Document/Exhibit Description Pages Size
1: S-1 Registration Statement (General Form) 147 813K
2: EX-5.01 Opinion re: Legality 2 12K
3: EX-8.01 Opinion re: Tax Matters 1 7K
4: EX-10.10 Material Contract 7 24K
5: EX-23.07 Consent of Experts or Counsel 1 5K
6: EX-23.08 Consent of Experts or Counsel 1 6K
As filed with the Securities and Exchange Commission on March 30, 1999
Registration No. 333-
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
ML JWH STRATEGIC ALLOCATION FUND L.P.
(Exact name of registrant as specified in its charter)
[Download Table]
DELAWARE 6793 13-3887922
(State of Organization) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification Number)
C/O MERRILL LYNCH INVESTMENT PARTNERS INC.
PRINCETON CORPORATE CAMPUS
800 SCUDDERS MILL ROAD
SECTION 2G
PLAINSBORO, NEW JERSEY 08536
(609) 282-8560
(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.
PRINCETON CORPORATE CAMPUS
800 SCUDDERS MILL ROAD
SECTION 2G
PLAINSBORO, NEW JERSEY 08536
(609) 282-8560
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------
COPIES TO:
David R. Sawyier
Joshua B. Rovine
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS
REGISTRATION STATEMENT.
----------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act") check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
-------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
CALCULATION OF REGISTRATION FEE
[Enlarge/Download Table]
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Title of Each Class of Amount of
Additional Securities Amount Maximum Offering Maximum Aggregate Additional
to be Registered being Registered Price Per Unit Offering Price Registration Fee
----------------------------------------------------------------------------------------------------------
Units of Limited 2,061,429 Units Net Asset Value $309,606,021* $40,082.04**
Partnership Interest
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*Calculated pursuant to Rule 457(d) based on the Net Asset Value per Unit
within fifteen days prior to the date of this filing.
**As of the date hereof, Registrant has $165,423,621 of registered but
unsold Units under Registrant's previous Registration Statement on Form S-1
(Registration No. 333-47439). This Registration Statement carries forward the
unsold balance of $165,423,621 of Units from Registration No. 333-47439 and
registers an additional $144,182,400 of Units. 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 Statements on Form S-1, Registration
No. 33-80509 declared effective on April 25, 1996 and Registration No. 333-47439
declared effective on July 6, 1998.
[MERRILL LYNCH BULL LOGO] PART ONE
DISCLOSURE DOCUMENT
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ML JWH STRATEGIC ALLOCATION FUND L.P.
2,061,429
LIMITED PARTNERSHIP UNITS
THE FUND
Trades in the U.S. and international futures and forward markets.
Seeks, through speculative trading, substantial, long-term capital appreciation.
Potentially provides a valuable element of diversification to a traditionally
structured portfolio.
Began trading on July 15, 1996 with an initial capitalization of $102 million;
as of March 1, 1999, its capitalization was approximately $337 million.
THE GENERAL PARTNER
Merrill Lynch Investment Partners Inc.
Offering managed futures, hedge fund and currency investments for individuals,
corporations and financial institutions.
As of March 1, 1999, there was approximately $3 billion invested in funds
sponsored by MLIP.
THE TRADING ADVISOR
John W. Henry & Company, Inc. ("JWH-Registered Trademark-"), a professional
managed futures advisor, allocates the Fund's assets across multiple JWH trading
programs.
THE UNITS
As of January 1, 1999, had increased in Net Asset Value by 54.34% since the Fund
began trading on July 15, 1996. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE
OF FUTURE RESULTS.
Units are available on the first day of each month.
This is a best efforts offering. The selling agent is not required to sell any
specific number of the Units. No minimum number of Units need to be sold for
the Units to be issued.
THE RISKS
These are speculative securities. Before you decide whether to invest, read
this entire Prospectus carefully and consider The Risks You Face beginning on
page 8.
- The Fund is speculative and leveraged. The face amount of the Fund's open
positions can be as much as 6 to 15 times the amount of assets allocated to
trading.
- Performance has been volatile. The Net Asset Value per Unit has fluctuated
as much as 10% in a single month.
- You could lose all or substantially all of your investment in the Fund.
- The use of a single advisor applying generally similar trading programs
could mean lack of diversification and high risk.
- JWH has total discretionary trading authority over the Fund.
- The Fund's substantial expenses must be offset by trading profits and
interest income.
- The Fund trades to a substantial degree on non-U.S. markets which are not
subject to the same degree of regulation as are their U.S. counterparts.
- Investors are required to make representations and warranties in connection
with their investment. Each investor is encouraged to discuss the
investment with his/her individual financial, legal and tax advisor.
- There is no market for the Units, and they may only be redeemed as of the
end of a calendar month.
MINIMUM INVESTMENTS
FIRST-TIME INVESTORS: IRAS, OTHER TAX-EXEMPT ACCOUNTS AND CURRENT INVESTORS:
$5,000 $2,000
(Investors will purchase the largest number of whole Units possible
at the purchase date Net Asset Value per Unit.)
----------------------
THIS PROSPECTUS IS IN TWO PARTS: A DISCLOSURE DOCUMENT AND A STATEMENT OF
ADDITIONAL INFORMATION.
THESE PARTS ARE BOUND TOGETHER, AND BOTH CONTAIN IMPORTANT INFORMATION.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------------
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE
MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED
ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
----------------------
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
SELLING AGENT
MERRILL LYNCH INVESTMENT PARTNERS INC.
GENERAL PARTNER
, 1999
--------
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
30 TO 33 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 8 TO 12.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES
OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED
STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE
SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE
POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE
UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR
MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY
BE EFFECTED.
--------------------------
THIS PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE
FUND'S REGISTRATION STATEMENT. YOU CAN READ AND COPY THE ENTIRE REGISTRATION
STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SEC IN
WASHINGTON, D.C.
THE FUND FILES QUARTERLY AND ANNUAL REPORTS WITH THE SEC. YOU CAN READ AND
COPY THESE REPORTS AT THE SEC PUBLIC REFERENCE FACILITIES IN CHICAGO, NEW YORK
OR WASHINGTON, D.C. PLEASE CALL THE SEC AT 1-800-SEC-0300 FOR FURTHER
INFORMATION.
THE FUND'S FILINGS ARE POSTED AT THE SEC WEBSITE AT http://www.sec.gov.
--------------------------
MERRILL LYNCH INVESTMENT PARTNERS INC.
GENERAL PARTNER
PRINCETON CORPORATE CAMPUS
800 SCUDDERS MILL ROAD
SECTION 2G
PLAINSBORO, NEW JERSEY 08536
(609) 282-8560
ORGANIZATIONAL CHART
ML JWH STRATEGIC ALLOCATION FUND L.P.
[Enlarge/Download Table]
----------------
MERRILL LYNCH
& CO., INC.
ML&CO. LIMITED PARTNERSHIP
WHOLLY-OWNED ---------------- INTEREST
| |
------------------------------------------------------- ---------------------------------------------------
| | | |
------------------------ -------------------- ----------------- -----------------------
MERRILL LYNCH, PIERCE,
FENNER & SMITH MERRILL LYNCH MERRILL LYNCH MERRILL LYNCH
INCORPORATED INTERNATIONAL & CO. GROUP INC. ASSET MANAGEMENT, L.P.
MLPF&S GENERAL PARTNERSHIP MLAM
------------------------ -------------------- ----------------- INTEREST -----------------------
| |
| Wholly-owned WHOLLY-OWNED
| -------------------- -----------------
| MERRILL LYNCH PRINCETON
| INTERNATIONAL BANK SERVICES, INC.
| MLIB WHOLLY-OWNED -----------------
| --------------------
| | -------------------------
| | | |
| |
| | ---------------- ----------------
| | MERRILL LYNCH MERRILL LYNCH GENERAL PARTNERSHIP
| | FUTURES, INC. INVESTMENT INTEREST
| | MLF PARTNERS INC. -----------------------
| | MLIP |
| | ----------------- ----------------- |
| | | ---------------------
| | | ML JWH STRATEGIC
| SELLING AGREEMENT | | ALLOCATION
--------------------------------------------------------------------------------------- FUND L.P.
| | FUND
| | ---------------------
| | |
| | ---------------------
| | ML JWH STRATEGIC INVESTMENT
| | CUSTOMER AGREEMENT JOINT VENTURE ADVISORY
| | THE FUND'S TRADING AGREEMENT
| F/X DESK AGREEMENT ACCOUNT ------------
------------------------------------------------------------- ---------------------
|
---------------------
JOHN W. HENSRY
& COMPANY, INC.
TRADING ADVISOR
----------------------
|
----------------------
INTERNATIONAL FUTURES
MARKETS
----------------------
OTHER THAN JOHN W. HENRY & COMPANY, INC., ALL OF THE ENTITIES INDICATED IN
THE ORGANIZATIONAL CHART ARE MERRILL LYNCH AFFILIATES. SEE "CONFLICTS OF
INTEREST" BEGINNING AT PAGE 66 AND "TRANSACTIONS BETWEEN THE FUND AND MERRILL
LYNCH" AT PAGE 69.
FOR CONVENIENCE, ML&CO. AND ENTITIES AFFILIATED WITH IT ARE SOMETIMES
COLLECTIVELY REFERRED TO AS "MERRILL LYNCH."
-2-
ML JWH STRATEGIC ALLOCATION FUND L.P.
CONTENTS
[Download Table]
PART ONE
DISCLOSURE DOCUMENT
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Risks You Face . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
How the Fund Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Performance of the Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Performance of Other MLIP Publicly-Offered Single Advisor Funds. . . . . . . .17
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Management's Analysis of Operations. . . . . . . . . . . . . . . . . . . . . .19
Quantitative and Qualitative Disclosures About the Fund's Market Risk. . . . .22
Interest Income Arrangements . . . . . . . . . . . . . . . . . . . . . . . . .27
Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Analysis of Fees and Expenses Paid by the Fund . . . . . . . . . . . . . . . .30
Managed Futures Funds in General . . . . . . . . . . . . . . . . . . . . . . .33
The Role of Managed Futures in Your Portfolio . . . . . . . . . . . . . . . .34
JWH Trading Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
John W. Henry & Company, Inc.. . . . . . . . . . . . . . . . . . . . . . . . .46
JWH Principals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
JWH Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Merrill Lynch Investment Partners Inc. . . . . . . . . . . . . . . . . . . . .64
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
Conflicts of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
Transactions Between the Fund and Merrill Lynch. . . . . . . . . . . . . . . .69
Summary of the Limited Partnership Agreement . . . . . . . . . . . . . . . . .69
Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Selling Commissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Lawyers; Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . .74
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . .75
Performance of Other MLIP Funds. . . . . . . . . . . . . . . . . . . . . . . .95
PART TWO
STATEMENT OF ADDITIONAL
INFORMATION
[Download Table]
Futures Markets and Trading Methods. . . . . . . . . . . . . . . . . . . . . . 1
Supplemental Past Performance of JWH Trading
Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
_______________
Exhibit A--Fourth Amended and Restated
Limited Partnership Agreement. . . . . . . . . . . . . . . . . LPA-i
Exhibit B--Subscription Requirements. . . . . . . . . . . . . . . . . . . .SR-1
Exhibit C--Subscription Instructions. . . . . . . . . . . . . . . . . . . .SA-1
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SUMMARY
THE FUND
ML JWH Strategic Allocation Fund L.P. is a limited partnership which trades
in a wide range of U.S. and international futures and forward markets with the
objective of achieving, through speculative trading, substantial long-term
capital appreciation. If successful, the Fund can improve the risk/reward
profile of an overall portfolio by providing both profits and performance
noncorrelated to the general U.S. stock and bond markets. Merrill Lynch
Investment Partners Inc. is the Fund's general partner. John W. Henry &
Company, Inc. ("JWH-Registered Trademark-") is its trading advisor.
JWH-Registered Trademark- AND ITS PROGRAMS
JWH
JWH has been the sole trading advisor for the Fund since inception. JWH
manages capital in commodities, interest rate and foreign exchange markets for
international banks, brokerage firms, pension funds, institutions and high net
worth individuals. JWH trades a wide range of futures and forward contracts--
over 60 markets as of the date of this Prospectus -- on a 24-hour basis in the
United States, Europe and Asia. JWH is one of the largest managed futures
advisors in terms of assets under management, trading approximately $2.3 billion
in client capital as of December 31, 1998.
THE FUND USES MULTIPLE JWH PROGRAMS
JWH makes use of a combination of trading programs to manage the Fund, an
approach JWH calls the JWH Strategic Allocation Program. There are no formal
JWH policies that determine the individual programs used for the Fund.
THE FUND'S CURRENT PROGRAMS
To date, the Fund and its offshore counterpart are the only accounts which
have had access to the Strategic Allocation Program. As of the date of this
Prospectus, JWH allocated the Fund's assets among eight of its eleven active
trading programs as listed below.
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JANUARY 1, 1999 FUND ALLOCATIONS
AMONG JWH PROGRAMS
DUE TO PERFORMANCE DIFFERENCES, THE FOLLOWING PORTFOLIO ALLOCATIONS MAY
DIFFER FROM THE CASH ALLOCATIONS AMONG THE PROGRAMS. JWH CHANGES THE PROGRAMS
AND THE ALLOCATIONS USED FOR THE FUND FROM TIME TO TIME.
[Download Table]
% OF
NAME OF PROGRAM FUND ASSETS
--------------- -----------
FINANCIAL AND METALS PORTFOLIO 12.5%
ORIGINAL INVESTMENT PROGRAM 20.0%
JWH GLOBALANALYTICS-TM- PROGRAMS 17.5%
GLOBAL FINANCIAL PORTFOLIO 15.0%
G-7 CURRENCY PORTFOLIO 12.5%
GLOBAL DIVERSIFIED PORTFOLIO 10.0%
DOLLAR PROGRAM 7.5%
WORLDWIDE BOND PROGRAM 5.0%
100%
------
------
[PIE CHART]
SEE "JWH TRADING PROGRAMS" BEGINNING AT PAGE 39 AND "JWH PERFORMANCE"
BEGINNING AT PAGE 51 FOR PERFORMANCE AND OTHER INFORMATION REGARDING THE JWH
PROGRAMS, INCLUDING THE NATURE OF THE EXCLUSIVE FUND ACCOUNTS.
AVERAGE COMPOUNDED
ANNUALIZED RATES OF RETURN
[Download Table]
JANUARY 1, 1994-
NAME OF PROGRAM DECEMBER 31, 1998
--------------- -----------------
GLOBAL DIVERSIFIED PORTFOLIO 16.4%
ORIGINAL INVESTMENT PROGRAM 15.7
FINANCIAL AND METALS PORTFOLIO 16.0
THE WORLD FINANCIAL PERSPECTIVE 13.3
INTERNATIONAL CURRENCY AND BOND PORTFOLIO 16.8
WORLDWIDE BOND PROGRAM* 21.3
(7/1/96-12/31/98)
JWH GLOBALANALYTICS-TM- FAMILY
OF PROGRAMS* 25.0
(6/1/97-12/31/98)
GLOBAL FINANCIAL PORTFOLIO 13.4
(6/1/94-12/31/98)
INTERNATIONAL FOREIGN EXCHANGE PROGRAM 17.3
G-7 CURRENCY PORTFOLIO 10.7
DOLLAR PROGRAM* 5.8
(7/1/96-12/31/98)
-------------------
ML JWH STRATEGIC ALLOCATION FUND L.P. 18.9%
(7/15/96-12/31/98)
*The Average Compounded Annualized Rate of Return for these programs
reflects the actual performance of all client accounts traded pursuant to the
same methodology. Performance is derived from (1) the program's composite
performance from inception until May 7, 1998 and (2) the performance of the
Exclusive Fund Accounts from May 8, 1998 through December 31, 1998.
