........................................ 10
(10) Discretionary Strategies..................................... 10
(11) Increased Assets Under Management............................ 10
(12) No Assurance of Advisors' Continued
Services.................................................... 10
(13) Changes in Trading Strategy.................................. 10
(14) Illiquid Markets............................................. 10
(15) Redemptions Restricted....................................... 10
(16) Trading on Non-U.S. Exchanges................................ 11
(17) Conflicts of Interest........................................ 11
(18) Limited Partners Taxed Currently............................. 11
(19) Investment Advisory Fees..................................... 11
(20) Taxation of Interest Income.................................. 11
(21) Tax Audit.................................................... 11
(22) Bankruptcy or Default........................................ 11
(23) Regulatory Change............................................ 11
INVESTMENT FACTORS................................................... 12
SELECTED FINANCIAL DATA.............................................. 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................................................... 15
THE ADVISOR SELECTION PROCESS........................................ 18
THE ADVISORS......................................................... 20
MLIP AND MLF......................................................... 28
Background......................................................... 28
Principals......................................................... 29
MLF................................................................ 30
FIDUCIARY OBLIGATIONS OF MLIP........................................ 30
USE OF PROCEEDS AND INTEREST INCOME.................................. 32
CHARGES.............................................................. 34
Charges Paid by the Fund........................................... 35
Brokerage Commissions........................................... 36
Use of Fund Assets.............................................. 37
Administrative Fees............................................. 37
Bid-Ask Spreads................................................. 37
F/X Desk Service Fees;
EFP Differentials.............................................. 37
Annual Incentive Overrides...................................... 38
Profit Shares................................................... 40
Extraordinary Expenses.......................................... 41
Charges Paid by Merrill Lynch...................................... 42
Selling Commissions; Ongoing
Compensation................................................... 42
Consulting Fees................................................. 42
Redemption Charges................................................. 42
CERTAIN LITIGATION................................................... 43
CONFLICTS OF INTEREST................................................ 48
Merrill Lynch Affiliated Entities.................................. 48
General............................................................ 48
MLIP............................................................... 49
MLF and MLIB....................................................... 49
The Trading Advisors............................................... 49
Financial Consultants.............................................. 50
Proprietary Trading................................................ 50
THE LIMITED PARTNERSHIP AGREEMENT.................................... 51
FEDERAL INCOME TAX CONSEQUENCES...................................... 52
PLAN OF DISTRIBUTION................................................. 55
General............................................................ 55
Subscription Procedure............................................. 56
Purchases by Employee Benefit Plans................................ 56
Selling Agent Compensation......................................... 57
LEGAL MATTERS........................................................ 58
EXPERTS.............................................................. 58
</TABLE>
-2-
<PAGE>
ML GLOBAL HORIZONS L.P.
TABLE OF CONTENTS (CONT'D)
<TABLE>
<CAPTION>
PROSPECTUS SECTION PAGE
- ------------------ ----
<S> <C>
ADDITIONAL INFORMATION............................................... 58
INDEX OF TERMS....................................................... 59
INDEX TO FINANCIAL STATEMENTS........................................ 60
THE CORE ADVISORS.................................................... 79
THE ROLE OF MANAGED FUTURES
IN AN INVESTMENT PORTFOLIO.......................................... 90
APPENDIX I -- INCENTIVE OVERRIDE AND
PROFIT SHARE CALCULATIONS IN AN
OPEN-END FUND..................................................... APPI-1
APPENDIX II -- BLUE SKY GLOSSARY..................................... APPII-1
EXHIBIT A -- FOURTH AMENDED AND
RESTATED LIMITED PARTNERSHIP
AGREEMENT.......................................................... LPA-1
EXHIBIT B -- SUBSCRIPTION REQUIREMENTS............................... SR-1
EXHIBIT C -- SUBSCRIPTION AGREEMENT
AND POWER OF ATTORNEY.............................................. SA-(i)
</TABLE>
____________________
MERRILL LYNCH INVESTMENT PARTNERS INC.
GENERAL PARTNER
MERRILL LYNCH WORLD HEADQUARTERS
SOUTH TOWER, SIXTH FLOOR
WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10080-6106
TELEPHONE: (212) 236-4167
-3-
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
The nature of an investment in the Fund is complex and must be carefully
reviewed by any person considering purchasing Units. The following summary is
qualified in its entirety by the information set forth elsewhere in this
Prospectus.
____________________
THE FUND
ML GLOBAL HORIZONS L.P. (THE "FUND") is a limited partnership which
trades in the international futures and forward markets with the objective of
achieving significant profits over time. The general partner of the Fund is
MERRILL LYNCH INVESTMENT PARTNERS INC. ("MLIP").
The Fund's assets are allocated and reallocated by MLIP to the trading
management of independent professional advisors (THE "TRADING ADVISORS" OR THE
"ADVISORS") applying proprietary strategies in numerous markets.
The Fund offers its Units, and receives and processes subscriptions,
on a continuous basis throughout each month at Net Asset Value. Investors whose
subscriptions are accepted during a month are admitted to the Fund as Limited
Partners as of the beginning of the immediately following month. Investors'
customer securities accounts are debited in the amount of their subscriptions on
a single monthly settlement date within approximately five business days of the
issuance of the Units.
The Fund began trading on January 4, 1994 with an initial
capitalization of $35,835,000. A total of an additional $80,346,819 was invested
in the Units through December 1, 1996, and Units with an aggregate Net Asset
Value of $56,327,113 had been redeemed. As of December 1, 1996, the
capitalization of the Fund was $89,312,943, and the Net Asset Value per Unit,
originally $100 as of January 4, 1994, had risen to $146.22. As of December 1,
1996, the Fund had 2,995 Limited Partners.
Through December 1, 1996, the net gain in the Net Asset Value per Unit
was 46.22%. The highest month-end Net Asset Value per Unit through December 1,
1996 was $146.22 (December 1, 1996) and the lowest $97.36 (March 1, 1994). See
"--Performance of the Fund," below at page 5, and "Selected Financial Data" at
page 14.
RISK FACTORS
THE FOLLOWING ARE CERTAIN OF THE SIGNIFICANT RISKS OF THIS INVESTMENT.
. INVESTORS MUST BE PREPARED TO LOSE ALL OR SUBSTANTIALLY ALL OF THEIR
INVESTMENT. THE FUND HAS NO "PRINCIPAL PROTECTION" FEATURE ASSURING THE
RETURN OF SUBSCRIBERS' INITIAL INVESTMENTS AS OF A SPECIFIED FUTURE DATE.
SEE "RISK FACTORS -- (1) INVESTORS MAY LOSE ALL OR SUBSTANTIALLY ALL OF
THEIR INVESTMENT" AT PAGE 9.
. THE PAST PERFORMANCE OF THE FUND AND THE ADVISORS IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS. SEE "COMMODITY FUTURES TRADING COMMISSION--
RISK DISCLOSURE STATEMENT" AT PAGE 1 AND "RISK FACTORS -- (2) PAST
PERFORMANCE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS" AT PAGE 9.
. THE FUND TRADES WITH A HIGH DEGREE OF LEVERAGE IN VOLATILE MARKETS. SEE
"RISK FACTORS -- (3) VOLATILE MARKETS; HIGHLY LEVERAGED TRADING" AT PAGE 9.
. THE FUND IS SUBJECT TO SUBSTANTIAL CHARGES. ESTIMATED GROSS TRADING
PROFITS OF APPROXIMATELY 8.16% OF THE FUND'S AVERAGE MONTH-END NET ASSETS
MUST BE EARNED DURING THE FIRST YEAR AFTER A UNIT IS SOLD IN ORDER FOR THE
REDEMPTION VALUE OF SUCH UNIT TO EQUAL ITS INITIAL SUBSCRIPTION PRICE. SEE
"-- BREAKEVEN TABLE," BELOW AT PAGE 7, "RISK FACTORS -- (4) SUBSTANTIAL
CHARGES" AT PAGE 9 AND "CHARGES" AT PAGE 34.
. CERTAIN GENERAL TYPES OF MARKET CONDITIONS -- IN PARTICULAR, TRENDLESS
PERIODS WITHOUT MAJOR PRICE MOVEMENTS -- MAKE IT DIFFICULT FOR THE
ADVISORS' TO TRADE SUCCESSFULLY. SEE "RISK FACTORS -- (5) IMPORTANCE OF
GENERAL MARKET CONDITIONS" AT PAGE 9.
NO SUBSCRIBER SHOULD INVEST MORE THAN 10% OF HIS OR
HER READILY MARKETABLE ASSETS IN THE FUND.
SEE "RISK FACTORS" AT PAGES 9 THROUGH 11.
-4-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY (CONT'D)
PERFORMANCE OF THE FUND
ML GLOBAL HORIZONS L.P.
DECEMBER 1, 1996
Type of Pool: Selected-Advisor/Publicly-Offered/Non-"Principal Protected"/(1)/
Inception of Trading: January 4, 1994
Aggregate Subscriptions: $116,181,819
Current Capitalization: $89,312,943
Worst Monthly Drawdown/(2)/: (6.42)% (2/96)
Worst Peak-to-Valley Drawdown/(3)/: (6.42)% (2/96)
_____________
Net Asset Value per Unit, December 1, 1996: $146.22
<TABLE>
<CAPTION>
- ------------------------------------------------------
MONTHLY RATES OF RETURNS/(4)/
- ------------------------------------------------------
MONTH 1996 1995 1994
<S> <C> <C> <C>
- ------------------------------------------------------
January 1.25% (2.74)% (1.40)%
- ------------------------------------------------------
February (6.42)% 5.48% (1.26)%
- ------------------------------------------------------
March 1.37% 9.13% 1.28%
- ------------------------------------------------------
April 7.63% 1.76% 0.40%
- ------------------------------------------------------
May (3.87)% 2.09% 3.29%
- ------------------------------------------------------
June 3.35% (0.29)% 2.67%
- ------------------------------------------------------
July (3.12)% (3.15)% (2.23)%
- ------------------------------------------------------
August 0.45% (0.29)% (1.96)%
- ------------------------------------------------------
September 3.77% (1.21)% 1.52%
- ------------------------------------------------------
October 7.73% (0.11)% 2.06%
- ------------------------------------------------------
November 5.24% 1.89% (0.37)%
- ------------------------------------------------------
December -- 6.12% 0.18%
- ------------------------------------------------------
Compound Annual 17.59% 19.48% 4.08%
Rate of Return (11 mos.)
- ------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
_________________________
(1) PURSUANT TO APPLICABLE CFTC REGULATIONS, A "MULTI-ADVISOR" FUND
IS DEFINED AS ONE THAT ALLOCATES NO MORE THAN 25% OF ITS TRADING ASSETS TO ANY
SINGLE MANAGER. AS THE FUND CURRENTLY ALLOCATES MORE THAN 25% OF ITS TRADING
ASSETS TO ONE OR MORE 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.
(2) WORST MONTHLY DRAWDOWN REPRESENTS THE LARGEST NEGATIVE MONTHLY
RATE OF RETURN EXPERIENCED BY THE FUND; A DRAWDOWN IS MEASURED ON THE BASIS OF
MONTH-END NET ASSET VALUE ONLY, AND DOES NOT REFLECT INTRA-MONTH FIGURES.
(3) WORST PEAK-TO-VALLEY DRAWDOWN REPRESENTS THE GREATEST PERCENTAGE
DECLINE FROM A MONTH-END CUMULATIVE MONTHLY RATE OF RETURN WITHOUT SUCH
CUMULATIVE MONTHLY RATE OF RETURN BEING EQUALLED OR EXCEEDED AS OF A SUBSEQUENT
MONTH-END. FOR EXAMPLE, IF THE MONTHLY RATE OF RETURN WAS (1)% IN EACH OF
JANUARY AND FEBRUARY, 1% IN MARCH AND (2)% IN APRIL, THE PEAK-TO-VALLEY DRAWDOWN
WOULD STILL BE CONTINUING AT THE END OF APRIL IN THE AMOUNT OF APPROXIMATELY
(3)%, WHEREAS IF THE MONTHLY RATE OF RETURN HAD BEEN APPROXIMATELY 3% IN MARCH,
THE PEAK-TO-VALLEY DRAWDOWN WOULD HAVE ENDED AS OF THE END OF FEBRUARY AT
APPROXIMATELY THE (2)% LEVEL.
(4) MONTHLY RATE OF RETURN IS THE NET PERFORMANCE OF THE FUND DURING
THE MONTH OF DETERMINATION (INCLUDING INTEREST INCOME AND AFTER ALL EXPENSES
HAVE BEEN ACCRUED OR PAID) DIVIDED BY THE TOTAL EQUITY OF THE FUND AS OF THE
BEGINNING OF SUCH MONTH.
-5-
<PAGE>
================================================================================
SUMMARY(CONT'D)
FUND OPERATIONS
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 offers investors professional management
in the global commodity markets. These markets are traded through futures,
options on futures and forward contracts and offer the ability to trade either
side of a market (long or short). The Fund's use of a limited number of
Advisors, and allocation of the predominant portion of its assets to a still
smaller group of Advisors, is intended to enhance its profit potential beyond
that of the broadly diversified multi-advisor funds while retaining the
potential risk control benefits of combining independent non-correlated
strategies into an overall trading portfolio. See "The Advisor Selection
Process" at page 18.
During its first 2 1/2 years of operation, the Fund retained only
three Advisors at any one time. Two of these Advisors remain as core Advisors to
the Fund. In July 1996, MLIP began allocating a portion of the Fund's assets
(9%) to two non-core Advisors, and MLIP added a third non-core Advisor as of
January 1, 1997; however, approximately 74.5% of the Fund's assets continue to
be traded by only three Advisors. See "-- The Advisors," below. (Core Advisors
is the term used by MLIP to identify Advisors allocated 10% or more of the
Fund's assets for management.)
The Fund offers investors the opportunity to diversify a limited
portion of the risk segment of their portfolios into an investment field that
has historically often demonstrated a low degree of performance correlation with
tradi tional stock and bond holdings. If such non-correlation is achieved in the
future and the Fund is profitable, investing in the Units has the potential to
enhance the reward/risk ratio of an overall portfolio. Since it began trading,
the Fund's returns have, in fact, frequently 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
90.
MLIP
MLIP is one of the largest managed futures sponsors in the United
States (or elsewhere) in terms of both financial and personnel resources and
assets under management. As of December 1, 1996, MLIP was serving as sponsor or
trading manager for futures funds with total capital of approximately $1.75
billion.
THE ADVISORS
The Fund's assets are traded by both core and non-core 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 were allocated 20% to ARA, 40% to Chesapeake and 40% to JWH.
On July 1, 1996, the Fund began allocating assets to non-core Advisors. At that
time, the balance of the Fund's assets were reallocated 15% to ARA, 38% to
Chesapeake, 38% to JWH and 9% to the non-core Advisors. As of January 1, 1997, a
third non-core Advisor was added and the non-core Advisors were in the aggregate
allocated approximately 25.5% of the Fund's assets. To date, the Fund's Advisor
combinations have been subject to significantly fewer changes than those of most
MLIP multi-advisor funds.
As of October 31, 1996, the current core Advisors were collectively
managing over $2.6 billion in managed futures accounts in which their clients
(and in certain cases the Advisors themselves) had invested, and approximately
$2 billion in the trading programs used for the Fund. Many of the Fund's
Advisors also manage accounts for other futures funds for which MLIP acts as
sponsor or trading manager.
See "The Advisors" at page 20 and "The Core Advisors" at page 79 for
certain performance and other information relating to the current core Advisors.
The accompanying Prospectus Supplement identifies the current non-core
Advisors.
-6-
================================================================================
<PAGE>
================================================================================
SUMMARY(CONT'D)
THERE CAN BE NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS OBJECTIVE OR AVOID
SUBSTANTIAL LOSSES.
NO ADVISOR OR MERRILL LYNCH ENTITY HAS GUARANTEED THE SUCCESS OF
THE FUND, OR THE MAXIMUM LOSS WHICH AN INVESTOR MIGHT INCUR.
<TABLE>
<CAPTION>
BREAKEVEN TABLE
===============================================================================================
COLUMN I COLUMN II
BREAKEVEN BREAKEVEN
PERCENTAGE RETURN DOLLAR RETURN
REQUIRED REQUIRED
FIRST TWELVE MONTHS ($5,000 INITIAL INVESTMENT)
EXPENSES OF INVESTMENT FIRST TWELVE MONTHS
AND INTEREST INCOME OF INVESTMENT
<S> <C> <C>
---------------------------------------------------------------------------------------------
Brokerage Commissions/(1)/ 7.25% $ 362.50
---------------------------------------------------------------------------------------------
Administrative Fee/(2)/ 0.25% $ 12.50
---------------------------------------------------------------------------------------------
F/X Desk Service and Related Fees/(3)/ 0.25% $ 12.50
---------------------------------------------------------------------------------------------
Profit Shares/(4)/ 2.00% $ 100.00
---------------------------------------------------------------------------------------------
Incentive Override/(5)/ 0.31% $ 15.50
---------------------------------------------------------------------------------------------
Redemption Charge/(6)/ 3.10% $ 155.00
---------------------------------------------------------------------------------------------
Interest Income/(7)/ (5.00)% $(250.00)
---------------------------------------------------------------------------------------------
RETURN ON $5,000 INITIAL
INVESTMENT REQUIRED TO 8.16% $ 408.00
BREAKEVEN
=============================================================================================
</TABLE>
NOTES TO BREAKEVEN TABLE
(1) Brokerage Commissions include the Consulting Fees payable to the
Advisors by MLF. Consulting Fees range from 1% to 4% per annum of Fund
assets being managed, depending on the Advisor.
(2) Beginning October 1, 1996, the annual Brokerage Commissions payable to
MLF were reduced to 7.25% from 7.50%, with 0.25% per annum being
recharacterized as an Administrative Fee payable directly to MLIP by
the Fund. This recharacterization had no effect on the Fund.
(3) Estimated; paid on a per-transaction basis. The bid-ask spreads paid on
forward currency trades are difficult to estimate and are not included
as an expense in the Breakeven Table. The F/X Desk is the Foreign
Exchange Service Desk organized by MLIP through which the Fund trades
forward currency contracts. See "Charges" at page 34.
(4) It is not possible to predict the Profit Shares which might be paid in
a breakeven year. MLIP believes, based on the experience of the Fund to
date, that 2.00% of average month-end capitalization is a reasonable
estimate of breakeven Profit Share expense, however, actual Profit
Shares could differ.
(5) No Incentive Override might, in fact, be due despite the approximately
3.1% Net Asset Value gain necessary to offset the redemption charge of
$155 (based on an initial $5,000 investment). See "Charges -- Annual
Incentive Overrides" at page 38. However, for purposes of the Breakeven
Table, the Incentive Override has been estimated at 10% of such 3.1%
gain.
(6) Redemption charges would equal 3.1% of the initial $5,000 investment
because these charges would equal 3% of the $5,155 year-end Net Asset
Value necessary in order for the investor to receive net redemption
proceeds of $5,000 after subtracting the 3% redemption charge.
(7) Estimated; based on current 91-day Treasury bill rates. Such estimate
does not reflect the annual benefit derived by Merrill Lynch from the
deposit of certain of the Fund's U.S. dollar Available Assets in offset
accounts. See "Use of Proceeds and Interest Income" beginning at page
32.
-7-
================================================================================
<PAGE>
================================================================================
SUMMARY (cont'd)
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of counsel, the Fund is properly characterized as a
partnership for federal income tax purposes. Limited Partners 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 are treated as capital gains or
losses for tax purposes; interest income received by the Fund is treated as
ordinary income. The Fund could incur significant capital losses, and investors
nevertheless be required to pay tax on their allocable share of the Fund's
ordinary income.
SUITABILITY
THE FUND TRADES AT A HIGH DEGREE OF LEVERAGE IN HIGHLY VOLATILE
MARKETS. AN INVESTMENT IN THE UNITS IS SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK. THERE CAN BE NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS OBJECTIVE OR
AVOID SUBSTANTIAL LOSSES.
NO SUBSCRIBER SHOULD INVEST MORE THAN 10% OF HIS OR HER READILY
MARKETABLE ASSETS IN THE FUND. SUBSCRIBERS MUST BE PREPARED TO LOSE ALL OR
SUBSTANTIALLY ALL OF THEIR INVESTMENT.
THE UNITS ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
================================================================================
-8-
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE FUND IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK.
NO SUBSCRIBER SHOULD INVEST MORE THAN 10% OF
HIS OR HER READILY MARKETABLE ASSETS IN THE FUND.
_______________
(1) INVESTORS MAY LOSE ALL OR SUBSTANTIALLY ALL OF THEIR INVESTMENT
INVESTORS MUST BE PREPARED TO LOSE ALL OR SUBSTANTIALLY ALL OF THEIR
INVESTMENT. THE FUND HAS NO "PRINCIPAL PROTECTION" FEATURE ASSURING THE RETURN
OF SUBSCRIBERS' INITIAL INVESTMENTS AS OF A SPECIFIED FUTURE DATE.
(2) PAST PERFORMANCE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
Past performance is not necessarily indicative of future results.
Neither the Advisors' nor the Fund's past performance to date may be
representative of how they or it, respectively, may 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 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 any Incentive Override due, despite the Net Asset Value of such Units
falling below their initial purchase price.
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.
(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) NO ASSURANCE OF NON-CORRELATION; LIMITED VALUE OF NON-CORRELATION EVEN 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, however the Fund may perform, that
the Fund's results will be non-correlated with (i.e., unrelated to) the general
stock and bond markets. If the Fund's performance is not non-correlated to
these markets, the Fund cannot help diversify an overall portfolio.
Investors should 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
-9-
<PAGE>
(7) (CONTINUED)
price levels, (ii) generate a positive yield and cash flow, (iii) be highly
liquid, (iv) have almost no risk of loss of principal, and (v) incur virtually
no costs or expenses.
Even if the Fund's performance is generally 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, thereby reducing or eliminating the Fund's
diversification benefits. During unfavorable economic cycles, an investment in
the Fund may increase rather than mitigate a portfolio's aggregate losses.
(8) COMBINING INDEPENDENT TRADING STRATEGIES
Combining independent trading strategies involves substantial
opportunity costs, as one Advisor's profits are frequently offset by another
Advisor's losses. Different Advisors often take opposite positions for the
Fund, eliminating the profit potential of the combined positions.
(9) 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.
(10) DISCRETIONARY STRATEGIES
Certain of the Fund's Advisors are and may be 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 more
systematic approaches.
(11) 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 most of them are at or near their all-time high in assets under
management.
(12) NO ASSURANCE OF ADVISORS' CONTINUED SERVICES
There is no assurance that any Trading 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.
(13) CHANGES IN TRADING STRATEGY
An Advisor may make certain changes in its trading strategies without
the knowledge of MLIP.
(14) 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.
(15) REDEMPTIONS RESTRICTED
Investors' limited ability to redeem Units could result in there being
a substantial 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.
-10-
<PAGE>
(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 profits and losses derived from trading foreign futures and
options will generally be denominated in foreign currencies; consequently, the
Fund will be subject to a certain degree of exchange-rate risk in trading such
contracts.
(17) CONFLICTS OF INTEREST
The Fund is subject to a number of material actual and potential
conflicts of interest, raising the possibility that investors will be
disadvantaged to the benefit of MLIP, the Trading Advisors or their respective
principals and affiliates. No formal policies or procedures have been adopted to
resolve these conflicts. See "Conflicts of Interest" at page 48.
(18) LIMITED PARTNERS TAXED CURRENTLY
Each year, Limited Partners are taxed on their allocable share of any
Fund profits. If an investor purchased stocks or bonds, on the other hand,
there would generally be no tax due on the appreciation in the value of such
holdings until disposition.
All performance information in this Prospectus is presented
exclusively on a pre-tax basis.
(19) INVESTMENT ADVISORY FEES
Limited Partners could be required to treat the Profit Shares and
Incentive Overrides, as well as certain other expenses of the Fund, as
investment advisory fees, which are subject to substantial restrictions on
deductibility for individual taxpayers. MLIP has not, to date, been classifying
the Profit Shares, the Incentive Overrides or such expenses as investment
advisory fees, a position to which the Internal Revenue Service (the "IRS") may
object.
(20) TAXATION OF INTEREST INCOME
The Fund's trading losses are almost exclusively capital losses for
tax purposes. Capital losses may be offset against ordinary income only to the
extent of $3,000 per year for individual taxpayers. If an individual Limited
Partner had, for example, an allocable trading loss of $10,000 and allocable
interest income of $5,000, he or she would incur a net loss of $5,000 but would
recognize taxable interest income of $2,000.
(21) TAX AUDIT
There can be no assurance that the Fund's tax returns will not be
audited by the IRS. If such an audit were to result 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 such tax consequences differ among
investors. See "Federal Income Tax Consequences" at page 52.
(22) BANKRUPTCY OR DEFAULT
In the event of the bankruptcy of MLF, the Fund could be unable to
recover its assets, and investors could incur substantial losses, despite the
Fund having been otherwise highly profitable.
(23) REGULATORY CHANGE
Future regulatory changes could be materially adverse to the Fund.
____________________
-11-
<PAGE>
INVESTMENT FACTORS
The following summarizes certain of the principal potential advantages
which MLIP believes may be associated with an investment in the Fund. There are
also substantial risks associated with such an investment. See "Risk Factors"
beginning at page 9.
____________________
(1) MLIP
MLIP is a major sponsor of futures funds. MLIP's experience and
familiarity with the industry assist MLIP in its ongoing monitoring of the
Trading Advisors' performance as well as in the administration of the Fund.
MLIP combines experience in its trading advisor selection process with an active
approach to its general partner and trading manager roles.
(2) THE TRADING ADVISORS
The Advisors selected by MLIP for the Fund generally satisfy MLIP's
criteria of having performed successfully for a significant period of time (no
less than approximately 12-18 months) prior to their selection. MLIP evaluates
successful performance in a variety of ways, including cumulative profitability,
performance volatility and the duration and frequency of drawdowns. Although
MLIP uses a variety of statistical measures in assessing prospective Advisors'
performance, because of the inherent uncertainty of future performance, MLIP
relies heavily on its subjective evaluation of a prospective Advisor's abilities
in the selection process. Other than in exceptional circumstances, prospective
Advisors who do not satisfy MLIP's quantitative past performance criteria are
not given further consideration. However, even Advisors which are considered
eligible on the basis of past performance must also meet MLIP's qualitative
standards (e.g., trading discipline, market view, reputation in the industry,
past experience, willingness to negotiate fees, etc.) in order to be selected.
(3) MARKET AND STRATEGY DIVERSIFICATION
In its asset allocation, 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 for the Fund. See "The Core
Advisors -- Futures Trading Methods in General" at pages 79-80.
(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 reward/risk profile of a
portfolio. Non-correlation without positive performance will not provide any
diversification advantages, and there can be no assurance that the Fund will
trade profitably.
Non-correlated performance must be distinguished from negatively
correlated performance. MLIP has no expectation that the performance of the
Fund will be inversely related to that of the general debt and equity markets,
i.e., likely to be profitable when the latter are unprofitable or vice versa.
This would be negative correlation. Non-correlation means only that the
performance of the Fund has, in MLIP's judgment, a good likelihood of being
unrelated to the performance of stocks and bonds, reflecting MLIP's belief that
certain factors which affect stock and bond prices may affect the Fund
differently and that certain factors which affect the former may not affect the
latter. The Net Asset Value per Unit may decline more or less than, or be more
or less profitable than, stocks and bonds during both bear and bull markets.
-12-
<PAGE>
(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 limited portion of the risk segment of their portfolios to a
managed futures investment such as the Fund, in which selected advisors
specialize 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, in fact, profitable as well as non-
correlated with stocks and bonds, to add a valuable aspect of diversification to
a traditionally structured portfolio. Doing so may permit them to enhance their
prospects for superior performance as well as to reduce both the volatility of
their portfolios over time and their dependence on any single nation's
economy.
(6) THE INCENTIVE OVERRIDE AS AN ALTERNATIVE TO HIGHER FIXED-RATE COSTS
MLIP structured the Fund to provide for an annual 10% 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 October 1, 1996, was
restructured to 7.25% per annum plus a 0.25% annual Administrative Fee payable
by the Fund directly to MLIP). 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. If the Fund generates Net New Gain in
excess of 20% of the Fund's average month-end assets in a given calendar year,
MLIP will recognize a higher net overall return from the Fund than MLIP would
under MLIP's more typical fee structure.
(7) SMALL MINIMUM INVESTMENT; SMALLER MINIMUM ADDITIONAL INVESTMENT
The initial minimum investment in the Fund is 50 Units (or $5,000, if
less), and the minimum additional investment for existing Limited Partners only
20 Units (or $2,000, if less). Any greater number of whole Units may be
purchased.
The small minimum investment required by the Fund makes it possible
for first-time investors to gain exposure to managed futures through investing
in the Fund without having to commit large amounts of capital and also permits
smaller investors who wish to do so to include an investment in the Fund as a
limited portion of the risk segment of their portfolios.
(8) MERRILL LYNCH EMPLOYEE DISCOUNT
Officers and employees of Merrill Lynch subscribe for Units at the
discounted price of 97% of the Net Asset Value per Unit. MLIP itself provides
the remaining 3% of the Net Asset Value per Unit to the Fund so that other
subscribers' investments are not diluted. (Due to regulatory considerations,
the employee discount is not available to retirement accounts. Such accounts
are free to purchase Units, but must do so at 100% of the Net Asset Value per
Unit.)
The discount permits eligible investors to share in a portion of the
benefit derived by MLIP from not having to pay initial selling commissions on
sales of Units within the Merrill Lynch organization.
(9) ADMINISTRATIVE CONVENIENCE
The Fund is structured in order to minimize the administrative burden
to Limited Partners. Limited Partners receive, directly from MLIP, monthly
unaudited statements of account and annual certified financial reports as well
as all Fund-related tax information necessary for Limited Partners to complete
their federal income tax returns. The approximate Net Asset Value per Unit is
available at any time upon request.
-13-
<PAGE>
SELECTED FINANCIAL DATA
The following Selected Financial Data is derived: (i) 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, and which are included
herein in reliance upon the authority of Deloitte & Touche llp as experts in
auditing and accounting; and (ii) from the interim financial statements of the
Fund for the periods from January 1, 1996 to September 30, 1996 (unaudited) and
January 1, 1995 to September 30, 1995 (unaudited). See "Index to Financial
Statements" at page 60.
____________________
<TABLE>
<CAPTION>
JANUARY 1, 1996 JANUARY 1, 1995
TO TO JANUARY 1, 1995 JANUARY 4, 1994
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 TO TO
INCOME STATEMENT DATA (UNAUDITED) (UNAUDITED) DECEMBER 31, 1995 DECEMBER 31, 1994
- ------------------------------------ ------------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Trading Profits (Loss)
Realized Gain $ 4,610,717 $14,314,748 $17,455,764 $ 453,726
Change in Unrealized Gain (Loss) 768,003 (4,758,175) 299,233 5,331,556
----------- ---------- ----------- -----------
Total Trading Results 5,378,720 9,556,573 17,754,997 5,785,282
Interest Income 2,996,535 2,819,800 3,786,925 1,972,722
----------- ----------- ----------- -----------
Total Revenues 8,375,255 12,376,373 21,541,922 7,758,004
----------- ----------- ----------- -----------
Expenses:
Brokerage Commissions 4,990,367 4,128,889 5,723,755 3,859,267
Profit Shares 373,820 1,492,857 1,492,857 1,103,649
Incentive Override 5,117 147,489 965,454 41,867
----------- ----------- ----------- -----------
Total Expenses 5,369,304 5,769,235 8,182,066 5,004,783
----------- ----------- ----------- -----------
Net Income $ 3,005,951 $ 6,607,138 $13,359,856 $ 2,753,221
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
BALANCE SHEET DATA* (UNAUDITED) (UNAUDITED) DECEMBER 31, 1995 DECEMBER 31, 1994
- ------------------ ------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Fund Net Asset Value $81,077,111 $83,631,110 $92,761,068 $67,078,533
Net Asset Value per Unit $128.97 $115.14 $ 124.35 $ 104.08
- ----------
</TABLE>
* Balance Sheet Data is based on redemption values, which differ immaterially
from Net Asset Values as determined under Generally Accepted Accounting
Principles ("GAAP") due to the treatment of organizational and initial offering
cost reimbursements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
MONTH-END NET ASSET VALUE PER UNIT
- ------------------------------------------------------------------------------------------------------------------
JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC.