THE AVERAGE COMPOUNDED ANNUALIZED RATE OF RETURN IS THE ANNUAL RATE OF
RETURN WHICH WOULD RESULT IN THE SAME CUMULATIVE RETURN IF COMPOUNDED YEARLY
OVER THE SAME PERIOD.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE JWH PROGRAMS ARE TECHNICAL AND TREND-FOLLOWING, COMPUTERIZED SYSTEMS
JWH programs include the computerized system which generates the trading
signals and applies the risk management principles. See "JWH Trading Programs"
beginning at page 39.
The mathematical models used by the programs are technical systems,
generating trading signals on the basis of statistical research into past market
prices. JWH does not attempt to analyze underlying economic factors, identify
mispricings in the market or predict future prices. Its analysis focuses
exclusively on past price movements.
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-4-
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As a trend-following advisor, JWH's objective is to participate in major
price trends--sustained price movements either up or down. Such price trends
may be relatively infrequent. Trend-following advisors anticipate that over
half of their positions will be unprofitable. Their strategy is based on making
sufficiently large profits from the trends which they identify and follow to
generate overall profits despite the more numerous but, hopefully, smaller
losses incurred on the majority of their positions.
See "The Risks You Face" beginning at page 8.
MARKETS TRADED BY THE JWH PROGRAMS FOR THE FUND
The JWH programs emphasize trading currencies and financial instruments,
but participate in most major sectors of the global economy, including but not
limited to:
CURRENCIES
-------------------------------------------------------------------------------
Australian Dollar *Malaysian Ringgit
British Pound *New Zealand Dollar
*Canadian Dollar Norwegian Krone
*Danish Krone *Singapore Dollar
Euro *South African Rand
Hong Kong Dollar *Swedish Krone
Japanese Yen Swiss Franc
FINANCIAL INSTRUMENTS
-------------------------------------------------------------------------------
Australian French Notionnel Bonds
(90-day) Bank Bills French PIBOR
Australian German Bonds
(3-year and 10-year) Italian Bonds
Treasury Bonds Japanese Bonds
*Canadian Bonds *Spanish Bonds
Eurobibor Spanish MIBOR
Eurodollar U.K. Long "Gilts"
Eurolibor U.K. Short Sterling
Eurolira U.S. 10-year
Euroswiss Treasury Notes
Euroyen U.S. Treasury Bonds
STOCK INDICES
-------------------------------------------------------------------------------
*Australian All FTSE 100 (UK)
Ordinaries Index *New York Composite
*CAC 40 Stock Index Nikkei 225 Index
(France) (Japan)
*DAX (German) *S&P 500 Stock Index
METALS
-------------------------------------------------------------------------------
*Aluminum *Palladium
Copper *Platinum
Gold Silver
*Lead *Tin
*Nickel *Zinc
AGRICULTURAL PRODUCTS
-------------------------------------------------------------------------------
*Cattle *Orange Juice
Cocoa Soybeans
Coffee Soymeal
Corn Soy Oil
Cotton Sugar
*Hogs *Wheat
*Lumber
ENERGY
-------------------------------------------------------------------------------
Crude Oil No. 2 Heating Oil
Natural Gas Unleaded Gasoline
------------
* These markets are traded if and when contract liquidity, legal constraints,
market conditions and data reliability standards meet JWH's specifications.
THERE IS NO WAY TO PREDICT WHICH MARKETS THE FUND WILL TRADE OR WHAT ITS
RELATIVE COMMITMENTS TO THE DIFFERENT MARKETS WILL BE.
As of January 1, 1999, the JWH trading programs used for the Fund had the
following approximate market sector commitments.
[Download Table]
Financial Instruments 36%
Currencies 22%
Agricultural Products
and Energy 23%
Metals 13%
Stock Indices 6%
The Fund's market sector weightings vary significantly over time.
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[PIE CHART]
VARYING THE SIZE OF THE FUND'S MARKET POSITIONS
JWH attempts to adjust the Fund's position sizes and market exposure to
meet its profit and risk-control objectives. Generally, only between 2% and 15%
of the face value of a futures or forward position is required as margin to put
on the position. Consequently, JWH has considerable flexibility to make
significant changes in the size of the Fund's open positions. For example, the
margin requirement for the Treasury bond futures contract is only approximately
2% of the face value of each contract. This means that JWH could acquire, for
each $100,000 of Fund capital, positions ranging from a single Treasury bond
contract with a face value of $100,000 up to 50 such contracts with a face value
of $5,000,000. The greater the market exposure of the Fund, the greater its
risk, profit potential and expected performance volatility.
MLIP
GENERAL
Offering managed futures, hedge funds and currency investments for
individuals, corporations and financial institutions, MLIP has operated with one
primary objective since its inception in 1986: to provide investors with an
opportunity for long-term capital appreciation and diversification through
professionally managed investments in equity, debt, currency, interest rate,
metals, energy and agricultural markets, utilizing a wide variety of instruments
and trading strategies. As of March 1, 1999, MLIP was acting as trading manager
or sponsor to funds in which approximately $3 billion of client assets were
invested.
SEE THE ORGANIZATIONAL CHART SHOWING THE MERRILL LYNCH ENTITIES AT PAGE 2
AND "TRANSACTIONS BETWEEN THE FUND AND MERRILL LYNCH" AT PAGE 69.
MLIP'S EXCLUSIVE ACCESS TO THE STRATEGIC ALLOCATION PROGRAM
JWH has granted MLIP the exclusive right (with the exception of funds with
a minimum investment of $5 million or more) to market both public and private
funds using the JWH Strategic Allocation Program. This exclusive right will
continue until the end of the twelfth full month after the initial sale of Units
under this Prospectus. MLIP and JWH presently intend to extend this exclusive
arrangement on a year-to-year basis, but there can be no assurance that they
will do so.
CASH MANAGEMENT
Merrill Lynch Asset Management, L.P. provides cash management services to
the Fund, investing in U.S. Government and agency securities within parameters
established by MLIP for which MLAM assumes no responsibility. As of December
31, 1998, the Asset Management Group of ML&Co. (which includes MLAM) had a total
of approximately $501 billion in investment company and other portfolio assets
under management. This figure includes assets managed for some of MLAM's
affiliates.
MAJOR RISKS OF THE FUND
The Fund is a speculative investment. It is not possible to predict how
the Fund will perform over either the long or short term.
Investors must be prepared to lose all or substantially all of their
investment in the Units.
There can be no assurance that the past performance of either the Fund or
JWH is indicative of how they will perform in the future.
JWH's programs have certain basic similarities. The use of a single
advisor decreases diversification and increases risk compared to a multi-advisor
fund. Although the Fund uses a single trading advisor, it utilizes multiple
trading programs and is therefore more diversified than a single advisor, single
program fund.
The performance of the JWH programs is dependent upon market trends of the
type that their models are designed to identify. Trendless periods are frequent,
and during such periods the Fund is unlikely to be profitable.
--------------------------------------------------------------------------------
-6-
--------------------------------------------------------------------------------
The Fund is subject to substantial charges. The Fund must earn overall
trading profits and interest income of approximately 9%-10% of its average Net
Asset Value each year simply to break even after operating expenses.
Because its performance is entirely unpredictable, there is no way of
telling when is a good time to invest in the Fund. Investors have no means of
knowing whether they are buying Units at a time when profitable periods are
ending, beginning, or not in progress.
The Net Asset Value per Unit can vary significantly month to month. The
Units are not transferable and may only be redeemed once a month. Because
investors must submit irrevocable subscriptions as well as redemption notices at
least 10 days before the purchase or redemption of Units, they cannot know the
Net Asset Value at which they will acquire or redeem Units. Investors cannot
control the maximum losses on their Units because they cannot be sure of the
redemption value of their Units.
As limited partners, investors have no voice in the operation of the Fund;
they are entirely dependent on the management of MLIP and JWH for the success of
their investment.
FEES AND EXPENSES
The Profit Share payable to JWH is calculated on a quarterly basis and,
consequently, could be substantial even in a breakeven or losing year. The
Fund's other significant expenses are its Brokerage Commissions and
Administrative Fees. If the Fund's Net Asset Value increases, the absolute
dollar amount of these percentage-of-assets fees will also, but they will have
the same effect on the Fund's rate of return. The Fund's ongoing offering and
currency trading costs are estimated but small.
Investors also pay redemption charges to MLIP (reducing the redemption
proceeds otherwise payable to investors).
In order for an investor to "break-even" on an investment during the first
year, an initial investment of $5,000 must earn trading profits of $225, or
4.50%, (without including the redemption charge).
[Download Table]
BREAKEVEN TABLE
TWELVE-MONTH
DOLLAR
TWELVE-MONTH BREAKEVEN
PERCENTAGE ($5,000 INITIAL
EXPENSES BREAKEVEN INVESTMENT)++
-------- --------- -------------
Ongoing Offering Costs* 0.25% $12.50
Brokerage Commissions 7.75% $387.50
Administrative Fees 0.25% $12.50
Profit Share* 1.00% $50.00
Currency Trading Costs* 0.25% $12.50
Interest Income* (5.00)% $(250.00)
TWELVE-MONTH
BREAKEVEN WITHOUT
REDEMPTION CHARGE 4.50% $225.00
----- -------
Redemption Charge
(first 12 months only) 3.00% $150.00
TWELVE-MONTH
BREAKEVEN WITH
REDEMPTION CHARGE 7.50% $375.00
----- -------
--------------
* Estimated. The Profit Share is 15% of New Trading Profits quarterly;
consequently, a Profit Share could be due in a breakeven or losing year.
Ongoing offering costs paid by the Fund are capped at 0.25% of average Net
Assets per annum.
++ Assumes a constant $5,000 Net Asset Value.
SEE "ANALYSIS OF FEES AND EXPENSES
PAID BY THE FUND" AT PAGE 30.
PRINCIPAL TAX ASPECTS OF OWNING UNITS
Investors are taxed each year on any gains recognized by the Fund whether
or not they redeem any Units or receive any distributions from the Fund.
40% of any trading profits on U.S. exchange-traded contracts are taxed as
short-term capital gains at a maximum 39.6% ordinary income rate, while 60% of
such gains are taxed as long-term capital gain at a 20% maximum rate for
individuals. The Fund's trading gains from other contracts will be primarily
short-term capital gain. This tax treatment applies regardless of how long an
investor holds Units. If, on the other hand, an investor held a stock or bond
for more than 12 months, all the gain realized on its sale would generally be
taxed at a 20% maximum rate.
Losses on the Units may be deducted against capital gains. However,
capital losses in excess of capital gains may only be deducted against ordinary
income to the extent of $3,000 per year. Consequently, investors could pay tax
on the Fund's interest income
--------------------------------------------------------------------------------
-7-
--------------------------------------------------------------------------------
even though they have lost money on their Units. See "Tax Consequences"
beginning at page 71.
AN INVESTMENT IN THE UNITS SHOULD BE CONSIDERED AS A 3 TO 5 YEAR COMMITMENT
The market conditions in which the Fund has the best opportunity to
recognize significant profits occur infrequently. An investor should plan to
hold Units for long enough to have a realistic chance for a number of such
trends to develop.
MLIP believes that investors should consider the Units at least a 3 to 5
year commitment.
SEE "EXHIBIT B--SUBSCRIPTION REQUIREMENTS."
IS THE FUND A SUITABLE INVESTMENT FOR YOU?
You should consider investing in the Fund if you are interested in its
potential to produce over the long-term, enhanced returns that are generally
noncorrelated to the returns of the traditional debt and equity markets and you
are prepared to risk significant losses. The Fund is not a complete investment
program. MLIP offers the Fund as a diversification opportunity, and an
investment in the Fund should only represent a limited portion of an investor's
overall portfolio.
Your Financial Consultant can assist you in deciding whether the Units are
suitable for you.
No one should invest more than 10% of their readily marketable assets in
the Fund.
--------------------------------------------------------------------------------
THE RISKS YOU FACE
POSSIBLE TOTAL LOSS OF YOUR INVESTMENT
You could lose all or substantially all of your investment in the Fund.
THE LARGE SIZE OF THE FUND'S TRADING POSITIONS INCREASES THE RISK OF SUDDEN,
MAJOR LOSSES
The Fund takes positions with face values up to as much as approximately 15
times its total equity. Consequently, even small price movements can cause
major losses.
INVESTORS MUST NOT RELY ON THE PAST PERFORMANCE OF EITHER JWH OR THE FUND IN
DECIDING WHETHER TO BUY UNITS
The performance of the Fund is entirely unpredictable, and the past
performance of the Fund as well as of JWH is not necessarily indicative of their
future results.
The price data which JWH has researched in developing its programs may not
reflect the changing dynamics of future markets. If not, the JWH programs would
have little chance of being profitable. An influx of new market participants,
changes in market regulation, international political developments, demographic
changes and numerous other factors can contribute to once-successful strategies
becoming outdated. Not all of these factors can be identified, much less
quantified. There can be no assurance that JWH will trade profitably.
JWH ANALYZES ONLY TECHNICAL MARKET DATA, NOT ANY ECONOMIC FACTORS EXTERNAL TO
MARKET PRICES
The JWH programs focus exclusively on statistical analysis of market
prices. Consequently, any factor external to the market itself which dominates
prices is likely to cause major losses. For example, a pending political or
economic event may be very likely to cause a major price movement, but JWH would
continue to maintain positions that would incur major losses as a result of such
movement, if its programs indicated that it should do so.
The likelihood of the Units being profitable could be materially diminished
during periods when events external to the markets themselves have an important
impact on prices. During such periods, JWH's historical price analysis could
establish positions on the wrong side of the price movements caused by such
events.
-8-
LACK OF THE TYPES OF PRICE TRENDS WHICH JWH PROGRAMS CAN IDENTIFY WILL CAUSE
MAJOR LOSSES
The Fund cannot trade profitably unless major price trends occur in at
least certain markets that it trades. Many markets are trendless most of the
time, and in static markets the JWH programs are likely to incur losses. In
fact, JWH expects more than half of its trades to be unprofitable; it depends on
significant gains from a few major trends to offset these losses. It is not
just any price trend, but price trends of the type which JWH's systems have been
designed to identify, which are necessary for the Fund to be profitable.
THE DANGER TO THE FUND OF "WHIPSAW" MARKETS
Often, the most unprofitable market conditions for the Fund are those in
which prices "whipsaw," moving quickly upward, then reversing, then moving
upward again, then reversing again. In such conditions, the programs may
establish a series of losing positions based on incorrectly identifying both the
brief upward or downward price movements as trends.
THE SIMILARITIES AMONG THE JWH PROGRAMS REDUCE DIVERSIFICATION, INCREASING THE
RISK OF LOSS
The similarities among the programs reduce the Fund's diversification. The
less diversification, the higher the risk that the market will move against a
large number of positions held by different programs at the same time,
increasing losses.
OVERLAP OF THE MARKETS TRADED BY JWH ALSO REDUCES DIVERSIFICATION, INCREASING
THE RISK OF LOSS
The programs as a group emphasize trading in the financial instrument and
currency markets. The degree of market overlap changes with the program mix.