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $ 98.60 $ 97.36 $ 98.60 $ 98.99 $102.25 $104.98 $102.64 $100.63 $102.16 $104.27 $103.89 $104.08
- ------------------------------------------------------------------------------------------------------------------
1995 $101.22 $106.76 $116.51 $118.56 $121.04 $120.69 $116.88 $116.54 $115.14 $115.01 $117.18 $124.35
- ------------------------------------------------------------------------------------------------------------------
1996 $125.91 $117.82 $119.43 $128.54 $123.56 $127.71 $123.72 $124.28 $128.97 $138.94 $146.22 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. AT ANY GIVEN TIME, CERTAIN UNITS MAY HAVE INCREASED IN NET ASSET VALUE
FROM THE DATE OF PURCHASE WHILE OTHERS HAVE DECREASED.
-14-
<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. MLIP's selection
procedures, as well as 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.
In the Fund's 35 months of trading through November 1996, MLIP has made
only a limited number of changes in either the Fund's Advisors or in the
allocation of its assets among them: (i) replacing a former core Advisor (which
discontinued operations) with ARA Portfolio Management Company, L.L.C. as of
January 1, 1995 and (ii) allocating assets to non-core Advisors beginning July
1, 1996. See the Prospectus Supplement accompanying this Prospectus.
As of January 1, 1997, the Fund's assets were allocated among the core
Advisors approximately as follows:
<TABLE>
<S> <C>
ARA Portfolio Management
Company, L.L.C. 13.5%
Chesapeake Capital Corporation 37.0%
John W. Henry & Company, Inc. 24.0%
----
Total 74.5%
====
</TABLE>
MLIP's decision to terminate or reallocate assets among Trading
Advisors is based on a combination of numerous factors, as described under "The
Advisor Selection Process" at page 18. 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 made significantly fewer
reallocations of trading assets and adjustments in the Advisor combinations for
the Fund than in the case of many of MLIP's multi-advisor funds. However, there
can be no assurance as to the frequency or number of Advisor changes that may
take place in the future, or as to how long any of the current Advisors will
continue to manage assets for the Fund.
RESULTS OF OPERATIONS
General
- -------
MLIP believes that multi-advisor futures funds should be regarded as
medium- to long-term (i.e., three to five year) 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.
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, forward
and options trading (the Fund does not trade derivatives other than futures and
forward contracts and options thereon) 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.
MLIP attempts to control the market risk inherit in the Fund's trading
in the manner described under "The Advisor Selection Process -- MLIP and Its
Advisor Selection and Monitoring Process" at page 18. The market risk to the
Fund is, in any event, limited by its multi-advisor strategy. MLIP reviews the
positions acquired by the Advisors on a daily basis in an
-15-
<PAGE>
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
reduce the risk of such over-concentration occurring in the future.
MLIP may consider making distributions to investors under certain
circumstances (for example, if substantial profits are recognized); however,
MLIP has not done so to date and does not presently intend to do so.
Performance Summary
- -------------------
1994
STATISTICS. During 1994, the Fund's average month-end Net Assets
equalled $53,119,205. The Fund recognized gross trading gains of $5,785,282,
and incurred Brokerage Commissions of $3,859,267, Profit Shares of $1,103,649
and Incentive Overrides of $41,867 (or 10.89%, 7.27%, 2.08% and 0.08%,
respectively, of average month-end Net Assets). Interest income of $1,972,722
or 3.71% of average month-end Net Assets resulted in net income 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
many major price 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.
1995
STATISTICS. During 1995, the Fund's average month-end Net Assets
equalled $74,120,244. The Fund recognized gross trading gains of $17,754,997,
and incurred Brokerage Commissions of $5,723,755, Profit Shares of $1,492,857
and Incentive Overrides of $965,454 (or 23.95%, 7.72%, 2.01% and 1.30%,
respectively, of average month-end Net Assets). Interest income of $3,786,925 or
5.11% of average month-end Net Assets resulted in net income (without reduction
for organization and initial offering cost reimbursement payments) of
$13,359,856, and a 19.48% increase in the Net Asset Value per Unit.
OVERVIEW. In 1995, prevailing price trends in several key markets
enabled the 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 conditions. After months
characterized by very difficult trading environments, solid price trends across
many markets (including U.S. Treasury and non-dollar bond markets) began to
emerge during the first quarter of 1995. In the second quarter, market
volatility once again began to affect trading, as many previously strong price
trends began to weaken and, in some cases, reverse. The U.S. dollar hit new
lows versus the Japanese yen and Deutschemark before rebounding sharply. In
addition, there were strong indications that the U.S. economy was slowing which,
when coupled with a failure of the German Central Bank to lower interest rates,
stalled a rally in the German bond market. During the third quarter, there was
a 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 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 as a result of the coordinated intervention by major central banks
and 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. The yield on the 30-
year Treasury bond was pushed to its lowest level in more than two years.
1996 (9 months)
STATISTICS. From January 1, 1996 through September 30, 1996, the
Fund's average month-end Net Assets equalled $88,631,646. The Fund recognized
gross trading gains of $5,378,720, and incurred Brokerage Commissions of
$4,990,367, Profit Shares of $373,820 and Incentive Overrides of $5,117 (or
6.07%, 5.63%, 0.42% and 0.01%, respectively, of average month-end Net Assets).
Interest income of $2,996,535 or 3.38% of average month-end Net Assets resulted
in a net gain of $3,005,951 and a 3.72% increase in the Net Asset Value per
Unit.
OVERVIEW. The first nine months of 1996 included the two worst single
monthly drawdowns as well as the second most profitable month in the Fund's
history (through September 30, 1996). The year began with the East Coast
blizzard,
-16-
<PAGE>
continuing difficulties in federal budget talks and an economic slowdown having
a negative impact on many markets. The Fund was profitable in January due to
strong profits in currency trading as the U.S. dollar reached a 23-month high
against the Japanese yen. In February, however, the Fund incurred its worst
monthly loss due to the sudden reversals in several strong price trends and
considerable volatility in the currency and financial markets. During March,
large profits were taken in the crude oil and gasoline markets as strong demand
continued and talks between the United Nations and Iraq were suspended. This
trend continued into the second quarter, during which strong gains were also
recognized in the agricultural markets as a combination of drought and excessive
rain drove wheat and grain prices to historic highs. In the late summer and
early fall months, however, the Fund gave back much of these gains as difficult
trading conditions in many markets prevailed and a lack of clear price trends in
key markets negatively impacted the Fund's performance.
RESULTS OF OPERATIONS IN GENERAL
The principal variables which determine the net performance of the
Fund are gross profitability and interest income. During all periods set forth
under "Selected Financial Data," the interest rates in many countries were at
unusually low levels. This negatively impacted revenues because interest income
is typically a major component of commodity pool profitability. In addition, low
interest rates are frequently associated with reduced fixed-income market
volatility, and in static markets the Fund's profit potential generally tends to
be diminished. On the other hand, during periods of higher interest rates, the
relative attractiveness of a high risk investment such as the Fund may be
reduced as compared to high yielding and much lower risk fixed-income
investments.
The Fund's Brokerage Commissions (and, as of October 1, 1996, the
Fund's Administrative Fees) are a constant percentage of assets charge. The
only Fund costs (other than the insignificant F/X Desk service fees and EFP
differentials) which are not based on a percentage of the Fund's assets 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 overall Fund performance.
During periods when Profit Shares are a high percentage of net trading gains, it
is likely that there has been substantial performance non-correlation among the
Advisors (so that the total Profit Shares paid to those Advisors which have
traded profitably are a high percentage, or perhaps even in excess, of the total
profits recognized, as other Advisors have incurred offsetting losses, reducing
overall trading gains but not the Profit Shares paid to the successful Advisors)
- -- suggesting the likelihood of generally trendless, non-consensus markets.
The events that primarily determine the Fund's profitability are those
that produce sustained and major price movements. The Advisors are generally
more likely to be able to profit from sustained trends, irrespective of their
direction, than from static markets. 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 should not, except at
extremely high levels of capitalization, have a significant impact on its
operations. The Fund's costs are generally proportional to its asset base, and,
within broad ranges of capitalization, the Advisors' trading positions (and the
resulting gains and losses) 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 securities other
than the Units.
Inflation per se is not a significant factor in the Fund's
profitability, although inflationary cycles can give rise to the type of major
price movements that can have a materially favorable or adverse impact on the
Fund's performance.
In its trading to date, the Fund has from time to time had substantial
unrealized gains and losses on its open positions. These gains or losses are
paid on a periodic basis as part of the routine clearing cycle on exchanges or
in the over-the-counter markets (the only over-the-counter market in which the
Fund trades is the inter-bank forward market in currencies). In
-17-
<PAGE>
highly unusual circumstances, market illiquidity could make it difficult for
certain Advisors to close out open positions, and any such illiquidity could
expose the Fund to significant losses, or cause it to be unable to recognize
unrealized gains. However, in general, there is no meaningful difference between
the Fund's realized and unrealized gains.
In terms of cash flow, it makes little difference whether a market
position remains open (so that the profit or loss on such positions remains
unrealized), as cash settlement of unrealized gains and losses occurs
periodically whether or not positions are closed out. The only meaningful
difference between realized and unrealized gains or losses in the case of the
Fund is that unrealized items reflect gains or losses on positions which the
Advisors have determined not to close out (presumably, in the hope of future
profits), whereas realized gains or losses reflect amounts received or paid in
respect of positions no longer being maintained.
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 qualitative 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 in the past 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. In
addition to significant qualitative factors concerning the Advisors, certain
mathematical optimization procedures are used to develop an Advisor combination
which, based on a trading scenario in which the past performance of the
respective Advisors is combined for purposes of MLIP's selection analysis,
exhibits a reward/risk profile consistent with MLIP's objectives. By
identifying Advisor combinations on this basis, MLIP hopes to maintain profit
potential while also materially reducing the risk of major equity declines.
In selecting Advisors for the Fund, MLIP emphasizes retaining multiple
Advisors, trading in multiple markets and implementing multiple strategies.
MLIP also evaluates the overall market diversification and emphasis that
different possible Advisor combinations would give the Fund. Discretionary as
well as systematic, fundamental as well as technical, Advisors may be retained.
MLIP may allocate Fund assets to Advisors specializing in particular market
sectors and to Advisors with broadly diversified portfolios. See "The Core
Advisors -- Futures Trading Methods in General" at pages 79-80. 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 which 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
-18-
<PAGE>
Advisor portfolio will 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
Deutschemark Singapore Dollar
Dutch Guilder Spanish Peseta
European Currency Unit Swedish Krona
Finnish Markka Swiss Franc
French Franc United States Dollar
INTEREST RATES
Australian Bonds German Bonds
Australian Treasury Bills Italian Bonds
Canadian Bonds Japanese Bonds
Eurodollars PIBOR
Eurolira Spanish Bonds
Euromarks U.K. Gilts
Euroswiss U.K. Short Sterling
Euroyen U.S. Treasury Bills
French Bonds U.S. Treasury Bonds
U.S. Treasury Notes
STOCK INDICES
CAC 40 Stock Index (France) S&P 500 Stock Index (U.S.)
Financial Times 100 Stock Index (U.K.) Tokyo Stock Price Index
Major Market Stock Index (U.S.) U.S. Dollar Index
MEFF&S Stock Index (Spain) Value Line Stock Index (U.S.)
Nikkei Stock Average (Japan)
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
-19-
<PAGE>
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 either over
time or from time to time.
____________________
THE ADVISORS
CORE ADVISOR SUMMARIES
As of October 31, 1996, the three core Advisors, which were, in the
aggregate, trading approximately 74.5% of the Fund's assets as of January 1,
1997, were managing over $2.6 billion of customer assets in the futures, cash
and forward markets, of which approximately $2 billion was being traded in the
programs used for the Fund.
THE CORE ADVISORS
<TABLE>
<CAPTION>
APPROXIMATE
JANUARY 1, 1997 ASSETS UNDER MANAGEMENT
ADVISOR ASSET ALLOCATION OCTOBER 31, 1996
------- ---------------- -----------------------
<S> <C> <C>
ARA Portfolio 13.5% $130 million (total)
Management $ 97 million (Gamma Program)
Company, L.L.C.
Chesapeake Capital 37.0% $826 million (total)
Corporation $778 million (Diversified Program)
John W. Henry 24.0% $1.7 billion (total)
& Company, Inc. ----- $1.1 billion (Financial and Metals Portfolio)
74.5%
</TABLE>
Each of the current core Advisors is a systematic, technical, trend-
following trader.
More complete descriptions of the core Advisors are included
under "The Core Advisors" beginning at page 79. See "Risk Factors -- (2) Past
Performance Not
Necessarily Indicative of Future Results" at page 9.
ARA PORTFOLIO MANAGEMENT COMPANY, L.L.C. (13.5% ALLOCATION AS OF
JANUARY 1, 1997) -- 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 daily
monitoring and attempting 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. MLIP may reallocate some or all of the
Fund's assets managed by ARA to the Alpha Program, which is virtually identical
to the Gamma Program, except that the Alpha Program utilizes lower leverage. As
of October 31, 1996, ARA was managing approximately $97 million of customer
funds in the Gamma Program and approximately $130 million of customer funds in
all of its programs.
-20-
<PAGE>
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
8.7% (10 months), respectively. During such period, the worst monthly drawdown
on a composite basis was (13.28)% (2/96), the worst monthly drawdown on an
individual account basis (14.46)% (2/96) and the worst peak-to-valley drawdown
(30.32)% (4/95-2/96).
The following performance summary and chart reflect the composite
performance results from June 1992 through October 1996 of ARA's Gamma Program.
ARA trades this Program on behalf of the Fund. The Gamma Program has been
utilized in trading for 45 accounts since its inception. As of October 31,
1996, 22 accounts had been closed and 23 accounts remained open. Of the closed
accounts, 16 were profitable and 6 were unprofitable at their closing. Of the
23 open accounts, all were profitable.
-21-
<PAGE>
ARA PORTFOLIO MANAGEMENT COMPANY, L.L.C.
GAMMA PROGRAM
OCTOBER 31, 1996
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: 23
AGGREGATE ASSETS (EXCLUDING NOTIONAL EQUITY) OVERALL: $130 MILLION
AGGREGATE ASSETS (EXCLUDING NOTIONAL EQUITY) IN PROGRAM: $97 MILLION
AGGREGATE ASSETS (INCLUDING NOTIONAL EQUITY) OVERALL: $130 MILLION
AGGREGATE ASSETS (INCLUDING NOTIONAL EQUITY) IN PROGRAM: $97 MILLION
WORST MONTHLY DRAWDOWN ON AN INDIVIDUAL ACCOUNT BASIS: (14.46)% (2/96)
WORST MONTHLY DRAWDOWN ON A COMPOSITE BASIS: (13.28)% (2/96)
WORST PEAK-TO-VALLEY DRAWDOWN ON AN INDIVIDUAL ACCOUNT BASIS: (30.32)% (4/95-
2/96)
<TABLE>
<CAPTION>
==========================================================================
Monthly Rates
of Return 1996 1995 1994 1993 1992
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January (5.47)% 0.07% 1.24% 0.05% --
--------------------------------------------------------------------------
February (13.28) 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 (9.56) (4.42) 13.54 (1.41) --
--------------------------------------------------------------------------
June 5.95 (0.30) 11.90 3.58 11.69%
--------------------------------------------------------------------------
July 0.87 (6.75) (1.92) 3.18 4.51
--------------------------------------------------------------------------
August 0.67 (0.37) (8.34) (5.63) 3.85
--------------------------------------------------------------------------
September 4.07 (4.19) (3.05) (4.43) (1.84)
--------------------------------------------------------------------------
October 8.53 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 8.7% 27.3%
Rate of Return (10 months) 5.2% 38.0% 29.5% (7 months)
==========================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
_____________________________
NOTES TO PERFORMANCE SUMMARIES
"Monthly Rate of Return" is generally calculated by dividing the net
performance during the month (after all fees and expenses but including interest
income) by the starting equity as of the beginning of such month.
"Worst monthly drawdown" represents the largest negative Monthly Rate
of Return experienced 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" represents the greatest percentage
decline, during the period covered by the performance summary, from month-end
cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return
being equaled 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, 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.
"Notional equity" represents the difference between the amount an
Advisor is instructed to consider itself to be managing and the amount of assets
actually deposited in, or available to the broker for, a trading account. Due
to the low margin requirements applicable to futures and forward trading, it is
possible to trade accounts in which the equity level, including notional equity,
is several times the equity level, excluding notional equity.
-22-
<PAGE>
The following performance summary and chart reflect the composite
performance results from February 1993 through October 1996 of ARA's Alpha
Program. ARA may trade this Program on behalf of the Fund in the future. The
Alpha Program has been utilized in trading for 15 accounts since its inception.
As of October 31, 1996, 9 accounts had been closed. Of the 9 closed accounts,
all were profitable at their closing. Of the 6 open accounts, all were
profitable as of October 31, 1996.
ARA PORTFOLIO MANAGEMENT COMPANY, L.L.C.
ALPHA PROGRAM
OCTOBER 31, 1996
NAME OF PROGRAM: ALPHA PROGRAM
INCEPTION OF CLIENT ACCOUNT TRADING BY CTA: JUNE 1992
INCEPTION OF CLIENT ACCOUNT TRADING IN PROGRAM: FEBRUARY 1993
NUMBER OF OPEN ACCOUNTS: 6
AGGREGATE ASSETS (EXCLUDING NOTIONAL EQUITY) OVERALL: $130 MILLION
AGGREGATE ASSETS (EXCLUDING NOTIONAL EQUITY) IN PROGRAM: $33 MILLION
AGGREGATE ASSETS (INCLUDING NOTIONAL EQUITY) OVERALL: $130 MILLION
AGGREGATE ASSETS (INCLUDING NOTIONAL EQUITY) IN PROGRAM: $33 MILLION
WORST MONTHLY DRAWDOWN ON AN INDIVIDUAL ACCOUNT BASIS: (6.69)% (2/96)
WORST MONTHLY DRAWDOWN ON A COMPOSITE BASIS: (6.48)% (2/96)
WORST PEAK-TO-VALLEY DRAWDOWN ON AN INDIVIDUAL ACCOUNT BASIS: (9.62)% (4/95-
2/96)
<TABLE>
<CAPTION>
=========================================================================
Monthly Rates
of Return 1996 1995 1994 1993
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January (1.86)% 0.57% 0.94% --
-------------------------------------------------------------------------
February (6.48) 3.74 (1.34) 2.63%
-------------------------------------------------------------------------
March 3.41 3.18 2.45 (0.51)
-------------------------------------------------------------------------
April 7.89 (1.99) 1.35 4.34
-------------------------------------------------------------------------
May (4.27) (1.45) 7.62 (0.60)
-------------------------------------------------------------------------
June 2.93 0.24 6.46 2.20
-------------------------------------------------------------------------
July 1.01 (3.17) (0.35) 3.06
-------------------------------------------------------------------------
August 0.75 (0.01) (3.05) (3.21)
-------------------------------------------------------------------------
September 2.49 (1.88) (0.88) (2.12)
-------------------------------------------------------------------------
October 4.48 1.93 0.88 0.14
-------------------------------------------------------------------------
November -- 1.99 6.71 3.46
-------------------------------------------------------------------------
December -- 5.78 1.61 4.04
-------------------------------------------------------------------------
Compound Annual 10.0% 13.9%
Rate of Return (10 months) 8.9% 24.1% (11 months)
==========================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT MAY BE TRADED PURSUANT TO THE ALPHA TRADING
PROGRADM IN THE FUTURE.
_____________________________
SEE NOTES TO PERFORMANCE SUMMARIES ON PAGE 22.
-23-
<PAGE>
CHESAPEAKE CAPITAL CORPORATION (37% ALLOCATION AS OF JANUARY 1, 1997)
- -- Chesapeake has offered investment advisory and portfolio management services
to clients since 1988. Chesapeake currently trades three programs, relying
primarily on technical analysis and charting in its evaluation of historical
commodity price movements. In the Diversified Program which Chesapeake trades
for the Fund, Chesapeake applies its trend-following system to a global
portfolio of futures and forward markets, including agricultural products,
precious and industrial metals, currencies, financial instruments and stock,
financial and economic indices. Chesapeake may trade these markets on any U.S.
or foreign exchange. As of October 31, 1996, Chesapeake was managing
approximately $778 million of customer funds in the Diversified Program and
approximately $826 million of customer funds in all of its programs.
Chesapeake has traded the Diversified Program since February 1988. The
compound annual rates of return achieved by the Diversified Program since
January 1, 1991 have been 12.51%, 1.81%, 61.82%, 15.87%, 14.09% and 12.81% (10
months), respectively. During such period, the worst monthly drawdown was
(10.98)%(1/92) and the worst peak-to-valley drawdown (16.62)% (1/92-5/92).
The following performance summary and chart reflect the composite
performance results from January 1991 through October 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 worst 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 212 accounts since its inception.
As of October 31, 1996, 160 accounts had been closed and 52 accounts remained
open. Of the closed accounts, 130 were profitable and 30 were unprofitable at
their closing. Of the 52 open accounts, all were profitable as of October 31,
1996.
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 1991, 1992
and 1993, due to cost considerations, the Fully-Funded Subset method has not
been used. Instead, the 1991, 1992 and 1993 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. The OAT method
excludes accounts from the rate of return calculation if their inclusion would
materially distort 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. 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 summary are representative of
the Diversified Program for the period presented. For the period 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.
With respect to Chesapeake's programs, a small number of accounts
managed by Chesapeake have experienced peak-to-valley drawdowns which are
materially larger than the worst composite peak-to-valley drawdown. These
variances result from such factors as small account size, intra-month account
opening or closing, significant intra-month additions or withdrawals and
investment restrictions imposed by the client. See also Notes to Performance
Summaries on Page 22.
-24-
<PAGE>
CHESAPEAKE CAPITAL CORPORATION
DIVERSIFIED PROGRAM
OCTOBER 31, 1996
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: 52
AGGREGATE ASSETS (EXCLUDING NOTIONAL EQUITY) OVERALL: $858 MILLION
AGGREGATE ASSETS (EXCLUDING NOTIONAL EQUITY) IN PROGRAM: $811 MILLION
AGGREGATE ASSETS (INCLUDING NOTIONAL EQUITY) OVERALL: $1.0 BILLION
AGGREGATE ASSETS (INCLUDING NOTIONAL EQUITY) IN PROGRAM: $954 MILLION
WORST MONTHLY DRAWDOWN ON A COMPOSITE BASIS: (10.98)% (1/92)
WORST PEAK-TO-VALLEY DRAWDOWN ON A COMPOSITE BASIS: (16.62)%
(1/92-5/92)
<TABLE>
<CAPTION>
===========================================================================
Monthly Rates
of Return 1996 1995 1994 1993 1992 1991
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 1.69% (3.23)% (3.33)% 0.42% (10.98)% (1.29%
---------------------------------------------------------------------------
February (4.26) (4.39) (4.88) 15.99 (2.86) 4.84
---------------------------------------------------------------------------
March 0.28 8.60 0.09 5.86 0.53 2.32
---------------------------------------------------------------------------
April 10.16 1.45 (0.60) 7.38 (0.44) (2.80)
---------------------------------------------------------------------------
May (3.04) 6.84 9.06 0.40 (3.66) 0.27
---------------------------------------------------------------------------
June 3.27 0.88 7.02 0.98 6.52 (1.25)
---------------------------------------------------------------------------
July (7.64) (3.09) (1.70) 9.49 12.96 (1.75)
---------------------------------------------------------------------------
August 0.57 (2.66) (2.98) 5.88 3.16 (3.32)
---------------------------------------------------------------------------
September 6.47 0.20 3.49 (2.63) (6.78) 4.39
---------------------------------------------------------------------------
October 5.92 (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 12.81%
Rate of Return (10 months) 14.09% 15.87% 61.82% 1.81% 12.51%
===========================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
________________________
SEE NOTES TO PERFORMANCE SUMMARIES ON PAGE 22.
-25-
<PAGE>
JOHN W. HENRY & COMPANY, INC. (24% ALLOCATION AS OF JANUARY 1, 1997) -
- - JWH operates twelve trading programs for U.S. and non-U.S. investors. These
programs emphasize intermediate and long-term quantitative trend analysis
models. The Financial and Metals Portfolio, which is traded for the Fund,
implements a technical, trend-following system which participates in four major
market sectors -- global interest rates, foreign exchange, global stock indices
and precious metals -- and seeks to capitalize on sustained moves in global
financial markets. As of October 31, 1996, JWH was trading approximately $1.1
billion of customer funds in the Financial and Metals Portfolio and
approximately $1.7 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 19.97%
(10 months), respectively. During such period, the worst monthly drawdown on a
composite basis was (18.0)% (1/92), the worst monthly drawdown on an individual
account basis (27.7)% (1/92) and the worst peak-to-valley drawdown on a
composite basis (39.5)% (12/91-5/92).
The following performance summary and chart reflect the composite
performance results from January 1991 through October 1996 of the Financial and
Metals Portfolio. JWH trades this program on behalf of the Fund. The program
has been utilized in trading for 360 accounts since its inception. As of
October 31, 1996, 305 accounts had been closed and 55 accounts remained open.
Of the closed accounts, 268 were profitable and 37 were unprofitable at their
closing. Of the 55 open accounts, all were profitable as of October 31,
1996.
In May 1991, one proprietary account in the Financial and Metals
Portfolio performance summary, and in March 1992 a second proprietary account,
commenced trading. Both accounts appear in the performance summary from their
inception until August 1995. The maximum percentage of proprietary funds traded
pursuant to the Financial and Metals Portfolio during this time period was less
than 1/2 of 1% of the total equity traded. Consequently, these proprietary
funds had no material effect on the rate of return calculations.
An investor should note that in a presentation of past performance
data, different accounts, even though traded according to the same investment
program, can have varying performance results. The reasons for this include
numerous material differences among accounts including, but not limited to: (a)
procedures governing timing for the commencement of trading and means of moving
toward full portfolio commitment of new accounts; (b) the periods during which
accounts are active; (c) the investment program used (although all accounts may
be traded in accordance with the same approach, such approach may be modified
periodically as a result of ongoing research and development by JWH); (d)
leverage employed; (e) the size of the account, which can influence the size of
positions taken and restrict the account from participating in all markets
available to an investment program (f) the amount of the 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 commission
paid; (h) the timing of orders to open or close positions; (i) the market
conditions which in part determine the quality of trade executions; (j) trading
instructions/restrictions of the client; (k) variations in fill prices; and (l)
the timing of additions and withdrawals.
The worst monthly drawdown for an individual account within the
Financial and Metals Portfolio was determined after identification of the three
worst monthly drawdowns on a composite basis. Within the three months in which
the worst composite monthly drawdowns occurred, individual accounts were
reviewed. The individual account which experienced the largest loss in those
months is the account shown as having the worst individual monthly drawdown.
Some individual accounts were excluded from review if they were being phased in
or out, opened or closed during the month or if material intra-month additions
or redemptions were made. Differences between the worst monthly drawdown for an
individual account and the worst monthly drawdown on a composite basis are due
to, among other factors, the reasons noted above.
During the period covered by the performance summary, 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 each case, including the Financial and Metals Portfolio). 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
Financial and Metals Portfolio performance summary, 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.
Advisory fees vary from account to account. 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.
In May 1992, 35% of the assets in the Financial and Metals Portfolio
was deleveraged 50% 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 (24.3)%. The 1992 annual rate of return for the
Financial and Metals Portfolio performance
-26-
<PAGE>
summary was (10.9)%. If these accounts had been excluded from the Financial and
Metals Portfolio performance summary, the 1992 annual rate of return would have
been (3.9)%. The effect of this deleveraging was eliminated in September
1992.
Additionally, the Financial and Metals Portfolio 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.
Beginning in July 1996, JWH agreed with respect to certain multi-
program and multi-advisor accounts that it would earn incentive fees only when
overall account performance was profitable. As a result, JWH adopted a method
for presenting incentive fees due for each of its programs on a stand-alone
basis. The new method was applied initially to August 1996 performance. In
that month, a one-time adjustment to performance rate of return was made to each
affected program (including the Financial and Metals Portfolio) to show the
impact of this adjustment from program inception through August 1996. In the
case of the Financial and Metals Portfolio, the adjustment reduced the rate of
return which would have been shown from approximately (0.6)% to (0.8)%. See
also Notes to Performance Summaries on page 22.
JOHN W. HENRY & COMPANY, INC.
FINANCIAL AND METALS PORTFOLIO
OCTOBER 31, 1996
NAME OF PROGRAM: FINANCIAL AND METALS PORTFOLIO
INCEPTION OF CLIENT ACCOUNT TRADING BY CTA: OCTOBER 1982
INCEPTION OF CLIENT ACCOUNT TRADING IN PROGRAM: OCTOBER 1984
NUMBER OF OPEN ACCOUNTS: 55
AGGREGATE ASSETS (EXCLUDING NOTIONAL EQUITY) OVERALL: $1.7 BILLION
AGGREGATE ASSETS (EXCLUDING NOTIONAL EQUITY) IN PROGRAM: $1.1 BILLION
AGGREGATE ASSETS (INCLUDING NOTIONAL EQUITY) OVERALL: $1.7 BILLION
AGGREGATE ASSETS (INCLUDING NOTIONAL EQUITY) IN PROGRAM: $1.1 BILLION
WORST MONTHLY DRAWDOWN ON A COMPOSITE BASIS: (18.0)% (1/92)
WORST MONTHLY DRAWDOWN ON AN INDIVIDUAL ACCOUNT BASIS: (27.7)% (1/92)
WORST PEAK-TO-VALLEY DRAWDOWN ON A COMPOSITE BASIS: (39.5)% (12/91-5/92)
<TABLE>
<CAPTION>
========================================================================
Monthly Rates
of Return 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 6.0% (3.8)% (2.9)% 3.3% (18.0)% (2.3)%
- ------------------------------------------------------------------------
February (5.5) 15.7 (0.6) 13.9 (13.5) 3.8
- ------------------------------------------------------------------------
March 0.7 15.3 7.2 (0.3) 3.0 4.5
- ------------------------------------------------------------------------
April 2.3 6.1 0.9 9.3 (12.2) (0.8)
- ------------------------------------------------------------------------
May (1.7) 1.2 1.3 3.3 (5.7) (0.3)
- ------------------------------------------------------------------------
June 2.2 (1.7) 4.5 0.1 21.9 (1.3)
- ------------------------------------------------------------------------
July (1.1) (2.3) (6.1) 9.7 25.5 (13.4)
- ------------------------------------------------------------------------
August (0.8) 2.1 (4.1) (0.8) 10.2 4.8
- ------------------------------------------------------------------------
September 3.2 (2.1) 1.5 0.2 (5.2) 25.8
- ------------------------------------------------------------------------
October 14.3 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 19.97% 38.53% (5.32)% 46.82% (10.89)% 61.88%
Rate of Return (10 months)
========================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
________________________
SEE NOTES TO PERFORMANCE SUMMARIES ON PAGE 22.
-27-
<PAGE>
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, has the
right to terminate any Advisory Agreement at will and upon short notice.
Each Advisory Agreement provides that the Fund will indemnify the
Advisor 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.
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.
All Advisors (which are not prohibited from doing so by applicable
non-United States laws) invest $10,000 in the Fund during their tenure of
providing advisory services to it. MLIP has, for some years, required such
investments from all the advisors selected for its domestic funds as a token of
the advisors' commitment to managing such accounts.
MLIP AND MLF
BACKGROUND
MLIP is the sole promoter of the Fund. None of MLF, Merrill Lynch
International Bank ("MLIB") or 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 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 funds futures, and,
as of December 1, 1996, there was approximately $1.75 billion was invested in
funds for which MLIP was serving as sponsor or trading manager. The principal
offices of MLIP are located at Merrill Lynch World Headquarters, Sixth Floor,
South Tower, World Financial Center, New York, New York 10080-6106; telephone:
(212) 236-4167. MLIP is a wholly-owned subsidiary of Merrill Lynch Group, Inc.,
which, in turn, is wholly-owned by Merrill Lynch & Co., Inc.
The registration of MLIP with the CFTC, and MLIP's membership in the
NFA, must not be taken as an indication that any such agency or self-regulatory
body has recommended or approved either MLIP or an investment in the Fund.
Since its inception in 1986, MLIP has operated with one primary
objective -- to provide investors with an opportunity for long-term capital
appreciation and diversification through quality investments in the futures,
commodity options and forward markets. MLIP, as general partner or sponsor,
structures and promotes managed futures investments in an effort to meet the
objectives of a wide variety of clients. MLIP attempts to combine a detailed
advisor selection process with active monitoring of its existing funds and their
advisors. MLIP does not manage client assets directly, but rather specializes
in selecting groups of independent trading advisors to do so.