However, in general, JWH expects approximately a minimum 50% concentration in
these two sectors. Market concentration increases the risk of major losses and
unstable Unit values, as the same price movements adversely affect many of the
Fund's concentrated positions at or about the same time.
As it is impossible to predict where price trends will occur, certain
trend-following managers attempt to maximize the chance of exploiting such
trends by taking positions in as many different markets and market sectors as
feasible. The Fund does not follow this approach and, as a result, may not
capture trends which would have been highly profitable. See "Summary --
JWH-Registered Trademark- and Its Programs -- Markets Traded by the JWH Programs
for the Fund" at page 5.
THE JWH STRATEGIC ALLOCATION PROGRAM IS NOT A FORMAL PROGRAM OR SYSTEM
The JWH Strategic Allocation Program is not a systematic selection process,
and JWH does not apply any formal selection policies or criteria in choosing
combinations of programs for the Fund. Such combinations are developed solely
on the basis of the subjective market judgment and experience of certain JWH
principals. Subjective, judgmental decision-making may be less disciplined and
objective than a more systematic method, and there can be no assurance that JWH
will select the optimal combinations of programs for the Fund.
THE FUND'S SUBSTANTIAL EXPENSES WILL CAUSE LOSSES UNLESS OFFSET BY PROFITS
The Fund pays fixed annual expenses of 8% of its average month-end assets.
Ongoing offering and currency trading costs, paid as incurred, could also equal
approximately 0.50% of the Fund's average month-end assets annually. In
addition to this 8.50% annual expense level, the Fund is also subject to 15%
quarterly Profit Shares during its profitable quarters. Because these Profit
Shares are calculated quarterly, they could represent a substantial expense to
the Fund even in a breakeven or losing year. Based on MLIP's experience with
its other funds, MLIP expects that approximately 1% of the Fund's average
month-end assets might be paid out in Profit Shares even during a losing year.
Overall, investors must expect that the Fund will pay about 9.50% per year in
expenses, 12.50% including the 3% redemption charge paid by investors in effect
for the first twelve months after a Unit is issued.
The Fund's expenses could, over time, result in significant losses. Except
for the Profit Share, these expenses are not contingent and are payable whether
or not the Fund is profitable. See "Summary -- Fees and Expenses" at page 7.
-9-
UNIT VALUES ARE UNPREDICTABLE AND VARY SIGNIFICANTLY MONTH-TO-MONTH
The Net Asset Value per Unit can vary significantly month-to-month. In
October 1996, there was over a 10% change in the value of a Unit.
The only way to take money out of the Fund is to redeem Units. You can
only redeem Units at month-end upon at least 10 days' advance notice and subject
to possible redemption charges. Investors cannot know at the time they submit a
redemption request what the redemption value of their Units will be, and the
restrictions imposed on redemptions limit your ability to protect yourself
against major losses by redeeming Units.
Your ability to transfer Units is restricted. There is no market in the
Units.
UNCERTAIN TIMING OF SUBSCRIPTIONS
Investors are unable to know whether they are subscribing for Units after a
significant upswing in the Net Asset Value per Unit -- often a time when the
Fund has an increased probability of entering into a losing period.
INVESTING IN THE UNITS MIGHT NOT DIVERSIFY AN OVERALL PORTFOLIO
One of the objectives of the Fund is to add an element of diversification
to a traditional securities portfolio. While the Fund may perform in a manner
largely independent from the general stock and bond markets, there is no
assurance it will do so. An investment in the Fund could increase rather than
reduce overall portfolio losses during periods when the Fund as well as stocks
and bonds decline in value. There is no way of predicting whether the Fund will
lose more or less than stocks and bonds in declining markets. Investors must
not consider the Fund to constitute a hedge against losses in their core
securities portfolios.
Prospective investors should consider whether diversification in itself is
worthwhile even if the Fund is unprofitable.
INCREASED COMPETITION FROM OTHER TREND-FOLLOWING TRADERS COULD REDUCE JWH'S
PROFITABILITY
There has been a dramatic increase over the past 20 years in the amount of
assets managed by trend-following trading systems like the JWH programs. In
1980, the amount of assets in the managed futures industry were estimated at
approximately $300 million; by the end of 1998, this estimate had risen to
approximately $39.9 billion. This means increased trading competition. The
more competition there is for the same positions, the more costly and harder
they are to acquire.
JWH'S HIGH LEVEL OF EQUITY UNDER MANAGEMENT COULD LEAD TO DIMINISHED RETURNS
JWH has a significant amount of assets under management. As of January 1,
1990, JWH had approximately $197 million under management; as of January 1,
1999, this figure had risen to approximately $2.3 billion. The more money JWH
manages, the more difficult it may be for JWH to trade profitably because of the
difficulty of trading larger positions without adversely affecting prices and
performance. Large trades may result in more price slippage than smaller orders.
ILLIQUID MARKETS COULD MAKE IT IMPOSSIBLE FOR JWH TO REALIZE PROFITS OR LIMIT
LOSSES
In illiquid markets, JWH could be unable to capitalize on trading
opportunities or close out losing positions. There are numerous different
factors which can contribute to market illiquidity, far too many for JWH to be
able to predict illiquid markets. There can be no assurance that a market which
has been highly liquid in the past will not experience periods of unexpected
illiquidity.
Unexpected market illiquidity has caused major losses in recent years in
such sectors as emerging markets, fixed income relative value strategies and
mortgage backed securities. There can be no assurance that the same will not
happen to the Fund from time to time. The large size of the positions which JWH
acquires for the Fund increases the risk of illiquidity by both making its
positions more difficult to liquidate and increasing the losses incurred while
trying to do so.
-10-
THE FUND TRADES EXTENSIVELY IN FOREIGN MARKETS; THESE MARKETS ARE LESS REGULATED
THAN U.S. MARKETS AND ARE SUBJECT TO EXCHANGE RATE, MARKET PRACTICE AND
POLITICAL RISKS
The programs trade a great deal outside the U.S. From time to time, as
much as 30%-50% of the Fund's overall market exposure could involve positions
taken on foreign markets. Foreign trading involves risks -- including
exchange-rate exposure, possible governmental intervention and lack of
regulation -- which U.S. trading does not. In addition, the Fund may not have
the same access to certain positions on foreign exchanges as do local traders,
and the historical market data on which JWH bases its strategies may not be as
reliable or accessible as it is in the United States. Certain foreign exchanges
may also be in a more or less developmental stage so that prior price histories
may not be indicative of current price dynamics. The rights of clients in the
event of the insolvency or bankruptcy of a non-U.S. market or broker are also
likely to be more limited than in the case of U.S. markets or brokers.
POSSIBLE EFFECTS OF THE EUROPEAN MONETARY UNION
JWH historically has traded European currencies. The January 1, 1999
inauguration of the Euro may adversely affect the trading opportunities, or
trading results generally, of currency traders. The absence of historical Euro
pricing data could be detrimental to trend-following traders such as JWH.
The conversion to a single euro-currency is a very significant and novel
political and economic event. There can be no certainty about its direct or
indirect future effects on the currency markets. Unforeseen effects of the
European Monetary Union could result in trading losses for the Fund.
Positions in Euro forward contracts and futures contracts on
Euro-denominated bond interest rates are being introduced by JWH with small
exposure and increased over the first quarter of 1999. This process will
maintain the Fund's European risk allocations at a level similar to pre-Euro
weightings.
JWH has been ready to accept and process data relating to the Euro since
January 1, 1999. A management working group was responsible for planning and
preparing for the Euro conversion. The group meets on a regular basis to review
information as it becomes available on this issue, determine what actions are
necessary and establish policies and monitor tasks as appropriate. If
unanticipated difficulties arise in connection with the conversion and restoring
the Fund's European risk allocations to pre-Euro weightings, JWH will notify
MLIP in a timely manner, and MLIP will promptly notify investors.
THE FUND'S CASH MANAGEMENT STRATEGIES COULD LOSE BOTH YIELD AND PRINCIPAL
MLAM's cash management attempts to generate yields in excess of the 91-day
Treasury bill rate. However, there can be no assurance that the securities MLAM
buys for the Fund will not lose value. The Fund could lose not only its
aggregate interest income but also the principal managed by MLAM.
THE FUND COULD LOSE ASSETS AND HAVE ITS TRADING DISRUPTED DUE TO THE BANKRUPTCY
OF MLF OR OTHERS
The Fund is subject to the risk of MLF, exchange or clearinghouse
insolvency. Fund assets could be lost or impounded during lengthy bankruptcy
proceedings. Were a substantial portion of the Fund's capital tied up in a
bankruptcy, MLIP might suspend or limit trading, perhaps causing the Fund to
miss significant profit opportunities. No MLIP fund has ever lost any assets
due to the bankruptcy or default of a broker, exchange or clearinghouse, but
there can be no assurance that this will not happen in the future.
REGULATORY CHANGES COULD RESTRICT THE FUND'S OPERATIONS
The Fund implements a speculative, highly leveraged strategy. From time to
time there is governmental scrutiny of these types of strategies and political
pressure to regulate their activities. For example, the Malaysian government
recently blamed the collapse of its currency on speculative funds and imposed
restrictions on speculative trading in certain markets.
-11-
Regulatory changes could adversely affect the Fund by restricting its
markets, limiting its trading and/or increasing the taxes to which Unitholders
are subject. As an example, in the mid-1980s the CFTC raised doubts concerning
the legality of futures funds trading currency forwards. If JWH could not trade
currency forwards, the effect on the Fund could be material and adverse. MLIP
is not aware of any pending or threatened regulatory developments which might
adversely affect the Fund. However, adverse regulatory initiatives could
develop suddenly and without notice.
PREMATURE TERMINATION OF THE FUND
MLIP may withdraw as general partner from the Fund upon 120 days' notice,
which would cause the Fund to terminate unless a substitute general partner were
obtained. Other events, such as substantial losses suffered by the Fund, could
also cause the Fund to terminate before the expiration of its stated term. This
could cause you to liquidate your investments and upset the overall maturity and
timing of your investment portfolio.
THE FOLLOWING ARE NOT RISKS BUT RATHER IMPORTANT TAX FEATURES OF INVESTING
IN THE FUND WHICH ALL PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER BEFORE
DECIDING WHETHER TO PURCHASE UNITS.
INVESTORS ARE TAXED EVERY YEAR ON THEIR SHARE OF THE FUND'S PROFITS -- NOT ONLY
WHEN THEY REDEEM AS WOULD BE THE CASE IF THEY HELD STOCKS OR BONDS
Investors are taxed each year on their share of the Fund's income and
gains, irrespective of whether they redeem any Units.
All performance information included in this Prospectus is presented on a
pre-tax basis; the investors who experienced such performance had to pay the
related taxes from other sources.
Over time, the compounding effects of the annual taxation of the Fund's
income are material to the economic consequences of investing in the Fund. For
example, a 10% compound annual rate of return over five years would result in an
initial $10,000 investment compounding to $16,105. However, if one factors in a
30% tax rate each year, the result would be $14,025.
THE FUND'S TRADING GAINS TAXED AT HIGHER CAPITAL GAINS RATE
Investors are taxed on their share of any trading profits of the Fund at
both short- and long-term capital gain rates depending on the mix of U.S.
exchange-traded contracts and non-U.S. contracts traded. These tax rates are
determined irrespective of how long an investor holds Units. Consequently, the
tax rate on the Fund's trading gains may be higher than those applicable to
other investments held by an investor for a comparable period.
TAX COULD BE DUE FROM INVESTORS ON THEIR SHARE OF THE FUND'S INTEREST INCOME
DESPITE OVERALL LOSSES
Investors may be required to pay tax on their allocable share of the Fund's
interest income, even if the Fund incurs overall losses. Trading losses can
only be used to offset trading gains and $3,000 of ordinary income (including
interest income) each year. Consequently, if an investor were allocated $5,000
of interest income and $10,000 of net trading losses, the investor would owe tax
on $2,000 of interest income even though the investor would have a $5,000 loss
for the year. The $7,000 capital loss would carry forward, but subject to the
same limitation on its deductibility against interest income.
HOW THE FUND WORKS
BUYING UNITS
You buy Units as of the first business day of any month at Net Asset Value,
but your subscription must be submitted by the 20th day of the preceding month.
Subscriptions submitted after the 20th of a month will be applied to Unit sales
as of the beginning of the second month after receipt, unless revoked. MLIP has
no present intention to terminate the offering, but may do so at any time.
Units are purchased at Net Asset Value. Merrill Lynch officers and
employees subscribe at 97% of Net Asset Value. MLIP adds the remaining 3% to
their
-12-
subscriptions, so that the Fund receives subscription proceeds of 100% of the
Net Asset Value per Unit.
Only first-time investors need to submit Subscription Agreements, unless
the Selling Agent feels it is necessary to reconfirm their suitability in
writing. To purchase additional Units, contact your Financial Consultant.
The minimum purchase for first-time investors is $5,000; $2,000 for IRAs,
other tax-exempt accounts and current investors. No fractional Units will be
issued.
You may only purchase whole Units. Subscription amounts will be used to
purchase the largest number of whole Units possible at the purchase date Net
Asset Value per Unit. Subscription amounts which cannot be invested in whole
Units are never deducted from subscribers' customer securities accounts.
You must have a Merrill Lynch customer securities account in order to buy
Units.
USE OF PROCEEDS
100% of all subscription proceeds are invested into the Fund. Neither the
Fund nor any subscriber pays any selling commissions directly. MLIP pays all
such commissions as part of the ongoing offering costs of the Fund. In return,
MLIP receives substantial revenues from the Fund over time.
The Fund uses subscription proceeds to margin its speculative futures
trading, as well as to pay trading losses and expenses. At the same time that
the Fund's assets are being used as margin, they are also available for cash
management. Substantially all the cash management return earned on the Fund's
assets is paid to the Fund, although Merrill Lynch does retain certain economic
benefits from possession of the Fund's assets, as described in more detail under
"Interest Income Arrangements" beginning at page 27.
The Fund's assets are held either in bank custodial accounts or in
regulated customer accounts maintained at one or more Merrill Lynch entities.
MLAM applies its yield-enhancement strategies to approximately 80% of the Fund's
assets. As mentioned above, while being managed by MLAM, these assets are also
available to support the Fund's futures and forward trading.
REDEEMING UNITS
You can redeem Units monthly. To redeem at month-end, contact your
Financial Consultant by the 20th of the month. Financial Consultants may be
contacted by telephone; written redemption requests are not required. Your
Merrill Lynch customer securities account will be credited with the proceeds
within 10 business days of redemption.
Those limited partners who no longer have a Merrill Lynch account must send
their redemption requests in writing (signature guaranteed) directly to MLIP,
Attention: Mr. Winston Clinton, Princeton Corporate Campus, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.
The proceeds of Units redeemed 12 months or less from the date of purchase
are reduced by a charge of 3% of their redemption date Net Asset Value. This
charge is paid to MLIP. If a limited partner acquires Units at more than one
closing, the Units purchased first by such investor and, accordingly, least
likely to be subject to redemption charges, are assumed to be those first
redeemed.
UNCERTAIN SUBSCRIPTION AND REDEMPTION VALUE OF UNITS
The Fund sells and redeems Units at subscription or redemption date Net
Asset Value, not at the Net Asset Value as of the date that subscriptions or
redemption requests are submitted. Investors must submit irrevocable
subscriptions and redemption requests at least 10 days prior to the effective
date of subscription or redemption. Because of the volatility of Unit values,
this delay means that investors cannot know the value at which they will
purchase or redeem their Units.