MLIP acts as general partner to thirteen public futures funds whose
units of limited partnership interest are registered under the Securities
Exchange Act of 1934: The Futures Expansion Fund Limited Partnership, The
Growth and Guarantee Fund L.P., ML Futures Investments II L.P. (formerly, The
Futures Dimension Fund II L.P.), ML Futures Investments L.P. (formerly, The
Tudor Prime Advisors Fund L.P.), John W. Henry & Co./Millburn L.P., The
S.E.C.T.O.R. Strategy Fund L.P., The SECTOR Strategy Fund II L.P., The SECTOR
Strategy Fund IV L.P., The SECTOR Strategy Fund V L.P., The SECTOR Strategy
Fund VI L.P., ML Principal Protection L.P. (formerly, ML Principal Protection
Plus L.P.), ML JWH Strategic Allocation Fund L.P. and the Fund. Because MLIP
serves as the sole general partner of each of these funds, the officers and
directors of MLIP effectively manage them as officers and directors of such
funds.
-28-
<PAGE>
PRINCIPALS
The principal 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, Director of
Sales, Marketing and Research and
Director
Allen N. Jones Chairman and Director
Steven B. Olgin Vice President, Secretary and Director
of Administration
John R. Frawley, Jr. was born in 1943. Mr. Frawley is Chief Executive
Officer, President and a Director of MLIP as well as 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.
Mr. Frawley also currently serves on a panel created by the Chicago Mercantile
Exchange and The Board of Trade of the City of Chicago to study cooperative
efforts related to electronic trading, common clearing and the issues regarding
a potential merger.
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, the Director of Sales, Marketing and Research and a Director of MLIP.
He joined MLPF&S in 1971 and has served as the Product Manager of Equity,
Derivative Products 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.
Steven B. Olgin was born in 1960. Mr. Olgin is Vice President,
Secretary and the Director of Administration of MLIP. He joined MLIP in July
1994 and became a Vice President in July 1995. From 1986 until July 1994, Mr.
Olgin was an associate of the law firm of Sidley & Austin. In 1982, Mr. Olgin
graduated from The American University with a Bachelor of Science degree in
Business Administration and a Bachelor of Arts degree in Economics. In 1986, he
received his Juris Doctor degree from The John Marshall Law School. Mr. Olgin is
a member of the Managed Futures Association's Government Relations Committee and
has served as an arbitrator for the National Futures Association.
-29-
<PAGE>
At its December 1996 Board of Directors meeting, MLIP formed a Finance
Committee composed of representatives of several different operating and
administrative units at Merrill Lynch to oversee the financial controls and
accounting procedures implemented by MLIP. The Finance Committee will meet
periodically to review MLIP's financial reporting, monitoring and record
keeping, as well as all proposed changes -- other than the selection of Advisors
- -- affecting the operations of the Fund.
As of December 1, 1996, the principals of MLIP owned Units with an
aggregate Net Asset Value of approximately $100,892, and MLIP's general partner
interest in the Fund was valued at approximately $1.3 million.
MLF
MLF, the exclusive clearing futures commission merchant (commodity
broker) for the Fund, is a clearing member of The Board of Trade of the City of
Chicago, the Chicago Mercantile Exchange, the New York Mercantile Exchange and
all other principal United States commodity exchanges. The principal office of
MLF is located at World Financial Center, 250 Vesey Street, 23rd Floor, New
York, New York 10281-1323.
The Customer Agreement between MLF and the Fund provides that MLF
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.
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. 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 interest to all
prospective Limited Partners so that MLIP may have the opportunity to obtain
their informed consent to these conflicts prior to, and as a condition of, their
becoming Limited Partners. Prospective investors who are not willing to consent
to the various conflicts of interest described herein are ineligible to invest
in the Fund. See "Conflicts of Interest" at page 48.
Having once established the business terms of the Fund, MLIP may be
effectively precluded from changing these terms in a manner that
disproportionately benefits MLIP, as any such change could constitute self-
dealing unless consented to by all investors in the Fund.
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, established by
MLIP. See "Charges" at page 34. 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 there is no party which
negotiates on behalf of the Fund to obtain 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
-30-
<PAGE>
certain of its affiliates against claims, losses or liabilities based on their
conduct relating to the Fund, provided that the conduct resulting in the claims,
losses or liabilities for which indemnity is sought did not constitute
negligence or misconduct and was done in good faith and in a manner reasonably
believed to be in the best interests of the Fund. The NASAA Guidelines prescribe
the maximum permissible extent to which the Fund can indemnify MLIP and its
affiliates, and prohibit the Fund from purchasing insurance to cover
indemnification of MLIP which the Fund itself could not undertake directly.
The Limited Partnership Agreement provides that MLIP and its
affiliates (as well as any persons acting as selling agent for the Units) shall
not be indemnified for any losses, liabilities or expenses arising from or out
of an alleged violation of federal or state securities laws unless (1) there has
been a successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee and the court approves
indemnification of the litigation costs, (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.
The Limited Partnership Agreement provides that in the event of any
claim for indemnification for federal or state securities law violations, the
party seeking indemnification shall place before the court the position of the
SEC with respect to the issue of indemnification for securities law violations.
In the view of the SEC, any such indemnification is contrary to the federal
securities laws and therefore unenforceable.
REMEDIES AVAILABLE TO LIMITED PARTNERS
Under Delaware law, a limited partner may, in certain circumstances,
institute legal action on behalf of himself or herself and all other similarly
situated limited partners (a "class action") to recover damages from a general
partner for violations of fiduciary duties, or on behalf of a partnership (a
partnership "derivative action") to recover damages from a third party where a
general partner has failed or refused to institute proceedings to recover such
damages. In addition, limited partners may have the right, subject to
applicable procedural, jurisdictional and substantive requirements, to bring
actions in federal court to enforce their rights under the federal securities
laws and the rules and regulations promulgated thereunder by the SEC. For
example, limited partners who have suffered losses in connection with the
purchase or sale of their interests in a limited partnership may be able to
recover such losses from a general partner in cases in which such losses result
from the general partner's violation 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 available to investors
in commodity pools such as the Fund.
In the case of most public companies, 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 in 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, as they may deem appropriate, consult their
own counsel regarding their possible rights of action in respect of the
Fund.
-31-
<PAGE>
USE OF PROCEEDS AND INTEREST INCOME
SUBSCRIPTION PROCEEDS
MLIP pays from its own funds the selling commissions relating to the
sale of the Units. Accordingly, 100% of the proceeds of Unit sales are received
in cash by the Fund and available for use in its speculative trading. In such
trading, the Fund's assets are not used to purchase or acquire any asset but
rather held as security for and to pay the Fund's trading losses as well as any
expenses and redemptions. The primary use of the proceeds of the sale of the
Units is to permit the Advisors to trade on a speculative basis in a wide range
of different futures, forwards and options on futures markets on behalf of the
Fund. While being used for this purpose, the Fund's assets are also generally
available to earn interest, as more fully described below under "-- Available
Assets" at page 33.
MARKET SECTORS
The Fund trades in a diversified group of markets under the direction
of multiple independent Advisors. These Advisors can, and do, from time to time
materially alter the allocation of their overall trading commitments among
different market sectors. Except in the case of certain trading programs which
are purposefully limited in the markets which they trade, there is essentially
no restriction on the commodity interests which may be traded by any Advisor or
the rapidity with which an Advisor may alter its market sector allocations.
In its Gamma and Alpha Programs, ARA Portfolio Management Company,
L.L.C. implements a strictly technical trend-following system which uses a
portfolio of eighteen U.S. exchange-traded commodities, including currencies,
financial instruments, metals, energy and agricultural products. ARA maintains
a position in each commodity in its diversified portfolio at all times, although
such positions vary in magnitude.
In its Diversified Program, Chesapeake Capital Corporation 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.
The Financial and Metals Portfolio of John W. Henry & Company, Inc.
utilizes intermediate- and long-term quantitative trend analysis models which
participate in four major market sectors -- global interest rates, foreign
exchange, global stock indices and precious metals -- and seeks to capitalize on
sustained moves in global financial markets.
The Fund's financial statements contain information relating to the
market sectors traded by the Fund. There can, however, be no assurance as to
which markets may be included in the Fund's portfolio or as to in which market
sectors the Fund's trading may be concentrated at any one time or over time.
See "Index to Financial Statements" at page 60.
MARKET TYPES
The Fund trades on a variety of United States and foreign futures
exchanges. Applicable exchange rules differ significantly among different
countries and exchanges. Substantially all of the Fund's off-exchange trading
takes place in the highly liquid, institutionally based currency forward
markets. The forward markets are generally unregulated, and in its forward
trading the Fund does not deposit margin with respect to its positions. The
Fund's forward currency trading is executed exclusively through the F/X Desk,
with MLF as the back-to-back intermediary to the ultimate counterparties (which
include MLIB) with which the Advisors trade on behalf of the Fund.
As in the case of its market sector allocations, the Fund's
commitments to different types of markets -- U.S. and non-U.S., regulated and
unregulated -- differ substantially from time to time as well as over time. The
Fund has no policy restricting its relative commitment to any of these different
types of markets, although generally the bulk of the Fund's trading takes place
on regulated exchanges.
The Fund's financial statements contain information relating to the
types of markets traded by the Fund. There can, however, be no assurance as to
in which markets the Fund may trade or the Fund's trading may be concentrated at
any one time or over time.
-32-
<PAGE>
CUSTODY OF ASSETS
All of the Fund's assets are currently held in CFTC-regulated customer
accounts at MLF.
AVAILABLE ASSETS
The Fund earns interest, as described below, on its "Available
Assets," which can be generally described as the cash actually held by the Fund
or invested in short-term Treasury bills. Available Assets are held primarily
in U.S. dollars, and to a lesser extent in foreign currencies, and are comprised
of the following: (a) the Fund's cash balance in the offset accounts (as
described below) -- which includes "open trade equity" (unrealized gains and
losses on open positions) on United States futures contracts, which is paid into
or out of the Fund's account on a daily basis; (b) short-term Treasury bills
purchased by the Fund; and (c) the Fund's cash balance in foreign currencies
derived from its trading in non-U.S. dollar denominated futures and options
contracts, which includes open trade equity on those exchanges which settle
gains and losses on open positions in such contracts prior to the closing out of
such positions. Available Assets do not include, and the Fund does not earn
interest on, the Fund's gains or losses on its open forward, commodity option
and certain foreign futures positions since such gains or losses are not
collected or paid until such positions are closed out.
The Fund's Available Assets may be greater than, less than or equal to
the Fund's Net Asset Value (on which the redemption value of the Units is based)
primarily because Net Asset Value reflects all gains and losses on open
positions as well as accrued but unpaid expenses.
The interest income arrangements for the Fund's U.S. dollar Available
Assets differ from those applicable to its non-U.S. dollar Available Assets.
Interest income, once accrued by the Fund, is subject to the risk of trading
losses.
INTEREST EARNED ON THE FUND'S U.S. DOLLAR AVAILABLE ASSETS
Offset Accounts and Short-Term Treasury Bills
U.S. dollar Available Assets are held in cash in offset accounts and
in short-term Treasury bills purchased from dealers unaffiliated with Merrill
Lynch. Offset accounts are non-interest bearing demand deposit accounts
maintained with banks unaffiliated with Merrill Lynch. An integral feature of
the offset arrangements is that the participating banks specifically acknowledge
that the offset accounts are MLF customer accounts, not subject to any Merrill
Lynch liability.
MLF credits the Fund, as of the end of each month, with interest at
the effective daily 91-day Treasury bill rate on the average daily U.S. dollar
Available Assets held in the offset accounts during such month. The Fund
receives all the interest paid on the short-term Treasury securities in which it
invests.
Possible Discontinuation of the Offset Accounts
The use of the offset account arrangements for the Fund's U.S. dollar
Available Assets may be discontinued by Merrill Lynch whether or not Merrill
Lynch otherwise continues to maintain its offset arrangements. The offset
arrangements are dependent on the banks' continued willingness to make overnight
credits available to Merrill Lynch, which, in turn, is dependent on the credit
standing of ML&Co. If Merrill Lynch were to determine that the offset
arrangements had ceased to be practicable (either because ML&Co. credit lines at
participating banks were exhausted or for any other reason), Merrill Lynch would
thereafter attempt to invest all of the Fund's U.S. dollar Available Assets to
the maximum practicable extent in short-term Treasury bills. All interest
earned on the U.S. dollar Available Assets so invested would be paid to the
Fund, but MLIP would expect the amount of such interest to be less than that
available to the Fund under the offset account arrangements. The remaining U.S.
dollar Available Assets of the Fund would be kept in cash to meet variation
margin payments and pay expenses, but would not earn interest for the Fund.
Offset Account Benefit to Merrill Lynch
The banks at which the offset accounts are maintained make available
to Merrill Lynch interest-free overnight credits, loans or overdrafts in the
amount of the Fund's U.S. dollar Available Assets held in the offset accounts,
charging Merrill Lynch a small fee for this service. The economic benefits
derived by Merrill Lynch -- net of the interest credits paid to the Fund and the
fee paid to the offset banks -- from the offset accounts have not exceeded 3/4
of 1% per annum of the Fund's average daily U.S. dollar Available Assets held in
the offset accounts. These revenues to Merrill Lynch are in addition to the
Brokerage Commissions and Administrative Fees paid by the Fund to MLF and MLIP,
respectively.
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<PAGE>
INTEREST PAID BY MERRILL LYNCH ON THE FUND'S NON-U.S. DOLLAR AVAILABLE
ASSETS
Under the single currency margining system implemented for the Fund,
the Fund itself does not deposit foreign currencies to margin trading in non-
U.S. dollar denominated futures contracts and options. MLF provides the
necessary margin, permitting the Fund to retain the monies which would otherwise
be required for such margin as part of the Fund's U.S. dollar Available Assets.
Consequently, the Fund does not earn interest on foreign margin deposits. The
Fund does, however, earn interest on its non-U.S. dollar Available Assets.
Specifically, the Fund is credited by Merrill Lynch with interest at the local
short-term rate on realized and unrealized gains on non-U.S. dollar denominated
positions for such gains actually held in cash by the Fund. Merrill Lynch
charges the Fund Merrill Lynch's cost of financing realized and unrealized
losses on such positions.
In order to avoid the expense of daily currency conversions, the Fund
holds foreign currency gains and finances foreign currency losses on an interim
basis until converted into U.S. dollars and either paid into or out of the
Fund's U.S. dollar Available Assets. Foreign currency gains or losses on open
positions are not converted into U.S. dollars until the positions are closed.
Assets of the Fund while held in foreign currencies are subject to exchange rate
risk.
FORWARD TRANSACTIONS
Spot and forward currency contracts are the only non-exchange traded
instruments held by the Fund.
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. In using the F/X Desk, the Fund trades through MLF. Because
the Fund need not deposit any margin with MLF in respect of the Fund's forward
trading, 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 MLF clients using the F/X Desk) trade
through the F/X Desk on the basis of MLF's credit lines permits the F/X Desk to
access a wide range of counterparties without the need of such counterparties
evaluating the individual credit of the Fund (or any other MLF client).
CHARGES
The following table summarizes the charges incurred by the Fund during
1994, 1995 and 1996 (9 months).
<TABLE>
<CAPTION>
1/1/96 - 9/30/96 1/1/95 - 12/31/95 1/4/94 - 12/31/94
-------------------------- ------------------------- ----------------------
% OF AVERAGE % OF AVERAGE % OF AVERAGE
DOLLAR MONTH-END DOLLAR MONTH-END DOLLAR MONTH-END
COST AMOUNT NET ASSETS* AMOUNT NET ASSETS AMOUNT NET ASSETS
---- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Brokerage $4,990,367 7.51% $5,723,755 7.72% $3,859,267 7.27%
Commissions
Profit Shares 373,820 0.56 1,492,857 2.01 1,103,649 2.08
Incentive Override 5,117 0.01 965,454 1.30 41,867 0.08
---------- ---- ---------- --------- ---------- ----
Total $5,369,304 8.08% $8,182,066 11.03% $5,004,783 9.43%
========== ===== ========== ========= ========== =====
</TABLE>
____________________________________
* Annualized
____________________________
The Fund's average month-end Net Assets during 1994, 1995 and 1996 (9
months) equalled $53,119,205, $74,120,244 and $88,631,646, respectively.
-34-
<PAGE>
The foregoing table does not reflect the bid-ask spreads paid by the
Fund on its forward trading, or the benefits which MLF derives from the
possession of the Fund's assets. See "Use of Proceeds and Interest Income" at
page 32.
During 1994, 1995 and 1996 (9 months), the Fund earned $1,972,722,
$3,786,925 and $2,996,535 in interest income, or approximately 3.71%, 5.11% and
3.38% of the Fund's average month-end Net Assets.
See the Breakeven Table included in the "Summary" at page 7.
As of October 1, 1996, the 7.50% per annum Brokerage Commissions paid
by the Fund to MLF were recharacterized as 7.25% per annum Brokerage Commissions
and a 0.25% per annum Administrative Fee paid by the Fund to MLIP. This
recharacterization had no economic effect on the Fund.
______________________________
CHARGES PAID BY THE FUND
<TABLE>
<CAPTION>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
- --------- ----------------- -----------------
<S> <C> <C>
MLF Brokerage Commissions A flat-rate monthly commission of 0.6041 of 1% of the
Fund's month-end assets (a 7.25% annual rate).
MLF Use of Fund assets Merrill Lynch derives an annual benefit from the deposit of
certain of the Fund's U.S. dollar Available Assets in offset
accounts which to date has not exceeded 3/4 of 1% of such
average daily U.S. dollar Available Assets.
MLIP Administrative Fees As of October 1, 1996, the Brokerage Commissions payable
by the Fund were reduced to 7.25% annually, and the Fund
began to pay MLIP a monthly Administrative Fee equal to
0.020833 of 1% of the Fund's month-end assets (0.25%
annually). This change had no economic effect on the Fund.
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 the forward trades it executes with the
Fund.
Other Bid-ask spreads The counterparties other than MLIB with which the F/X
Counterparties Desk deals also each receive bid-ask spreads on the forward
trades executed with the Fund.
MLIP F/X Desk 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 spot currency positions (which are
acquired through the F/X Desk, as described above) for
equivalent futures
positions.
</TABLE>
-35-
<PAGE>
CHARGES PAID BY THE FUND (CONT'D)
<TABLE>
<CAPTION>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
- --------- ----------------- -----------------
<S> <C> <C>
MLIP Annual 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 below the purchase price of
such Units.
Trading Advisors Profit Shares From 15% to 25% (depending on the Trading Advisor) of
any New Trading Profit as of the end of each calendar quarter
or year (depending on the Trading Advisor) and upon
redemption of Units. New Trading Profit is calculated sep
arately in respect of each Advisor, irrespective of the overall
performance of the Fund. Units may generate New Trading
Profit and be subject to paying Profit Shares even though
the Net Asset Value per Unit has declined below the
purchase price of such Units.
MLF; Extraordinary expenses Actual costs incurred; none paid to date, and expected to be
Others negligible.
</TABLE>
BROKERAGE COMMISSIONS _______________________
Commodity brokerage commissions 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) and the subsequent offsetting sale (or
purchase) of a commodity futures contract. The Fund does not pay its commodity
brokerage commissions on a per-trade basis, but rather at a monthly flat rate of
0.6041 of 1% of the Fund's month-end assets (a 7.25% annual rate). MLF receives
these flat-rate payments irrespective of the number of trades executed on the
Fund's behalf. These Brokerage Commissions include the Advisors' Consulting
Fees and all execution and clearing costs. Month-end assets are not reduced for
purposes of calculating Brokerage Commissions by any accrued but unpaid Profit
Shares, Incentive Overrides, Administrative Fees or the accrued Brokerage
Commissions being calculated. The Fund could obtain lower rates for similar
brokerage services from firms other than MLF.
During 1994, 1995 and 1996 (9 months), the Fund paid Brokerage
Commissions of $3,859,267, $5,723,755 and $4,990,367, respectively; these flat-
rate Brokerage Commissions were the approximate equivalent of round-turn trade
commissions of $13, $88 and $71, respectively. These round-turn equivalent
rates were somewhat higher than those of most MLIP funds. Other firms charge
less for brokerage services similar to those provided by MLF to the Fund. The
per-trade equivalent of the Fund's flat-rate Brokerage Commissions varies over
time depending upon the frequency with which the Advisors trade.
The audited financial statements 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 the
Brokerage Commissions paid by the Fund shall not be increased while redemption
charges are in effect. Moreover, MLIP has undertaken to various state
securities commissions that in no event will MLIP increase the 7.50% annual
"wrap fee" (which includes the 7.25% annual Brokerage Commissions and the 0.25%
annual Administrative Fees) without the unanimous consent of all Limited
Partners. In fact, MLIP has never raised the 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:
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<PAGE>
The Fund's Brokerage Commissions and Administrative Fees constitute a
"wrap fee." This "wrap fee" is ML&Co.'s only source of revenues from the Fund
(other than F/X Desk service fees, EFP differentials, the benefits derived from
the deposit of certain of the Fund's assets in offset accounts as described
under "Use of Proceeds and Interest Income," at page 32-34, and the Incentive
Override, if earned), from which 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 and offering 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) Merrill Lynch employee discounts. All of these costs and
expenses, not only execution costs, are reflected in the 7.50% annual "wrap fee"
(including both the Brokerage Commissions and the Administrative Fees) charged
to the Fund.
PROSPECTIVE INVESTORS MUST BE AWARE THAT THE BROKERAGE COMMISSIONS AND
ADMINISTRATIVE FEES CHARGED TO THE FUND IN FACT INCLUDE A SIGNIFICANT NUMBER OF
COSTS OTHER THAN THOSE OF ACTUALLY EXECUTING THE FUND'S TRADES OR PROVIDING
ADMINISTRATIVE SERVICES TO IT. SUCH FLAT-RATE BROKERAGE COMMISSIONS AND
ADMINISTRATIVE FEES MAY NOT BE INCREASED, IN THE AGGREGATE, ABOVE THE CURRENT
ANNUAL LEVEL OF 7.50% OF THE FUND'S AVERAGE MONTH-END ASSETS 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.
A number of the Advisors execute trades through brokers other than
MLF, in which case the trades are given up to be cleared by MLF. The additional
costs involved in such third-party trade executions are paid by MLF.
USE OF FUND ASSETS
As described under "Use of Proceeds and Interest Income," at pages 32-
34, Merrill Lynch derives an annual benefit from the deposit of certain of the
Fund's U.S. dollar Available Assets in offset accounts which to date has not
exceeded 3/4 of 1% of such average daily U.S. dollar Available Assets.
ADMINISTRATIVE FEES
As of October 1, 1996, MLIP began 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 are not reduced by accrued
but unpaid Profit Shares, Incentive Overrides, Brokerage Commissions or the
Administrative Fees being calculated. At the same time, the Fund's flat-rate
Brokerage Commissions were reduced in an amount corresponding to the
Administrative Fees, so that there was no increased expense to the Fund.
MLIP pays the ongoing administrative costs of the Fund, including the
expense of updating this Prospectus.
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.
F/X DESK SERVICE FEES; EFP DIFFERENTIALS
The Fund trades forward contracts through the F/X Desk. Conversions
of the Fund's foreign currency gains and losses are also effected through the
F/X Desk on the same basis as the Fund's foward trading. 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).
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In its exchange of futures for physical ("EFP") trading with Merrill
Lynch, the Fund acquires spot or forward (collectively, "cash") currency
positions through the F/X Desk in the same manner and on the same terms as in
the case of the Fund's other F/X Desk trading. 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.
EFPs 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 EFPs.
The combined F/X Desk service fees and EFP differentials paid by the
Fund have not to date exceeded 1/4 of 1% of the Fund's average month-end assets
on an annual basis.
ANNUAL INCENTIVE OVERRIDES
Certain Definitions
In the following description of the calculation of Net New Gain and
the Incentive Override, it is important to distinguish: (a) the Net Asset Value
per Unit prior to adjustment to reflect the Incentive Override accrual or
reversal being calculated; and (b) the Net Asset Value per Unit following such
adjustment. The former is referred to as the Unadjusted NAV. The Net Asset
Value per Unit as of the end of the month for which the Incentive Override is
being calculated, after adjustment for such Incentive Override, is referred to
as the Adjusted NAV. The Adjusted NAV represents the purchase as well as the
redemption value (prior to applicable redemption charges) of the Units.
Incentive Overrides are, other than as described below in the case of Units
purchased during the current calendar year, calculated by comparing the current
Unadjusted NAV to the highest Adjusted NAV as of any previous calendar year-end.
Such highest previous Adjusted NAV to which the current Unadjusted NAV is
compared is referred to below as the High Water Mark NAV.
Calculation of Net New Gain
For purposes of the computation of Net New Gain and Incentive
Overrides (including calculating the High Water Mark NAV), interest income is
excluded, and Net New Gain is calculated after all fees (other than the
Incentive Override itself).
MLIP receives, as of December 31 of each year, an Incentive Override
equal to 10% of the aggregate Net New Gain (as defined) generated during the
year.
Except as described in the following paragraph, cumulative Net New
Gain is calculated for each month in a calendar year by determining the change
(positive or negative) between (i) the Adjusted NAVs at which Units were
purchased or the High Water Mark NAV -- which High Water Mark NAV may be
substantially below the Net Asset Value per Unit at which an investor subscribed
- -- and (ii) the Unadjusted NAV as of the end of such month.
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.
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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 are accrued against all Units equally, although Units sold at
different times 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 established, 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 below their purchase price.
Net New Gain is calculated on an aggregate basis, not in respect of
the investment experience of any particular Unit. For example, assume Units are
sold during the first calendar year of operations at Adjusted NAVs of $100, $110
and $105. If a Unit is subsequently redeemed when the Unadjusted NAV per Unit is
$107, the same accrued Incentive Override will be reflected as a reduction of
its redemption price, irrespective of what the purchase price of the Unit being
redeemed had been. The purchase price of a Unit is, in the year of purchase,
the Adjusted NAV from which the Net New Gain (positive or negative) generated by
such Unit is measured. In the foregoing example, the Unit purchased at $110
would have generated negative Net New Gain of ($3) as of the redemption date,
while the Units purchased at $100 and $105 would have generated positive Net New
Gain of $7 and $2, respectively. The aggregate Net New Gain generated by all
Units would be combined, multiplied by 10% and would reduce the Net Asset Value
of the Fund as an Incentive Override accrual, in which all Units share equally.
The Fund's method of Incentive Override calculation attempts to strike
a compromise between avoiding misallocations of Incentive Overrides among
investors and maintaining a uniform Net Asset Value per Unit. During the
calendar year in which Units are purchased, certain misallocations of the
Incentive Override are prevented by MLIP agreeing (i) to give investors which
purchase Units below the High Water Mark NAV for such year a free ride, i.e., no
Net New Gain is generated on increases in the Unadjusted NAV of their Units
until such Unadjusted NAV exceeds the High Water Mark NAV and (ii) that Units
will contribute negative Net New Gain to the extent that their Unadjusted NAV
declines below their purchase price (negative Net New Gain stops being generated
if such Unadjusted NAV declines below the High Water Mark NAV, as positive Net
New Gain is only generated to the extent that the Unadjusted NAV exceeds the
High Water Mark NAV). In years subsequent to the calendar year of purchase, the
Incentive Override is calculated in respect of all Units sold in prior years
based solely on the current High Water Mark NAV, irrespective of the various
purchase prices of these Units as of the beginning of numerous different months
during prior years.
There is no direct connection between the appreciation in the Net
Asset Value of a particular Unit and the Incentive Override applicable to that
Unit (equally, together with all other outstanding Units). For example, if one
Unit were sold as of January 1, 1997 (assumed for simplicity's sake to be the
commencement of trading) for $100, ten Units as of July 1, 1997 at an Adjusted
NAV of $110 and as of November 30, 1997 the initial Unit was redeemed at an
Adjusted NAV of $105, despite the profit made on the redeemed Unit, there would
be no accrued Incentive Override reflected in such Adjusted NAV because the $10
in Net New Gain generated through June 30, 1997 would have been offset by the
July 1, 1997 -- November 30, 1997 losses incurred by a greater number of Units.
As of December 31, 1994 and 1995 and September 30, 1996, MLIP received
or had accrued to its benefit Incentive Overrides of $41,867, $965,454 and
$5,117, respectively, or approximately 0.08%, 1.30% and 0.01% of the Fund's
average month-end Net Assets during these periods, respectively.
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The fact that MLIP receives an Incentive Override may lead it to
select Advisors which trade in a more risky or speculative manner than would
otherwise be the case. See "Conflicts of Interest" at page 48.
Net New Gain includes unrealized appreciation as well as realized
gain.
The method by which the Incentive Override is calculated results in
certain misallocations of the Incentive Override as well as of reversals of
accrued Incentive Overrides, and, consequently, possible equity dilution among
Limited Partners purchasing Units at different times.
See Appendix I -- Incentive Override and Profit Share Calculations in
an Open-End Fund.
PROFIT SHARES
Calculation of New Trading Profit
Each current Advisor receives a Profit Share of between 15% and 25% of
any cumulative New Trading Profit generated by such Advisor, as of the end of
each calendar quarter or year, as the case may be. The percentage Profit Shares
which are paid to current core Advisors are as follows: ARA Portfolio
Management Company, L.L.C. -- 20% (annual Profit Share); Chesapeake Capital
Corporation -- 20% (annual Profit Share); and John W. Henry & Company, Inc. --
15% (quarterly Profit Share). The non-core Advisors generally receive quarterly
or annual Profit Shares of between 20% and 25% of any New Trading Profit which
they earn for their Fund account.
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 John W. Henry & Company, Inc. ("JWH"), which
receives a quarterly Profit Share, 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 the accrued Profit Share) and that as of March 31, 1997 the Net Asset Value
per Unit (prior to calculating the Profit Share and without including interest
income) equals $102. New Trading Profit would be generated in respect of the
Units sold at $100 in the amount of $2.00 per Unit, whereas negative New Trading
Profit of $3.00 per Unit would be generated in respect of Units sold at $105.
Depending upon the number of Units sold as of January 1, 1997 and February 1,
1997, respectively, a Profit Share might or might not be due to JWH 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 Net Asset Value per Unit (without including interest
income) exceeded (i) $102 less (ii) the per-Unit Profit Share, if any, paid to
JWH on March 31, 1997. If Units were subsequently purchased at a Net Asset
Value less than the 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 Net Asset
Value per Unit (prior to accrual of the Profit Share) exceeded the March 31,
1997 high water mark 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, there have been, and it is likely that there will
continue to 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 or year-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 or year of sale, as the case may be, the date that particular
Units are sold, if higher).
In the case of certain Advisors, New Trading Profit is not reduced by
the full amount of the Brokerage Commissions allocable to their Fund
account.
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In the case of Units redeemed as of the end of any month that is not
the end of a calendar quarter or year, as the case may be, 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
Net Asset Value of all Units), as if the redemption date were the end of a
Profit Share calculation period. 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 or year. 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 or years
subsequent to the quarter or year of purchase (a calendar quarter or year being
the relevant period depending upon whether a quarterly or annual Profit Share
calculation is made), 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 or year-
end when such highest attributable Net Asset Value per Unit was attained.
Accordingly (as is the case with MLIP and the Incentive Override), the Advisors
do not have to earn back Profit Shares previously paid to them in order for the
Fund account managed by them to generate additional New Trading Profits on which
an incremental Profit Share will accrue.
Termination of an Advisory Agreement is treated as if the date of
termination were at calendar quarter-end or year-end for purposes of calculating
the Profit Share due to an Advisor. If a new or replacement Advisor is
retained, such Advisor calculates its Profit Shares without regard to any losses
previously incurred by the Fund.
In the event that MLIP reallocates assets away from an Advisor (to
fund redemptions or for other purposes), any shortfall between the attributable
Net Asset Value per Unit as of the date of such reallocation and the high water
mark attributable Net Asset Value per Unit shall be reduced in proportion to the
percentage of the Fund's assets managed by such Advisor that are reallocated
away. Conversely, any Profit Shares accrued as of the date of any such
reallocation shall be proportionately paid to such Advisor.
During 1994, 1995 and the first three quarters of 1996, the Net Asset
Value per Unit increased approximately 4.08%, 19.48% and 3.72%, and the Fund had
net income of $2,753,221, $13,359,856 and $3,005,951, respectively. Profit
Shares equalling $1,103,649, $1,492,857 and $373,820, or approximately 2.08%,
2.01% and 0.42% of the Fund's average month-end Net Assets in each period, were
paid. (The 1996 figure, when annualized, equals the 0.56% Profit Share expense
indicated in the table on page 34 at the beginning of this "Charges"
section.)