-13-
POSSIBILITY OF MATERIAL ADVERSE DEVELOPMENTS BETWEEN REDEMPTION REQUEST AND
REDEMPTION OR BETWEEN SUBSCRIPTION AND ACQUISITION OF UNITS
Materially adverse changes in the Fund's financial position could occur
between the time an investor irrevocably commits to acquire or redeem Units and
the time the purchase or redemption is made.
MANDATORY TRADING SUSPENSION IF UNIT VALUE FALLS 50% IN ONE MONTH OR TO $50 OR
LESS
In the event that the Net Asset Value per Unit declines either 50% or more
in one month or to $50 or less, the Fund must liquidate all open positions,
suspend trading and offer all limited partners an opportunity to redeem their
Units before trading resumes. Only if sufficient capital remained in the Fund
after any such special redemption date would the Fund continue operations.
DISTRIBUTIONS
No distributions have been made to date, and none are anticipated.
SMALL MINIMUM INVESTMENT
By investing in the Fund, you participate in multiple JWH trading programs
with a minimum investment of only $5,000; $2,000, for IRAs, other tax-exempt
accounts and existing investors.
Even if available, a direct investment in a single JWH program would
require a minimum commitment of at least $5 million. A prospective investor
could trade futures directly or invest in other managed futures accounts for
much less than $5 million, not under the direction of JWH.
LIMITED LIABILITY FOR FUND INVESTORS
Investors who open individual futures accounts are personally liable for
all losses, including margin calls potentially in excess of their investment.
As a Unitholder, you can never lose more than your investment and profits.
ADMINISTRATIVE CONVENIENCE
MLIP provides all administrative services needed for the Fund, including
trade processing and financial and tax reporting.
The Net Asset Value per Unit is available at any time upon request.
Contact your Financial Consultant or MLIP at (800) 765-0995.
Investors receive monthly financial summaries and annual audited
financials.
-14-
PERFORMANCE OF THE FUND
The following are the monthly rates of return and the month-end Net Asset Value
per Unit from the inception of the Fund through December 31, 1998. THERE CAN BE
NO ASSURANCE THAT THE FUND WILL CONTINUE TO PERFORM IN THE FUTURE THE WAY IT HAS
IN THE PAST.
ML JWH STRATEGIC ALLOCATION FUND L.P.
JULY 15, 1996-DECEMBER 31, 1998
AGGREGATE SUBSCRIPTIONS: $319,154,710
CURRENT CAPITALIZATION: $314,512,911
WORST MONTHLY DECLINE (MONTH/YEAR): (8.11)% (11/98)
WORST PEAK-TO-VALLEY DECLINE (MONTH/YEAR): (8.11)% (11/98)
NET ASSET VALUE PER UNIT, DECEMBER 31, 1998: $154.34
NUMBER OF LIMITED PARTNERS, DECEMBER 31, 1998: 8680
[Download Table]
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MONTH MONTHLY RATES OF RETURN MONTH-END NAV PER UNIT
-------------------------------------------------------------------------------
1996
-------------------------------------------------------------------------------
July (1/2 month) (1.02)% $ 98.98
-------------------------------------------------------------------------------
August (0.09) 98.89
-------------------------------------------------------------------------------
September 5.49 104.32
-------------------------------------------------------------------------------
October 10.20 114.86
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November 6.62 122.68
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December 0.47 123.16
-------------------------------------------------------------------------------
COMPOUND RATE OF RETURN
(5 1/2 MONTHS) 23.15%
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1997
-------------------------------------------------------------------------------
January 3.01% $ 126.87
-------------------------------------------------------------------------------
February (0.03) 126.83
-------------------------------------------------------------------------------
March 0.07 126.92
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April (0.46) 126.34
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May (3.11) 122.41
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June 0.27 122.74
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July 7.11 131.47
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August (3.31) 127.12
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September (0.66) 126.28
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October 2.58 129.54
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November 0.97 130.80
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December 3.52 135.40
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COMPOUND ANNUAL RATE OF
RETURN 9.93%
-------------------------------------------------------------------------------
1998
-------------------------------------------------------------------------------
January (1.51)% $ 133.35
-------------------------------------------------------------------------------
February (0.66) 132.47
-------------------------------------------------------------------------------
March 0.77 133.48
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April (3.38) 128.97
-------------------------------------------------------------------------------
May 4.04 134.18
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June (1.54) 132.11
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July (1.22) 130.50
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August 9.68 143.13
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September 7.53 153.91
-------------------------------------------------------------------------------
October 0.83 155.19
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November (8.11) 142.61
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December 8.23 154.34
-------------------------------------------------------------------------------
COMPOUND ANNUAL RATE OF
RETURN 14.00%
-------------------------------------------------------------------------------
CUMULATIVE STATISTICS
CORRELATION COEFFICIENT VS. S&P 500: -0.04
BETA VS. S&P 500: 0.04
SHARPE RATIO: 0.92
ALL FINANCIAL INFORMATION RELATES TO THE PERFORMANCE OF THE
JOINT VENTURE BETWEEN THE FUND AND JWH, NOT OF THE FUND ITSELF.
SEE NOTES TO PERFORMANCE OF THE FUND ON PAGE 16.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-15-
NOTES TO PERFORMANCE OF THE FUND
MONTHLY RATES OF RETURN are calculated by dividing the Fund's net
performance during a month by the Fund's Net Asset Value as of the beginning
of such month.
COMPOUND (ANNUAL) RATE OF RETURN is calculated by compounding the monthly
rates of return. For example, the compound rate of return for 1996 was
calculated by multiplying (0.9898 x 0.9991 x 1.0549 x 1.1020 x 1.0662 x 1.0047)
- 1 = 23.15%
WORST PEAK-TO-VALLEY DECLINE is the largest decline in the Net Asset Value
per Unit without such Net Asset Value per Unit being subsequently equaled or
exceeded. For example, if the Net Asset Value per Unit dropped (1)% in each of
January and February, rose 1% in March and dropped (2)% in April, the
peak-to-valley decline would still be continuing at the end of April in the
amount of approximately (3)%, whereas if the Net Asset Value per Unit had risen
approximately 2% or more in March, the peak-to-valley decline would have ended
as of the end of February at approximately the (2)% level.
CORRELATION COEFFICIENT VS. S&P 500: Every investment asset, by
definition, has a correlation coefficient of 1.0 with itself; 1.0 indicates 100%
POSITIVE CORRELATION. Two investments that always move in the opposite
direction from each other have a correlation coefficient of -1.0; -1.0 indicates
100% NEGATIVE CORRELATION. Two investments that perform entirely independently
of each other have a correlation coefficient of 0; 0 indicates 100%
NON-CORRELATION. Since inception, the Fund has had a negative correlation
coefficient of 0.04 with the S&P 500. For every up-move of the S&P 500 above
its average monthly return, the Fund has moved in the same direction below its
average monthly return in approximately 4% of the months.
THE FUND HAS ONLY BEEN SLIGHTLY NEGATIVELY CORRELATED, TO THE S&P 500. FOR
THE FUND TO SERVE AS A DIVERSIFICATION FROM AN INVESTOR'S STOCK POSITION, THE
FUND WOULD NEED TO BE NON-CORRELATED TO THE S&P 500, AND THE MORE POSITIVELY
CORRELATED THE FUND IS TO THE S&P 500, THE LESS AN INVESTMENT IN THE FUND
CONSTITUTES A DIVERSIFICATION FROM THE EQUITY MARKETS.
BETA VS. S&P 500: Beta is a measure of the sensitivity of the returns of
the investment to the returns for a benchmark such as the S&P 500. A Beta of
2.0 would indicate that for every 1% move up in the S&P, the investment moves up
2% on average. Consequently, the Fund's Beta of 0.04 indicates that, to date,
it has a 4% sensitivity to movements in the S&P 500.
SHARPE RATIO: The Sharpe Ratio compares the annualized rate of return
minus the annualized risk-free rate of return to the annualized variability --
often referred to as the "standard deviation" -- of the monthly rates of return.
A Sharpe Ratio of 1:1 or higher indicates that, according to the measures used
in calculating the Ratio, the rate of return achieved by a particular strategy
has equaled or exceeded the risks assumed by such strategy.
The Fund's 0.92 Sharpe Ratio indicates that to date the Fund's return has
been marginally less than its risk, as compared to a "risk-free" 91-day Treasury
bill.
--------------
-16-
PERFORMANCE OF OTHER MLIP SINGLE ADVISOR FUNDS
Each of the following funds, other than ML JWH Strategic Allocation Fund
Ltd., is a materially different investment than the Fund. Their performance
is included here in this Prospectus due to applicable CFTC regulations which
require that the performance summaries of all commodity pools of same "class"
as the pool being offered immediately follow the performance summary of such
pool. The Fund is a publicly-offered single advisor fund, as are the funds
included in the following table.
[Enlarge/Download Table]
-------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH INVESTMENT PARTNERS INC. PUBLICLY-OFFERED SINGLE ADVISOR FUNDS
WITH AND WITHOUT "PRINCIPAL PROTECTION" FEATURES
DECEMBER 31, 1998
-------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, WORST MONTHLY
TYPE OF INCEPTION OF AGGREGATE 1998 DECLINE
NAME OF FUND OFFERING TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH
-------------------------------------------------------------------------------------------------------------------------------
ML JWH Strategic Private July 1996 $299,955,177 $180,319,989 (7.80)% (11/98)
Allocation Fund Ltd.* (Offshore)
-------------------------------------------------------------------------------------------------------------------------------
The Growth & Guarantee Public Aug. 1987 $148,349,450 $11,933,393 (7.88)% (8/98)
Fund L.P. - Series A
Units
-------------------------------------------------------------------------------------------------------------------------------
The Futures Expansion Public Jan. 1987 $56,741,035 $8,559,610 (10.92)% (2/96)
Fund Limited
Partnership
-------------------------------------------------------------------------------------------------------------------------------
World Currencies Private Aug. 1987 $47,814,293 dissolved as (9.14)% (11/94)
Limited (Offshore) of 4/11/96
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH INVESTMENT PARTNERS INC. PUBLICLY-OFFERED SINGLE ADVISOR FUNDS
WITH AND WITHOUT "PRINCIPAL PROTECTION" FEATURES
DECEMBER 31, 1998
-------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE RATE
OF RETURN
WORST JAN. 1, 1994 1998 1997 1996
PEAK-TO-VALLEY (OR INCEPTION)TO COMPOUND COMPOUND COMPOUND
DECLINE DECEMBER 31, 1998 ANNUAL RATE ANNUAL RATE ANNUAL RATE
NAME OF FUND % PERIOD (OR DISSOLUTION) OF RETURN OF RETURN OF RETURN
-------------------------------------------------------------------------------------------------------------------------------
ML JWH Strategic (7.80)% (11/98) 47.53% 11.81% 8.32% 21.81%
Allocation Fund Ltd.* (5 1/2 mos.)
-------------------------------------------------------------------------------------------------------------------------------
The Growth & Guarantee (8.51)% (7/98-8/98) 121.34% 18.48% 23.76% 17.09%
Fund L.P. - Series A
Units
-------------------------------------------------------------------------------------------------------------------------------
The Futures Expansion (15.08)% (8/97-7/98) 49.55% 0.69% 5.93% 8.93%
Fund Limited
Partnership
-------------------------------------------------------------------------------------------------------------------------------
World Currencies (35.81)% (9/92-1/95) (1.01)% N/A N/A 1.20%
Limited (3 1/2 mos.)
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH INVESTMENT PARTNERS INC. PUBLICLY-OFFERED SINGLE ADVISOR FUNDS
WITH AND WITHOUT "PRINCIPAL PROTECTION" FEATURES
DECEMBER 31, 1998
-------------------------------------------------------------------------------
1995 1994
COMPOUND COMPOUND
ANNUAL RATE ANNUAL RATE
NAME OF FUND OF RETURN OF RETURN
-------------------------------------------------------------------------------
ML JWH Strategic N/A N/A
Allocation Fund Ltd.*
-------------------------------------------------------------------------------
The Growth & Guarantee 32.01% (2.34)%
Fund L.P. - Series A
Units
-------------------------------------------------------------------------------
The Futures Expansion 21.95% 5.55%
Fund Limited
Partnership
-------------------------------------------------------------------------------
World Currencies 12.23% (12.84)%
Limited
-------------------------------------------------------------------------------
* This fund is the offshore counterpart of the Fund.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE MERRILL LYNCH INVESTMENT PARTNERS INC. POOLS (OTHER THAN ML JWH STRATEGIC
ALLOCATION FUND LTD.) INCLUDED IN THE FOREGOING TABLE ARE MATERIALLY
DIFFERENT INVESTMENTS THAN THE FUND.
-17-
SELECTED FINANCIAL DATA
THE FOLLOWING SELECTED FINANCIAL DATA IS DERIVED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF THE FUND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND
1996 WHICH HAVE BEEN AUDITED BY DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS, AS
STATED IN THEIR REPORT INCLUDED IN THIS PROSPECTUS. THE FOLLOWING INFORMATION,
AS WELL AS THE CONSOLIDATED FINANCIAL STATEMENTS OF THE FUND FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996, IS INCLUDED HEREIN IN RELIANCE UPON THE
AUTHORITY OF DELOITTE & TOUCHE LLP AS EXPERTS IN AUDITING AND ACCOUNTING. SEE
"INDEX TO FINANCIAL STATEMENTS" AT PAGE 74.
____________________
[Download Table]
July 15, 1996
Jan. 1, 1998 Jan. 1, 1997 (commencement of
to to operations) to
Income Statement Data Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
--------------------- ------------- ------------- -------------
REVENUES:
Realized Gain $35,957,735 $18,820,033 $29,800,074
Change in Unrealized 12,141,395 10,201,917 4,696,372
----------- ------------ -------------
Total Trading Results 48,099,130 29,021,950 34,496,446
----------- ------------ -------------
Interest Income 12,766,955 12,021,263 3,030,330
Total Revenues 60,866,085 41,043,213 37,526,776
----------- ------------ -------------
EXPENSES:
Brokerage Commissions 19,086,026 17,377,236 4,873,368
Administrative Fees 615,678 560,556 157,205
----------- ------------ -------------
Total Expenses 19,701,704 17,937,792 5,030,573
----------- ------------ -------------
NET (LOSS) INCOME BEFORE
MINORITY INTEREST AND
PROFIT SHARE ALLOCATION: 41,164,381 23,105,421 32,496,203
Profit Share Allocation (5,436,351) (2,640,194) (4,683,010)
Minority interest in
income/(loss) (19,071) (12,447) (23,383)
------------ -------------
NET (LOSS) INCOME: $35,708,959 $20,452,780 $27,789,810
----------- ------------ -------------
----------- ------------ -------------
[Download Table]
JULY 15, 1996
BALANCE SHEET DECEMBER 31, DECEMBER 31, DECEMBER 31, (COMMENCEMENT
DATA 1998 1997* 1996* OF OPERATIONS)*
---- ----- ----- ---------------
Aggregate Net
Asset Value $314,512,911 $223,735,825 $172,844,448 $102,000,000
Net Asset $154.34 $135.40 $123.16 $100.00
Value Per Unit
* 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.
-18-
MANAGEMENT'S ANALYSIS
OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
JWH programs do not predict price movements. No fundamental economic
supply or demand analysis is used and no macroeconomic assessments of the
relative strengths of different national economies or economic sectors.
Instead, the programs apply proprietary computer models to analyzing past
market data, and from this data alone attempt to determine whether market
prices are trending. Technical traders such as JWH base their strategies on
the theory that market prices reflect the collective judgment of numerous
different traders and are, accordingly, the best and most efficient
indication of market movements. However, there are frequent periods during
which fundamental factors external to the market dominate prices.
If JWH's models identify a trend, they signal positions which follow
it. When these models identify the trend as having ended or reversed, these
positions are either closed out or reversed. Due to their trend-following
character, the JWH programs do not predict either the commencement or the end
of a price movement. Rather, their objective is to identify a trend early
enough to profit from it and to detect its end or reversal in time to close
out the Fund's positions while retaining most of the profits made from
following the trend.
In analyzing the performance of JWH's trend-following programs,
economic conditions, political events, weather factors, etc., are not
directly relevant because only market data has any input into JWH's trading
results. Furthermore, there is no direct connection between particular market
conditions and price trends. There are so many influences on the markets that
the same general type of economic event may lead to a price trend in some
cases but not in others. The analysis is further complicated by the fact that
the programs are designed to recognize only certain types of trends and to
apply only certain criteria of when a trend has begun. Consequently, even
though significant price trends may occur, if these trends are not comprised
of the type of intra-period price movements which the programs are designed
to identify, the Fund may miss the trend altogether.
The following performance summary outlines certain major price
trends which the JWH programs have identified for the Fund since inception.
The fact that certain trends were captured does not imply that others,
perhaps larger and potentially more profitable trends, were not missed or
that JWH will be able to capture similar trends in the future. Moreover, the
fact that the programs were profitable in certain market sectors in the past
does not mean that they will be so in the future.
This performance summary is an outline description of how the Fund
performed in the past, not necessarily any indication of how it will perform
in the future. In addition, the general causes to which certain price
movements are attributed may or may not in fact have caused such movements,
but simply occurred at or about the same time.
While there can be no assurance that JWH will be profitable under
any given market condition, markets in which substantial and sustained price
movements occur typically offer the best profit potential for the Fund.
PERFORMANCE SUMMARY
1998
[Download Table]
Sector Gains (Loss)
------ ------------
Interest Rates
and Stock Indices $ 44,472,322
Currencies 1,242,166
Commodities 218,353
Metals (7,395,858)
Energy 9,562,147
-----------
$ 48,099.30
-----------
-----------
The year began with global markets negatively impacted by the
worsening economies of Asia. In the financial markets, global liquidity
declined sharply as investors grew more risk averse, unwilling to commit
funds to any but the most conservative investments. The decline in investor
participation exaggerated market movements, generating substantial
volatility. At mid-year, Russia's default on sovereign debt led to
-19-
significant losses in leveraged investment vehicles, shaking investor
confidence further. The result was a classic liquidity crisis which
threatened to unsettle the global economy and led to a series of activist
interventions by the U.S. Federal Reserve Bank to restore stability.
In the commodity markets, the continued global slowdown raised the
specter of deflation. Massive oversupply was complicated by a lack of demand.
The vast gulf between the price deflation in commodities relative to the
inflated value of financial assets was striking.
The Fund's performance in the first half of 1998 was hampered by
volatility and a shift in several trends that had been in place since the
beginning of the Asian crisis. May and June showed promise of reversing this
decline in performance, but the Fed's intervention in support of the Japanese
yen against the U.S. dollar roiled markets once again.
By August, equity markets showed clear signs of a bear market in the
making. However, this period also saw some of the best performance in the
Fund's history, presenting almost a mirror image of the performance of the
stock market. Significant profits were recorded in the Fund's interest rate
and currency positions even as equity investors saw an estimated $4 trillion
of net worth vanish.
October and November produced mixed performance as trends in key
markets shifted direction again and other markets remained undefined by any
trends at all. By year's end, however, markets appeared to be more calm and
underlying trends were evident in a number of financial products. Overall,
worldwide trading volume was light, particularly in the currency markets
pending the launch of the Euro on January 1.
Ultimately, the favorable one-year total returns for investors in
most major asset classes in 1998 belie the level of risk faced by most
investors during the year. On balance, 1998 served as a reminder, if one was
needed, that the world is a volatile and uncertain place where stability may
be the exception and not the rule. But the market swings of 1998 also served
to reinforce our confidence in our disciplined, systematic trading system --
one which pays little heed to short-term volatility and remains focused on
the long-term. Notably, the Fund's strong performance during the sharp
declines of the stock market is an important indicator of its value as a
portfolio diversifier in these dynamics and uncertain markets.
1997
[Download Table]
Sector Gains (Loss)
------ ------------
Interest Rates and
Stock Indices $ 19,982,977
Currencies 19,023,250
Commodities (2,328,550)
Metals 6,611,279
Energy (14,267,006)
------------
$ 29,021,950
------------
------------
The Fund's most profitable positions in 1997 were in the currency
markets. Gains were realized in the German mark, which trended downward,
apparently as hopes for the EMU rose. The U.S. dollar, on the other hand,
moved sharply upward (setting new records against the mark, yen and Swiss
franc) in a trend followed by most of the programs.
Gains were also recognized in global interest rates, particularly in
Japanese Government bonds where yields trended to historic lows, generating
clearly defined price trends. Profits were achieved in Australian 10-year and
three-year bonds and in German and Italian bonds as each of these markets
trended and the programs followed. In the U.S., yields on the benchmark
30-year Treasury bond dipped below 6% in the final quarter of the year,
possibly reflecting an influx of foreign capital amid increasing turbulence
in Asian markets. The upward trend in the U.S. bond market was followed by
the Fund.
Positions in gold and the Nikkei were profitable. Gold prices
trended downward to the lowest level in over a decade during a period which
saw the metal declining in value as an alternative monetary asset as central
banks increased their willingness to sell or lease the precious metal. The
Nikkei suffered the same fate as the Japanese yen.
In marked contrast, the agricultural markets generated few trends
during the year despite strong upward pressure on coffee prices late in the
year. Energy markets were also generally trendless as ample world inventories
and mild weather kept supply and
-20-
demand in balance. In this trendless environment, the Fund incurred losses in
these sectors.
1996 (5 1/2 MONTHS)
[Download Table]
Sector Gains (Loss)
------ ------------
Interest Rates and
Stock Indices $ 18,719,739
Currencies 10,116,005
Commodities (2,473,692)
Metals 1,730,074
Energy 6,404,320
------------
$ 34,496,446
------------
------------
The Fund's programs outperformed the major stock markets of the
world during the period the Fund traded in 1996. The Worldwide Bond Program,
in particular, successfully followed upward trending interest rates in the
U.S. and downward trending rates elsewhere.
The Fund's trading began on July 15 amid sharp declines in U.S. and
global stock markets but without significant trends developing. The U.S.
dollar weakened against most major currencies. Performance was mixed
throughout the summer, with some programs following the major trends in the
energy markets while others traded unsuccessfully in the trendless global
interest rate and currency markets. The agricultural markets "whipsawed,"
causing losses.
All of the Fund's programs were up in September and October, as they
were able to follow the consensus upward trend of the U.S. dollar against
most major currencies. The one exception was the British pound, which soared
against the dollar in an environment of increasingly positive economic
indicators in the U.K. Positions in global interest rates and currencies
resulted in gains as these markets also trended broadly.
By year-end, however, most markets were experiencing seasonal
illiquidity and trendless, "whipsaw" patterns. Early in December, JWH
completed a reduction in the size of the positions held by the Fund in order
to reduce its exposure to these unfavorable market conditions and help retain
the profits made in the second half of 1996.
VARIABLES AFFECTING PERFORMANCE
MLIP believes that 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. 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 Administrative Fees are a
constant percentage of the Fund's assets allocated to trading and total
assets, respectively. The only Fund cost (other than the insignificant
currency trading costs) which is not based on a percentage of the Fund's
assets allocated to trading is the Profit Share payable to JWH.
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.
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 assets invested in the Fund generally does not affect
its trading, as typically this amount is not a limiting factor on the
positions acquired by JWH, and the Fund's expenses are primarily charged as a
fixed percentage of its asset base, however large.
The Fund sells no securities other than the Units. The Fund borrows
only to a limited extent and only on a strictly short-term basis in order to
finance losses on non-U.S. dollar denominated trading positions pending the
conversion of the Fund's dollar deposits. These borrowings are at a
prevailing short-term local rate in the relevant currency. They have
-21-
been immaterial to the Fund's operation to date and are expected to continue
to be so. See "Interest Income Arrangements -- Interest Paid by Merrill Lynch
on the Fund's Non-U.S. Dollar Available Assets" at page 28.
The Fund's assets are held primarily in short-term debt securities
with maturities under one year, and to a lesser extent in short- and mid-term
debt securities with maturities up to five years, as well as in cash. The Net
Asset Value of the Fund's cash and financial instruments is not materially
affected by inflation. Changes in interest rates, which are often associated
with inflation, could cause the value of certain of the Fund's debt
securities to decline, but only to a limited extent. More importantly,
changes in interest rates could cause periods of strong up or down price
trends, during which the Fund's profit potential generally increases.
Inflation in commodity prices could also generate price movements which the
programs might successfully follow.
The Fund's assets are held in cash and highly liquid U.S. government
securities. Accordingly, except in very unusual circumstances, the Fund
should be able to close out any or all of its open trading positions and
liquidate any or all of its securities holdings quickly and at market prices.
This permits JWH to limit losses as well as reduce market exposure on short
notice should its programs indicate doing so. In addition, because there is a
readily available market value for the Fund's positions and assets, the
Fund's monthly Net Asset Value calculations are precise, and investors need
only wait 10 business days to receive the full redemption proceeds of their
Units.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to
designate years. These systems may not be able to distinguish the Year 2000
from the Year 1900 (commonly known as the "Year 2000 Problem"). The Fund
could be adversely affected if the computer systems used by MLIP or other
Fund service providers do not properly address this problem before January 1,
2000. MLIP expects to have addressed this problem before then, and does not
anticipate that the services it provides will be adversely affected. The Fund
will bear no costs in connection with addressing the Year 2000 Problem. The
Fund's other service providers have told MLIP that they also expect to
resolve their Year 2000 Problems, and MLIP will continue to monitor the
situation as the Year 2000 approaches. However, if the problem has not been
fully addressed, the Fund could be negatively affected. The Year 2000 Problem
could also have a negative impact on the exchanges or markets in which the
Fund trades, and this could hurt the Fund's returns.
A possible worst case scenario is that the Year 2000 Problem could
make it impossible for the Fund to continue trading. If MLIP foresees such a
situation in advance of December 31, 1999, the Fund will either attempt to
liquidate its positions prior to that date and/or establish relationships
with additional counterparties to permit trading to continue. However, there
can be no assurance that MLIP or the Fund's other service providers have
anticipated, or will anticipate, every step necessary to avoid any adverse
effect on the Fund attributable to the Year 2000 Problem.
JWH is taking immediate action to identify any of its computer
systems that are Year 2000 vulnerable. If such systems are identified that
negatively affect its services (e.g., trade details, fee information), it
will take immediate action to update those systems, extensively test the
systems internally and, if appropriate, with other parties, to ensure that
system interdependencies have been adequately addressed, and establish
contingency plans and provide such plans in the event of a malfunction of any
part of the systems. If JWH becomes aware of a Year 2000 vulnerable system
which cannot be corrected by the Year 2000, it will notify MLIP in a timely
manner.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT THE FUND'S MARKET RISK
INTRODUCTION
The Fund is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and all
or substantially all of the Fund's assets are subject to the risk of trading
loss. Unlike an operating company, the risk of market sensitive instruments
is integral, not incidental, to the Fund's main line of business.
Market movements result in frequent changes in the fair market value
of the Fund's open positions and, consequently, in its earnings and cash
flow. The
-22-
Fund's market risk is influenced by a wide variety of factors,
including the level and volatility of interest rates, exchange rates, equity
price levels, the market value of financial instruments and contracts, the
diversification effects among the Fund's open positions and the liquidity of
the markets in which it trades.
The Fund, under the direction of JWH, rapidly acquires and
liquidates both long and short positions in a wide range of different
markets. Consequently, it is not possible to predict how a possible future
market scenario will affect performance, and the Fund's past performance is
not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the Fund
could reasonably be expected to lose in a given market sector. However, the
inherent uncertainty of the Fund's speculative trading and the recurrence in
the markets traded by the Fund of market movements far exceeding expectations
could result in actual trading or non-trading losses far beyond the indicated
Value at Risk or the Fund's experience to date (I.E., "risk of ruin"). In
light of the foregoing as well as the risks and uncertainties intrinsic to
all future projections, the inclusion of the quantification included in this
section should not be considered to constitute any assurance or
representation that the Fund's losses in any market sector will be limited to
Value at Risk or by the Fund's attempts to manage its market risk.
STANDARD OF MATERIALITY
Materiality as used in this section, "Qualitative and Quantitative
Disclosures About Market Risk," is based on an assessment of reasonably possible
market movements and the potential losses caused by such movements, taking into
account the leverage, optionality and multiplier features of the Fund's market
sensitive instruments.
QUANTIFYING THE FUND'S TRADING VALUE AT RISK
QUANTITATIVE FORWARD-LOOKING STATEMENTS
THE FOLLOWING QUANTITATIVE DISCLOSURES REGARDING THE FUND'S MARKET RISK
EXPOSURES CONTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SAFE
HARBOR FROM CIVIL LIABILITY PROVIDED FOR SUCH STATEMENTS BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 (SET FORTH IN SECTION 27A OF THE
SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934).
ALL QUANTITATIVE DISCLOSURES IN THIS SECTION ARE DEEMED TO BE FORWARD-LOOKING
STATEMENTS FOR PURPOSES OF THE SAFE HARBOR, EXCEPT FOR STATEMENTS OF HISTORICAL
FACT.
The Fund's risk exposure in the various market sectors traded by JWH is
quantified below in terms of Value at Risk. Due to the Fund's mark-to-market
accounting, any loss in the fair value of the Fund's open positions is directly
reflected in the Fund's earnings (realized or unrealized) and cash flow (at
least in the case of exchange-traded contracts in which profits and losses on
open positions are settled daily through variation margin).
Exchange maintenance margin requirements have been used by the Fund as
the measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed the maximum loss in the fair value of any given
contract incurred in 95% to 99% of the one-day time periods included in the
historical sample (generally approximately one year) researched for purposes of
establishing margin levels. The maintenance margin levels are established by
dealers and exchanges using historical price studies as well as an assessment of
current market volatility (including the implied volatility of the options on a
given futures contract) and economic fundamentals to provide a probabilistic
estimate of the maximum expected near-term one-day price fluctuation.
In the case of market sensitive instruments which are not
exchange-traded (almost exclusively currencies in the case of the Fund), the
margin requirements for the equivalent futures positions have been used as Value
at Risk. In those rare cases in which a futures-equivalent margin is not
available, dealers' margins have been used.
100% positive correlation in the different positions held in each
market risk category has been assumed. Consequently, the margin requirements
applicable to the open contracts have been aggregated to determine each trading
category's aggregate Value at Risk. The diversification effects (which would
reduce the Value at Risk estimates) resulting from the fact that the Fund's
positions are rarely, if ever, 100% positively correlated have not been
reflected.