General
Because certain 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 for the
funds which it sponsors or manages.
______________________
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.
______________________
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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 due on Units which remain outstanding for more than twelve
months. See "Plan of Distribution -- Selling Agent Compensation" at page
57.
Through September 30, 1996, MLIP had paid a total of $5,595,249 in
selling commissions (in the form of production credits, not cash out-of-pocket).
The first monthly installments of ongoing compensation began to accrue
as of January 1, 1995 on the Units sold as of January 4, 1994. Through
September 30, 1996, MLIP paid a total of $1,323,788 in ongoing compensation (in
the form of production credits, not cash out-of-pocket).
CONSULTING FEES
The Trading Advisors each enter into a Consulting Agreement with MLF.
Pursuant to such Consulting Agreements, MLF pays monthly Consulting Fees to each
of the Advisors. Chesapeake and ARA each receive 0.083% (1% annually), and JWH
0.333% (4% annually), of the month-end assets of the Fund allocated to each of
them, respectively.
MLIP anticipates that the Consulting Fees paid to Advisors in the
future will generally fall within the range of a 1% to 4% annual rate, but such
fees could fall outside of such range in certain cases.
During 1994, 1995 and 1996 (9 months), MLF paid Consulting Fees of
$1,376,882, $2,156,311 and $2,477,438, respectively, or approximately 2.59%,
2.91% and 2.80% (9 months) 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.
For purposes of determining whether redemption charges apply, Units
are considered to be issued as of the first day of the calendar month
immediately following the month during which the subscriptions for such Units
are accepted.
During 1994, 1995 and 1996 (9 months), MLIP received a total of
$53,976, $132,030 and $62,252, respectively, in redemption charges.
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CERTAIN LITIGATION
JWH
In September 1996, JWH was named as a co-defendant in class action
lawsuits brought in the California Superior Court, Los Angeles County and in the
New York Supreme Court, New York County. In November, JWH was named in a class
action complaint filed in Superior Court of the State of Delaware for Newcastle
County that contained the same allegations as the New York and California
complaints. The actions, which seek unspecified damages, purport to be brought
on behalf of investors in certain Dean Witter, Discover & Co. ("Dean Witter")
commodity pools, some of which are advised by JWH, and are primarily directed at
Dean Witter's alleged fraudulent selling practices in connection with the
marketing of those pools. JWH is essentially alleged to have aided and abetted
or directly participated with Dean Witter in those practices. JWH believes the
allegations against it are without merit; it intends to contest these
allegations vigorously, and is convinced that it will be shown to have acted
properly and in the best interest of the investors.
MLIP
ML&Co. -- the sole stockholder of Merrill Lynch Group, Inc. (which is
the sole 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 and arbitration proceedings arising out of their respective business
activities.
The following actions have been filed against or on behalf of ML&Co.
in connection with ML&Co.'s business activities with the Treasurer-Tax Collector
of Orange County, California ("Orange County") or from the purchase of debt
instruments issued by Orange County that were underwritten by MLPF&S. On
December 6, 1994, bankruptcy petitions were filed on behalf of Orange County and
the Orange County Investment Pools (the "Pools") in the United States Bankruptcy
Court for the Central District of California (the "Bankruptcy Court"). The
Pools' bankruptcy petition subsequently was dismissed. On May 17, 1996, the
Bankruptcy Court confirmed a plan pursuant to which Orange County emerged from
bankruptcy. 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.
On October 17, 1996, the United States District Court for the Central
District of California withdrew the reference to the Bankruptcy Court of the
Orange County Action. The case is now pending in the District Court.
On December 13, 1994, a purported class action was commenced in the
Superior Court of the State of California, Orange County, on behalf of
individuals whose funds were deposited with the Orange County Treasurer-Tax
Collector pursuant to proceedings in California Superior Court (the "DeLeon
Action"). On December 27, 1994, plaintiffs filed a first
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amended class action complaint; on April 19, 1995, plaintiffs filed a second
amended complaint which was dismissed on November 13, 1995; and, on December 18,
1995, plaintiffs filed a third amended complaint. As amended, the DeLeon Action
is brought on behalf of the same individuals on whose behalf the action was
originally brought and on behalf of individuals who invested funds in the Pools
representing deferred compensation and/or retirement funds. The defendants
include ML&Co., a subsidiary of ML&Co. and an employee of ML&Co. Plaintiffs
allege, among other things, that the defendants breached fiduciary duties, aided
and abetted breaches of fiduciary duties, conspired to breach a fiduciary duty
and committed professional negligence in connection with ML&Co.'s business
activities with the Orange County Treasurer-Tax Collector. Damages in an
unspecified amount are sought. On May 10, 1996, pursuant to agreement of the
parties, the court entered an order staying this action pending final resolution
of the Orange County Action described above.
On January 10, 1995, a purported class action was commenced in the
Superior Court of the State of California, Orange County, on behalf of persons
whose funds were deposited in the Pools pursuant to proceedings in California
Superior Court (the "Small Action"). ML&Co., a subsidiary of ML&Co., an
employee of ML&Co. and Robert L. Citron, formerly the Treasurer-Tax Collector of
Orange County, are named as defendants. Plaintiffs allege claims for breach of
fiduciary duty and fraud in connection with ML&Co.'s business activities with
the Orange County Treasurer-Tax Collector. Injunctive relief and damages in an
unspecified amount are sought. The complaint in this action was never served.
On September 15, 1995, an action was commenced in the Superior Court
of the State of California, San Francisco County, by twelve California public
entities (the "Atascadero State Court Action"). On April 10, 1996, a first
amended complaint was filed, which was dismissed on November 5, 1996. On
December 2, 1996, a second amended complaint was filed adding two California
public entities as plaintiffs. Named as defendants are ML&Co., certain
subsidiaries of ML&Co. and three past employees of ML&Co., two of which were
dismissed as defendants without prejudice on July 5, 1996. As amended, the
complaint alleges, among other things, that the defendants conspired to commit
fraud, committed fraud and deceit and negligent misrepresentation, breached
fiduciary duties, aided and abetted breaches of fiduciary duty and violated
California Penal Code Section 496 and the Racketeer Influenced and Corrupt
Organizations Act ("RICO"), in connection with ML&Co.'s business activities with
the Orange County Treasurer-Tax Collector. Damages in an unspecified amount are
sought. The case has been transferred to Contra Costa County, California.
On November 27, 1995, an action was commenced in the United States
District Court for the Central District of California by fourteen California
public entities (the "Atascadero Federal Court Action"). On March 22, 1996, an
amended complaint was filed. Named as defendants are ML&Co., certain
subsidiaries of ML&Co. and three past or present employees of ML&Co. (two of
whom have been dismissed without prejudice by agreement of the parties). John
Moorlach is named as a nominal defendant. As amended, the complaint alleges,
among other things, that defendants violated Sections 10(b) and 20(a) of the
Exchange Act and Rule 10b-5 promulgated thereunder, Sections 25400, 25401, 25500
and 25501 of the California Code, Section 496 of the California Penal Code, the
California Unfair Business Practices Act, and RICO, committed fraud and deceit,
negligence and negligent misrepresentation, conversion, breached fiduciary
duties, and aided and abetted breaches of fiduciary duty, in connection with
ML&Co.'s business activities with the Orange County Treasurer-Tax Collector.
Rescission, restitution and damages in excess of $50 million are sought. This
action was voluntarily dismissed without prejudice on September 4, 1996.
On December 20, 1996, an action was commenced in the United States
District Court for the Central District of California by Irvine Ranch Water
District (the "Irvine Action"). ML&Co. is the sole defendant. The complaint
alleges, among other things, that ML&Co. committed intentional and negligent
misrepresentation, concealment and breach of fiduciary duty in connection with
ML & Co.'s business activities with the Orange County Treasurer-Tax Collector.
Damages in excess of $130 million and punitive damages in an unspecified amount
are sought.
Beginning on December 5, 1994, five derivative actions purportedly
brought on behalf of ML&Co. were filed in the Supreme Court of the State of New
York, New York County (the "Wilson Actions"). On February 21, 1995, the court
consolidated the actions and an amended consolidated complaint was filed on June
5, 1995 naming as defendants 22 present or past directors, officers or employees
of ML&Co. and/or certain of its subsidiaries. The amended complaint alleges,
among other things, breach of fiduciary duty and oversight failures, waste of
corporate assets and claims for indemnification in connection with ML&Co.'s
business activities with the Orange County Treasurer-Tax Collector. ML&Co. is
named as a nominal defendant in these actions. Damages in an unspecified amount
are sought on behalf of ML&Co. against the individuals named as defendants. The
Court dismissed this action on August 7, 1996. A notice of appeal was filed on
September 11, 1996.
On December 16, 1994, a purported class action was commenced in the
United States District Court for the Southern District of New York (the "Balan
Action"). An amended complaint was filed on May 15, 1995. As amended, the
Balan
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<PAGE>
Action is brought on behalf of purchasers of ML&Co.'s common stock between
March 31, 1994 and December 6, 1994, and names as defendants ML&Co. and two of
its directors and officers. The plaintiff alleges, among other things,
violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5
promulgated thereunder in connection with ML&Co.'s disclosure with respect to
its business activities with the Orange County Treasurer-Tax Collector. Damages
in an unspecified amount are sought.
Beginning on December 8, 1994, ten purported class actions were
commenced in the United States District Court for the Central District of
California on behalf of individuals who purchased bonds or other debt
instruments issued by or on behalf of Orange County during various periods of
time (the "Smith Federal Court Action"). Plaintiffs filed an amended
consolidated complaint on January 27, 1995, and a first amended consolidated
complaint on February 27, 1995. As amended, the Smith Federal Court Action
purports to be brought on behalf of all persons who purchased bonds or other
debt instruments between July 1, 1992 and December 6, 1994 that were issued by
Orange County or other public entities with funds controlled by the Orange
County Treasurer-Tax Collector. The defendants in the first amended
consolidated complaint are ML&Co., an employee of ML&Co., PaineWebber, Inc., CS
First Boston Corp., Smith Barney, Inc., Lehman Brothers, Inc., Donaldson, Lufkin
& Jenrette, Inc., Kidder, Peabody & Co., Inc., Stone & Youngberg, Rauscher
Pierce Refsnes, Inc., Leifer Capital, Inc., Fieldman Rolapp & Associates, Inc.,
CGMS, Inc. and O'Brien Partners, Inc. Following a stipulation and order filed
on July 17, 1995 dismissing certain state law claims without prejudice, the
plaintiffs allege, among other things, that the defendants affiliated with
ML&Co. violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder with respect to the sale of bonds and other debt instruments issued
by Orange County and other public entities. Damages in an unspecified amount
are sought. On April 1, 1996, the court granted a motion by plaintiffs to
dismiss this action without prejudice.
On September 28, 1995, a purported class action was commenced in the
Superior Court for the State of California, Orange County, asserting the state
law claims previously dismissed in the Smith Federal Court Action and a claim
for fraud and deceit (the "Smith State Court Action"). The Smith State Court
Action is brought on behalf of the same purported class as the Smith Federal
Court Action. Named as defendants are ML&Co., an employee of ML&Co. and the
same defendants not affiliated with ML&Co. as in the Smith Federal Court Action
and, in addition, KPMG Peat Marwick. Violations of Sections 25400, 25401,
25500, 25501 and 25504.1 of the California Code and fraud and deceit are alleged
in connection with disclosure made with respect to the sale of bonds and other
debt instruments issued by Orange County or other public entities with funds
controlled by the Orange County Treasurer-Tax Collector. Damages in an
unspecified amount are sought. Certain of the defendants in the Smith State
Court Action other than ML&Co. and the employee of ML&Co. named as a defendant
have entered into settlement agreements with the plaintiffs that have been
approved by the court.
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 had been stayed until June 30, 1996. The court dismissed
this action without prejudice on September 4, 1996 pursuant to agreement of the
parties.
ML&Co. has also received formal and informal inquiries from various
governmental entities and agencies examining the events underlying the above
described litigation and is cooperating with these inquiries.
On December 16, 1994, a consolidated amended complaint was filed in In
Re NASDAQ Market-Makers Antitrust Litigation, MDL No. 1023, in the United States
District Court for the Southern District of New York. As subsequently amended,
the complaint alleges that 33 market-makers, including MLPF&S, engaged in a
conspiracy with respect to the spread between bid and ask prices for certain
securities traded on NASDAQ by refusing to quote bid and ask prices in so-called
"odd-eighths." The complaint purports to be brought on behalf of all persons
who purchased or sold these securities between May 1, 1989 and May 27, 1994.
The complaint alleges violations of antitrust laws and seeks compensatory
damages in an unspecified amount, treble damages, declaratory and injunctive
relief, and attorneys' fees and costs. Judgment against each of the defendants
is sought on a joint and several basis. MLPF&S has filed an answer denying the
allegations in the complaint. Discovery is proceeding. On November 27, 1996,
the court certified a class consisting of certain persons who purchased or sold
certain securities on the NASDAQ National Market during specified time periods
for each such security during the period from May 1, 1989 to May 27, 1994.
-45-
<PAGE>
In connection with their industry-wide investigations into the NASDAQ
market, ML&Co., along with other named defendants, has received inquiries from
the Antitrust Division of the Department of Justice and the SEC and is
cooperating with these inquiries.
On July 17, 1996, the Antitrust Division of the United States
Department of Justice filed a civil antitrust complaint against firms that make
markets in NASDAQ securities, including MLPF&S. The complaint alleged that the
firms violated Section 1 of the Sherman Act through a "common understanding" to
follow a "quoting convention" that the complaint asserts had inflated the
"inside spread" (the difference between the best quoted buying price and the
best quoted selling price on NASDAQ) in certain NASDAQ stocks. This allegedly
resulted in investors having to pay higher transaction costs for buying and
selling stocks than they would have paid otherwise. At the same time the
complaint was filed, a proposed settlement of the action was announced, pursuant
to which the market maker defendants in the action have agreed not to engage in
certain conduct. The proposed settlement, which is subject to court approval,
provides, among other things, for the monitoring and tape recording by each of
the market maker defendants of not less than 3.5 percent, or a maximum of 70
hours per week, of telephone conversations by its over-the-counter desk traders;
the provision to the Department of Justice of any taped conversation that may
violate the terms of the settlement; and for Department of Justice
representatives to appear unannounced, during regular business hours, for the
purpose of monitoring trader conversations as the conversations occur.
In each of the legal proceedings described below except for the
stockholder derivative actions, the claims against the Merrill Lynch defendants
(as defined below) have now either been dismissed pursuant to settlements or,
under the terms of a settlement for which court approval is being sought, 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.
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
46
<PAGE>
Association) in January 1993 and April 1993 filed civil actions in federal court
in Jacksonville, Florida against ML&Co., MLPF&S, MLGSI, a former MLPF&S managing
director, and former officers, directors and employees of Transmark and GSLIC
(the "RTC Action"). The action seeks to recover damages as a result of
purchases by the four above-named institutions of securities issued by
Transmark, GSLIC's parent corporation. The claims alleged are substantially
similar to those in the Haag/Levine Action mentioned above. In April 1993,
Trans-Resources Inc., a company that alleges it also purchased Transmark
securities, filed a complaint in the federal court in Jacksonville, Florida
substantially following the allegations of the RTC Action and naming
substantially the same defendants (the "Trans-Resources Action"). The RTC
Action and Trans-Resources Action each seek compensatory and punitive damages in
unspecified amounts, trebling of damages under the RICO claim, rescissory relief
and reimbursement of the costs of suit. On August 10, 1995, an agreement was
signed among the RTC and these Merrill Lynch defendants to settle the RTC
Action, as well as all other pending litigation brought by the RTC against
ML&Co. or its affiliates. Pursuant to the agreement, $4.5 million has been paid
to the RTC in respect of the RTC Action, and the RTC's claims against these
Merrill Lynch defendants have been dismissed in their entirety. On December 22,
1995, an agreement was signed among Trans-Resources and these Merrill Lynch
defendants to settle the Trans-Resources Action. Pursuant to the agreement,
$150,000 has been paid to Trans-Resources, and claims against the Merrill Lynch
defendants in this action have been dismissed in their entirety.
In October 1991, two derivative actions purportedly brought on behalf
of ML&Co. were filed in the Supreme Court of the State of New York, New York
County, naming as defendants directors of ML&Co. who were directors at the time
of the year-end securities transactions in question, among others. These cases,
now consolidated, assert claims of breach of fiduciary duties in connection with
the year-end securities transactions with GSLIC and other claims against
Transmark and one of Transmark's principals. The damages sought in this action
are unspecified.
ML&Co. believes it has strong defenses to, and will vigorously
contest, the actions described above which are still pending. 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.
47
<PAGE>
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 ("Merrill Lynch" is used from time to time in
this Prospectus to refer to certain or all of the Merrill Lynch affilated group
of companies) 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 which is not a direct party to an agreement with the Fund,
and (ii) would be likely to have such recourse even in the case of such entities
only on a derivative basis, suing not individually but in the right of the
Fund.
ML GLOBAL HORIZONS L.P.
ASSOCIATED MERRILL LYNCH ENTITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ------------------------ ------------------------- --------------------------
Merrill Lynch, Pierce,
Fenner & Smith wholly-owned Merrill Lynch wholly-owned Merrill Lynch
Incorporated & Co., Inc. International Inc.
Selling Agent
- ------------------------ ------------------------- --------------------------
wholly-owned wholly-owned
------------------------- --------------------------
Merrill Lynch Merrill Lynch
Group Inc. International Bank
F/X Counterparty
------------------------- --------------------------
wholly-owned
Selling
Agreement wholly-owned
----------------------------- ------------------------- --------------------------
Merrill Lynch Merrill Lynch Merrill Lynch
Asset Management, L.P. Investment Partners Futures Inc. F/X Service
Cash Management Inc. Commodity Broker Desk
Service General Partner Agreement
----------------------------- ------------------------- --------------------------
general partnership
interest
Customer
Agreement
-----------------------
ML Global
Horizons L.P.
Fund
-----------------------
</TABLE>
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
subcribing to the Fund.
-48-
<PAGE>
MLIP
Relationships among the Merrill Lynch Affiliates
MLIP and its affiliates are the Fund's primary service providers,
other than the Trading Advisors, and will remain so even if using other firms
would be more advantageous for the Fund.
Other Funds Sponsored by MLIP
MLIP might be able to add more value to the Fund were certain MLIP
personnel to focus exclusively on managing the Fund, but none do so. MLIP
benefits from operating 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 and the lower the
Consulting Fees paid to such Advisor. MLF receives a flat-rate fee for
executing the Fund's futures trades. However, MLF incurs out-of-pocket costs in
executing each such trade. The less frequently an Advisor trades, the lower
these out-of-pocket costs to MLF and the greater its net revenues from the Fund.
The Consulting Fees are paid by MLF from the Brokerage Commissions it
receives.
MLIP may from time to time have a conflict of interest between
facilitating the ongoing offering of the Units and making Advisor or other
changes which MLIP would otherwise believe to be in the best interest of the
Fund.
MLIP sponsors numerous funds and has financial incentives to favor
certain of such funds over the Fund.
MLF AND MLIB
MLF has numerous 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. Furthermore, 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 charged by MLF are in large
part attributable to the significant costs incurred by MLIP and the ML&Co. group
in sponsoring the Fund and distributing the Units being embedded in the Fund's
Brokerage Commission costs. In the case of institutional accounts, no
sponsorship or distribution costs are incurred by the Merrill Lynch
organization, so MLF can lower Brokerage Commissions without reducing the net
revenue received by Merrill Lynch. See "Charges -- Charges Paid by Merrill
Lynch" at page 42 above. Nevertheless, even factoring in sponsorship and
distribution costs, certain institutional clients of MLF receive, as a result of
arm's-length negotiations, better commission rates than the Fund.
MLF and MLIB each have numerous clients and financial incentives to
favor certain such clients over the Fund.
THE TRADING ADVISORS
Other Clients and Business Activities of the Trading Advisors
The Fund might benefit significantly from an exclusive focus by
certain of the Trading Advisors on the Fund rather than on their other accounts,
including accounts owned by their principals. The Fund could be adversely
affected by the fact that the Trading Advisors trade other accounts at the same
time that they are managing the Fund's account.
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.
49
<PAGE>
Certain of the Trading Advisors act, or may in the future act, as
sponsors of their own single- or multi-advisor futures funds. Such funds may,
from time to time, be in direct competition with the Fund for positions in the
market.
Other client accounts managed by a Trading Advisor may significantly
outperform its Fund account.
Each Trading Advisor has numerous clients and financial incentives to
favor certain such clients 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 for the Fund)
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 in respect of the Units sold by
them. Consequently, Financial Consultants have a financial incentive to
encourage investors to purchase, and to discourage them from redeeming, their
Units.
PROPRIETARY TRADING
MLIP, the Advisors, their respective affiliates and related persons
may trade in the commodity markets for their own accounts as well as for the
accounts of their clients. Records of this trading will not be available for
inspection by Limited Partners. In doing so, such persons 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, as well as that on occasion
orders may be filled more advantageously for the account of one or more such
persons than for the Fund's account.
___________________
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 FUND IS SUBJECT TO MATERIAL CONFLICTS OF INTEREST, AND NONE OF THE
FOREGOING PARTIES HAS ADOPTED ANY FORMAL PROCEDURES FOR RESOLVING SUCH
CONFLICTS.
50
<PAGE>
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 or her share of any undistributed profits.
(Section 7(f) at LPA-6).
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 or to receive monthly
reports) does not require such consent. The General Partner will generally
consent to assignees becoming substitute Limited Partners unless doing so would
have adverse federal income tax consequences for the Fund.
A Limited Partner may redeem any or all of his or her 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-9).
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-13). A majority of the Units held by Limited Partners
may also compel dissolution of the Fund. (Section 17(b) at LPA-13). 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-13).
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).
51
<PAGE>
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.
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-8).
Each month MLIP distributes summary statements of accounts to all
Limited Partners. All tax information relating to the Fund necessary for the
preparation of Limited Partners' federal income tax is distributed no later than
March 15 of each year. Audited financial statements are distributed by March 31
of each year. (Section 9 at LPA-8).
GENERAL
In compliance with the NASAA 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 of their respective affiliates 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
NASAAGuidelines. (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 NASAA 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 expects all income to be generated by the Fund in the future
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
52
<PAGE>
& Austin, the foregoing allocations should be upheld if audited by the IRS.
Nevertheless, a legal opinion is not binding on the IRS, and it is not certain
that such allocations would, in fact, be respected upon audit. If such
allocations were challenged and not sustained, some or all of a redeeming
Partner's capital gain or loss could be converted from short-term to long-term,
and each remaining Partner's share of the capital gain or loss that is the
subject of such allocations could be increased (solely for tax purposes).
LIMITATIONS ON DEDUCTIBILITY OF FUND LOSSES
The amount of any Fund loss that a Partner is entitled to include in
his personal income tax return is limited to his tax basis for his Units as of
the end of the year in which such loss occurred. Generally, a Partner's tax
basis for his Units is the amount paid for such Units reduced (but not below
zero) by his share of any Fund distributions, realized losses and expenses and
increased by his share of the Fund's realized income and gains. In addition,
losses of the Fund may be limited under the "at risk" rules.
Because of the limitations imposed upon the deductibility of capital
losses (see "-- Tax on Capital Gains and Losses," at page 54), a Partner's
distributive share of any capital losses of the Fund does 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 do not constitute passive activities, and income derived from the Fund
constitutes 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 the Units held by such
Partner.
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 in the following paragraph with respect to Section
988 transactions, 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, whether or not they involve Section 1256 Contracts (see "-- Gain
or Loss on Section 1256 Contracts," above).
53
<PAGE>
TAX ON CAPITAL GAINS AND LOSSES
Net capital gains (i.e., the excess of net long-term capital gain over
net short-term capital loss) will be taxed for individual taxpayers at a maximum
rate of 28%. See "-- Limitation on Deductibility of Interest on Investment
Indebtedness," below, for a discussion of the reduction in the amount of an
individual taxpayer's net capital gain for a taxable year to the extent such
gain is taken into account as investment income. The Fund's trading generates
almost exclusively capital gain or loss. Capital losses are deductible by
individual taxpayers only to the extent of capital gains for the taxable year
plus $3,000. Accordingly, the Fund could incur significant capital losses but
an investor, nevertheless, be required to pay substantial taxes in respect of
such investor's allocable share of the Fund's interest and other ordinary
income. See "Risk Factors -- (20) Taxation of Interest Income" at page 11.
If an individual taxpayer incurs a net capital loss for a year, the
portion thereof, if any, which consists of a net loss on Section 1256 Contracts
may, at the election of the taxpayer, be carried back three years. Losses so
carried back may be deducted only against net capital gain for such year to the
extent that such gain includes gains on Section 1256 Contracts. Losses so
carried back will be deemed to consist of 60% long-term capital loss and 40%
short-term capital loss (see "-- Gain or Loss on Section 1256 Contracts,"
above). To the extent that such losses are not used to offset gains on Section
1256 Contracts in a carryback year, they will carry forward indefinitely as
losses on Section 1256 Contracts in future years.
LIMITED DEDUCTION FOR CERTAIN EXPENSES
The Code provides that, for individual taxpayers who itemize
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% of an individual taxpayer's adjusted gross income (the "2%
Floor"). 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 equal to, generally, 3% of the taxpayer's adjusted gross income
in excess of a certain threshold amount (the "3% Phase-Out"). Moreover, such
Aggregate Investment Expenses are miscellaneous itemized deductions which are
not deductible by individual taxpayers in calculating their alternative minimum
tax.
Based on the trading activities of the Fund to date, 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. This is the position which MLIP has taken to date. Investors should be
aware, however, that an opinion of counsel is not binding on the IRS or on any
court, and that it is possible that the IRS could contend, or that a court could
decide, that the trading activities of the Fund 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 IRS could take the position that a portion of the Brokerage
Commissions paid to MLF and/or the Administrative Fees paid to MLIP 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 (A) (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 (B) 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 the gains described in clause (ii) of the
second preceding sentence only to the extent that such taxpayer elects to
make
54
<PAGE>
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," above at page 54.)
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 Merrill Lynch. The MLIP
contribution is taxed as ordinary income in the year of purchase, and affected
subscribers acquire a tax basis of 100% of Net Asset Value in their Units.
"UNRELATED BUSINESS TAXABLE INCOME"
In the opinion of Sidley & Austin, income earned by the Fund does 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
(a contingency which is entirely within the control of the purchasing plans and
entities).
IRS AUDITS OF THE FUND AND ITS PARTNERS
The tax treatment of Fund-related items is determined at the Fund
rather than the Partner level. MLIP is the Fund's "tax matters partner" with
general authority to determine the Fund's responses to a tax audit. 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 a tax audit of 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 SUMMARY 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 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. The minimum
initial investment is 50 Units (or $5,000, if less); the minimum additional
investment for existing Limited Partners is 20 Units (or $2,000, if less).
Subscriptions are used to purchase the largest number of whole Units possible at
the purchase date Net Asset Value per Unit and any overage is retained by the
investors. The Fund does not issue fractional Units.
Subscriptions may be submitted at any time during a month. If
accepted, such subscriptions will be applied to the purchase of Units as of the
first day of the immediately following calendar month. Settlement of Unit
purchases generally occurs within five (5) business days of the beginning of the
month as of which they are sold.
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. Given the best
efforts nature of the offering, there can be no assurance as to how many Units
will be sold, cumulatively or as of any given month-end.
55
<PAGE>
MLPF&S acts as the exclusive Selling Agent for the Units; see "--
Selling Agent Compensation," below at page 57. There is no market for the
Units, and MLPF&S does 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. Such settlement dates generally take place not
later than five (5) business days following the beginning of the month as of
which Units are purchased. 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 such subscriber's Subscription Agreement and
Power of Attorney.
Subscriptions must generally be received no less than five (5)
business days prior to the beginning of the month as of which the Units
subscribed for are 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 and Prospectus Supplement 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 WISHING 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
AFFECTED INVESTORS. This section sets forth certain consequences
under the Employee Retirement Income Security Act of 1974 ("ERISA") and the
Code, which a fiduciary of an "employee benefit plan," as defined in and subject
to ERISA, or of a "plan," as defined in Section 4975, of the Code who has
investment discretion should consider before deciding to invest the plan's
assets in the Fund (such "employee benefit plans" and "plans" being referred to
herein as "Plans," and such fiduciaries being referred to herein as "Plan
Fiduciaries"). In general, the terms, "employee benefit plan," as defined in
ERISA, and "plan," as defined in Section 4975 of the Code, together refer to any
plan or account of various types which provide retirement or welfare benefits.
Such plans and accounts include, but are not limited to, corporate pension and
profit sharing plans, KEOGH plans for self-employed individuals (including
partners), "simplified employee pension plans," individual retirement accounts
and medical benefit plans.
SPECIAL INVESTMENT CONSIDERATIONS. 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
or would play in the Plan's overall investment portfolio. Each Plan Fiduciary,
before deciding to invest in the Fund, must 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. 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.
THE FUND SHOULD NOT BE DEEMED TO HOLD PLAN ASSETS. A regulation
issued under ERISA (the "ERISA Regulation") 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 therein if such interest is a "publicly-offered security."
This
56
<PAGE>
exception is satisfied with respect to the Units. Therefore, the underlying
assets of the Fund should not be 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(TM) and SEP account, 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 AN INDIVIDUAL RETIREMENT
ACCOUNT OR OTHER EMPLOYEE BENEFIT PLAN IS IN NO RESPECT A REPRESENTATION BY ANY
PARTY THAT AN INVESTMENT IN THE UNITS IS APPROPRIATE OR AUTHORIZED FOR SUCH
PLAN. EACH PLAN FIDUCIARY CONSIDERING ACQUIRING UNITS MUST CONSULT WITH ITS OWN
LEGAL AND TAX ADVISERS BEFORE DOING SO.
SELLING AGENT COMPENSATION
No selling commissions are paid from the proceeds of subscriptions.
MLIP credits the Selling Agent with production credits, a portion of which are
paid to the Selling Agent in cash by MLIP. Production credits do not represent
actual cash payments but rather internal bookkeeping entries relating to the
securities sold through different Financial Consultants (the individual MLPF&S
brokers). Pursuant to standard Selling Agent compensation procedures, a
percentage of the production credits awarded to a particular Financial
Consultant is paid out in cash by the Selling Agent to such Financial
Consultant. The Selling Agent is credited with production credits of 5% of the
purchase price Net Asset Value 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 to officers and employees of Merrill Lynch at 97% of
Net Asset Value.
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 accrue only
with respect to 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. Ongoing production
credits accrue monthly and are allocated quarterly. The Selling Agent will, in
turn, pay out a portion of the amounts so received to qualified Financial
Consultants.
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
constitute costs properly allocated to the account of the Selling Agent. Such
costs, which to date have included the expense of producing a revised sales
brochure and organizing certain seminars (but have not exceeded $65,000 in the
aggregate), are in addition to the selling commissions credited to the Selling
Agent. In no event will any of 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 price of the Units.
-57-
<PAGE>
LEGAL MATTERS
Sidley & Austin passes upon legal matters for MLIP, MLF and MLPF&S in
connection with the Units being offered hereby. Sidley & Austin advises MLIP
and its affiliates with respect to MLIP's responsibilities as general partner of
the Fund and related matters. Sidley & Austin has reviewed the statements under
the section, "Federal Income Tax Consequences," in this Prospectus, and rendered
the opinions described therein to MLIP.
EXPERTS
The balance sheet of MLIP as of December 29, 1995 and the financial
statements of the Fund as of December 31, 1994 and 1995 included in this
Prospectus have been audited by Deloitte & Touche llp, independent auditors, as
stated in their reports appearing herein, and have been so included in reliance
upon such reports given upon the authority of that firm as experts in auditing
and accounting.
ADDITIONAL INFORMATION
This Prospectus constitutes part of the Registration Statement filed
by the Fund with the SEC in Washington, D.C. This Prospectus does not contain
all of the information set forth in such Registration Statement, certain
portions of which have been omitted pursuant to the rules and regulations of the
SEC, including, without limitation, certain exhibits thereto (for example, the
forms of the Selling Agreement, the Advisory Agreements, the Customer Agreement
and the Foreign Exchange Desk Service Agreement). The descriptions contained
herein of agreements included as exhibits to the Registration Statement are
necessarily summaries; the exhibits themselves may be inspected without charge
at the public reference facilities maintained by the SEC in Washington, D.C.,
and copies of all or part thereof may be obtained from the SEC upon payment of
the prescribed fees. The SEC maintains a Web Site that contains reports, proxy
and information statements and other information regarding registrants, such as
the Fund, that file electronically with the SEC at http://www.sec.gov.