-23-
THE FUND'S TRADING VALUE AT RISK IN DIFFERENT MARKET SECTORS
The following table indicates the trading Value at Risk associated with
the Fund's open positions by market category as of December 31, 1998. As of
December 31, 1998, the Fund's total capitalization was approximately $315
million.
DECEMBER 31, 1998
[Download Table]
MARKET VALUE % OF TOTAL
SECTOR RISK CAPITALIZATION
------ ---- --------------
Interest Rates $12,538,585 3.98%
Currencies $5,492,878 1.75%
Stock Indices $998,918 0.32%
Metals $1,551,500 0.49%
Commodities $2,159,281 0.69%
Energy $3,844,500 1.22%
----------- -----
Total $26,585,662 8.45%
----------- -----
----------- -----
MATERIAL LIMITATIONS ON VALUE AT RISK AS AN ASSESSMENT OF MARKET RISK
The face value of the market sector instruments held by the Fund is
typically many times the applicable maintenance margin requirement
(maintenance margin requirements generally ranging between approximately 1%
and 10% of contract face value) as well as many times the capitalization of
the Fund. The magnitude of the Fund's open positions creates a "risk of ruin"
not typically found in most other investment vehicles. Because of the size of
its positions, certain market conditions -- unusual, but historically
recurring from time to time -- could cause the Fund to incur severe losses
over a short period of time. Even comparatively minor losses could cause MLIP
to further deleverage or terminate the Fund's trading. The foregoing Value at
Risk table -- as well as the past performance of the Fund -- give no
indication of this "risk of ruin."
NON-TRADING RISK
FOREIGN CURRENCY BALANCES; CASH ON DEPOSIT WITH MLF
The Fund has non-trading market risk on its foreign cash balances
not needed for margin. However, these balances (as well as the market risk
they represent) are immaterial.
The Fund also has non-trading market risk on the approximately 20%
of its assets which are held in cash at MLF. The value of this cash is not
interest rate sensitive, but there is cash flow risk in that if interest
rates decline so will the cash flow generated on these monies. This cash flow
risk is immaterial.
MLAM'S CASH MANAGEMENT
MLAM invests approximately 80% of the Fund's assets in Government
Securities. As of December 31, 1998, the Fund's MLAM account totaled
approximately $263 million.
[Download Table]
MATURITY INTEREST
DESCRIPTION DATE RATE
---------- -------- --------
LONG-TERM
---------
U.S. Treasury Note 12/31/99 5.625%
U.S. Treasury Note 02/29/00 5.500%
U.S. Treasury Note 03/31/00 5.500%
U.S. Treasury Note 05/15/00 6.375%
U.S. Treasury Note 07/31/00 5.375%
U.S. Treasury Note 08/15/00 6.000%
U.S. Treasury Note 09/30/00 4.500%
U.S. Treasury Note 11/15/00 5.750%
U.S. Treasury Note 11/30/00 5.625%
U.S. Treasury Note 02/15/01 5.375%
U.S. Treasury Note 05/15/01 5.625%
U.S. Treasury Note 07/31/02 6.000%
U.S. Treasury Note 04/30/03 5.750%
U.S. Treasury Note 08/15/03 5.250%
Federal National Mortgage Association 10/16/00 4.450%
Federal National Mortgage Association 12/18/00 4.820%
Federal National Mortgage Association 01/09/01 5.720%
Federal National Mortgage Association 01/23/01 5.420%
SHORT-TERM
----------
Federal National Mortgage Association 01/14/99 5.090%
Federal National Mortgage Association 01/21/99 5.080%
QUALITATIVE DISCLOSURES REGARDING PRIMARY TRADING RISK EXPOSURES
THE FOLLOWING QUALITATIVE DISCLOSURES REGARDING THE FUND'S MARKET
RISK EXPOSURES -- EXCEPT FOR (I) THOSE DISCLOSURES THAT ARE STATEMENTS OF
HISTORICAL FACT AND (II) THE DESCRIPTIONS OF HOW THE FUND MANAGES ITS PRIMARY
MARKET RISK EXPOSURES -- CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT. THE FUND'S PRIMARY MARKET RISK EXPOSURES AS WELL AS
THE STRATEGIES USED AND TO BE USED BY MLIP AND JWH FOR MANAGING SUCH
EXPOSURES ARE SUBJECT TO NUMEROUS
-24-
UNCERTAINTIES, CONTINGENCIES AND RISKS, ANY ONE OF WHICH COULD CAUSE THE
ACTUAL RESULTS OF THE FUND'S RISK CONTROLS TO DIFFER MATERIALLY FROM THE
OBJECTIVES OF SUCH STRATEGIES. GOVERNMENT INTERVENTIONS, DEFAULTS AND
EXPROPRIATIONS, ILLIQUID MARKETS, THE EMERGENCE OF DOMINANT FUNDAMENTAL
FACTORS, POLITICAL UPHEAVALS, CHANGES IN HISTORICAL PRICE RELATIONSHIPS, AN
INFLUX OF NEW MARKET PARTICIPANTS, INCREASED REGULATION AND MANY OTHER
FACTORS COULD RESULT IN MATERIAL LOSSES AS WELL AS IN MATERIAL CHANGES TO THE
RISK EXPOSURES AND THE RISK MANAGEMENT STRATEGIES OF THE FUND. THERE CAN BE
NO ASSURANCE THAT THE FUND'S CURRENT MARKET EXPOSURE AND/OR RISK MANAGEMENT
STRATEGIES WILL NOT CHANGE MATERIALLY OR THAT ANY SUCH STRATEGIES WILL BE
EFFECTIVE IN EITHER THE SHORT- OR LONG-TERM. INVESTORS MUST BE PREPARED TO
LOSE ALL OR SUBSTANTIALLY ALL OF THE TIME VALUE OF THEIR INVESTMENT IN THE
FUND.
The following were the primary trading risk exposures of the Fund as of
December 31, 1998, by market sector.
INTEREST RATES. Interest rate risk is the principal market exposure of
the Fund. Interest rate movements directly affect the price of derivative
sovereign bond positions held by the Fund and indirectly the value of its stock
index and currency positions. Interest rate movements in one country as well as
relative interest rate movements between countries materially impact the Fund's
profitability. The Fund's primary interest rate exposure is to interest rate
fluctuations in the United States and the other G-7 countries. However, the Fund
also takes positions in the government debt of smaller nations -- E.G., New
Zealand and Australia. MLIP anticipates that G-7 interest rates will remain the
primary market exposure of the Fund for the foreseeable future.
CURRENCIES. The Fund trades in a large number of currencies. However,
the Fund's major exposures have typically been in the dollar/yen, dollar/mark
and dollar/pound positions. MLIP does not anticipate that the risk profile of
the Fund's currency sector will change significantly in the future, although it
is difficult at this point to predict the effect of the introduction of the Euro
on JWH's currency trading strategies. The currency trading Value at Risk figure
includes foreign margin amounts converted into U.S. dollars with an incremental
adjustment to reflect the exchange rate risk of maintaining Value at Risk in a
functional currency other than dollars.
STOCK INDICES. The Fund's primary equity exposure is to G-7 equity
index price movements. As of December 31, 1998, the Fund's primary exposures
were in the S&P 500, Financial Times (England), Nikkei (Japan) and DAX (Germany)
stock indices. MLIP anticipates little, if any, trading in non-G-7 stock
indices. The Fund is primarily exposed to the risk of adverse price trends or
static markets in the major U.S., European and Japanese indices.
METALS. The Fund's primary metals market exposure is to fluctuations in
the price of gold and silver. Although JWH trades base metals such as aluminum,
copper and tin, the principal market exposures of the Fund have consistently
been in the precious metals, gold and silver (and, to a much lesser extent,
platinum). However, silver prices have remained volatile over this period, and
JWH has from time to time taken substantial positions as it has perceived market
opportunities to develop. MLIP anticipates that gold and silver will remain the
primary metals market exposure for the Fund.
COMMODITIES. The Fund's primary commodities exposure is to agricultural
price movements which are often directly affected by severe or unexpected
weather conditions. Soybeans and grains accounted for the substantial bulk of
the Fund's commodities exposure as of December 31, 1998. In the past, the Fund
has had material market exposure to live cattle and may do so again in the
future. However, MLIP anticipates that JWH will maintain an emphasis on
soybeans, grains and orange juice, in which the Fund has historically taken its
largest positions.
ENERGY. The Fund's primary energy market exposure is to gas and oil
price movements, often resulting from political developments in the Middle East.
Although JWH trades natural gas to a limited extent, oil is by far the dominant
energy market exposure of the Fund. Oil prices are currently depressed, but they
can be volatile and substantial profits and losses have been and are expected to
continue to be experienced in this market.
QUALITATIVE DISCLOSURES REGARDING NON-TRADING RISK EXPOSURE
The following were the only non-trading risk exposures of the Fund
as of December 31, 1998.
-25-
FOREIGN CURRENCY BALANCES. The Fund's primary foreign currency
balances are in Japanese yen, German marks, British pounds and French francs.
The Fund has de minimis exchange rate exposure on these balances.
SECURITIES POSITIONS. The Fund holds only cash or interest-bearing
Government Securities. The Fund's market exposure in instruments held other than
for trading is in the interest rate risk exposure of the Fund's Government
Securities portfolio, managed by MLAM pursuant to policies established by MLIP
for which MLAM assumes no responsibility, as well as on the Fund's cash on
deposit with MLF. In a period of rapidly rising interest rates (since the Fund's
inception in 1996, interest rates have generally declined until quite recently),
the Fund could incur marked-to-market losses on its MLAM account, but MLIP would
attempt to prevent or control these losses by further reducing the permissible
durations of the Fund's Government Securities in order to reduce the interest
rate sensitivity of these instruments.
QUALITATIVE DISCLOSURES REGARDING MEANS OF MANAGING RISK EXPOSURE
TRADING RISK
MLIP has procedures in place intended to control market risk, although
there can be no assurance that they will, in fact, succeed in doing so. While
MLIP does not itself intervene in the markets to hedge or diversify the Fund's
market exposure, MLIP may urge JWH to reallocate positions in an attempt to
avoid over-concentrations. However, such interventions are unusual. Except in
cases in which it appears that JWH has begun to deviate from past practice and
trading policies or to be trading erratically (which has not happened to date),
MLIP's basic risk control procedures consist simply of the ongoing process of
monitoring JWH with the market risk controls being applied by JWH itself.
RISK MANAGEMENT
JWH attempts to control risk in all aspects of the investment process
-- from confirmation of a trend to determining the optimal exposure in a given
market, and to money management issues such as the startup or upgrade of
investor accounts. JWH double checks the accuracy of market data, and will not
trade a market without multiple price sources for analytical input. In
constructing a portfolio, JWH seeks to control overall risk as well as the risk
of any one position, and JWH trades only markets that have been identified as
having positive performance characteristics. Trading discipline requires plans
for the exit of a market as well as for entry. JWH factors the point of exit
into the decision to enter (stop loss). The size of JWH's positions in a
particular market is not a matter of how large a return can be generated but of
how much risk it is willing to take relative to that expected return.
To attempt to reduce the risk of volatility while maintaining the
potential for excellent performance, proprietary research is conducted on an
ongoing basis to refine the JWH investment strategies. Research may suggest
substitution of alternative investment methodologies with respect to particular
contracts; this may occur, for example, when the testing of a new methodology
has indicated that its use might have resulted in different historical
performance. 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
position size in relation to account equity. The weighting of capital committed
to various markets in the investment programs is dynamic, and JWH may vary the
weighting at its discretion as market conditions, liquidity, position limit
considerations and other factors warrant.
JWH may determine that risks arise when markets are illiquid or
erratic, such as may occur cyclically during holiday seasons, or on the basis of
irregularly occurring market events. In such cases, 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.
Adjustments in position size in relation to account equity have been
and continue to be an integral part of JWH's investment strategy. At its
discretion, JWH may adjust the size of a position in relation to equity in
certain markets or entire programs. Such adjustments may be made at certain
times for some programs but not for others. Factors which may affect the
decision to adjust the size of a position in relation to account equity include
ongoing research, program volatility, assessments of current market volatility
and risk exposure, subjective
-26-
judgment, and evaluation of these and other general market conditions.
NON-TRADING RISK
The Fund controls the non-trading exchange rate risk by regularly
converting foreign currency balances back into dollars (no less frequently
than twice a month, and more frequently if a particular foreign currency
balance becomes unusually high).
MLIP controls the interest-rate risk of the Fund's non-trading
instruments (Government Securities invested by MLAM for cash management
purposes) by limiting the overall duration of such instruments to no more
than 2 years and the maximum duration of any Government Securities held by
the Fund to no later than the Principal Assurance Date for the most recently
issued Series of Units. These risk control policies have been successful in
the Fund's operations to date, and MLIP does not anticipate any change in
these policies. However, where the interest rate environment changes
materially, MLIP might shorten the permissible duration of the Fund's
Government Securities portfolio.
The Fund has cash flow interest rate risk on its cash on deposit
with MLF in that declining interest rates would cause the income from such
cash to decline. However, a certain amount of cash or cash equivalents must
be held by the Fund in order to facilitate margin payments and pay expenses
and redemptions. MLIP does not take any steps to limit the cash flow risk on
the approximately 20% of its cash held on deposit at MLF.
INTEREST INCOME ARRANGEMENTS
CUSTODY OF ASSETS
All of the Fund's assets are currently held either in custodial or
customer accounts at Merrill Lynch. Fund assets managed by MLAM are generally
held in custodial accounts at a major bank, separate from all other Merrill
Lynch or banking client assets. Assets held in customer accounts are held at
MLPF&S or MLF. These customer accounts are maintained in the Fund's name, but
the assets deposited by the Fund in such accounts are commingled with those of
other MLPF&S and MLF customers.
AVAILABLE ASSETS
The Fund earns income, as described below, on its "Available Assets,"
which can be generally described as the cash actually held by the Fund or
invested in Treasury bills or Government Securities. Available Assets are held
primarily in U.S. dollars or in U.S. dollar denominated Government Securities,
and to a lesser extent in foreign currencies, and are comprised of the
following: (a) the Fund's assets managed by MLAM and the Fund's cash balances
held in the offset accounts (as described below) -- which include "open trade
equity" (unrealized gain and loss on open positions) on United States futures
contracts, which is paid into or out of the Fund'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 closing out such positions. Available Assets do not include, and the
Fund does not earn interest on, the Fund's gains or losses on its open forward,
commodity option and certain foreign futures positions since such gains and
losses are not collected or paid until such positions are closed out.
The Fund's Available Assets may be greater than, less than or equal to
the Fund's Net Asset Value (on which the redemption value of the Units is based)
primarily because Net Asset Value reflects all gains and losses on open
positions as well as accrued but unpaid expenses.
-27-
THE FUND'S U.S. DOLLAR AVAILABLE
ASSETS MANAGED BY MLAM
Approximately 80% of the Fund's U.S. dollar Available Assets are
managed directly by MLAM, pursuant to guidelines established by MLIP for which
MLAM assumes no responsibility, in the Government Securities markets. MLIP's
objective in retaining MLAM to provide cash management services to the Fund is
to enhance the return earned on the Fund's U.S. dollar Available Assets managed
by MLAM to slightly above the 91-day Treasury bill rate. However, cash
management returns cannot be assured, and there may be losses of principal.
The Government Securities acquired by MLAM on behalf of the Fund are
maintained in a custodial account at Merrill Lynch and are specifically
traceable to the Fund. All income earned on such Government Securities inures to
the benefit of the Fund.