-58-
<PAGE>
INDEX OF TERMS
A number of specified terms are used in this Prospectus. The
respective definitions or descriptions of such terms may be
found on the following pages of this Prospectus.
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Adjusted NAV........................................... 38
Administrative Fee..................................... 37
Advisors............................................... Cover
Available Assets....................................... 33
Bid-ask spreads........................................ 37
Breakeven level........................................ 7
Brokerage Commissions.................................. 36
CFTC................................................... i
Consulting Fees........................................ 42
Core Advisors.......................................... 6
EFP.................................................... 37
Employee benefit plan.................................. 56
ERISA.................................................. 56
F/X Desk............................................... 7
High Water Mark NAV.................................... 38
Incentive Override..................................... 38
Limited Partner........................................ LPA-1
MLF.................................................... Cover
MLIB................................................... 28
MLIP................................................... Cover
MLPF&S................................................. i
Net Asset Value........................................ 4
Net New Gain........................................... 38
New Trading Profit..................................... 40
NFA.................................................... 28
Non-core Advisors...................................... 6
Offset accounts........................................ 33
Ongoing production credits............................. i
Peak-to-Valley Drawdown................................ 5
Production Credits..................................... 57
Profit Shares.......................................... 40
Redemption charges..................................... 42
Round-turn commissions................................. 36
SEC.................................................... ii
Selling Agent.......................................... i
Selling commissions.................................... i
Service fees........................................... 37
Unadjusted NAV......................................... 38
Variation margin....................................... 17
Worst Monthly Drawdown................................. 5
Worst Peak-to-Valley Drawdown.......................... 5
</TABLE>
-59-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ML GLOBAL HORIZONS L.P.
Independent Auditors' Report................................... 61
Statements of Financial Condition.............................. 62
Statements of Income........................................... 63
Statements of Changes in Partners' Capital..................... 64
Notes to Financial Statements.................................. 65
MERRILL LYNCH INVESTMENT PARTNERS INC.
Independent Auditors' Report................................... 73
Balance Sheets................................................. 74
Notes to Balance Sheets........................................ 75
</TABLE>
______________________
Schedules are omitted for the reason that they are not required
or are not applicable or that equivalent information has been included
in the financial statements or notes thereto.
-60-
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE PARTNERS OF
ML GLOBAL HORIZONS L.P.
We have audited the accompanying statements of financial condition of
ML Global Horizons L.P. (a Delaware limited partnership; the "Fund") 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 Fund's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all
material respects, the financial position of ML Global Horizons L.P. as of
December 31, 1995 and 1994, and the results of its operations for the year ended
December 31, 1995 and the period January 4, 1994 (commencement of operations) to
December 31, 1994 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
January 26, 1996
New York, New York
-61-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1996 (UNAUDITED), DECEMBER 31, 1995
AND DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1995 1994
ASSETS ------------------ ------------- ------------
<S> <C> <C> <C>
Accrued interest receivable (Note 2) $ 307,250 $ 357,496 $ 280,548
Equity in commodity futures trading accounts:
Cash and option premiums 81,390,091 85,254,980 63,196,166
Net unrealized gain on open contracts 6,398,792 5,630,789 5,331,556
Other receivables -- -- 23,418
----------- ----------- -----------
TOTAL $88,096,133 $91,243,265 $68,831,688
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Redemptions payable $ 6,404,005 $ 674,724 $ 1,021,962
Brokerage Commissions payable (Note 2) 551,003 551,853 315,671
Profit Shares payable 58,897 -- 355,030
Incentive Override payable (Note 2) 5,117 855,796 41,867
Organizational and initial offering costs payable (Note 1) -- 20,399 243,899
----------- ----------- -----------
Total liabilities 7,019,022 2,102,772 1,978,429
----------- ----------- -----------
PARTNERS' CAPITAL:
General Partner (8,985; 8,530; and 6,456 Units) 1,158,783 1,052,896 669,580
Limited Partners (619,673; 737,413; and 638,063 Units) 79,918,328 91,708,172 66,183,679
Subscriptions receivable (0; 29,116; and 0 Units) -- (3,620,575) --
----------- ----------- -----------
Total partners' capital 81,077,111 89,140,493 66,853,259
----------- ----------- -----------
TOTAL $88,096,133 $91,243,265 $68,831,688
=========== =========== ===========
NET ASSET VALUE PER UNIT (NOTE 4) $ 128.97 $ 124.35 $ 103.73
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
_____________
Past performance is not necessarily indicative of future results.
-62-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
STATEMENTS OF INCOME
FOR THE PERIODS FROM JANUARY 1, 1996 TO
SEPTEMBER 30, 1996 (UNAUDITED) AND JANUARY 1, 1995 TO
SEPTEMBER 30, 1995 (UNAUDITED), THE YEAR ENDED DECEMBER 31, 1995
AND THE PERIOD FROM JANUARY 4, 1994
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUARY 1, 1996 JANUARY 1, 1995
TO TO JANUARY 1, 1995 JANUARY 4, 1994
SEPTEMBER 30, SEPTEMBER 30, TO TO
1996 1995 DECEMBER 31, DECEMBER 31,
(UNAUDITED) (UNAUDITED) 1995 1994
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES
Trading profit (loss):
Realized $4,610,717 $14,314,748 $17,455,764 $ 453,726
Change in unrealized 768,003 (4,758,175) 299,233 5,331,556
---------- ----------- ----------- ----------
Total trading results 5,378,720 9,556,573 17,754,997 5,785,282
Interest income (Note 2) 2,996,535 2,819,800 3,786,925 1,972,722
---------- ----------- ----------- ----------
Total revenues 8,375,255 12,376,373 21,541,922 7,758,004
---------- ----------- ----------- ----------
EXPENSES
Brokerage Commissions (Note 2) 4,990,367 4,128,889 5,723,755 3,859,267
Profit Shares 373,820 1,492,857 1,492,857 1,103,649
Incentive Override (Note 2) 5,117 147,489 965,454 41,867
---------- ----------- ----------- ----------
Total expenses 5,369,304 5,769,235 8,182,066 5,004,783
---------- ----------- ----------- ----------
NET INCOME $3,005,951 $ 6,607,138 $13,359,856 $2,753,221
========== =========== =========== ==========
NET INCOME PER UNIT:
Weighted average number of
Units Outstanding (Note 5) 720,600 641,622 663,663 523,953
========== =========== =========== ==========
Net income per weighted
average General Partner and
Limited Partner Unit $ 4.17 $ 10.30 $ 20.13 $ 5.25
========== =========== =========== ==========
</TABLE>
See Notes to Financial Statements.
_____________
Past performance is not necessarily indicative of future results.
-63-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD FROM JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995
AND THE PERIOD FROM JANUARY 4, 1994
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNITS OF
PARTNERSHIP LIMITED GENERAL SUBSCRIPTIONS
INTEREST PARTNERS PARTNER RECEIVABLE TOTAL
------------ ------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Initial offering 358,350 $ 35,467,300 $ 367,700 $ -- $ 35,835,000
Organizational and initial
offering costs -- (442,366) (4,634) -- (447,000)
Subscriptions 317,083 31,598,577 275,531 -- 31,874,108
Redemptions (30,914) (3,162,070) -- -- (3,162,070)
Net income -- 2,722,238 30,983 -- 2,753,221
-------- ------------ ---------- ------------- ------------
PARTNERS' CAPITAL
DECEMBER 31, 1994 644,519 66,183,679 669,580 -- 66,853,259
Subscriptions 298,294 35,021,556 244,397 -- 35,265,953
Subscriptions receivable (29,116) -- -- (3,620,575) (3,620,575)
Redemptions (196,870) (22,718,000) -- -- (22,718,000)
Net income -- 13,220,937 138,919 -- 13,359,856
-------- ------------ ---------- ------------- ------------
PARTNERS' CAPITAL
DECEMBER 31, 1995 716,827 91,708,172 1,052,896 (3,620,575) 89,140,493
Subscriptions 135,271 13,149,858 56,900 3,620,575 16,827,333
Redemptions (223,440) (27,896,666) -- -- (27,896,666)
Net income -- 2,956,964 48,987 -- 3,005,951
-------- ------------ ---------- ------------- ------------
PARTNERS' CAPITAL
SEPTEMBER 30, 1996
(Unaudited) 628,658 $ 79,918,328 $1,158,783 $ -- $ 81,077,111
======== ============ =========== ============ ============
</TABLE>
See Notes to Financial Statements.
_____________
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 FROM JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED) AND
JANUARY 1, 1995 TO SEPTEMBER 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
- ------------
ML Global Horizons L.P. (the "Fund") 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 Fund engages in the
speculative trading of futures, options and forward contracts on a wide range of
commodities. The Fund 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 Fund, and Merrill Lynch Futures
Inc. ("MLF"), also an affiliate of Merrill Lynch, is its commodity broker. MLIP
has agreed to maintain a general partner interest of at least 1% of the total
capital in the Fund. MLIP and each Limited Partner share in the profits and
losses of the Fund in proportion to their respective interests in it.
MLIP selects independent advisors (the "Advisors" or the "Trading
Advisors") to manage the Fund's assets, and allocates and reallocates the Fund'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 the
disclosure of contingent assets and liabilities as of the date of the financial
statements as well as 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 price and fair value is reflected
in income as an unrealized gain or loss. Fair value is based on quoted market
prices.
ORGANIZATIONAL AND INITIAL OFFERING COSTS; OPERATING EXPENSES AND SELLING
- -------------------------------------------------------------------------
COMMISSIONS
- -----------
MLIP advanced all organizational and initial offering costs relating
to the Fund. The Fund reimbursed MLIP for such costs over a two-year period in
24 equal monthly installments. For financial reporting purposes, the Fund
deducted the total organizational 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 Fund deducted
organizational and initial offering cost reimbursements only as actually paid.
MLIP pays all routine operating costs (including legal, accounting,
printing, postage and similar administrative expenses) of the Fund, including
the costs of the ongoing offering of the Units. MLIP receives a portion of the
Brokerage Commissions paid to MLF by the Fund (effective October 1, 1996, MLIP
began to receive the Administrative Fee directly from the Fund).
_____________________
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 FROM JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED) AND
JANUARY 1, 1995 TO SEPTEMBER 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
(CONTINUED)
- --------------------------------------------------------------------------------
Effective October 1, 1996, a portion of the Brokerage Commissions
payable to MLF by the Fund (0.25 of 1% annually) has been recharacterized as an
Administrative Fee payable directly to MLIP. This recharacterization has not
increased the overall flat monthly rate paid by the Fund.
No selling commissions have been or are paid by Limited Partners.
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 his or her respective share of the Fund'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 Fund. No such distributions have been
made as of September 30, 1996.
REDEMPTIONS
- -----------
A Limited Partner may require the Fund to redeem some or all of his
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 issuance are assessed an early redemption charge
of 3% of their Net Asset Value as of the date of redemption. If an investor
acquires Units at more than one time, such Units are treated on a "first-in,
first-out" basis for purposes of determining whether redemption charges are
applicable.
DISSOLUTION OF THE FUND
- -----------------------
The Fund 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 Fund's assets are deposited with MLF. As a means of
approximating the interest rate which would be earned by the Fund had 100% of
its Net Assets on deposit with MLF been invested in 91-day Treasury bills, MLF
pays the Fund interest on its account equity on deposit in U.S. dollars with MLF
at a rate of 0.5 of 1% per annum below the prevailing 91-day Treasury bill
rates. In the case of its trading in certain foreign futures contracts, the Fund
either retains the related equity in dollars or deposits margin in foreign
currency denominated instruments and is charged or credited with interest
generally at approximately 0.5 of 1% per annum above or below the applicable
sovereign overnight rate. The additional economic benefit derived from
possession of the Fund's assets accrues to MLF or its affiliates.
The Fund pays Brokerage Commissions to MLF at a flat monthly rate of
0.625 of 1% (a 7.5% annual rate) of the Fund's month-end assets. (Effective
October 1, 1996, an annual fee of 0.25% of 1% of the Fund's month-end assets was
subtracted from the Brokerage Commissions and recharacterized as an
Administrative Fee payable to MLIP.) Month-end assets are not reduced for
purposes of calculating Brokerage Commissions or Administrative Fees by any
accrued but unpaid Brokerage Commissions, Administrative Fees, Profit Shares,
Incentive Overrides or other accrued fees or charges.
__________________________
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 FROM JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED) AND
JANUARY 1, 1995 TO SEPTEMBER 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
(CONTINUED)
- --------------------------------------------------------------------------------
MLIP estimates that the round-turn equivalent commission rate charged to the
Fund during the nine months ended September 30, 1996 and the years ended
December 31, 1995 and 1994 was approximately $71, $88 and $13, respectively (not
including, in calculating round-turn equivalents, forward contracts on a
futures-equivalent basis).
MLF pays the Advisors annual Consulting Fees generally ranging from 2%
to 4% of the average month-end assets of the Fund, after reduction for a portion
of the Brokerage Commissions, managed by each of them, respectively.
The Fund paid to MLIP an Incentive Override equal to 10% of any 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 Fund
retained any accrued Incentive Overrides reflected as a reduction in the Net
Asset Value of Units when redeemed.
The Fund trades forward contracts through a Foreign Exchange Service
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 Fund'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 trades awarded to MLIB (which receives a "bid-ask"
spread on such trades). MLIB is awarded trades only if its price (without the
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 MLF. The Fund is
not required to margin or otherwise guarantee its F/X Desk trading.
Certain of the Fund'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 International Monetary Market of the Chicago Mercantile Exchange. In its
EFP trading, the Fund acquires cash currency positions through the 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. When the Fund 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 Fund's F/X Desk service fee and EFP differential costs combined
have, to date, totaled no more than 0.25 of 1% per annum of the Fund's average
month-end Net Assets.
(3) AGREEMENTS
The Fund 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 Fund. The Advisors
determine the commodity futures and forward contract trades to be made on behalf
of their respective Fund accounts, subject to certain Fund trading policies and
to certain rights reserved by MLIP.
________________________
Past performance is not necessarily indicative future results.
-67-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS FROM JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED) AND
JANUARY 1, 1995 TO SEPTEMBER 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
(CONTINUED)
- --------------------------------------------------------------------------------
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 Fund, as of the end of each
calendar quarter are paid by the Fund to the appropriate Trading Advisors.
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 with respect to
each Advisor.
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.
(4) NET ASSET VALUE PER UNIT
For financial reporting purposes, the Fund deducted the total
organization and initial offering costs payable to MLIP at inception, in
determining Net Asset Value. For all other purposes (including computing Net
Asset Value for redemptions), the Fund deducted organization and initial
offering cost reimbursements only as actually paid. From and after December 31,
1995, all such reimbursement payments had been made so that there was no longer
any accrued liability to reduce the Net Asset Value per Unit for financial
reporting purposes. However, as of December 31, 1994, the Net Asset Value per
Unit was $103.73 for financial reporting purposes and $104.08 for all other
purposes.
(5) WEIGHTED AVERAGE NUMBER OF UNITS
The weighted average number of Units outstanding was computed for
purposes of disclosing net income per weighted average Unit. The weighted
average number of Units outstanding at September 30, 1996, December 31, 1995 and
December 31, 1994 equals the Units outstanding as of such date, adjusted
proportionately for Units sold and redeemed based on the respective lengths of
time each was outstanding during the preceding period.
(6) FAIR VALUE AND OFF-BALANCE SHEET RISK
The Fund trades futures, options and forward contracts in interest
rates, stock indices, commodities, currencies, energy and metals. The Fund's
revenues by reporting category were as follows:
<TABLE>
<CAPTION>
January 1, 1996 to January 1, 1995 to
September 30, 1996 December 31, 1995
Total Trading Results Total Trading Results
--------------------- ----------------------
<S> <C> <C>
Interest Rates $ 3,130,911 $11,850,333
Stock Indices (2,543,650) 1,309,308
Commodities (269,789) (2,344,653)
Currencies 1,181,300 9,620,327
Energy 3,850,373 1,362,895
Metals 29,575 (4,043,213)
----------- -----------
Total $ 5,378,720 $17,754,997
=========== ===========
</TABLE>
______________________
Past performance is not necessarily indicative of future results.
-68-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS FROM JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED) AND
JANUARY 1, 1995 TO SEPTEMBER 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
(CONTINUED)
- --------------------------------------------------------------------------------
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 Fund's unrealized gain or loss on such derivative instruments as
reflected in the Statements of Financial Condition as of the end of the period.
The Fund's exposure to market risk is influenced by a number of factors,
including the relationships among the derivative instruments held by the Fund as
well as the volatility and liquidity of the markets in which these derivative
instruments are traded.
The General Partner has procedures in place intended to control market
risk, although there can be no assurance that they will, in fact, succeed in
doing so. These procedures focus primarily on monitoring the trading of the
Advisors selected from time to time for the Fund, calculating the Net Asset
Value of the Advisors' respective Fund accounts as of the close of business on
each day and reviewing outstanding positions for over-concentrations -- both on
an Advisor-by-Advisor and on an overall Fund basis. While the General Partner
does not itself intervene in the markets to hedge or diversify the Fund's market
exposure, the General Partner may urge Advisors to reallocate positions, or
itself reallocate Fund 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 Fund's trading activities are
marked to market daily with the resulting unrealized gains or losses recorded in
the Statements of Financial Condition and the related profit or loss reflected
in trading revenues in the Statements of Income. The contract/notional values of
open contracts as of September 30, 1996, December 31, 1995 and December 31, 1994
were as follows:
<TABLE>
<CAPTION>
September 30, 1996
---------------------------------------------
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------- --------------------
<S> <C> <C>
Interest rates $550,406,366 $ 29,579,996
Stock indices 13,927,945 387,071
Commodities 29,586,590 15,740,206
Currencies 101,576,608 140,790,591
Energy 12,457,490 --
Metals 8,390,854 72,267,418
------------ -----------
Total $716,345,853 $258,765,282
============ ===========
</TABLE>
____________________
Past performance is not necessarily indicative of future resutls.
-69-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS FROM JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED) AND
JANUARY 1, 1995 TO SEPTEMBER 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------------------------------- -----------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Interest rates $366,794,659 $115,962,614 $136,897,304 $231,086,673
Stock indices 5,256,825 -- -- --
Commodities 43,376,228 13,773,026 18,682,900 4,490,146
Currencies 31,823,922 113,887,626 47,829,797 80,514,237
Energy 28,209,814 -- -- 1,650,990
Metals 7,101,823 23,355,741 17,480,867 52,431,693
------------ ------------ ------------ ------------
Total $482,563,271 $266,979,007 $220,890,868 $370,173,739
============ ============ ============ ============
</TABLE>
Substantially all of the Fund's derivative instruments outstanding as
of September 30, 1996 and December 31, 1995 expire within one year.
The contract/notional value of the Fund's open exchange-traded and
non-exchange-traded derivative instrument positions as of September 30, 1996 and
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------------------------------- ---------------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Exchange-Traded $652,652,970 $188,031,906 $451,632,138 $210,729,655
Non-Exchange-
Traded 63,692,883 70,733,376 30,931,133 56,249,352
------------ ------------ ------------ ------------
Total $716,345,853 $258,765,282 $482,563,271 $266,979,007
============ ============ ============ ============
</TABLE>
_______________________
Past performance is not necessarily indicative of future results.
-70-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS FROM JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED) AND
JANUARY 1, 1995 TO SEPTEMBER 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
(CONTINUED)
- --------------------------------------------------------------------------------
FAIR VALUE (CONT'D)
- ----------
The average fair value of the Fund's derivative instrument positions which were
open as of the end of each calendar month during the nine months ended September
30, 1996 and the twelve months ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1996 Twelve Months Ended December 31, 1995
--------------------------------------------- -----------------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Interest rates $349,253,611 $285,157,440 $392,684,358 $ 52,525,025
Stock indices 21,165,289 8,117,059 11,263,970 4,597,664
Commodities 37,644,825 13,686,858 23,210,531 11,584,575
Currencies 123,833,510 169,748,398 96,987,577 95,012,878
Energy 11,549,200 992,948 8,271,275 6,430,540
Metals 19,618,749 37,435,249 12,245,216 31,011,275
------------ ------------ ------------ ------------
Total $563,065,184 $515,137,952 $544,662,927 $201,161,957
============ ============ ============ ============
</TABLE>
A portion of the amounts indicated as off-balance sheet risk reflects offsetting
commitments to purchase and sell the same derivative instrument on the same date
in the future. These commitments are economically offsetting but are not, as a
technical matter, offset in the forward market until the settlement date.
CREDIT RISK
- -----------
The risks associated with exchange-traded contracts are typically
perceived to be less than those associated with over-the-counter (non-exchange-
traded) transactions, because exchanges typically (but not universally) provide
clearinghouse arrangements in which the collective credit (in some cases limited
in amount, in some cases not) of the members of the exchange is pledged to
support the financial integrity of the exchange. In over-the-counter
transactions, on the other hand, traders must rely solely on the credit of their
respective individual counterparties. Margins, which may be subject to loss in
the event of a default, are generally required in exchange trading, and
counterparties may also require margin in the over-the-counter markets.
The fair value amounts in the above tables represent the extent of the
Fund'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 Fund also has credit risk because the sole counterparty or broker with
respect to most of the Fund's assets is MLF.
As of September 30, 1996, December 31, 1995 and 1994, $63,250,719,
$71,297,472 and $54,413,969 of the Fund'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.
-71-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS FROM JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED) AND
JANUARY 1, 1995 TO SEPTEMBER 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
(CONTINUED)
- --------------------------------------------------------------------------------
The gross unrealized gain and the net unrealized gain (loss) on the
Fund's open derivative instrument positions as of September 30, 1996 and
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
--------------------------- --------------------------------
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Gain Gain (Loss) Gain Gain (Loss)
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Exchange-Traded $8,032,178 $6,064,776 $7,029,085 $5,952,033
Non-Exchange-
Traded 991,995 334,016 338,067 (321,244)
---------- ---------- ---------- ----------
$9,024,173 $6,398,792 $7,367,152 $5,630,789
========== ========== ========== ==========
</TABLE>
The Fund controls credit risk by dealing almost exclusively with
Merrill Lynch entities as brokers and counterparties.
The Fund through its normal course of business enters into various
contracts with MLF acting as its commodity broker. Pursuant to the brokerage
arrangement with MLF, to the extent that such trading results in receivables
from and payables to MLF, these receivables and payables are offset and reported
as a net receivable or payable.
_________________________
Past performance is not necessarily indicative of future results.
-72-
<PAGE>
INDEPENDENT AUDITORS' REPORT
MERRILL LYNCH INVESTMENT PARTNERS INC.
We have audited the accompanying balance sheet of Merrill Lynch Investment
Partners Inc. (the "Company") (formerly, ML Futures Investment Partners Inc.) as
of December 29, 1995. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material respects,
the financial position of the Company as of December 29, 1995 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
January 26, 1996
New York, New York
-73-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
BALANCE SHEETS
SEPTEMBER 27, 1996 (UNAUDITED) AND DECEMBER 29, 1995
<TABLE>
<CAPTION>
SEPTEMBER 27, 1996
(UNAUDITED) DECEMBER 29, 1995
------------------- -----------------
<S> <C> <C>
ASSETS
Cash $ 62,262 $ 17,738
Investments in affiliated partnerships 10,102,462 8,397,789
Other investments 538,066 579,127
Due from parent and affiliate 81,289,579 69,476,980
Receivables from affiliated partnerships 4,112,791 3,525,337
Deferred charges 16,039,548 11,759,885
Advances and other receivables 10,977,972 7,742,943
Fixed assets-net of accumulated depreciation of $1,095,428 and
and $1,016,602 130,292 119,823
Other assets 110,000 130,000
------------ ------------
TOTAL ASSETS $123,362,972 $101,749,622
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 590,038 $ 1,759,019
Due to affiliate 2,849,361 1,568,396
Current and deferred income taxes 11,359,167 7,162,014
------------ ------------
Total liabilities 14,798,566 10,489,429
------------ ------------
STOCKHOLDER'S EQUITY:
Preferred stock, par value $10.00 per share; 1,000 shares authorized
none outstanding -- --
Common stock, par value $10.00 per share; 1,000 shares authorized
100 shares outstanding 1,000 1,000
Additional paid-in capital 16,915,000 16,915,000
Retained earnings 91,648,406 74,344,193
------------ ------------
Total stockholder's equity 108,564,406 91,260,193
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $123,362,972 $101,749,622
============ ============
</TABLE>
See Notes to Balance Sheets.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-74-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
NOTES TO BALANCE SHEETS
SEPTEMBER 27, 1996 (UNAUDITED) AND DECEMBER 29, 1995
- --------------------------------------------------------------------------------
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.)Safety of Equity Capital; Targeting Overall Return), The SECTOR Strategy
Fund(SM) II L.P., The JWH Global Asset Fund L.P., The SECTOR Strategy Fund(SM)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 (ceased trading in May 1996), ML Principal Protection
L.P. (formerly ML Principal Protection Plus L.P.) and ML JWH Strategic
Allocation Fund L.P. (collectively, the "Affiliated Partnerships").
Additionally, the Company has sponsored or initiated the formation of various
offshore entities engaged in the speculative trading of futures and forward
contracts.
ESTIMATES
- ---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENTS IN AFFILIATED PARTNERSHIPS
- --------------------------------------
The Company's investments in its Affiliated Partnerships are accounted
for under the equity method of accounting.
DEFERRED CHARGES
- ----------------
Deferred charges represent compensation to ML&Co. affiliates for the
sale of fund units to their customers. Such costs are amortized over 6, 12, 24,
36 or 48-month periods.
2. RELATED PARTIES
Certain of the Company's officers and directors are also officers of other
subsidiaries of ML&Co. An affiliate bears all of the Company's facilities and
employee costs, for which it is reimbursed by the Company. Another affiliate,
Merrill Lynch Futures Inc., executes and clears the Affiliated Partnerships'
trades, as well as those of various offshore funds sponsored or managed by the
Company, for which it receives a fee, generally based on the net assets of the
Affiliated Partnerships and offshore funds.
ML&Co. is holder of the Company's excess cash, which is available on demand to
meet current liabilities. ML&Co. credits the Company with interest, at a
floating rate approximating ML&Co.'s average borrowing rate, based on the
Company's average daily balances receivable. At September 27, 1996 and December
29, 1995, approximately $81,300,000 and $69,500,000, respectively, was subject
to this agreement.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-75-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
NOTES TO BALANCE SHEETS
SEPTEMBER 27, 1996 (UNAUDITED) AND DECEMBER 29, 1995
(CONTINUED)
- --------------------------------------------------------------------------------
At September 27, 1996 and December 29, 1995, the Company had receivables from
Affiliated Partnerships and offshore funds for certain administrative,
management and redemption fees, all of which are expected to be collected within
90 days. Additionally, the Company had receivables from certain Affiliated
Partnerships and offshore funds for organization and initial offering costs paid
on behalf of such funds which are being reimbursed to the Company over various
time periods (not exceeding three years).
During 1995 and the first nine months of 1996, the Company did not declare or
pay a dividend.
3. INVESTMENTS IN AFFILIATED PARTNERSHIPS
Under the terms of the limited partnership agreements of the Affiliated
Partnerships, the Company is required to maintain an investment in each
Affiliated Partnership of at least one percent of the total contributions to
such partnership.
At September 27, 1996 and December 29, 1995, the Company's investments in its
Affiliated Partnerships were as follows:
<TABLE>
<CAPTION>
September 27, December 29,
1996 1995
------------- ------------
<S> <C> <C>
ML Principal Protection L.P. (formerly, ML Principal Protection Plus L.P.)............................. $ 2,909,601 $2,324,996
ML JWH Strategic Allocation Fund L.P................................................................... 1,617,236 1,000
ML Global Horizons L.P................................................................................. 1,144,158 1,068,112
The SECTOR Strategy Fund(SM) II L.P.................................................................... 766,218 770,619
The SECTOR Strategy Fund(SM) VI L.P.................................................................... 707,556 725,174
John W. Henry & Company/Millburn L.P................................................................... 687,073 728,350
RXR Defensive Equity Alternative Account L.P. I........................................................ -- 546,428
The JWH Global Asset Fund L.P.......................................................................... 516,694 492,278
The S.E.C.T.O.R. Strategy Fund(SM) L.P................................................................. 422,756 441,992
ML Futures Investments L.P............................................................................. 339,813 356,788
The SECTOR Strategy Fund(SM) V L.P..................................................................... 323,602 339,622
ML Futures Investments II L.P.......................................................................... 191,465 213,181
The Growth and Guarantee Fund L.P...................................................................... 180,874 155,787
The Futures Expansion Fund Limited Partnership......................................................... 119,250 121,808
The SECTOR Strategy Fund(SM) IV L.P.................................................................... 99,731 111,654
ML Chesapeake L.P...................................................................................... 76,435 --
----------- ----------
Total.................................................................................................. $10,102,462 $8,397,789
=========== ==========
</TABLE>
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-76-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
NOTES TO BALANCE SHEETS
SEPTEMBER 27, 1996 (UNAUDITED) AND DECEMBER 29, 1995
(CONTINUED)
- --------------------------------------------------------------------------------
The following represents condensed combined financial information of the
Affiliated Partnerships as of September 27, 1996 and December 29, 1995 (in
thousands):
<TABLE>
<CAPTION>
September 27, December 29,
1996 1995
----------- ----------
<S> <C> <C>
Assets................................................................................ $ 552,160 $ 528,180
=========== ==========
Liabilities........................................................................... 21,145 15,836
Partners' capital..................................................................... 531,015 512,344
----------- ----------
Total............................................................................ $ 552,160 $ 528,180
=========== ==========
</TABLE>
The Company's Affiliated Partnerships trade various futures, options and forward
contracts. Risk to such partnerships arises from the possible adverse changes in
the market value of such contracts and the potential inability of counterparties
to perform under the terms of the contracts. The risk to the Company is
represented by the portion of its investments in Affiliated Partnerships derived
from the unrealized gains contained in such partnerships' net asset values.
4. INCOME TAXES
The results of operations of the Company are included in the consolidated
Federal and combined state and local income tax return of ML&Co. It is the
policy of ML&Co. to allocate current and deferred taxes associated with such
operating results to its respective subsidiaries in a manner which approximates
the separate Company method. ML&Co. and its affiliates use the asset and
liability method in providing income tax on all transactions that have been
recognized in the financial statements.
The Company provides for deferred income taxes resulting from temporary
differences which arise from recording deferred charges in different years for
income tax reporting purposes than for financial reporting purposes. At
September 27, 1996 and December 29, 1995, the Company had no deferred tax
assets. Deferred tax liabilities consisted of the following:
<TABLE>
<CAPTION>
September 27, 1996 December 29, 1995
------------------ -----------------
<S> <C> <C>
State and local $1,604,096 $1,176,130
Federal 5,052,565 3,704,471
---------- ----------
$6,656,661 $4,880,601
========== ==========
</TABLE>
As part of the consolidated group, the Company transfers to ML&Co. its current
Federal, state and local tax liabilities. During 1995 and the first nine months
of 1996, the Company transferred $10,707,045 and $7,388,919, respectively, in
current taxes payable to ML&Co. At September 27, 1996 and December 29, 1995,
the Company had a current tax payable with ML&Co. of $4,702,506 and $2,281,413,
respectively.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-77-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
NOTES TO BALANCE SHEETS
SEPTEMBER 27, 1996 (UNAUDITED) AND DECEMBER 29, 1995
(CONTINUED)
- --------------------------------------------------------------------------------
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 $94,376,053 and $79,337,067 at
September 27, 1996 and December 29, 1995, respectively, which, in the opinion of
the Company's counsel, met the definition of "substantial net worth."
6. COMMITMENTS
The Company is obligated to pay to affiliates, from its own funds and without
reimbursement by its Affiliated Partnerships, ongoing fees in respect of units
in such partnerships outstanding as of the end of various periods.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-78-
<PAGE>
THE CORE ADVISORS
____________
AS OF JANUARY 1, 1997, APPROXIMATELY 74.5% OF THE FUND'S ASSETS WERE
ALLOCATED AMONG THE THREE CURRENT CORE TRADING ADVISORS. BRIEF DESCRIPTIONS OF
THESE ADVISORS ARE INCLUDED HEREIN. HOWEVER, ADVISORS' TRADING METHODS ARE
CONFIDENTIAL AND PROPRIETARY. THE SIGNIFICANCE OF THE FOLLOWING DESCRIPTIONS 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
-79-
<PAGE>
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.