INTEREST EARNED ON THE FUND'S U.S. DOLLAR
AVAILABLE ASSETS NOT MANAGED BY MLAM
THE FOLLOWING DESCRIPTION RELATES TO THE APPROXIMATELY 20% OF THE
FUND'S U.S. DOLLAR AVAILABLE ASSETS NOT MANAGED BY MLAM.
OFFSET ACCOUNTS AND SHORT-TERM TREASURY BILLS
The Fund's U.S. dollar Available Assets not managed by MLAM are held
in cash in offset accounts and in short-term Treasury bills purchased from
dealers unaffiliated with Merrill Lynch. Offset accounts are non-interest
bearing demand deposit accounts maintained with banks unaffiliated with
Merrill Lynch. An integral feature of the offset arrangements is that the
participating banks specifically acknowledge that the offset accounts are MLF
customer accounts, not subject to any Merrill Lynch liability.
MLF credits the Fund, as of the end of each month, with interest at
the effective daily 91-day Treasury bill rate on the daily U.S. dollar
Available Assets held in the offset accounts during such month. The Fund
receives all the interest paid on the short-term Treasury bills in which it
invests.
POSSIBLE DISCONTINUATION OF THE OFFSET ACCOUNTS
The use of the offset account arrangements for the Fund's U.S.
dollar Available Assets not managed by MLAM may be discontinued by Merrill
Lynch whether or not Merrill Lynch otherwise continues to maintain its offset
arrangements. The offset arrangements are dependent on the banks' continued
willingness to make overnight credits available to Merrill Lynch, which, in
turn, is dependent on the credit standing of ML&Co. If Merrill Lynch were to
determine that the offset arrangements had ceased to be practicable (either
because ML&Co. credit lines at participating banks were exhausted or for any
other reason), Merrill Lynch would thereafter attempt to invest all of the
Fund's U.S. dollar Available Assets not managed by MLAM to the maximum
practicable extent in short-term Treasury bills. All interest earned on the
U.S. dollar Available Assets so invested would be paid to the Fund, but MLIP
would expect the amount of such interest to be less than that available to
the Fund under the offset account arrangements. The remaining U.S. dollar
Available Assets of the Fund not managed by MLAM would be kept in cash 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 (of approximately 0.25% per annum) paid to the offset banks
-- from the offset accounts have not exceeded 0.75% per annum of the Fund's
average daily U.S. dollar Available Assets held in the offset accounts. These
benefits to Merrill Lynch are in addition to the Brokerage Commissions and
Administrative Fees paid by the Fund to MLF and MLIP, respectively.
INTEREST PAID BY MERRILL LYNCH ON THE
FUND'S NON-U.S. DOLLAR AVAILABLE ASSETS
Under the single currency margining system implemented for the Fund,
the Fund itself does not deposit foreign currencies to margin trading in
non-U.S. dollar denominated futures contracts and options, if any, 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.
-28-
dollar Available Assets. The Fund does not earn interest on foreign margin
deposits provided by MLF. The Fund does, however, earn interest on its
non-U.S. dollar Available Assets. Specifically, the Fund is credited by
Merrill Lynch with interest at prevailing local short-term rates 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.
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.
NET ASSET VALUE
The Net Asset Value of the Fund equals its assets less its liabilities,
as determined generally in accordance with Generally Accepted Accounting
Principles, including any unrealized profits and losses on its open positions.
More specifically, the Net Asset Value of the Fund equals the sum of all cash,
the liquidating value (or cost of liquidation, as the case may be) of all
futures, forward and options on futures positions and the fair market value of
all other assets of the Fund, less all liabilities of the Fund (including
accrued liabilities, regardless of whether such liabilities -- for example,
Profit Shares -- are ever paid), in each case as determined by MLIP generally in
accordance with Generally Accepted Accounting Principles.
-29-
ANALYSIS OF FEES AND EXPENSES PAID BY THE FUND
FEES AND EXPENSES TO DATE
[Enlarge/Download Table]
1/1/98 - 12/31/98 1/1/97 - 12/31/97 7/15/96 - 12/31/96
----------------- ----------------- ------------------
DOLLAR DOLLAR DOLLAR
COST AMOUNT AMOUNT AMOUNT
---- ------ ------ -------
Brokerage Commissions $ 19,086,026 $ 17,377,236 $ 4,873,368
Profit Shares 5,436,351 2,640,194 4,683,010
Administrative Fees 615,678 560,556 157,205
Organizational and Initial Offering
Costs 98,528 298,039 232,956
Ongoing Offering Costs -- -- --
------------ ------------ -----------
Total $ 25,236,583 $ 20,876,025 $ 9,946,539
------------ ------------ -----------
------------ ------------ -----------
FEES AND EXPENSES PAID BY THE FUND
THE DOLLAR AMOUNTS INDICATED IN PARENTHESES REPRESENT THE AMOUNT OF
THE RELEVANT FLAT-RATE CHARGE ASSUMING AN AVERAGE FUND CAPITALIZATION OF $300
MILLION.
[Enlarge/Download Table]
PAID TO TYPE AMOUNT
------- ---- ------
MLF Brokerage Commissions Monthly Brokerage Commissions are paid on a
percentage-of-assets basis at the rate of 0.646
of 1% of the Fund's month-end assets (a 7.75%
annual rate; $23,250,000).
MLIP Administrative Fees Monthly Administrative Fees are paid on a
percentage-of-total-assets basis at a rate of
0.021 of 1% of the Fund's month-end assets; a
0.25 of 1% annual rate ($750,000).
MLIB; Other
Counterparties Bid-ask spreads Bid-ask spreads on forward and related trades.
Government
Securities Dealers Bid-ask spreads Bid-ask spreads on Government Securities trades.
All spreads and service fees are estimated not to
exceed 0.25% of average month-end assets annually
($750,000).
Third Parties Ongoing offering costs The costs, estimated at $500,000, other than selling
commissions and ongoing compensation, of the ongoing
offering of the Units, subject to a ceiling of 0.25%
of the Fund's average month-end Net Assets in any fiscal
year; MLIP may elect to absorb all ongoing offering costs
incurred in connection with the offering of Units.
JWH Profit Share 15% of any New Trading Profits as of the end of each
calendar quarter.
MLF, Others Extraordinary Expenses Actual costs incurred; expected to be negligible.
-30-
The above fees are the complete compensation that will be received by Merrill
Lynch or its affiliates from the Fund. This excludes redemption fees which
will be charged to some limited partners if they redeem on or before the
twelfth month of ownership
-----------------------
BROKERAGE COMMISSIONS; ADMINISTRATIVE FEES
Month-end assets are not reduced for purposes of calculating Brokerage
Commissions or Administrative Fees by any accrued but unpaid Profit Shares, or
by the accrued Brokerage Commissions or Administrative Fees being calculated.
During 1996, 1997 and 1998 the Fund's percentage-of-assets Brokerage
Commissions were the equivalent of about $208, $212 and $145, respectively, per
round-turn trade. A round-turn trade includes the purchase and sale or sale and
purchase of a single futures contract. However, these Brokerage Commissions are
an all-inclusive "wrap fee" which, together with the Administrative Fee, cover
all of the Fund's costs and expenses other than extraordinary expenses, bid-ask
spreads and certain trading fees. The Fund could negotiate lower rates from
firms other than MLF.
THE FUND'S BROKERAGE COMMISSIONS AND ADMINISTRATIVE FEES CONSTITUTE A
"WRAP FEE," WHICH COVER ALL OF MERRILL LYNCH'S COSTS AND EXPENSES, OTHER THAN
BID-ASK SPREADS AND CERTAIN TRADING FEES, NOT JUST THE COST OF BROKERAGE
EXECUTIONS.
THE BROKERAGE COMMISSIONS AND ADMINISTRATIVE FEES MAY NOT BE INCREASED
ABOVE THE CURRENT 8% LEVEL WITHOUT THE UNANIMOUS CONSENT OF ALL LIMITED
PARTNERS.
CURRENCY TRADING COSTS
Many of the Fund's currency trades are executed in the spot and forward
foreign exchange markets (the "FX Markets") where there are no direct execution
costs. Instead, the participants, banks and dealers in the FX Markets, including
Merrill Lynch International Bank ("MLIB"), take a "spread" between the prices at
which they are prepared to buy and sell a particular currency and such spreads
are built into the pricing of the spot or forward contracts with the Fund. The
General Partner anticipates that some of the Fund's foreign currency trades will
be executed through MLIB, an affiliate of the General Partner. MLIB has
discontinued operation of the foreign exchange service desk, which included
seeking multiple quotes from counterparties unrelated to MLIB.
In its exchange for physical ("EEP") trading, the Fund acquires cash
currency positions through banks and dealers, including Merrill Lynch. The Fund
pays a spread when it exchanges these positions for futures. This spread
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 the banks and dealers, which may include a Merrill Lynch
entity.
EXTRAORDINARY EXPENSES
The Fund will be required to pay any extraordinary expenses, such as
taxes, incurred in its operation. The Fund has had no such expenses to date, and
in MLIP's experience, such expenses have been negligible. Extraordinary
expenses, if any, would not reduce Trading Profits for purposes of calculating
the Profit Shares.
ONGOING OFFERING COSTS
Ongoing offering costs will be incurred in connection with the new
offering of Units under this prospectus. These costs are estimated at
$500,000 and will be charged to the Fund; provided, that (i) such
installments will not in the aggregate exceed the ongoing offering costs
actually incurred, (ii) MLIP will absorb all such costs to the extent that
they exceed 0.25 of 1% of the Fund's average month-end assets during any
fiscal year, and (iii) MLIP may elect to absorb all such costs.
-31-
PROFIT SHARES ALLOCATED TO JWH
METHOD OF CALCULATING
The Fund allocates to JWH 15% of any New Trading Profit as of the end
of each calendar quarter. New Trading Profit is any cumulative Trading Profit in
excess of the highest level -- the "High Water Mark" -- of cumulative Trading
Profit as of any previous calendar quarter-end.
Trading Profit (i) includes realized and unrealized profits and losses,
(ii) excludes interest income and (iii) is reduced by a portion (1/12th of 5% of
the Fund's assets per month) of the annual Brokerage Commissions and
Administrative Fees, not the entire 8.00%, of month-end assets and by no other
costs.
Accrued Profit Shares on redeemed Units are allocated to JWH. Any
shortfall between cumulative Trading Profit and the High Water Mark is
proportionately reduced when Units are redeemed.
Trading Profit is not reduced by redemption charges.
For example, assume that as of January 1, 2000, the Fund is at a
High Water Mark. If, at the end of the month, Trading Profit equaled
$500,000, all of such Trading Profit would be New Trading Profit, resulting
in an accrued $75,000 Profit Share. Assume also that by the end of the next
month, losses and the 5.00% portion of the Brokerage Commissions and
Administrative Fees have reduced the initial $500,000 Trading Profit to a
loss of $(180,000). If the Fund then withdrew 50% of its assets, this
$(180,000) loss carryforward would be reduced by 50% to ($90,000) for Profit
Share calculation purposes. If during the following month Trading Profit
equaled $200,000, New Trading Profit of $110,000 would be accrued as of the
end of such quarter, and JWH would be entitled to a Profit Share of $16,500.
PAID EQUALLY BY ALL UNITS
New Trading Profit may exist even though the Net Asset Value per
Unit has declined below the purchase price of certain Units. Conversely, if
new Units are purchased at a Net Asset Value reduced by an accrued Profit
Share which is subsequently reversed, the reversal is allocated equally among
all Units, although the accrual itself was attributable only to the
previously outstanding Units.
--------------
FEES AND EXPENSES PAID BY MERRILL LYNCH
SELLING COMMISSIONS; ONGOING COMPENSATION
MLIP pays all selling commissions due to MLPF&S on initial Unit
sales, as well as all ongoing compensation on Units outstanding for more than
twelve months. See "Selling Commissions" at page 72.
JWH'S MANAGEMENT FEES
MLF pays monthly Management Fees to JWH at a rate of 0.333% (a 4%
annual rate; $8,448,000 assuming a Fund average capitalization of $220
million) of the month-end assets of the Fund, after reduction by a portion of
the Brokerage Commissions and Administrative Fees charged, but before
reduction for any Profit Share or other costs. The Management Fees are not
affected by JWH's adjustments to the Fund's trading position size in relation
to account equity.
During 1996, 1997 and 1998, MLF paid Management Fees of $2,507,682,
$8,940,868 and $9,820,068, respectively, to JWH.
MLAM FEES
MLAM receives annual cash management fees of approximately 0.20 of
1% on the first $25 million of certain assets ("Capital"), including but not
limited to assets of the Fund, managed by MLAM, 0.15 of 1% on the next $25
million of Capital, 0.125 of 1% on the next $50 million, and 0.10 of 1% on
Capital in excess of $100 million.
During 1996, 1997 and 1998, MLIP paid fees of $136,000, $173,853 and
$230,000, respectively, to MLAM.
--------------
-32-
REDEMPTION CHARGES
A redemption charge of 3% of the redemption date Net Asset Value per
Unit is imposed on Units redeemed on or before the end of the first 12 months
after sale. This redemption charge is deducted from investors' redemption
proceeds and paid to MLIP.
MANAGED FUTURES FUNDS IN GENERAL
THE FUND IS ONE OF MANY VARIETIES OF MANAGED FUTURES FUNDS. ALL OF
THESE INVESTMENTS OFFER, IN VARYING DEGREES, THE POSSIBILITY OF ACHIEVING
SUBSTANTIAL CAPITAL APPRECIATION AS WELL AS DIVERSIFYING A PORTION OF A
TRADITIONAL PORTFOLIO. THE PURPOSE OF THIS SECTION IS TO GIVE PROSPECTIVE
INVESTORS A GENERAL OVERVIEW OF WHERE IN THE SPECTRUM OF MANAGED FUTURES FUNDS
THE FUND IS POSITIONED, AND TO INDICATE THE GENERAL TYPES OF OTHER MANAGED
FUTURES FUNDS AVAILABLE FOR INVESTMENT.
MANAGED FUTURES FUNDS
A futures fund is a professionally managed portfolio typically trading
in a wide range of markets. These markets may include global currencies,
interest rates, energy, metals and agriculture through futures, forwards and
options contracts. Futures funds trade either or both the short or long side of
the market, often on a 24-hour basis, and are generally higher risk and have
more volatile performance than many other investments. Professional management
can be an important advantage in this highly complex and specialized investment
area.
Not all managed futures funds are the same. Like other investment
products, futures funds are designed with a variety of risk/reward parameters.
The variety of available funds matches a wide range of individual investment
objectives.
THE DIFFERENT TYPES OF MANAGED FUTURES FUNDS
Risk/reward parameters of a managed futures fund may be modified by
adjusting the number of trading advisors, trading strategies and/or markets
traded. Increasing diversification in one or more of these categories is
generally expected to produce lower but more consistent returns.
Certain managed futures funds are more aggressive than others. For
example, single advisor, single strategy funds are typically expected to have
higher profit potential as well as risk because of their dependence upon just
one advisor's performance and, in many cases, a limited number of markets
traded. Their returns often fluctuate significantly from month to month.
Volatility can be reduced by a multi-advisor approach. Multi-advisor
funds typically have lower returns, but also lower risk and volatility than
single- advisor managed futures funds (although more than many other
investments). The Fund is a single-advisor, multi-strategy, not a multi-advisor,
investment.