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 ADVISORS
The following descriptions of the current core Advisors, their
respective trading systems, methods and strategies and their respective
principals are general and are not intended to be exhaustive. Trading methods
are proprietary and confidential. No attempt has been or could be made to
provide a precise description of any Advisor's method. MLIP believes that the
following descriptions may be of interest to prospective investors. However,
investors must be aware of the inherent limitations of such descriptions.
__________________________
FUTURES TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK. THERE CAN BE NO ASSURANCE THAT ANY ADVISOR
WILL TRADE PROFITABLY OR AVOID SUBSTANTIAL LOSSES.
-80-
<PAGE>
ARA PORTFOLIO MANAGEMENT COMPANY, L.L.C.
JANUARY 1, 1997 ASSET ALLOCATION: 13.5%
BACKGROUND
ARA Portfolio Management Company was incorporated in Delaware in 1992.
On October 16, 1995, ARA Portfolio Management Company was merged into ARA
Portfolio Management Company, L.L.C., a limited liability company organized in
Delaware on September 25, 1995. References herein to ARA refer to the Delaware
corporation prior to October 16, 1995 and the Delaware limited liability company
on and after October 16, 1995. ARA has been registered with the CFTC as a
commodity trading advisor ("CTA") and commodity pool operator ("CPO") since May
12, 1992 and is a member of the NFA in such capacities.
A.R. Arulpragasam 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 has been a principal of ARA since May 1992; however,
he is not involved in the management, decision-making or daily operations of
ARA. Mr. Brown developed the price-trend identification algorithm (Phase I
Model) which forms a key element in ARA's investment products. Mr. Brown has
been an officer and director since 1975 of Ross Hall Corp., a private investment
company. Mr. Brown was a principal of George Booth & Associates, Inc.
("Booth"), a CTA and CPO, from July 1979 to December 1991, where he was a
passive shareholder with no role in operations.
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, based exclusively on 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 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, which may be utilized, in the discretion of the
General Partner, to trade some or all of the Fund's assets managed by ARA, 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
currently 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 Alpha or Gamma Programs. The greater the
volatility of a program, the greater the risk of loss.
-81-
<PAGE>
CHESAPEAKE CAPITAL CORPORATION
JANUARY 1, 1997 ASSET ALLOCATION: 37%
BACKGROUND
Chesapeake Capital Corporation 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, Chief Trader, 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, Director 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
The Diversified Program which Chesapeake trades for the Fund
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.
-82-
<PAGE>
In addition to such mathematical evaluations, Chesapeake employs a
technique of technical analysis generally known as charting in order to attempt
to determine optimal support and resistance levels and entry and exit points in
the various markets. In an effort to determine the overall technical condition
of the market and as a timing mechanism for trades, Chesapeake also makes
extensive use of internally-generated market information, which includes but is
not limited to price volatility, open interest, daily price action, volume and
market psychology or sentiment.
The profitability of the 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 governmental control or
regulation of, or participation in, international currency markets), lessens the
prospect that programs utilizing technical analysis, including the Trading
Programs, will be profitable in the future. In addition, the future
profitability of the Trading Programs would also be adversely affected by
factors which increase the number of signals leading to unprofitable trades. For
example, a significant increase in technically-oriented trading (trend-following
or otherwise) in a particular commodity might cause a change in the pattern of
price movements in a manner which might be unfavorable.
Trend-following trading systems, such as those employed by Chesapeake,
will seldom effect market entry or exit at the most favorable price in the
particular market trend. Rather, this type of trading system seeks to close out
losing positions quickly and to hold portions of profitable positions for as
long as the trading system determines that the particular market trend continues
to exist. There can be no assurance, however, that profitable positions can be
liquidated at the most favorable price in a particular trend. As a result, the
number of losing transactions may exceed substantially the number of profitable
transactions. However, if Chesapeake's approach is successful, these losses
should generally be relatively small and more than offset by gains on profitable
transactions.
The Trading Programs are oriented toward the preservation of original
equity. The commencement of trading or a drawdown from starting equity are
considered the situations of highest risk, and risk management techniques at
this point are emphasized over those which invite greater risk in the interest
of enhancing performance. These risk management techniques include
diversification. Also, the Trading Programs adhere to the requirements of a
money management system which determines and limits the equity committed to each
trade, each market, each commodity complex (in Trading Programs which trade in
more than one commodity complex) and each account.
Chesapeake believes that a long-term commitment to its Trading
Programs is necessary for profitable trading. Chesapeake attempts to take a
limited number of positions over the long term in an attempt to capture major
price movements while limiting downside risk on open positions.
Decisions concerning the liquidation of positions, the commodities to
be traded and the size of positions to be taken or maintained 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. (IPE), the London Metal Exchange (LME), the London
Commodity Exchange (LCE), the Italian Derivatives Market (IDEM), the Marche a
Terme International de France (MATIF), the Deutsche Terminborse, the Hong Kong
Futures Exchange Ltd., the Montreal Exchange (ME), the Tokyo Commodity Exchange,
the Tokyo International Financial Futures Exchange (TIFFE), the Tokyo Stock
Exchange (TSE), the Singapore International Monetary Exchange (SIMEX), the
Sydney Futures Exchange Ltd., and the Winnipeg Commodity Exchange). In
addition, Chesapeake continually monitors numerous markets, both U.S. and non-
U.S., and will generally initiate trades at such point that Chesapeake
determines that a market is sufficiently liquid and tradeable using the methods
employed by Chesapeake.
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Chesapeake engages in transactions in physical commodities, including
EFPs.
Chesapeake generally uses between 15% and 30% of an account's assets
as original margin for trading in the Diversified Program, but at times this
percentage can be higher.
The trading strategy utilized by the 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.
JOHN W. HENRY & COMPANY, INC.
JANUARY 1, 1997 ASSET ALLOCATION: 24%
BACKGROUND
John W. Henry & Company began managing assets in 1981 as a sole
proprietorship and was later incorporated in the state of California as John W.
Henry & Company, Inc., to conduct business as a commodity trading advisor. JWH
trades numerous contracts on a 24-hour basis in the United States, Europe and
Asia, and has grown to be one of the largest advisors in the managed futures
industry, managing, as of October 31, 1996, approximately $1.7 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"), as well as of 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.
and a director of JWH Asset Management, Inc. Prior to his employment at JWH
commencing in January 1994, Mr. Mitchell was a partner of Chapman and Cutler, a
Chicago law firm, where he had headed its futures law practice since August
1983. From August 1980 to March 1991, he served as General Counsel of NAFTA
and, from March 1991 to December 1993, he served as General Counsel of the
Managed Futures Association ("MFA"). Mr. Mitchell is currently a member of the
CPO/CTA Advisory Committee and the Special Committee for the Review of the
Multi-Tiered Regulatory Approach to NFA Rules, both of the NFA. In addition, he
has served as a member of the Government Relations Committee of MFA and the
Executive Committee of the Law and Compliance Division of FIA. In 1985, he
received the Richard P. Donchian Award for Outstanding Contributions to the
Field of Commodity Money Management. He has been an editor of Futures
International Law Letter and its predecessor publication,
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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. and
JWH Risk 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.
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. Ms. Kenton is a member of the
MFA's Trading and Markets Committee. She received a B.S. in Finance from Ithaca
College.
Ms. Mary Elizabeth 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. ("Shearson") 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 & Jenrette Inc. with a group which also
specialized in financial futures and options. Ms. Hardy serves on the Board of
Directors of the MFA 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.
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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
systems/models used to generate JWH trades. Mr. Fox joined JWH in March 1991,
and since that time he has held positions of increasing responsibility in the
Research and Product Development Departments. Prior to his employment at JWH,
Mr. Fox provided sales and financial analysis support since October 1990 for
Spreadsheet Solutions, a financial software development company. Prior to
joining Spreadsheet Solutions, Mr. Fox operated a trading company where he
traded his own proprietary capital. Before that, he was employed with Bankers
Trust as a product specialist for foreign exchange and treasury options trading.
He received a B.S. in Business Administration from the University of Buffalo.
Ms. Glenda G. Twist is a Director of JWH and has held that position
since August 1993. Ms. Twist joined JWH in September 1991 with responsibilities
for corporate liaison, and she continues her duties in that area. Her
responsibilities include assistance in the day-to-day administration of the
Florida office, and review and compilation of financial information for JWH.
Ms. Twist was President of J.W. Henry Enterprises Corp., for which she performed
financial, consulting and administrative services from January 1991 to August
1991. From 1988 to December 1990, Ms. Twist was Executive Director of Cities in
Schools, a program in Arkansas designed to prevent students from leaving school
before completing their high school education. She received her B.S. in
Education from Arkansas State University.
Mr. John A. F. Ford is the director of marketing at JWH and is
responsible for the development and implementation of strategic marketing and
communications programs. He joined JWH in May 1996 from J.P. Morgan where he
had been vice president and head of corporate communications for the firm's
European operations from February 1994 to October 1995. He was previously in a
similar position with J.P. Morgan at the Euroclear Operations Centre in Brussels
from January 1992 to February 1994. From October 1995 to May 1996 he undertook
a number of consultancy projects while relocating to the United States. Prior
to joining J.P. Morgan, Mr. Ford was managing director of the European
headquarters of Gavin Anderson & Co. (UK), an international corporate and
investor relations consultancy, from February 1987 to December 1991. Mr. Ford
has also been involved in advising the Chicago Mercantile Exchange on marketing
its services to European institutions and advising the International Petroleum
Exchange in London on similar issues. He also helped market Mercury Asset
Management to major institutions and pension funds.
Mr. Michael D. Gould is Director of Investor Services at JWH. He is
responsible for general business development and oversees the investor services
function. He joined JWH in April 1994 from Smith Barney Inc. where he served as
senior sales manager and vice president-futures for the Managed Futures
Department. He held the identical position with the predecessor firms of
Shearson 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 MLPF&S from 1985
through August 1990. His professional career began in 1982 as an owner-operator
of a nonferrous metals trading and export business which he ran until September
1985.
Mr. Jack M. Ryng, C.P.A., joined JWH as the Controller in November
1991. Mr. Ryng is also Chief Financial Officer and Secretary of JWH
Investments, Inc. Prior to that time, he was a Senior Manager with Deloitte &
Touche where he held positions of increasing responsibility since September 1985
for commodities and securities industry clients. Prior to his employment by the
Financial Services Center of Touche Ross & Co. (the predecessor firm of Deloitte
& Touche), he was a senior accountant for Leonard Rosen & Co. Mr. Ryng is a
member of AICPA and the New York C.P.A. Society, and is a member of the board of
the New York Operations Division of the FIA. He received a B.S. in Business
Administration from Duquesne University.
Mr. Michael J. Scoyni is a Managing Director of JWH and is a principal
of Westport Capital Management Corporation. Mr. Scoyni has been associated with
Mr. Henry since 1974 and with JWH since 1982. He was engaged in research and
development for John W. Henry & Company (JWH's predecessor) from November 1981
to December 1982 and subsequently has been employed in positions of increasing
responsibility. He received a B.A. in Anthropology from California State
University.
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Mr. Christopher E. Deakins is a Vice President of JWH. He is
responsible for general business development and investor services support.
Prior to joining JWH in August 1995, he was a vice president, national sales,
and a member of the Management Team for RXR Capital Management, Inc. His
responsibilities consisted of business development, institutional sales, and
broker-dealer support. Prior to joining RXR in August 1986, he was engaged as
an account executive for Prudential-Bache Securities, Inc. starting in February
1985. Prior to that, Mr. Deakins was an account executive for MLPF&S. He
received a B.A. in Economics from Hartwick College.
Mr. Chris J. Lautenslager is a vice president of JWH. He is
responsible for general business development and investor services support.
Prior to joining JWH in April 1996, he was the vice president of institutional
sales for I/B/E/S International, Inc., a distributor of corporate earnings
estimate information. His responsibilities consisted of business development
and support of global money managers and investment bankers. Prior to his
employment with I/B/E/S, Mr. Lautenslager devoted time to personal activities
from April 1994 to March 1995, following the closing of the Stamford,
Connecticut office of Gruntal & Co., where he had worked as a proprietary equity
trader since November 1993. Before that, he held the same position at S.A.C.
Capital Management starting in February 1993. From October 1987 to December
1992, Mr. Lautenslager was a partner and managing director of Limitless Option
Partners, a registered Chicago Mercantile Exchange trading and brokerage
organization, where he traded currency futures and options. He received a B.S.
in Accounting from the University of Colorado and a Masters in Management from
Northwestern University.
Mr. Edwin B. Twist is a Director of JWH and has held that position
since August 1993. Mr. Twist is also a director of JWH Risk Management, Inc.
and JWH Asset Management, Inc. Mr. Twist joined JWH as Internal Projects Manager
in September 1991. Mr. Twist's responsibilities include assistance in the day-
to-day administration of JWH's Florida office and internal projects. Mr. Twist
was Secretary and Treasurer at J.W. Henry Enterprises Corp., a Florida
corporation engaged in administrative and financial consulting services, for
which he performed financial, consulting and administrative services from
January 1991 to August 1991. Prior to his employment at JWH, Mr. Twist was an
owner and manager for 16 years of a 2,500-acre commercial farm in eastern
Arkansas.
Ms. Nancy O. Fox, C.P.A., is a Vice President and the director of
investment support of JWH. She is responsible for the day-to-day activities of
the Investment Support Department, including all aspects of operations and
performance reporting. Prior to joining JWH in January 1992, Ms. Fox was a
senior accountant at Deloitte & Touche, where she served commodities and
securities industry clients and held positions of increasing responsibility
since July 1987. Ms. Fox is a member of the AICPA and the New Jersey Society of
C.P.A.s. She received a B.S. in Accounting and Finance from Fairfield
University and an M.B.A. from the University of Connecticut..
Mr. Julius A. Staniewicz is the senior strategist in JWH's Product
Development Department. He is also President of JWH Asset Management, Inc.
Prior to joining JWH in March of 1992, Mr. Staniewicz was employed with Shearson
as a financial consultant starting in April 1991. Prior to that, beginning in
1990, Mr. Staniewicz was a vice president of Phoenix Asset Management, a
commodity pool operator and introducing broker. From 1986 to 1989, Mr.
Staniewicz worked in the managed futures department at Prudential-Bache
Securities, Inc., lastly as an assistant vice president and co-director of
managed futures. Mr. Staniewicz received a B.A. in Economics from Cornell
University.
Ms. Wendy B. Goodyear is director of the office of the chairman. She
is responsible for managing and coordinating projects involving Mr. Henry. Ms.
Goodyear joined JWH in October 1995 as director of marketing, responsible for
the development and implementation of strategic marketing and communications
programs. Prior to her employment at JWH, Ms. Goodyear was a vice president at
Citibank, N.A. where she held several positions, including product development
manager for the depository receipt business and marketing manager for the
pension business. Prior to joining Citibank in May 1993, Ms. Goodyear was
employed at Bankers Trust Company from 1985 where she held positions of
increasing responsibility in both the private bank and pension businesses. Ms.
Goodyear received a B.A. in History from the University of Virginia and an
M.B.A. from the Stern School of Business at New York University.
THE INVESTMENT POLICY COMMITTEE
The Investment Policy Committee is one vehicle for decision-making at
JWH about the content and application of JWH trading programs. Composition of
the Investment Policy Committee, and participation in its discussions and
decisions by non-members, may vary over time.
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TRADING STRATEGY
JWH specializes in managing institutional and individual capital in
the global futures, interest rate and foreign exchange markets. Since 1981, JWH
has developed and implemented proprietary trend-following trading techniques
that focus on long-term rather than short-term, day-to-day trends. JWH
currently operates twelve trading programs.
JWH'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
mathematical models to execute investment decisions in more than 50 global
markets encompassing currencies, commodities and financial securities. All JWH
investment programs follow the strict money management framework outlined below.
The first step in the JWH investment process is the identification of
a price trend. While there are many ways to identify trends, JWH uses a
methodology which identifies opportunities in order to attempt to capture a
majority of the significant price movements in a given market. The process
presumes that such price movements will often exceed the expectation of the
general marketplace. As such, the JWH discipline is to pare losing positions
relatively quickly while allowing profitable positions to mature. Positions
held for two to four months are not unusual, and certain positions have been
held for more than one year. Historically, only thirty to forty percent of all
trades made pursuant to the trading methods have been profitable. Large profits
on a few trades in positions that typically exist for several months have
produced favorable overall results. Generally, the majority of losing positions
have been liquidated within weeks. The maximum equity retracement JWH has
experienced in any single program was nearly sixty percent (60)%. Similar or
greater drawdowns are possible in the future. There can be no assurance that
JWH will trade profitably for the Fund or avoid losses of such magnitude.
JWH at its sole discretion may override computer-generated signals,
and may at times use discretion in the application of its quantitative models
which may affect performance positively or negatively. Subjective aspects of
JWH's quantitative models also include the determination of program leverage,
commencement of trading in an account, markets traded, contracts traded,
contract month selection, margin utilization and effective trade execution.
JWH's strategy is based on the following guiding principles:
LONG-TERM PERSPECTIVE. JWH's investment strategies rest on a long-
term perspective in the world's financial and commodities markets. JWH believes
that historical performance demonstrates that, because trends often last longer
than most market participants expect, strong returns can be generated from
positions held over the long term.
DISCIPLINED INVESTMENT PROCESS. The disciplined investment process
utilized by JWH is designed to generate superior, risk-adjusted rates of return
throughout a market cycle. By consistently applying investment techniques in
financial and commodities markets worldwide, JWH is able to participate in
rising and falling markets without bias.
JWH's ongoing research has led to the development of analytical models
which suggest the appropriate content, weighting, exits and entries for each
investment position. Once established, these positions are monitored around the
clock. While many of these positions are closed out within a few days or weeks
at a profit or loss, others are retained where JWH's investment guidelines
indicate potential opportunity for exceptional returns.
TREND IDENTIFICATION. JWH's strategies are nonpredictive. Instead,
based on research into historic pricing data, JWH seeks to recognize the
movement of capital from one market to another after trends have begun.
GLOBAL DIVERSIFICATION. For more than a decade, JWH has recognized
the importance of global trading. Financial markets around the world are
increasingly interrelated, with actions in one country's markets often
influencing markets in other parts of the world. JWH investments are positioned
to provide access to the performance potential offered by the global
marketplace.
COMPREHENSIVE RISK MANAGEMENT. JWH's risk management strategies are
designed with the objective of decreasing volatility and improving the
risk/reward characteristics of investments in futures and forwards by relying
upon carefully formulated risk management algorithms that define controlled loss
parameters prior to execution.
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PROGRAM MODIFICATIONS
In an effort to maintain and improve performance, JWH has engaged, and
continues to engage, in extensive research. While the basic philosophy
underlying the firm's investment methodology has remained intact throughout its
history, the potential benefits of employing more than one investment
methodology, alternatively, or in varying combinations, is a subject of
continual testing, review and evaluation. Extensive research and analysis may
suggest substitution of alternative investment methodologies with respect to
particular contracts in light of relative differences in historical performance
achieved through testing different methodologies. In addition, risk management
research and analysis may suggest modifications regarding the relative weighting
among various contracts, the addition or deletion of particular contracts for a
program or a change in the degree of leverage employed.
As capital in each JWH trading program increases, additional emphasis
and weighting may be placed on certain markets which have historically
demonstrated the greatest liquidity and profitability. Furthermore, the
weighting of capital committed to various markets in the trading programs is
dynamic, and JWH may vary the weighting at its discretion as market conditions,
liquidity, position limit considerations and other factors warrant. MLIP will
generally not be informed of any such changes.
LEVERAGE
Leverage adjustments have been and continue to be an integral 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 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.
PHYSICAL AND CASH COMMODITIES
JWH may from time to time trade in physical or cash commodities for
immediate or deferred delivery, including specifically gold bullion, as well as
futures, 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
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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
LEGAL AND ETHICAL CONCERNS
JWH and Mr. Henry may engage in discretionary trading for their own
accounts, and may trade for the purpose of testing new investment programs and
concepts, as long as such trading does not amount to a breach of fiduciary duty.
In the course of such trading, JWH and Mr. Henry may take positions in their own
accounts which are the same or opposite from client positions, and on occasion
orders may be filled better for their accounts than for client accounts due to
testing a new quantitative model or program, a neutral allocation system, and/or
trading pursuant to individual discretionary methods. Records for these
accounts will not be made available to clients. Employees and principals of JWH
(other than Mr. Henry) are not permitted to trade on a discretionary basis in
futures, options on futures or forward contracts. However, such principals and
employees may invest in investment vehicles that trade futures, options on
futures or forward contracts, when an independent trader manages trading in that
vehicle, and in the JWH Employee Fund, L.P., which is managed by JWH. The
records of these accounts also will not be made available to Limited
Partners.
See also "Certain Litigation -- JWH" at page 43.
THE FINANCIAL AND METALS PORTFOLIO
Researched through 1983, a systematic method was first traded in a
format using solely financial and metals futures in August 1984. That program,
the Financial and Metals Portfolio, used by JWH in managing Fund assets, uses
quantitative, trend analysis models, participates in four major market sectors -
- - interest rates, foreign exchange, stock indices and precious metals -- and
seeks to capitalize on sustained moves in global financial markets.
The Financial and Metals Portfolio may take long, short or neutral
positions within the four market sectors traded. Because assets are
concentrated in interest rates, currencies, stock indices and metals only,
volatility can be higher than in a more diversified portfolio.
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 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
and in the accompanying Prospectus Supplement.
A global investment perspective may be appropriate in seeking
investment opportunity and increased portfolio diversification. The
globalization of the world's economy offers significant new opportunities.
However, world political and economic events have an influence -- often a
dramatic influence -- on its markets, creating increased risk and volatility.
The market volatility of recent years suggests that stable growth may be
becoming increasingly difficult to achieve.
Over the long term, portfolios are benefitted by having the ability to
adapt to changing social, political and economic trends. A well-diversified
asset allocation strategy enhances this ability and offers a flexible approach
to the objective of building and protecting wealth in today's economic
environment. Incorporating a managed futures investment into portfolios as part
of a well-diversified asset allocation strategy has the potential, if the
managed futures investment is successful, to increase profits while reducing
overall portfolio risk. The Fund's performance to date has been volatile
(volatility being one commonly accepted measure of risk). There can be no
assurance that the Fund will trade successfully, and if it does not do so an
investment in the Fund cannot provide beneficial diversification to a portfolio.
Furthermore, even if profitable, the Fund may not be a successful
diversification of an investor's stock and bond portfolio
-90-
<PAGE>
because the Fund's performance may be correlated (i.e., experiencing generally
similar returns at or about the same time) with these markets. The past
performance of the Fund is not necessarily indicative of its future results or
of performance relative to the debt or equity markets.
An asset allocation strategy diversifies a portfolio into a variety of
different components such as stocks, bonds and cash equivalents. Such a
strategy may also include, to a limited extent, non-traditional investments such
as managed futures (among a variety of alternatives). The goal is to achieve
the twin investment objectives of long-term total return combined with reduced
portfolio volatility and limited risk of major losses. An investment's
anticipated return, relative risk level, historical correlation with other
components in the portfolio and the percentage of an investor's holdings which
can suitably be committed to speculative alternative investments should be
principal factors taken into account in allocating a portfolio's assets.
Different investment components are expected to respond differently to changing
economic conditions. Consequently, combining a number of such components may add
a potentially valuable element of diversification to an overall portfolio.
There can be no assurance that the Fund will not respond to prevailing economic
conditions in the same manner, as well as incur losses at or about the same
time, as the general debt and equity markets.
PROFESSIONAL MANAGEMENT
Depending upon the fund and advisors selected, an investment in
managed futures has the potential to offer access to professionally managed
trading in a variety of commodity markets, including currencies, interest rates,
stock indices, energy, metals and agriculture. These markets may be traded
through futures, options on futures and forward contracts, and offer the ability
to trade either side of a market and at a wide range of different leverage
factors. The Fund does not trade in all, or even most, of the available
markets, and its positions may frequently be concentrated in particular markets
and sectors. There is substantial overlap among the markets traded by the
Advisors. The concentrated multi-advisor program implemented by the Fund
should, over time, result in the Fund's trading being less diversified than in
the case of many multi-advisor funds.
[Pie Graphs: Futures Volume by Market Section]
The futures volume figures and market sector distributions presented
above include both speculative and hedging transactions, as well as
options on futures. Sorce: 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.
-91-
<PAGE>
INTERNATIONAL MARKETS
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
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, which
may limit the diversification potential of the investment in terms of an overall
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, 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 $22.8 billion. Of this amount, approximately $2.5
billion to $3.5 billion is estimated to be invested in pools, such as the Fund,
publicly distributed in the United States. 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.
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 holdings can improve the reward/risk characteristics of
an investor's overall portfolio. Consequently, allocating a limited portion of
the risk segment of a portfolio to managed futures, such as the Fund, if the
managed futures performance is, in fact, profitable as well as non-correlated
with stocks and bonds, can potentially add a valuable aspect of diversification
to a traditionally structured portfolio. On an interim basis, a non-correlated
asset may benefit a portfolio even if that asset is not itself profitable, by
helping to preserve equity during periods when core investments are incurring
significant losses. However, over time an investment can only be beneficial if
it is itself profitable. 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 or about 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 in order to add value as an element of overall diversification in a
portfolio.
-92-
<PAGE>
Allocating assets to non-traditional, 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 developed 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 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.
There are a number of different, non-traditional alternative
investments to which one could commit assets with the objective of diversifying
and improving the overall reward/risk 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 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 speculative trading. No object of value is
acquired by the Fund. Rather, the Fund obtains market exposures, seeking 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 to investing; to
speculating on price differences, not to acquiring assets reasonably expected to
grow in value over time.
All performance information in this Prospectus and the accompanying
Prospectus Supplement is presented exclusively on a pre-tax basis. The tax
costs of maintaining an investment in the Fund are materially higher than those
that would be applicable to an investment in the constituent securities of a
stock or bond index.
Investors could obtain the 91-day Treasury bill, or a stock or bond
index return with minimal expense, whereas the total charges to the Fund are
anticipated to be approximately 10% of its average Net Assets per year.
The futures markets are fundamentally different from the securities
markets in a number of respects, and any comparison between them (whether
relating to correlation, volatility or absolute performance) is subject to
certain inherent and material limitations.
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.
-93-
<PAGE>
Prudence demands that an investor carefully examine all aspects of a
managed futures investment and weigh the associated benefits of profit potential
and possible portfolio diversification against the risks of such investment. A
managed futures investment is not suitable for all investors, and is not a
suitable investment for more than a limited portion of the risk segment of any
investor's portfolio. Furthermore, different managed futures investments have
materially different objectives and reward/risk profiles. The potential
benefits of a successful managed futures investment must be considered in light
of the limited portion of an overall portfolio such an investment can suitably
constitute. However, for the investor who can tolerate the risks, a managed
futures investment, if successful, has the potential to yield portfolio
diversification benefits. See "Risk Factors" beginning at page 9.
-94-
<PAGE>
APPENDIX I
INCENTIVE OVERRIDE AND PROFIT SHARE CALCULATIONS IN AN OPEN-END FUND
SEE "CHARGES."
Because the Fund (i) 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 -- ANNUAL
INCENTIVE OVERRIDES" AT PAGES 38-40.
Assume ten Units are sold January 1, 1997, 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, 1997 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, 1997 (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, 1997 equalled $105, there would have been a loss in February
1997 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, 1997 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.
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, 1997, a second Unit as of July 1, 1997 and that only these
two Units are outstanding through December 31, 1997. If at July 1, 1997 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,
1997, the Fund as a whole will pay the $1 Incentive Override due as of December
31, 1997. However, the investor who acquired his Unit as of July 1, 1997 would
do so at an Adjusted NAV that reflects a
APPI-1
<PAGE>
reduction for the $1 Incentive Override accrued as of June 30, 1997.
Consequently, although as of June 30, 1997 there would be $110 per Unit (the
single outstanding Unit) in cash held in the Fund's account, the investor as of
July 1, 1997 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, 1997 would, accordingly, equal (A) $110 (the $100
subscription price plus the $10 of trading profit earned through June 30, 1997)
plus (B) $109 (the $109 subscription price of the Unit sold July 1, 1997). By
assumption, no incremental Net New Gain was recognized during the period July 1,
1997 -- December 31, 1997, as the Adjusted NAV as of December 31, 1997 (which is
calculated after reduction for the Incentive Override accrued as of December 31,
1997) equalled $109 -- the same as the Adjusted NAV as of July 1, 1997. 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, 1997 and retained through December 31,
1997) 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, 1997 investor who bought into the Fund at $109 would
have experienced no gain or loss through December 31, 1997, at which time his
Unit would continue to have an Adjusted NAV of $109 after payment of the
Incentive override. Furthermore, the January 1, 1997 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 equitably allocates to the first investor the Incentive Override
attributable to the Net New Gain attributable to such first investor's
Unit.
INCENTIVE OVERRIDE REVERSALS
If an investor subscribes for Units at a price reduced by an accrued
Incentive Override, and such accrual is later reversed due to a decline in Net
New Gain, the reversal is allocated pro rata to such investor's Units (as well
as to those of all other Unitholders) although such investor had already had the
purchase price of his Units reduced by the full amount of such accrual on a per-
Unit basis. Using the example of the two Units sold as of January 1, 1997 for
$100 and as of July 1, 1997 for $109 per Unit. If between July 1, 1997 and
December 31, 1997 the Fund incurred a loss of $19, the Unadjusted NAV as of
December 31, 1997 would equal (A) the $218 Net Asset Value of the Fund as of
July 31, 1997 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, 1997 -- December 31, 1997, the cash value of the Unit
sold as of January 1, 1997 would have declined by $10, but the cash value of the
Unit sold as of July 1, 1997 by only $9. 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.
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. Furthermore, Net New Gain may differ significantly from
cumulative trading profits. For example, assume that ten Units are sold as of
January 1, 1997 at $100, 100 Units as of April 1, 1997 at $90 and the Unadjusted
NAV per Unit as of December 31, 1997 equals $95. During 1997, 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, 1997 at $100, 500 Units at $110 as of
July 1, 1997, the December 31, 1997 Adjusted NAV
APPI-2
<PAGE>
equals $102 and as of December 31, 1998 the Unadjusted NAV is $105. Net New Gain
for 1998 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 since inception of (500 times $5) plus $50 or
($2,450).
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.
PROFIT SHARES
The Advisors' Profit Shares are calculated, on a quarterly or annual
basis, as the case may be, 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 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) certain of the Advisors' 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.
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-3
<PAGE>
APPENDIX II
BLUE SKY GLOSSARY
SEE "INDEX OF TERMS" AT PAGE 59 FOR AN INDEX OF TERMS DIRECTLY RELEVANT 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 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 of such Person;
(d) any officer, director or partner of such Person; or (e) if such Person is an
officer, director or partner, any Person for which such Person acts in any such
capacity.
Capital Contributions -- The total investment in a Program by a
Participant or by all Participants, as the case may be.
Commodity Broker -- Any Person who engages in the business of
effecting transactions in Commodity Contracts for the account of others or for
his own account.
Commodity Contract -- A contract or option thereon providing for the
delivery or receipt at a future date of a specified amount and grade of a traded
commodity at a specified price and delivery point.
Cross Reference Sheet -- A compilation of the Guideline sections,
referenced to the page of the prospectus, Program agreement, or other exhibits,
and justification of any deviation from the Guidelines.
Net Assets -- The total assets, less total liabilities, of the Program
determined on the basis of generally accepted accounting principles. Net Assets
shall include any unrealized profits or losses on open positions, and any fee or
expense including Net Asset fees accruing to the Program.
Net Asset Value Per Program Interest -- The Net Assets divided by the
number of Program Interests outstanding.
Net Worth -- The excess of total assets over total liabilities as
determined by generally accepted accounting principles. Net Worth shall be
determined exclusive of home, home furnishings and automobiles.
APPII-1
<PAGE>
New Trading Profits -- The excess, if any, of Net Assets at the end of
the period over Net Assets at the end of the highest previous period or Net
Assets at the date trading commences, whichever is higher, and as further
adjusted to eliminate the effect on Net Assets resulting from new Capital
Contributions, redemptions, or capital distributions, if any, made during the
period decreased by interest or other income, not directly related to trading
activity, earned on Program assets during the period, whether the assets are
held separately or in a margin account.
Organization and Offering Expenses -- All expenses incurred by the
Program in connection with and in preparing a Program for registration and
subsequently offering and distributing it to the public, including, but not
limited to, total underwriting and brokerage discounts and commissions
(including fees of the underwriter's attorneys), expenses for printing,
engraving, mailing, salaries of employees while engaged in sales activity,
charges of transfer agents, registrars, trustees, escrow holders, depositories,
experts, expenses of qualification of the sale of its Program Interest under
federal and state law, including taxes and fees, accountants' and attorneys'
fees.
Participant -- The holder of a Program Interest.
Person -- Any natural Person, partnership, corporation, association or
other legal entity.
Pit Brokerage Fee -- Pit Brokerage Fee shall include floor brokerage,
clearing fees, National Futures Association fees, and exchange fees.
Program -- A limited partnership, joint venture, corporation, trust or
other entity formed and operated for the purpose of investing in Commodity
Contracts.
Program Broker -- A Commodity Broker that effects trades in Commodity
Contracts for the account of a Program.
Program Interest -- A limited partnership interest or other security
representing ownership in a program.
Pyramiding -- A method of using all or a part of an unrealized profit
in a Commodity Contract position to provide margin for any additional Commodity
Contracts of the same or related commodities.
Sponsor -- Any Person directly or indirectly instrumental in
organizing a Program or any Person who will manage or participate in the
management of a Program, including a Commodity Broker who pays any portion of
the Organization Expenses of the Program, and the general partner(s) and any
other Person who regularly performs or selects the Persons who perform services
for the Program. Sponsor does not include wholly independent third parties such
as attorneys, accountants, and underwriters whose only compensation is for
professional services rendered in connection with the offering of the units.
The term Sponsor shall be deemed to include its Affiliates.
Valuation Date -- The date as of which the Net Assets of the Program
are determined.
Valuation Period -- A regular period of time between Valuation Dates.
APPII-2
<PAGE>
EXHIBIT A
ML GLOBAL HORIZONS L.P.
FOURTH AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
DATED AS OF
OCTOBER 1, 1996
MERRILL LYNCH INVESTMENT PARTNERS INC.
GENERAL PARTNER
<PAGE>
ML GLOBAL HORIZONS L.P.
FOURTH AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Formation and Name................................................. LPA-1
2. Principal Office................................................... LPA-1
3. Business........................................................... LPA-1
4. Term, Dissolution, Fiscal Year and Net Asset Value................. LPA-1
(a) Term........................................................ LPA-1
(b) Dissolution................................................. LPA-2
(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-3
(a) Capital Accounts and Allocations............................ LPA-3
(b) Allocation of Profit and Loss for Federal Income
Tax Purposes................................................ LPA-3
(c) Incentive Overrides; Profit Shares.......................... LPA-4
(d) Adjustments................................................. LPA-5
(e) Expenses.................................................... LPA-6
(f) Limited Liability of Limited Partners....................... LPA-6
(g) Return of Capital Contributions............................. LPA-6
8. Management of the Fund............................................. LPA-6
9. Audits and Reports to Limited Partners............................. LPA-8
10. Assignability of Units............................................. LPA-8
11. Redemptions........................................................ LPA-9
12. Offering of Units..................................................LPA-10
13. Continuous Offering; Additional Offerings..........................LPA-10
14. Special Power of Attorney..........................................LPA-11
15. Withdrawal of a Partner............................................LPA-11
16. Standard of Liability; Indemnification.............................LPA-11
(a) Standard of Liability for the General Partner...............LPA-11
(b) Indemnification of the General Partner by the Fund..........LPA-12
(c) Indemnification of the Fund by the Partners.................LPA-13
17. Amendments; Meetings........................................LPA-13
(a) Amendments with Consent of the General Partner..............LPA-13
(b) Amendments and Actions without Consent of the
General Partner............................................LPA-13
(c) Meetings; Other Voting Matters..............................LPA-13
18. Governing Law......................................................LPA-14
19. Miscellaneous......................................................LPA-14
(a) Notices.....................................................LPA-14
(b) Binding Effect..............................................LPA-14
(c) Captions....................................................LPA-14
20. Certain Definitions................................................LPA-14
</TABLE>
LPA-i
<PAGE>
ML GLOBAL HORIZONS L.P.
FOURTH AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
This Fourth Amended and Restated Limited Partnership Agreement (the
"Limited Partnership Agreement") is made as of October 1, 1996, by and among
MERRILL LYNCH INVESTMENT PARTNERS INC., a Delaware corpora tion, as general
partner (the "General Partner"), and each other party who has become or who
becomes a party to this Fourth Amended and Restated Limited Partnership
Agreement as a limited partner (individually, a "Limited Partner" and,
collectively, the "Limited Partners") (the General Partner and the Limited
Partners being collectively referred to herein as "Partners").
WITNESSETH:
1. Formation and Name.
The parties hereto do hereby form and continue a limited partnership
under the Delaware Revised Uniform Limited Partnership Act, as amended (the
"Act"). The name of the limited partnership is ML GLOBAL HORIZONS L.P. (the
"Fund").
2. Principal Office.
The address of the principal office of the Fund is 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 Fund 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 Fund 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 Fund's business and purpose is to trade, buy, sell or otherwise
acquire, hold or dispose of forward contracts, futures contracts for all manner
of commodities, financial instruments and currencies, any rights pertaining
thereto and any options thereon or on physical commodities, as well as
securities and any rights pertaining thereto, and to engage in all activities
necessary, convenient or incidental thereto. The Fund may also engage in
"hedge," arbitrage and cash trading of commodities, futures, forwards and
options. The objective of the Fund's business is substantial appreciation over
time through speculative trading.
4. Term, Dissolution, Fiscal Year and Net Asset Value.
(a) Term. The term of the Fund 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 Fund 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 Fund who carries on the
business of the Fund (and each remaining general partner of the Fund is hereby
authorized to
LPA-1
<PAGE>
carry on the business of the Fund in such an event), or (ii) within ninety days
after such event all Partners agree in writing to continue the business of the
Fund and to the appointment, effective as of the date of such event, of one or
more general partners of the Fund; (4) a decline in the aggregate Net Assets of
the Fund to less than $250,000; (5) dissolution of the Fund pursuant hereto; or
(6) any other event which shall make it unlawful for the existence of the Fund
to be continued or require termination of the Fund.
(b) Dissolution. Upon the occurrence of an event causing the
dissolution of the Fund, the Fund shall be dissolved and terminated.
(c) Fiscal Year. The fiscal year of the Fund begins on January 1 of
each year and ends on the following December 31.
(d) Net Asset Value. Net Assets of the Fund are its assets less its
liabilities determined in accordance with generally accepted accounting
principles. If an open position 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 Fund, it will maintain its Net Worth at an amount not
less than 5% of the total contributions by all partners to the Fund 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 Fund
that a proposed modification will not adversely affect the classification of the
Fund 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 Fund shall be as
shown on the books and records of the Fund.
The General Partner, so long as it is a general partner of the Fund,
or any substitute general partner, shall invest in the Fund, 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
Fund (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, admit to
the Fund purchasers of Units as limited partners of the Fund.
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 Fund 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 Fund'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 Administrative Fees, 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 Fund'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 Fund 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 Fund 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 Fund 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.
(d) Adjustments. 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>
(e) 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 Fund shall
bear all of any taxes applicable to it and any charges incidental to trading.
The General Partner pays all of the Fund's routine legal, accounting, and
administrative expenses but, beginning October 1, 1996, the Fund pays to the
General Partner Administrative Fees of 0.020833 1 of 1% of the Fund's month-end
assets (0.25% annually), as described in the Prospectus. Any administrative
expenses incurred by the General Partner in excess of the Administrative Fee are
borne by the General Partner, without reimbursement from the Fund. Any goods and
services provided to the Fund 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. None of the General Partner's overhead
expenses incurred in connection with the administration of the Fund (including,
without limitation, salaries, rent and travel expenses) will be charged to the
Fund. All of the expenses which are for the Fund's account shall be billed
directly to the Fund. Appropriate reserves may be created, accrued, and charged
against Net Assets for contingent liabilities, if any, as of the date any such
contingent liability becomes know to the General Partner. Such reserves shall
reduce Net Asset Value for all purposes.
(f) 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 Fund
obligations in excess of the capital contributed by such Limited Partner, plus
his share of undistributed profits and assets.
(g) 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 Fund, 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 Fund.
The General Partner, to the exclusion of all Limited Partners, shall
control, conduct and manage the business of the Fund. 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 Fund and the Partners
pursuant to powers of attorney and supervise the liquidation of the Fund if an
event causing dissolution of the Fund occurs.
The General Partner may in furtherance of the business of the Fund
cause the Fund 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 Fund'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 the cash
management arrangements as described under "Use of Proceeds and Interest Income"
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 on behalf of the
Fund and agree that the Fund will compensate and 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 Fund, provided, that no such
arrangement shall allow Brokerage Commissions and Administrative Fees paid by
the Fund 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 Fund's average Net Assets, excluding the assets not
directly related to trading activity), whichever is higher. The General Partner
shall reimburse the Fund, on an annual basis, to the extent that the sum of the
Fund's Brokerage Commissions, Administrative Fees and annual Incentive Override,
as described in the Prospectus, have exceeded 14% of the Fund's average Net
Assets during the preceding year. The General Partner is hereby specifically
authorized to enter into, on behalf of the Fund, 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 Fund,
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 Fund's Brokerage
LPA-6
<PAGE>
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 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 Fund 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 Fund in the best interests of the Fund. 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
Fund funds and assets and the use thereof for the benefit of the Fund. 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 Fund and in resolving conflicts of interest. The Fund's brokerage
arrangements shall be non-exclusive, and the brokerage commissions paid by the
Fund shall be competitive. The Fund 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 Fund.
The Fund shall make no loans to any party, and the funds of the Fund
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 Fund unless
approved by the Limited Partners in accordance with Section 17(a) of this
Limited Partnership Agreement (the fees charged in respect of MLF covering, on
an interim basis, the Fund's trading losses on foreign futures transactions, as
described under "Use of Proceeds and Interest Income" in the Prospectus, not
being deemed to constitute a loan for such purposes). If the General Partner
makes a loan to the Fund, 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 Fund (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 Fund
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 Fund 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 Fund shall be
affiliated with the Fund's commodity broker, the General Partner or their
affiliates (this prohibition shall not preclude the General Partner from
retaining a trading advisor for which the General Partner provides
administrative services). The maximum period covered by any contract entered
into by the Fund, 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 Fund'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 Fund and the General Partner or any affiliate of the
General Partner shall be terminable by the Fund upon no more than 60 days'
written notice. All sales of Units in the United States will be conducted by
registered brokers.
The Fund is prohibited from employing the trading technique commonly
known as pyramiding. A trading manager or advisor of the Fund taking into
account the Fund's open trade equity on existing positions in determining
generally whether to acquire additional commodity positions on behalf of the
Fund will not be considered to be engaging in pyramiding.
The General Partner may take such other actions on behalf of the Fund
as the General Partner deems necessary or desirable to manage the business of
the Fund.
LPA-7
<PAGE>
The General Partner shall reimburse the Fund for any advisory fees
paid by the Fund 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 Fund 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 Fund. Limited Partners may similarly engage in any such other business
activities. The General Partner shall devote to the Fund such time as the
General Partner may deem advisable to conduct the Fund's business and affairs.
9. Audits and Reports to Limited Partners.
The Fund books shall be audited annually by an independent certified
public accountant. The Fund 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 Fund 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 Fund during the preceding year (not including forward contracts on a
futures equivalent basis in the denominator used to calculate such round-turn
equivalent rate). Limited Partners or their duly authorized representatives may
inspect the Fund 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 Fund.
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 Fund'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 Fund records for a
period of not less than six (6) years.
The General Partner will, with the assistance of the Fund's commodity
broker, make an annual review of the commodity brokerage arrangements applicable
to the Fund. 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 Fund in order to assess whether
the rates charged the Fund 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 Fund, the General
Partner will notify the Limited Partners, setting forth the rates charged to the
Fund and several funds which are, in the General Partner's opinion, comparable
to the Fund.
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 Fund 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 Fund shall
LPA-8
<PAGE>
be effective against the Fund 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
Fund 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 Fund receive an opinion of counsel to the General Partner that
such admission will not adversely affect the classification of the Fund 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 Fund 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 Fund (including the Fund's
allocable share of the liabilities, contingent or otherwise, of any entities in
which the Fund invests), except any liability to Partners on account of their
capital contributions, have been paid or there remains property of the Fund
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 Fund 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 Fund 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 Fund) 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 Fund, 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 Fund
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 Fund an amount equal to the
Net Asset Value of his interest in the Fund, 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 Fund are at least $250,000 and the Net
Asset Value of a Unit is in excess of $25, the Fund 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 Fund 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 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
LPA-9
<PAGE>
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 Fund from commodity brokers, banks
or other persons or entities, the Fund 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 Fund'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 Fund, and will use best efforts to do so to
the extent necessary to prevent the Fund 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 Fund shall (i) cause to be filed
such Prospectus Supplements and amended Registration Statements as the General
Partner deems advisable with the Securities and Exchange Commission for the
ongoing registration of the continuous 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 continuous
offering; 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 Fund 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. Continuous Offering; Additional Offerings.
The General Partner may, in its discretion, continue the ongoing
offering of Units contemplated by the Prospectus as well as make additional
public or private offerings of Units, provided that doing so does not dilute
existing Limited Partners' economic interest in the Fund or cause the ongoing
offering of the Units (unless otherwise discontinued) not to constitute a
continuous offering within the meaning of applicable Securities and Exchange
Commission rules). 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 Fund 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 Fund; (iii) all
conveyances and other instruments which the General Partner deems appropriate to
qualify or continue the Fund in the State of Delaware and the jurisdictions in
which the Fund may conduct business, or which may be required to be filed by the
Fund 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 Fund or the Fund being governed by any amendments or successor statutes to
the Act or to reorganize or refile the Fund in a different jurisdiction; and
(iv) to file, prosecute, defend, settle or compromise litigation, claims or
arbitrations on behalf of the Fund. 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 Fund 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 Fund is continued pursuant to the terms of Section 4. In
addition, the General Partner may withdraw from the Fund, 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 Fund'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 Fund 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 Fund shall not terminate or dissolve the Fund, 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 Fund 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 Fund and any right to an audit or examination of the books of
the Fund. 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 Fund 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
Fund or to any Partner for any loss suffered by the Fund 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 Fund 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 Fund. To the
fullest extent permitted by law, subject to this Section 16, the General Partner
and its Affiliates shall be indemnified by the Fund against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims
sustained by them in connection with the Fund; 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 Fund; 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 Fund 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 Fund who:
(1) directly or indirectly controls, is controlled by, or is under common
control with the General Partner; or (2) owns or controls 10% or more of the
outstanding voting securities of the General Partner; or (3) is an officer or
director of the General Partner; or (4) if the General Partner is an officer,
director, partner or trustee, is any entity for which the General Partner acts
in any such capacity.
Advances from Fund 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 Fund 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 Fund; (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 Fund 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 Fund 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
Fund 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 Fund hereunder shall be made only as provided in the specific case.
LPA-12
<PAGE>
In no event shall any indemnification obligations of the Fund 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 Fund by the Partners. In the event the
Fund 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 Fund's business, such Partner shall
indemnify and reimburse the Fund 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 Fund 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 Fund is
not treated as an association taxable as a corporation for federal income tax
purposes, (iv) to qualify or maintain the qualification of the Fund 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 Fund 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
Fund 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 Fund,
or materially changing the Fund'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 Fund 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 Fund; (v) the sale of all or substantially all of the assets of the Fund 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 Fund be called to vote upon any matter
upon which the Limited Partners may vote pursuant to this Limited Partnership
Agreement, the General Partner shall, by written notice to each Limited Partner
of record sent by certified mail within 15 days after such
LPA-13
<PAGE>
receipt, call a meeting of the Fund. 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 Fund and the General Partner may rely
upon the Fund records as to who are Partners and assignees, and all Partners and
assignees agree that their rights shall be determined and they shall be bound
thereby.
(c) Captions. Captions in no way define, limit, extend or describe
the scope of this Limited Partnership Agreement nor the effect of any of its
provisions. Any reference to "persons" in this Limited Partnership Agreement
shall also be deemed to include entities, unless the context otherwise requires.
20. Certain Definitions.
This Limited Partnership Agreement contains certain provisions
required by the NASAA Guidelines. The terms used in such provisions are defined
as follows (the following definitions are included verbatim from the NASAA
Guidelines and, accordingly, may not in all cases be relevant to this Limited
Partnership Agreement):
Administrator. The official or agency administering the securities
-------------
laws of a state.
Advisor. Any Person who for any consideration engages in the
-------
business of advising others, either directly or indirectly, as to the
value, purchase, or sale of Commodity Contracts or commodity options.
Affiliate. An Affiliate of a Person means: (a) any Person directly
---------
or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities of such Person; (b) any
Person 10% or more of whose outstanding voting securities are directly
or indirectly owned, controlled or held with power to vote, by such
Person; (c) any Person, directly or indirectly, controlling,
controlled by, or under common control with such Person; (d) any
officer, director or partner of such Person; or (e) if such Person is
an officer, director or partner, any Person for which such Person acts
in any such capacity.
LPA-14
<PAGE>
Capital Contributions. The total investment in a Program by a
---------------------
Participant or by all Participants, as the case may be.
Commodity Broker. Any Person who engages in the business of
----------------
effecting transactions in Commodity Contracts for the account of
others or for his own account.
Commodity Contract. A contract or option thereon providing for the
------------------
delivery or receipt at a future date of a specified amount and grade
of a traded commodity at a specified price and delivery point.
Cross Reference Sheet. A compilation of the Guidelines sections,
---------------------
referenced to the page of the prospectus, Program agreement, or other
exhibits, and justification of any deviation from the Guidelines.
Net Assets. The total assets, less total liabilities, of the Program
----------
determined on the basis of generally accepted accounting principles.
Net Assets shall include any unrealized profits or losses on open posi
tions, and any fee or expense including Net Asset fees accruing to the
Program.
Net Asset Value Per Program Interest. The Net Assets divided by the
------------------------------------
number of Program Interests outstanding.
Net Worth. The excess of total assets over total liabilities as
---------
determined by generally accepted accounting principles. Net Worth
shall be determined exclusive of home, home furnishings and
automobiles.
New Trading Profits. The excess, if any, of Net Assets at the end of
-------------------
the period over Net Assets at the end of the highest previous period
or Net Assets at the date trading commences, whichever is higher, and
as further adjusted to eliminate the effect on Net Assets resulting
from new Capital Contributions, redemptions, or capital distributions,
if any, made during the period decreased by interest or other income,
not directly related to trading activity, earned on Program assets
during the period, whether the assets are held separately or in the
margin account.
Organization and Offering Expenses. All expenses incurred by the
----------------------------------
Program in connection with and in preparing a Program for registration
and subsequently offering and distributing it to the public,
including, but not limited to, total underwriting and brokerage
discounts and commissions (including fees of the underwriters'
attorneys), expenses for printing, engraving, mailing, salaries of
employees while engaged in sales activity, charges of transfer agents,
registrars, trustees, escrow holders, depositories, experts, expenses
of qualification of the sale of its Program Interests under federal
and state law including taxes and fees, accountants' and attorneys'
fees.
Participant. The holder of a Program Interest.
-----------
Person. Any natural Person, partnership, corporation, association or
------
other legal entity.
Pit Brokerage Fee. Pit Brokerage Fee shall include floor brokerage,
-----------------
clearing fees, National Futures Association fees, and exchange fees.
Program. A limited partnership, joint venture, corporation, trust or
-------
other entity formed and operated for the purpose of investing in
Commodity Contracts.
Program Broker. A Commodity Broker that effects trades in Commodity
--------------
Contracts for the account of a Program.
LPA-15
<PAGE>
Program Interest. A limited partnership interest or other security
----------------
representing ownership in a Program.
Pyramiding. A method of using all or a part of an unrealized profit
----------
in a Commodity Contract position to provide margin for any additional
Commodity Contracts of the same or related commodities.
Sponsor. Any Person directly or indirectly instrumental in
-------
organizing a Program or any Person who will manage or participate in
the management of a Program, including a Commodity Broker who pays any
por tion of the Organizational Expenses of the Program, and the
general partner(s) and any other Person who regularly performs or
selects the Persons who perform services for the Program. Sponsor
does not include wholly independent third parties such as attorneys,
accountants, and underwriters whose only compensation is for
professional services rendered in connection with the offering of the
units. The term "Sponsor" shall be deemed to include its Affiliates.
Valuation Date. The date as of which the Net Assets of the Program
--------------
are determined.
Valuation Period. A regular period of time between Valuation Dates.
----------------
IN WITNESS WHEREOF, the parties hereto have executed this Fourth
Amended and Restated Limited Partnership Agreement as of the day and year first
above written.
GENERAL PARTNER: LIMITED PARTNERS:
MERRILL LYNCH INVESTMENT All Limited Partners now and hereafter
admitted PARTNERS INC. as limited partners of the Fund 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 PARTNERS
Chief Executive Officer 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 the Net Asset Value per Unit as of the date of issuance (97% of such 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 January __,
1997 (the "Prospectus"). EXCEPT AS SET FORTH BELOW IN THE CASE OF MAINE AND
MICHIGAN RESIDENTS, INVESTORS WHO ARE CURRENTLY LIMITED PARTNERS IN THE FUND
NEED NOT EXECUTE AN ADDITIONAL SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SIGNATURE PAGE IN ORDER TO PURCHASE ADDITIONAL UNITS. HOWEVER, SUCH PERSONS
MUST RECEIVE A CURRENT PROSPECTUS FOR THE FUND AND CAREFULLY REVIEW THIS EXHIBIT
B -- SUBSCRIPTION REQUIREMENTS AS WELL AS THE SUBSCRIPTION AGREEMENT AND POWER
OF ATTORNEY. SUCH PERSONS' FINANCIAL CONSULTANTS WILL BE REQUIRED TO RECONFIRM
THAT SUCH PERSONS CONTINUE TO MEET THE SUITABILITY REQUIREMENTS SET FORTH BOTH
HEREIN AND THEREIN IN ORDER FOR SUCH PERSONS TO BE ABLE TO PURCHASE ADDITIONAL
UNITS.
By executing a Subscription Agreement and Power of Attorney Signature
Page, Purchaser has thereby authorized Merrill Lynch, Pierce, Fenner & Smith
Incorporated or one of its affiliates (the "Selling Agent") to debit Purchaser's
customer securities account in the full amount of his subscription. If
Purchaser's Subscription Agreement and Power of Attorney Signature Page is
accepted, Purchaser agrees to contribute Purchaser's subscription to the Fund
and to be bound by the terms of the Fund's Limited Partnership Agreement, which
will be in substantially the form of the Fourth Amended and Restated Limited
Partnership Agreement included in the Prospectus as Exhibit A. Purchaser agrees
to reimburse the Fund and Merrill Lynch Investment Partners Inc. ("MLIP"), the
general partner of the Fund, for any expense or loss incurred by either as a
result of the cancellation of Purchaser's Units due to a failure of the
Purchaser to deliver good funds in the full amount of the subscription price of
the Units subscribed for by Purchaser.
Representations and Warranties
As an inducement to MLIP to accept this subscription, Purchaser, by
executing and delivering Purchaser's Subscription Agreement and Power of
Attorney Signature Page, represents and warrants to the Fund, MLIP, Merrill
Lynch Futures Inc., and the Selling Agent as follows:
(a) Purchaser is of legal age to execute the Subscription Agreement
and Power of Attorney Signature Page and is legally competent to do so.
Purchaser acknowledges that Purchaser has received (prior to any direct or
indirect solicitation of Purchaser's investment) a copy of the Prospectus -
- together with a current Prospectus Supplement and summary financial
information relating to the Fund current within 60 calendar days -- dated
within nine months of the date as of which Purchaser subscribed to purchase
Units.
(b) All information that Purchaser has heretofore furnished to MLIP or
that is set forth in the Subscription Agreement and Power of Attorney
submitted by Purchaser is correct and complete as of the date of such
Subscription Agreement and Power of Attorney, and if there should be any
change in such information prior to acceptance of Purchaser's subscription,
Purchaser will immediately furnish such revised or corrected information to
MLIP.
SR-1
<PAGE>
(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.
(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 by 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. ("MLF"),
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, MLF, 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, MLF,
MLIB or others in any subsequent litigation or other proceeding.
____________________
SR-2
<PAGE>
Investor Suitability
PURCHASER UNDERSTANDS THAT THE PURCHASE OF UNITS MAY BE MADE ONLY BY
PERSONS WHO, AT A MINIMUM, HAVE (I) A NET WORTH OF AT LEAST $150,000 (EXCLUSIVE
OF HOME, FURNISHINGS AND AUTOMOBILES) OR (II) AN ANNUAL GROSS INCOME OF AT LEAST
$45,000 AND A NET WORTH OF AT LEAST $45,000 (EXCLUSIVE OF HOME, FURNISHINGS AND
AUTOMOBILES). RESIDENTS OF THE FOLLOWING STATES MUST MEET THE REQUIREMENTS SET
FORTH BELOW (NET WORTH FOR SUCH PURPOSES IS IN ALL CASES EXCLUSIVE OF HOME,
FURNISHINGS AND AUTOMOBILES). IN ADDITION, PURCHASER MAY NOT INVEST MORE THAN
10% OF HIS OR HER READILY MARKETABLE ASSETS IN THE FUND.
1. Arizona -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
2. California -- Net worth of at least $250,000 and an annual income
of at least $65,000 or, in the alternative, a net worth of at least $500,000.
3. Iowa -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000.
4. Maine -- Minimum subscription per investment, both initial and
subsequent, of $5,000; net worth of at least $200,000 or a net worth of at least
$50,000 and an annual income of at least $50,000. ALL MAINE RESIDENTS,
INCLUDING EXISTING LIMITED PARTNERS IN THE FUND SUBSCRIBING FOR ADDITIONAL
UNITS, MUST EXECUTE A SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE
PAGE. MAINE RESIDENTS MUST SIGN A SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SIGNATURE PAGE SPECIFICALLY PREPARED FOR MAINE RESIDENTS, A COPY OF WHICH SHALL
ACCOMPANY THIS PROSPECTUS AS DELIVERED TO ALL MAINE RESIDENTS.
5. Massachusetts -- Net worth of at least $225,000 or a net worth of
at least $60,000 and an annual income of at least $60,000.
6. Michigan -- Net worth of at least $225,000 or a net worth of at
least $60,000 and taxable income in 1996 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.
SR-3
<PAGE>
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.
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 1996 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 JANUARY __, 1997, TOGETHER WITH THE
CURRENT PROSPECTUS SUPPLEMENT AND SUMMARY FINANCIAL INFORMATION
RELATING TO THE FUND CURRENT WITHIN 60 CALENDAR
DAYS WHICH ACCOMPANY 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.
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 (TOGETHER WITH THE CURRENT PROSPECTUS SUPPLEMENT
AND SUMMARY FINANCIAL INFORMATION RELATING TO THE FUND CURRENT WITHIN 60
CALENDAR DAYS) AND CAREFULLY REVIEW THE SUBSCRIPTION AGREEMENT AND POWER OF
ATTORNEY AS WELL AS EXHIBIT B -- SUBSCRIPTION REQUIREMENTS. SUCH LIMITED
PARTNERS' MERRILL LYNCH 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.
SA-(i)
<PAGE>
Custodian Under Uniform Gifts to Minors Act -- Complete line 5 with
the name of minor followed by "UGMA." On line 8 enter the custodian's name,
followed by "Custodian." Be sure to furnish the minor's Social Security Number.
Partnership or Corporation -- The Partnership or Corporation name is
required on line 7. Enter an officer's or partner's name on line 8. Be sure to
furnish the Taxpayer ID Number of the Partnership or Corporation.
Items 5, 6, 7 - Enter the exact name in which the Units are to be held.
Item 8 - Enter a partner's or officer's name
Item 9 - Complete information as required.
Item 10 - The investor(s) (EXCEPT CURRENT LIMITED PARTNERS IN THE
FUND OTHER THAN RESIDENTS OF MAINE OR MICHIGAN) must
execute the Subscription Agreement and Power of Attorney
Signature Page (Item 10, Page SA-6) and review the
representation relating to backup withholding tax
underneath the signature and telephone number lines in Item
10.
Item 11 - Financial Consultants must complete the information
required.
THE SPECIMEN COPY OF THE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SIGNATURE PAGE (PAGES SA-3 AND SA-4)
SHOULD NOT BE EXECUTED.
Instructions to Financial Consultants:
THE EXECUTED SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE
PAGE MUST BE RETAINED IN THE BRANCH OFFICE.
RECONFIRMATIONS (I.E., SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SIGNATURE PAGES EXECUTED BY FINANCIAL CONSULTANTS) OR ANOTHER FORM OF WRITTEN
RECONFIRMATION APPROVED BY THE BRANCH OFFICE REGARDING THE CONTINUING
SUITABILITY OF EXISTING LIMITED PARTNERS SUBSCRIBING FOR ADDITIONAL UNITS MUST
ALSO BE RETAINED IN THE BRANCH OFFICE.
SA-(ii)
<PAGE>
ML GLOBAL HORIZONS L.P.
LIMITED PARTNERSHIP UNITS
____________________
BY EXECUTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SUBSCRIBERS ARE NOT WAIVING ANY RIGHTS UNDER THE SECURITIES ACT
OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934
____________________
SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY
ML GLOBAL HORIZONS L.P.
c/o Merrill Lynch Investment Partners Inc.
General Partner
Merrill Lynch World Headquarters
South Tower, 6th Floor
World Financial Center
New York, New York 10080-6106
Dear Sirs:
1. Subscription for Units. I hereby subscribe for the number of
limited partnership units ("Units") in ML GLOBAL HORIZONS L.P. (the "Fund") set
forth in the Subscription Agreement and Power of Attorney Signature Page
attached hereto; a minimum of 50 Units ($5,000, if less) must be purchased -- 20
Units ($2,000, if less) for both: (i) trustees or custodians of eligible
employee benefit plans and individual retirement accounts; and (ii) existing
Limited Partners (who are not, except in the case of Maine or Michigan
residents, required to submit a new Subscription Agreement and Power of Attorney
in order to acquire additional Units). Any greater number of whole Units may be
purchased in 1 Unit increments. The purchase price is the Net Asset Value per
Unit -- 97% of the Net Asset Value per Unit if I am an officer or employee of
Merrill Lynch & Co., Inc. or any of its affiliates. The terms of the offering of
the Units are described in the Prospectus of the Fund dated January __, 1997,
together with the accompanying Prospectus Supplement and summary financial
information relating to the Fund current within 60 calendar days (the
"Prospectus"). Units are continuously offered during each calendar month, but
generally are sold only as of the beginning of the immediately following
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
SA-1
<PAGE>
representations and warranties relating to my net worth (exclusive of
home, furnishings and automobiles), annual income and readily marketable assets.
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>
SPECIMEN
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
1 Financial Consultant [ ] [ ] [ ] [ ]
Name First M.I. Last Sub. Order Ref. #
Financial Consultant [ ]-[ ]-[ ] Financial Consultant Number [ ] Branch Wire Code [ ]
Phone Number
- -----------------------------------------------------------------------------------------------------
</TABLE>
ML GLOBAL HORIZONS L.P.
LIMITED PARTNERSHIP UNITS
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE
PLEASE PRINT OR TYPE. USE BLACK INK ONLY AND ONLY ONE CHARACTER PER BOX.
The Investor named below, by execution and delivery of this Signature Page, by
payment of the purchase price for Limited Partnership Units ("Units") in ML
Global Horizons L.P. (the "Fund") and by authorizing Merrill Lynch, Pierce,
Fenner & Smith Incorporated to debit investor's customer securities account in
the amount set forth below, hereby subscribes for the purchase of Units at a
purchase price of Net Asset Value as of the first day of the month immediately
following receipt and acceptance of this Signature Page (or 97% of Net Asset
Value for officers and employees of Merrill Lynch & Co., Inc. and its
affiliates).
The named investor further acknowledges receipt of the Prospectus of the Fund
dated January __, 1997 including the Fourth Amended and Restated Limited
Partnership Agreement, the Subscription Requirements and the Subscription
Agreement and Power of Attorney set forth therein, the terms of which govern the
investment in the Units being subscribed for hereby, together with the summary
financial information relating to the Fund current within 60 calendar days.
If the subscriber is a participant in a Merrill Lynch sponsored IRA, BASIC/TM/
or SEP account and is purchasing Units for such an account, the subscriber
hereby acknowledges that:
1. An amount at least equal to the purchase price for the Units is in an IRA,
BASIC/TM/ or SEP account at Merrill Lynch, Pierce, Fenner & Smith
Incorporated;
2. The minimum value of all securities and funds in such IRA, BASIC/TM/ or SEP
account is $20,000;
3. The minimum subscription is 20 Units (or $2,000 if less) and the amount of
this subscription is no more than 10% of the value of the IRA, BASIC/TM/ or
SEP account on the subscription date; and
4. Each separate IRA, BASIC/TM/ or SEP account of the subscriber seeking to
purchase Units meets the above eligibility requirements.
2 [ ] [ ] $5,000 [ ] $2,000 3 [ ]-[ ]
Enter number of Units or check appropriate box Merrill Lynch Account #
(minimum 50 Units, or $5,000 if less, for
Taxable Investors; 20 Units, or $2,000 if less,
for Non-Taxable Investors and existing
Limited Partners subscribing for additional
Units: incremental investments in one Unit multiples).
4 [ ]-[ ]-[ ] [ ]-[ ]
Social Security Number or Taxpayer ID Number
Limited Partner Name
5 [ ] [ ] [ ]
First Name M.I. Last Name
Joint Partner Name
6 [ ] [ ] [ ]
First Name M.I. Last Name
Partnership, Corporate or Trust Limited Partner Name
7 [ ]
Partner, Officer, Trustee, Beneficiary, Power of Attorney or Custodian under
UGMA/UTMA
8 [ ]
Additional Information
9 [ ]
Residence Address of Limited Partner (P.O. Box Numbers Are Not Acceptable For
Residence Address)
[ ] [ ] [ ]
Street Number Street Name Apt. Number
[ ] [ ] [ ] [ ]
Bldg. No. City State Zip Code
[ ]
Country (If Other Than U.S.A.)
Mailing Address of Limited Partner (If Other Than Residence Address)
[ ] [ ] [ ]
Street Number Street Name Apt. Number
[ ] [ ] [ ] [ ] [ ]
Bldg. No. P.O. Box No. City State Zip Code
[ ]
Country (If Other Than U.S.A.)
[ ] Check box if Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") is custodian.
Name of Custodian. If 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.)
SA-3
<PAGE>
SPECIMEN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
JANUARY __, 1997 SUMMARY FINANCIAL INFORMATION RELATING TO THE FUND CURRENT
WITHIN 60 CALENDAR DAYS.
I have checked the following box if I am subject to backup withholding under the
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code: [_]. Under the
penalties of perjury, by signature above I hereby certify that the Social
Security Number or Taxpayer ID Number shown on the front of this Subscription
Agreement and Power of Attorney Signature Page above my name is my true, correct
and complete Social Security Number or Taxpayer ID Number and that the
information given in the immediately preceding sentence is true, correct and
complete.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
11 FINANCIAL CONSULTANT MUST SIGN
I have reasonable grounds to believe, based on information obtained from the
investor concerning his/her investment objectives, other investments, financial
situation and needs and any other information known by me, that investment in
the Fund is suitable for such investor in light of his/her financial position,
net worth and other suitability characteristics. I have also informed the
investor of the unlikelihood of a public trading market developing for the
Units.
The Financial Consultant MUST sign below in order to substantiate compliance
with Appendix F to Article 3, Section 34 of the NASD's Rules of Fair Practice.
X _____________________________________________________________________________
Financial Consultant Signature Date
Office Manager approval of Merrill Lynch sponsored retirement account purchases.
X _____________________________________________________________________________
Office Manager Signature Date
- -------------------------------------------------------------------------------
===============================================================================
<TABLE>
<CAPTION>
DATE RECEIVED COUNTRY CODE ADDITIONAL ORDER CONTROL NUMBER
<S> <C> <C> <C> <C>
FOR OFFICE USE ONLY [______] [__] [__] [__] [_____}
</TABLE>
SA-4
<PAGE>
EXECUTION COPY
<TABLE>
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
1 Financial Consultant [ ] [ ] [ ] [ ]
Name First M.I. Last Sub. Order Ref. #
Financial Consultant [ ]-[ ]-[ ] Financial Consultant Number [ ] Branch Wire Code [ ]
Phone Number
- ------------------------------------------------------------------------------------------------------
</TABLE>
ML GLOBAL HORIZONS L.P.
LIMITED PARTNERSHIP UNITS
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE
PLEASE PRINT OR TYPE. USE BLACK INK ONLY AND ONLY ONE CHARACTER PER BOX.
The Investor named below, by execution and delivery of this Signature Page, by
payment of the purchase price for Limited Partnership Units ("Units") in ML
Global Horizons L.P. (the "Fund") and by authorizing Merrill Lynch, Pierce,
Fenner & Smith Incorporated to debit investor's customer securities account in
the amount set forth below, hereby subscribes for the purchase of Units at a
purchase price of Net Asset Value as of the first day of the month immediately
following receipt and acceptance of this Signature Page (or 97% of Net Asset
Value for officers and employees of Merrill Lynch & Co., Inc. and its
affiliates).
The named investor further acknowledges receipt of the Prospectus of the Fund
dated January __, 1997 including the Fourth Amended and Restated Limited
Partnership Agreement, the Subscription Requirements and the Subscription
Agreement and Power of Attorney set forth therein, the terms of which govern the
investment in the Units being subscribed for hereby, together with the summary
financial information relating to the Fund current within 60 calendar days.
If the subscriber is a participant in a Merrill Lynch sponsored IRA, BASIC/TM/
or SEP account and is purchasing Units for such an account, the subscriber
hereby acknowledges that:
1. An amount at least equal to the purchase price for the Units is in an IRA,
BASIC/TM/ or SEP account at Merrill Lynch, Pierce, Fenner & Smith
Incorporated;
2. The minimum value of all securities and funds in such IRA, BASIC/TM/ or SEP
account is $20,000;
3. The minimum subscription is 20 Units (or $2,000 if less) and the amount of
this subscription is no more than 10% of the value of the IRA, BASIC/TM/ or
SEP account on the subscription date; and
4. Each separate IRA, BASIC/TM/ or SEP account of the subscriber seeking to
purchase Units meets the above eligibility requirements.
2 [ ] [ ] $5,000 [ ] $2,000 3 [ ]-[ ]
Enter number of Units or check appropriate box Merrill Lynch Account #
(minimum 50 Units, or $5,000 if less, for
Taxable Investors; 20 Units, or $2,000 if less,
for Non-Taxable Investors and existing
Limited Partners subscribing for additional
Units: incremental investments in one Unit multiples).
4 [ ]-[ ]-[ ] [ ]-[ ]
Social Security Number or Taxpayer ID Number
Limited Partner Name
5 [ ] [ ] [ ]
First Name M.I. Last Name
Joint Partner Name
6 [ ] [ ] [ ]
First Name M.I. Last Name
Partnership, Corporate or Trust Limited Partner Name
7 [ ]
Partner, Officer, Trustee, Beneficiary, Power of Attorney or Custodian under
UGMA/UTMA
8 [ ]
Additional Information
9 [ ]
Residence Address of Limited Partner (P.O. Box Numbers Are Not Acceptable For
Residence Address)
[ ] [ ] [ ]
Street Number Street Name Apt. Number
[ ] [ ] [ ] [ ]
Bldg. No. City State Zip Code
[ ]
Country (If Other Than U.S.A.)
Mailing Address of Limited Partner (If Other Than Residence Address)
[ ] [ ] [ ]
Street Number Street Name Apt. Number
[ ] [ ] [ ] [ ] [ ]
Bldg. No. P.O. Box No. City State Zip Code
[ ]
Country (If Other Than U.S.A.)
[ ] Check box if Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") is custodian.
Name of Custodian. If 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.)
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
JANUARY __, 1997, SUMMARY FINANCIAL INFORMATION RELATING TO THE FUND CURRENT
WITHIN 60 CALENDAR DAYS.
I have checked the following box if I am subject to backup withholding under the
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code: [_]. Under the
penalties of perjury, by signature above I hereby certify that the Social
Security Number or Taxpayer ID Number shown on the front of this Subscription
Agreement and Power of Attorney Signature Page above my name is my true, correct
and complete Social Security Number or Taxpayer ID Number and that the
information given in the immediately preceding sentence is true, correct and
complete.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11 FINANCIAL CONSULTANT MUST SIGN
I have reasonable grounds to believe, based on information obtained from the
investor concerning his/her investment objectives, other investments, financial
situation and needs and any other information known by me, that investment in
the Fund is suitable for such investor in light of his/her financial position,
net worth and other suitability characteristics. I have also informed the
investor of the unlikelihood of a public trading market developing for the
Units.
The Financial Consultant MUST sign below in order to substantiate compliance
with Appendix F to Article 3, Section 34 of the NASD's Rules of Fair Practice.
X ______________________________________________________________________________
Financial Consultant Signature Date
Office Manager approval of Merrill Lynch sponsored retirement account purchases.
X ______________________________________________________________________________
Office Manager Signature Date
- --------------------------------------------------------------------------------
================================================================================
<TABLE>
DATE RECEIVED COUNTRY CODE ADDITIONAL ORDER CONTROL NUMBER
<S> <C> <C> <C> <C>
FOR OFFICE USE ONLY [__][__][__][__][__][__] [__][__] [__] [__][__][__][__][__]
</TABLE>
SA-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Merrill Lynch Investment Partners Inc. will pay, without reimbursement
from the Registrant, all of the following costs incurred in connection with
preparing and filing this Registration Statement. This Registration Statement
also constitutes Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form S-1, No. 33-80202 (effective June 17, 1994) and Post-Effective
Amendment No. 4 with respect to the Registrant's Registration Statement on Form
S-1, No. 33-88994 (effective March 1, 1995).
<TABLE>
<CAPTION>
Approximate
Amount
-----------
<S> <C>
Securities and Exchange Commission Registration Fee.......... $ 17,242
National Association of Securities Dealers, Inc. Filing Fee.. 5,500
Printing Expenses............................................ 75,000
Fees of Certified Public Accountants......................... 50,000
Blue Sky Expenses (Excluding Legal Fees)..................... 25,000
Fees of Counsel.............................................. 75,000
Miscellaneous Offering Costs................................. 63,779
--------
Total....................................................... $311,521
========
</TABLE>
____________________
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 16 of the Fourth Amended and Restated Limited Partnership
Agreement (attached as Exhibit A to the prospectus which forms a part of this
Registration Statement) provides for the indemnification of the General Partner
and certain of its affiliates by the Registrant. "Affiliates" shall mean any
person performing services on behalf of the Fund who: (1) directly or indirectly
controls, is controlled by, or is under common control with the General Partner;
or (2) owns or controls 10% or more of the outstanding voting securities of the
General Partner; or (3) is an officer or director of the General Partner; or (4)
if the General Partner is an officer, director, partner or trustee, is any
entity for which the General Partner acts in any such capacity. Indemnification
is to be provided for any loss suffered by the Registrant which arises out of
any action or inaction, if the party, in good faith, determined that such course
of conduct was in the best interest of the Registrant and such conduct did not
constitute negligence or misconduct. The General Partner and its affiliates
will only be entitled to indemnification for losses incurred by such affiliates
in performing the duties of the General Partner and acting wholly within the
scope of the authority of the General Partner.
In the Selling Agreement, the Trading Advisors have agreed to
indemnify each person who controls the General Partner within the meaning of
Section 15 of the Securities Act of 1933 and each person who signed this
Registration Statement or is a director of the General Partner against losses,
claims, damages, liabilities or expenses arising out of or based upon any untrue
statement or omission or alleged untrue statement or omission relating or with
respect to the Trading Advisors or any principal of the Trading Advisors or
their operations, trading systems, methods or performance, which was made in any
preliminary prospectus, this Registration Statement as declared effective, the
Prospectus included in this Registration Statement when declared effective, or
in any amendment or supplement thereto and furnished by or approved
S-1
<PAGE>
by the Trading Advisors for inclusion therein. The Trading Advisors have also
agreed to contribute to the amounts paid by such controlling persons, signatees
or directors in respect of any such losses, claims, damages, liabilities or
expenses in the event that the foregoing indemnity is unavailable or
insufficient.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents (unless otherwise indicated) are filed
herewith and made a part of this Registration Statement:
(a) Exhibits.
Exhibit
Number Description of Document
- ------ -----------------------
The following exhibits are filed herewith.
EX-3.02c Fourth Amended and Restated Limited Partnership Agreement of
the Registrant (included as Exhibit A to the Prospectus).
EX-5.01 Opinion of Sidley & Austin relating to the legality of the
Units.
EX-8.01 Opinion of Sidley & Austin with respect to federal income
tax consequences.
EX-10.09 Subscription Agreement and Power of Attorney (included as
Exhibit C to the Prospectus).
EX-10.10 Form of Advisory and Consulting Agreement Amendment.
EX-10.11 Form of Customer Agreement Amendment.
EX-23.01 Consent of Sidley & Austin.
EX-23.02 Consent of Deloitte & Touche LLP.
_________________
The following exhibits are incorporated by reference herein
from the exhibits of the same description and number filed with Amendment No. 1
to the Registrant's Registration Statement on Form S-1 (Registration No. 33-
62998), filed with the Commission on September 10, 1993 (Amendment No. 2 to such
Registration Statement became effective October 4, 1993).
1.01 Selling Agreement among the Partnership, the General
(Amended) Partner, Merrill Lynch Futures, the Selling Agent and the
Trading Advisors.
S-2
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
10.01 Form of Advisory Agreement among the Partnership, the
(Amended) General Partner and each Trading Advisor.
10.02 Form of Consulting Agreement between Merrill Lynch Futures
(Amended) and each Trading Advisor.
10.03 Form of Customer Agreement between the Partnership and
(Amended) Merrill Lynch Futures.
10.06 Foreign Exchange Desk Service Agreement.
The following exhibits are incorporated by reference herein
from the exhibits of the same description and number filed with the Registrant's
Registration Statement on Form S-1 (Registration No. 33-88994), which became
effective March 1, 1995.
1.01(b) Amendment No. 1 to the Selling Agreement among the
Partnership, the General Partner, Merrill Lynch Futures
Inc., the Selling Agent and ARA Portfolio Management
Company, L.L.C. (formerly, ARA Portfolio Management
Company).
The following exhibits are incorporated by reference herein
from the exhibits of the same description and number filed with the Registrant's
Post-Effective Amendment No. 1 to the Registration Statement on Form S-1
(Registration No. 33-88994) which became effective on December 6, 1995 (Post-
Effective Amendment No. 2 to such Registration Statement became effective April
8, 1996).
1.02 Form of Assignment of Selling Agreement.
3.01 Amended and Restated Certificate of Limited Partnership of
the Registrant.
10.07 Form of Assignment of Advisory Agreement.
10.08 Form of Assignment of Consulting Agreement.
The following exhibits are incorporated by reference herein
from the exhibits of the same description and number filed with the Registrant's
Registration Statement on Form S-1 (Registration No. 333-10749) which was filed
on August 23, 1996 (Amendment No. 2 to such Registration Statement became
effective November 29, 1996).
EX-1.01c Form of Amendment to the Selling Agreement among the
Partnership, the General Partner, Merrill Lynch Futures
Inc., the Selling Agent and the Trading Advisors.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration
statement;
S-3
<PAGE>
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
((S)230.424(b) of this chapter) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities under the Securities
Act of 1933 may be permitted to officers, directors or controlling persons of
the registrant pursuant to the provisions described in Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by an officer, director,
or controlling person of the registrant in the successful defense of any such
action, suit or proceeding) is asserted by such officer, director or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
S-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
General Partner of the Registrant has duly caused this Registration Statement
Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in The City of New York in the State of New York on the 14th day of
January, 1997.
ML GLOBAL HORIZONS L.P.
By: Merrill Lynch Investment Partners Inc.
General Partner
By: /s/ JOHN R. FRAWLEY, JR.
-----------------------------------
John R. Frawley, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Registration Statement Amendment has been signed below
by the following persons on behalf of the General Partner of the Registrant in
the capacities and on the date indicated.
Signature Title With Registrant Date
--------- --------------------- ----
/s/ JOHN R. FRAWLEY, JR. President, Chief Executive January 14, 1997
- --------------------------- Officer and Director
John R. Frawley, Jr.
/s/ JAMES M. BERNARD Chief Financial Officer and January 14, 1997
- --------------------------- Senior Vice-President
James M. Bernard (Principal Financial and
Accounting Officer)
/s/ ALLEN N. JONES Director January 14, 1997
- ---------------------------
Allen N. Jones
(Being principal executive officer, the principal financial and accounting
officer and a majority of the directors of Merrill Lynch Investment Partners
Inc.)
Merrill Lynch Investment General Partner of Registrant
Partners Inc.
By: /s/ JOHN R. FRAWLEY, JR. January 14, 1997
------------------------
John R. Frawley, Jr.
President and Chief Executive
Officer
S-5
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 1997
REGISTRATION NO. 333-10749
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
EXHIBITS
TO
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________
ML GLOBAL HORIZONS L.P.
================================================================================
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------ -----------------------
The following exhibits are filed herewith.
EX-3.02c Fourth Amended and Restated Limited Partnership Agreement of the
Registrant (included as Exhibit A to the Prospectus).
EX-5.01 Opinion of Sidley & Austin relating to the legality of the Units.
EX-8.01 Opinion of Sidley & Austin with respect to federal income tax
consequences.
EX-10.09 Subscription Agreement and Power of Attorney (included as Exhibit C to
the Prospectus).
EX-10.10 Form of Advisory and Consulting Agreement Amendment.
EX-10.11 Form of Customer Agreement Amendment.
EX-23.01 Consent of Sidley & Austin.
EX-23.02 Consent of Deloitte & Touche LLP.
__________________________
The following exhibits are incorporated by reference herein from the
exhibits of the same description and number filed with Amendment No. 1 to the
Registrant's Registration Statement on Form S-1 (Registration No. 33-62998),
filed with the Commission on September 10, 1993 (Amendment No. 2 to such
Registration Statement became effective October 4, 1993).
1.01 Selling Agreement among the Partnership, the General Partner,
(Amended) Merrill Lynch Futures, the Selling Agent and the Trading Advisors.
10.01 Form of Advisory Agreement among the Partnership, the General
(Amended) Partner and each Trading Advisor.
10.02 Form of Consulting Agreement between Merrill Lynch Futures and
(Amended) each Trading Advisor.
10.03 Form of Customer Agreement between the Partnership and Merrill Lynch
(Amended) Futures.
10.06 Foreign Exchange Desk Service Agreement.
The following exhibits are incorporated by reference herein from the
exhibits of the same description and number filed with the Registrant's
Registration Statement on Form S-1 (Registration No. 33-88994), which became
effective March 1, 1995.
1.01(b) Amendment No. 1 to the Selling Agreement among the Partnership, the
General Partner, Merrill Lynch Futures Inc., the Selling Agent and ARA
Portfolio Management Company, L.L.C. (formerly, ARA Portfolio
Management Company).
The following exhibits are incorporated by reference herein from the
exhibits of the same description and number filed with the Registrant's Post-
Effective Amendment No. 1 to the Registration Statement on Form S-1,
(Registration No. 33-88994), which became effective on December 6, 1995 (Post-
Effective Amendment No. 2 to such Registration Statement became effective April
8, 1996).
1.02 Form of Assignment of Selling Agreement.
3.01 Amended and Restated Certificate of Limited Partnership of the
Registrant.
10.07 Form of Assignment of Advisory Agreement.
10.08 Form of Assignment of Consulting Agreement.
<PAGE>
The following exhibits are incorporated by reference herein from the
exhibits of the same description and number filed with the Registrant's
Registration Statement on Form S-1, (Registration No. 333-10749), which became
effective on November 29, 1996.
EX-1.01c Form of Amendment to the Selling Agreement among the Partnership, the
General Partner, Merrill Lynch Futures Inc., the Selling Agent and the
Trading Advisors.
<PAGE>
[LETTERHEAD OF SIDLEY & AUSTIN] EX-5.01
-------
WRITER'S DIRECT NUMBER
January 14, 1997
Merrill Lynch Investment Partners Inc.,
as general partner of ML Global Horizons L.P.
Merrill Lynch World Headquarters
South Tower, Sixth 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 Post-Effective Amendment No. 1 to the Registration Statement on
Form S-1 (Registration No. 333-10749) (the "Registration Statement") filed by ML
Global Horizons L.P., a Delaware limited partnership (the "Partnership"), with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the registration of $50,000,000 of
Units of the Partnership. Pursuant to Rule 429 under the Securities Act, the
form of prospectus set forth in the Registration Statement (the "Prospectus")
also relates to an additional $65,000,000 of Units registered under the
Securities Act pursuant to a Registration Statement on Form S-1 declared
effective on June 17, 1994 (Registration No. 33-80202) and a Registration
Statement on Form S-1 declared effective on March 1, 1995 (Registration No. 33-
88994). Capitalized terms not defined herein have the meanings specified in the
Registration Statement.
We are familiar with the proceedings to date with respect to the proposed
issuance and sale of the Units pursuant to the Prospectus and have examined such
records, documents and questions of law, and satisfied ourselves as to such
matters of fact, as we have considered relevant and necessary as a basis for
this opinion.
For purposes of rendering this opinion, we have assumed the genuineness of
all signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to originals of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such copies.
Based on the foregoing, we are of the opinion that:
1. The Partnership has been duly formed and is validly existing in good
standing as a limited partnership under the Delaware Revised Uniform Limited
Partnership Act (the "Act").
2. The General Partner has taken all corporate action required to be taken
by it to authorize the issuance and sale of the Units to prospective investors
and to authorize the admission to the Partnership of the persons purchasing
Units as Limited Partners of the Partnership.
3. Assuming (i) the due authorization, execution and delivery to the
General Partner of a Subscription Agreement and Power of Attorney (the
"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
<PAGE>
Sidley & Austin Chicago
Merrill Lynch Investment Partners, Inc.
January 14, 1997
Page 2
Partnership of the full consideration due for the Units to which such
Subscriber has 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 Limited Partners and their contributions to the Partnership,
(v) that the Subscribers, as Limited Partners of the Partnership, do not
participate in the control of the business of the Partnership within the
meaning of the Act, (vi) that the Units are offered and sold as described in
the Prospectus and the Limited Partnership Agreement and (vii) that the
Subscribers meet all of the applicable suitability standards set forth in the
Prospectus and that the representations and warranties of the Subscribers in
their respective Subscription Agreements are true and correct, the Units to be
issued to the Subscribers will represent valid and legally issued limited
partner interests in the Partnership and, subject to the qualifications set
forth below, will be fully paid and nonassessable limited partner interests in
the Partnership, as to which the Subscribers, as limited partners of the
Partnership, will have no liability in excess of their obligations to make
contributions to the Partnership, their obligations to make other payments
provided for in the Limited Partnership Agreement and their share of the
Partnership's assets and undistributed profits (subject to the obligation of a
Limited Partner to repay funds distributed to such Limited Partners by the
Partnership in certain circumstances).
4. There are no provisions in the Limited Partnership Agreement the
inclusion of which, subject to the terms and conditions set forth therein,
would cause the Limited Partners, as limited partners of the Partnership, to
be deemed to be participating in the control of the business of the
Partnership within the meaning of the Act.
This opinion is limited to the Act and the General Corporation Law of
the State of Delaware. We express no opinion as to the application of the
securities or blue sky laws of the various states (including the State of
Delaware) to the sale of the Units.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to all references to our firm included in or made a
part of the Registration Statement.
Very truly yours,
SIDLEY & AUSTIN
<PAGE>
EX-8.01
[LETTERHEAD OF SIDLEY & AUSTIN]
WRITER'S DIRECT NUMBER
January 14, 1997
Merrill Lynch Investment Partners Inc.
General Partner of
ML Global Horizons L.P.
Merrill Lynch World Headquarters
South Tower, Sixth Floor
World Financial Center
New York, New York 10080-6106
Re: Post-Effective Amendment No. 1 to the Registration Statement on
---------------------------------------------------------------
Form S-1
--------
Dear Sir or Madam:
We have acted as your counsel in connection with the preparation and
filing with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended, of Post-Effective Amendment No. 1 to the
Registration Statement on Form S-1 (Registration No. 333-10749) to be filed with
the SEC on or about January 14, 1997, (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")
constituting a part of the Registration Statement that: (i) the Fund will be
taxed as a partnership for federal income tax purposes; (ii) each Partner will
be required to report on his tax return his allocable share of the Fund's
income, gains, losses, and deductions; (iii) based upon the contemplated trading
activities of the Fund, the Fund should be treated as engaged in the conduct of
a trade or business for federal income tax purposes, and, as a result, the
ordinary and necessary business expenses incurred by the Fund in conducting its
commodity futures trading business should not be subject to limitation under
section 67 of the Internal Revenue Code of 1986, as amended (the "Code") or
under section 68 of the Code; and (iv) based on the contemplated trading
activities of the Fund, the income earned by the Fund will not constitute
"unrelated business taxable income" under section 511 of the Code to employee
benefit plans and other tax-exempt entities which purchase Units; provided that
such Units purchased by such plans and entities are not "debt-financed" within
the meaning of section 514 of the Code.
We also advise you that in our opinion the description set forth under
the caption "Federal Income Tax Consequences" in the Prospectus correctly
describes (subject to the uncertainties referred to therein) the material
aspects of the federal income tax treatment to United States individual
investors, as of the date hereof, of an investment in the Fund.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the inclusion in the Prospectus of our opinion set
forth under the caption "Federal Income Tax Consequences."
Very truly yours,
SIDLEY & AUSTIN
<PAGE>
EX.-10.10
---------
FORM OF ADVISORY AND CONSULTING AGREEMENT AMENDMENT
This ADVISORY AND CONSULTING AGREEMENT AMENDMENT dated as of January
1, 1997 by and among the funds listed on Schedule I hereto (THE "FUNDS"),
________________ (THE "ADVISOR"), MERRILL LYNCH INVESTMENT PARTNERS INC.
("MLIP") and MERRILL LYNCH FUTURES INC. ("MLF")
W I T N E S S E T H
WHEREAS, the Advisor is acting as a commodity trading advisor for the
Funds pursuant to the Advisory Agreements, and in certain cases the Consulting
Agreements, among the parties hereto (as the case may be) set forth on Schedule
II hereto (collectively. the "Advisory Agreements");
WHEREAS, the parties hereto have agreed to reduce the Consulting Fees
paid by MLF, the commodity broker of the Fund, to the Advisor;
WHEREAS, the parties hereto have agreed to adjust the Profit Share
paid by the Fund to the Advisor, including, without limitation, by providing
that the Profit Share shall be calculated on an annual rather than a quarterly
basis; and
WHEREAS, this Agreement shall be deemed to renew each of the Advisory
Agreements (on the terms set forth herein and therein) until December 31,
1997.
NOW THEREFORE, the parties hereto agree as follows:
1. REDUCTION OF CONSULTING FEE
---------------------------
Beginning January 1, 1997, the Consulting Fee paid by MLF to the
Advisor will be reduced to ___% per annum (0.___% of the month-end assets each
month).
2. ADJUSTMENT OF PROFIT SHARE
--------------------------
From and after January 1, 1997, the Profit Share payable by the Funds
to the Advisor will be calculated at the rate of ___% of any New Trading Profit
in excess of (i) the highest level of cumulative Trading Profit (the "high water
mark") achieved by the Advisor for each of the Funds, respectively, as of any
previous calendar quarter-end (including December 31, 1996); or (ii) $0 if the
Advisor has traded unprofitably for a Fund. Trading Profit shall be calculated
pursuant to Schedule C to the Advisory Agreements, after reduction for combined
Brokerage and Administrative Fees of ___% of average month-end assets per annum
(0.__% of the month-end assets each month). Furthermore, beginning January 1,
1997, Profit Shares shall be calculated not as of the end of each calendar
quarter, but rather as of the end of each calendar year and the "high water
mark" for purposes of determining whether Trading Profit recognized after
January 1, 1997 constitutes New Trading Profit will equal the highest level of
cumulative Trading Profit as of any calendar year-end (at such point, if any,
that cumulative Trading Profit as of a calendar year-end exceeds the "high water
mark" in effect with respect to each Fund as of the effective date of this
Agreement).
3. TERM
----
The current term of the Advisory Agreements will expire December 31,
1997, at which time each such Advisory Agreement will be automatically renewed,
unless (i) MLIP or one or more of the Funds gives 30 days' notice to the Advisor
of the termination of such Advisory Agreement, or (ii) from and after the end of
the period during which such Advisory Agreement may be renewed at the option of
either MLIP or the affected Fund (treating the term ending December 31, 1997 as
the current twelve month term of each such Advisory Agreement) the Advisor gives
30 days' termination notice.
Any renewal rights exercisable by one or more Funds or MLIP under the
Advisory Agreements shall remain in full force and effect as if December 31,
1997 were the end of the current twelve-month term of each such Advisory
Agreement.
<PAGE>
4. ENTIRE AGREEMENT
----------------
This Agreement, together with the Advisory Agreements, constitutes the
entire agreement among the parties hereto with respect to the matters referred
to herein, and no other agreement, verbal or otherwise, shall be binding as
between the parties unless it shall be in writing and signed by the part against
whom enforcement is sought.
IN WITNESS WHEREOF, the undersigned have hereto duly set forth their
hand as of the 1st day of January 1997.
THE FUNDS LISTED ON SCHEDULE I
WHICH ARE U.S. LIMITED PARTNERSHIPS
By: MERRILL LYNCH INVESTMENT
PARTNERS INC.
General Partner
By: ______________________________
Name:
Title:
THE FUNDS LISTED ON SCHEDULE I,
OTHER THAN ML PRINCIPAL PROTECTION
PLUS LTD., WHICH ARE CAYMAN ISLANDS
INVESTMENT COMPANIES
By: ______________________________
Name:
Title:
ML PRINCIPAL PROTECTION PLUS LTD.
By: ______________________________
Name:
Title:
MERRILL LYNCH FUTURES INC.
By: ______________________________
Name:
Title:
THE ADVISOR MERRILL LYNCH INVESTMENT PARTNERS,
INC.
By: ______________________ By: ________________________________
Name: Name:
Title: Title:
-2-
<PAGE>
SCHEDULE I
THE FUNDS
U.S. FUNDS CAYMAN ISLANDS FUNDS
---------- --------------------
1. ____________________ 1. ____________________
2. ____________________ 2. ____________________
3. ____________________ 3. ____________________
4. ____________________ 4. ____________________
-3-
<PAGE>
SCHEDULE II
ADVISORY AGREEMENTS
Advisory Agreements with the U.S. Funds dated:
U.S. Fund No.
(See Schedule I)
----------------
1. ________________
2. ________________
3. ________________
4. ________________
Advisory Agreements with the Cayman Islands Funds dated:
1. ________________
2. ________________
3. ________________
4. ________________
-4-
<PAGE>
EX.-10.11
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FORM OF AMENDMENT
TO THE
CUSTOMER AGREEMENT
AMONG
ML GLOBAL HORIZONS L.P. AND MERRILL LYNCH FUTURES INC.
This Amendment ("Amendment") is made as of this ___ day of _______, 199_ by
and among ML Global Horizons L.P. and Merrill Lynch Futures Inc.
W I T N E S S E T H:
WHEREAS, the parties hereto entered into a Customer Agreement dated as
of October 4, 1993 relating to the purchase and sale of commodity futures
and forward contracts and commodity options (the "Customer Agreement");
WHEREAS, the parties hereto wish to amend the Customer Agreement;
NOW THEREFORE, in consideration of the premises and mutual covenants
contained in the Customer Agreement and herein, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree to amend the
Customer Agreement as follow:
1. Brokerage Commissions. The third sentence of the first paragraph
---------------------
of Section 1 of the Customer Agreement is amended as follows:
The word "proposed" is deleted; the number "_.___" is
deleted and the number "_.____" is substituted therefor; and
the Number "_._" is deleted and the number "_._" is
substituted therefor.
2. Amendment. This Amendment may not be amended except by the
---------
written consent of each of the parties hereto.
3. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall, however, together constitute one and the
same documents.
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed by the parties
hereto as of the day and year first above written.
ML GLOBAL HORIZONS L.P.
BY: MERRILL LYNCH INVESTMENT
PARTNERS INC., General Partner
BY:_____________________________________
Name:
Title:
MERRILL LYNCH FUTURES INC.
BY:_____________________________________
Name:
Title:
<PAGE>
EX-23.0
[LETTERHEAD OF SIDLEY & AUSTIN]
January 14, 1997
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 or about January 14, 1997.
SIDLEY & AUSTIN
<PAGE>
EX.-23.02
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INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to the Registration
Statement No. 333-10749 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
January 14, 1997
New York, New York