Investors can also choose "principal protected" funds which guarantee
at least the return of their initial investment at a future date. If the fund is
profitable, investors receive the benefits. If there are losses, investors who
remain in until the guarantee date are nevertheless assured of the return of at
least their initial subscription, limiting losses to the time-value of their
capital. The Fund has no "principal protection" feature, and investors could
lose all or substantially all of their investment.
MANAGED FUTURES AND THE ASSET ALLOCATION PROCESS
Traditional portfolios invested in stocks, bonds and cash equivalents
can be diversified by allocating a portion of their assets to non-traditional
investments such as managed futures. Because of its potential non-correlation
with the performance of stocks and bonds, the non-traditional component can help
to improve long-term returns and reduce portfolio volatility. (In its
performance to date, the Fund has demonstrated a certain degree of positive
correlation to the S&P 500 Stock Index.) Each investment responds differently to
different economic cycles and market conditions. An investment's profit
potential, risk and the relationship to the rest of the portfolio are the
primary objectives of asset allocation.
"Non-traditional" or "alternative" are terms commonly used to describe
strategies whose profitability is not based exclusively on long positions in
stocks and bonds, but rather on trading approaches whose success should be
largely independent of overall debt and equity market movements.
-33-
THE POTENTIAL BENEFITS OF INCORPORATING MANAGED FUTURES INTO A PORTFOLIO
Managed futures investments have often performed differently from
stocks and bonds. This historical non-correlated performance suggests that such
investments can help diversify a portfolio. Diversification is one of the
primary potential benefits of investing in managed futures.
* * * *
You should carefully evaluate managed futures, weighing its return and
diversification potential against the risks, before you invest. These are
speculative investments and are not appropriate for everyone. There can be no
assurance that these investments will be profitable. However, if profitable,
managed futures can provide valuable portfolio diversification and capital
appreciation. Your Financial Consultant can help you decide whether the Fund has
a place in your portfolio.
THE ROLE OF MANAGED
FUTURES IN YOUR PORTFOLIO
THIS SECTION OUTLINES CERTAIN POINTS TO CONSIDER IN DECIDING WHETHER TO
DIVERSIFY A LIMITED PORTION OF YOUR HOLDINGS INTO MANAGED FUTURES. THERE IS NO
ASSURANCE THAT AN INVESTMENT IN THE FUND WILL ACHIEVE ANY OF ITS INTENDED
OBJECTIVES.
THE FUND IN YOUR PORTFOLIO
The Fund is a speculative investment, and Limited Partners may lose all
or substantially all of their investment in the Units. If the Fund is not
successful, it cannot serve as a beneficial component of any asset allocation
strategy. However, the Fund does have the potential to be (i) non-correlated
(there is no reason to believe that the Fund will be negatively correlated with
these markets, moving in the opposite direction to them -- i.e., serving as a
hedge, not merely as a diversification) with the debt and equity markets and
(ii) profitable. If the Fund is both, and only if it is both, a suitably limited
investment in the Units can be a beneficial component in an investor's overall
portfolio.
ASSET ALLOCATION STRATEGIES
World political and economic events often have a dramatic influence on
the markets. Stable, consistent asset growth can be difficult to achieve in
today's market environment. At the same time, the increasing globalization of
the world's economy offers significant new profit and diversification
opportunities.
Successful portfolios must have the ability to adapt to changing market
conditions resulting from a wide range of social, political and economic
factors. By committing assets to investments which would not otherwise be
represented in a portfolio, a well-diversified asset allocation strategy can
enhance this ability and offer a flexible approach to building and protecting
wealth.
An asset allocation strategy diversifies a portfolio into a variety of
different components, including non-traditional investments such as managed
futures. Managed futures investments do not assure diversification; they may
perform similarly to stocks and bonds during certain periods. However, managed
-34-
futures has the potential to produce returns generally non-correlated to the
stock and bond markets. Each investment responds differently to different
economic cycles and shifts in the financial markets, and each makes different
contributions to overall performance.
A wide range of non-traditional, alternative investments are available
-- venture capital, hedge funds, natural resources, real estate, private lending
and managed futures are only a few of the options. Many of these investments are
expected to produce results generally non-correlated to the debt and equity
markets. However, managed futures investments, while significantly less liquid
than most stocks and bonds, are generally more liquid than many alternative
investments, and estimated net asset values are generally available on a daily
basis.
A successful managed futures investment may increase portfolio return
while reducing risk. The Fund can be volatile, and there can be no assurance
that an investment in the Units will either increase returns or reduce portfolio
risk.
GLOBAL MARKETS
In recent years, the futures markets have expanded to include a wide
range of instruments representing major sectors of the world's economy. The
expansion of trading on major exchanges in Chicago, Frankfurt, London, New York,
Paris, Singapore, Sydney and Tokyo gives investors access to international
markets and global diversification. Futures managers can move capital quickly
across markets, in contrast to the traditional portfolio's dependence on a
single nation's economy and currency.
The internationalization of the markets has greatly expanded the
opportunities for both profit and diversification. Rapid geographical expansion
and the introduction of an array of innovative products have created new
opportunities but also made trading much more complex. Managed futures funds
provide an opportunity to participate in global markets under the direction of
professional advisors.
FUTURES VOLUME BY MARKET SECTOR
[Download Table]
1980
Agriculture 64.20%
Currencies 4.60%
Interest Rates 13.50%
Energy 0.30%
Metals 16.30%
Other 1.10%
1998
Agriculture 10.48%
Currencies 6.10%
Interest Rates 52.71%
Energy 5.02%
Metals 6.69%
Other 0.08%
THE FUTURES VOLUME FIGURES AND MARKET SECTOR DISTRIBUTIONS PRESENTED ABOVE
INCLUDE BOTH SPECULATIVE AND HEDGING TRANSACTIONS, AS WELL AS OPTIONS ON
FUTURES. SOURCE: FUTURES INDUSTRY ASSOCIATION. A SIGNIFICANT PORTION OF
CURRENCY TRADING IS DONE IN THE FORWARD RATHER THAN IN THE FUTURES MARKETS,
AND, ACCORDINGLY, IS NOT REFLECTED IN THE FOREGOING CHART.
SUBSTANTIAL INVESTOR PARTICIPATION
In 1980, client assets in the managed futures industry were estimated
at approximately $300 million. As of the end of 1998, the estimate had grown to
approximately $39.9 billion.
-35-
GROWTH IN MANAGED FUTURES INDUSTRY
[Download Table]
Source: Managed Account $ Billions
Reports, Inc.
80 0.3
81 0.3
82 0.5
83 0.5
84 0.7
85 1
86 1.4
87 2.6
88 4.3
89 5.2
90 8.5
91 11.4
92 19
93 22.6
94 19.1
95 22.8
96 28.8
97 34.9
98 39.9
THE ASSETS CATEGORIZED ABOVE AS INVESTED IN MANAGED FUTURES ARE INVESTED IN A
WIDE RANGE OF DIFFERENT PRODUCTS, INCLUDING SINGLE-ADVISOR AND MULTI-ADVISOR
FUNDS, "FUNDS OF FUNDS," "PRINCIPAL PROTECTION POOLS (IN WHICH ONLY A
FRACTION OF THE ASSETS INVESTED ARE COMMITTED TO TRADING) AND INDIVIDUAL
MANAGED ACCOUNTS.
NON-CORRELATION ---- A POTENTIALLY IMPORTANT COMPONENT OF RISK REDUCTION
Managed futures investments have often performed differently than
stocks and bonds. In addition, different types of alternative investments are
frequently non-correlated with each other. This creates the potential to
assemble a combination of alternative investments able to profit in different
economic cycles and international markets, while reducing the portfolio
concentration of traditional long equity and debt holdings. (Non-correlation is
not negative correlation; managed futures' performance is not expected to be
generally opposite, but rather unrelated, to stocks and bonds.)
The following chart compares the Fund's performance since inception
with the S&P Stock Index (assuming the reinvestment of all dividends), the ML
Domestic Bond Index (including all interest paid), the MAR (Managed Account
Reports, a managed futures industry trade publication) Public Funds Index and
91-day Treasury bills (including all interest paid). The chart begins with 1,000
as the arbitrary starting point for all five graphics and tracks the monthly
rates of return for each. The periods during which the graph of the Fund's
performance diverges from that of an index indicates, when compared to the
periods during which their respective performance graphs are similar, the extent
of the non-correlation between them. Past performance, including past
non-correlation patterns, is not necessarily indicative of future results.
-36-
COMPARISON OF ML JWH STRATEGIC ALLOCATION FUND L.P.
AND CERTAIN GENERAL MARKET INDICES
JULY 1996 -- FEBRUARY 28, 1999
[Enlarge/Download Table]
ML Domestic Master S&P 500 Stock
Bond Index (Total Index (Dividends U.S. 91-Day MAR Public Funds ML JWH Strategic
Return Basis) Reinvested) Treasury Bills Index Allocation Fund L.P.
Jul. 1 1996 1000 1000 1000 1000 1000
Jul 1996 1002.84 955.84 1004.54 984.7 989.8
Aug 1996 1001.316 976.0312 1009.07 981.8444 988.9
Sept 1996 1018.418 1030.917 1013.813 1018.173 1043.2
Oct 1996 1040.874 1059.34 1018.152 1091.176 1149.6
Nov 1996 1059.027 1139.342 1022.5 1152.936 1225.8
Dec 1996 1049.485 1116.772 1027.019 1125.15 1231.6
Jan 1997 1052.445 1186.503 1031.713 1165.656 1268.7
Feb 1997 1054.329 1195.817 1035.736 1194.331 1268.3
Mar 1997 1043.68 1146.777 1040.107 1186.687 1269.2
Apr 1997 1059.575 1215.178 1045.068 1164.021 1263.4
May 1997 1069.027 1289.113 1050.43 1145.514 1224.1
Jun 1997 1081.78 1346.836 1054.264 1154.792 1227.4
Jul 1997 1111.064 1453.97 1059.008 1229.161 1314.7
Aug 1997 1101.553 1372.591 1063.54 1181.715 1271.2
Sept 1997 1117.955 1447.761 1068.411 1194.95 1262.8
Oct 1997 1134.456 1399.464 1072.963 1176.07 1295.4
Nov 1997 1139.13 1464.193 1077.147 1187.478 1308
Dec 1997 1150.818 1489.32 1081.768 1210.871 1354
Jan 1998 1166.066 1505.776 1086.831 1213.293 1333.5
Feb 1998 1165.087 1614.317 1090.689 1202.616 1324.7
Mar 1998 1169.479 1696.918 1095.848 1204.42 1334.8
Apr 1998 1175.163 1713.984 1100.769 1155.641 1289.7
May 1998 1186.809 1684.555 1105.348 1194.702 1341.8
Jun 1998 1197.146 1752.928 1109.979 1199.242 1321.1
July 1998 1199.72 1734.312 1114.896 1186.65 1305
Aug 1998 1219.047 1483.877 1119.98 1279.09 1431.3
Sept 1998 1247.682 1578.945 1125.704 1332.683 1539.1
Oct 1998 1242.28 1707.264 1130.128 1324.421 1551.9
-37-
ML Domestic Master S&P 500 Stock
Bond Index (Total Index (Dividends U.S. 91-Day MAR Public Funds ML JWH Strategic
Return Basis) Reinvested) Treasury Bills Index Allocation Fund L.P.
Nov 1998 1248.193 1810.695 1133.891 1283.629 1426.1
Dec 1998 1252.861 1914.969 1138.37 1306.734 1543.4
Jan 1999 1261.732 1995.017 1142.411 1280.599 1499.8
Feb 1999 1237.532 1933.112 1145.69 1280.599 1538.2
THE GRAPH REFLECTS THE PERCENTAGE CHANGES IN NET ASSET VALUE PER UNIT AND IN THE
INDICES. FOR COMPARATIVE PURPOSES, THE PERFORMANCE OF THE INDICES HAS BEEN
PRESENTED FROM A "NORMALIZED" STARTING POINT OF 1,000 AS OF JULY 1, 1996. THE
FUND BEGAN TRADING JULY 15, 1996.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE
COMPARISON OF THE FUND, AN ACTIVELY MANAGED INVESTMENT, TO PASSIVE INDICES OF
GENERAL SECURITIES RETURNS HAS CERTAIN INHERENT MATERIAL LIMITATIONS.
THE S&P STOCK INDEX IS A CAPITALIZATION-WEIGHTED INDEX OF THE COMMON STOCKS OF
PUBLICLY-TRADED UNITED STATES ISSUERS. THE ML DOMESTIC MASTER BOND INDEX IS A
TOTAL-RETURN INDEX COMPRISED OF 6,764 INVESTMENT-GRADE CORPORATE BONDS,
TREASURIES AND MORTGAGE ISSUES; AVERAGE MATURITY 6.17 YEARS (CALCULATED ON A
MARKET-WEIGHTED BASIS AS OF DECEMBER 31, 1998).
THE MAR PUBLIC FUNDS INDEX REPRESENTS THE COMPOSITE PERFORMANCE OF A LARGE
NUMBER OF UNITED STATES PUBLICLY-OFFERED FUTURES FUNDS, WEIGHTING THE RETURNS
RECOGNIZED BY EACH SUCH FUND ON THE BASIS OF RELATIVE CAPITALIZATION. THE
FUNDS INCLUDED IN THE MAR PUBLIC FUNDS INDEX REPRESENT A WIDE VARIETY OF
MATERIALLY DIFFERENT PRODUCTS, INCLUDING SINGLE AND MULTI-ADVISOR FUNDS, AS
WELL AS FUNDS WITH AND WITHOUT "PRINCIPAL PROTECTION" FEATURES. COMBINING THE
RESULTS OF FUNDS WITH MATERIALLY DIFFERENT PERFORMANCE OBJECTIVES AND FEE
STRUCTURES INTO A SINGLE INDEX IS SUBJECT TO CERTAIN INHERENT AND MATERIAL
LIMITATIONS. THERE CAN BE NO ASSURANCE THAT THE MAR PUBLIC FUNDS INDEX
PROVIDES ANY MEANINGFUL INDICATION OF HOW MANAGED FUTURES INVESTMENTS, IN
GENERAL, HAVE PERFORMED IN THE PAST OR WILL PERFORM IN THE FUTURE.
NEVERTHELESS, THE MAR PUBLIC FUNDS INDEX IS ONE OF SEVERAL WIDELY-USED
BENCHMARKS OF GENERAL U.S. MANAGED FUTURES INDUSTRY PERFORMANCE.
GRAPHIC COMPARISONS OF SECURITIES INDICES AND THE FUND MAY NOT ADEQUATELY
REFLECT THE DIFFERENCES BETWEEN THE SECURITIES AND FUTURES MARKET OR BETWEEN
PASSIVE AND MANAGED INVESTMENTS.
----------------
Prudence demands that you carefully evaluate managed
futures, weighing its profit and diversification potential against its
significant risks. A managed futures investment is not appropriate for all
investors, and no one should invest more than a limited portion of the risk
segment of his or her portfolio in managed futures. However, for the investor
who finds the risks acceptable, managed futures has the potential to provide
profits as well as portfolio diversification.
-38-
JWH TRADING PROGRAMS
THE PROGRAMS
The following are brief summaries of the active JWH programs. Not all of
them are presently used by JWH in trading for the Fund, but any of them may be.
All of the programs have been designed using the same basic principles, and
all rely on computerized, technical trading systems. However, they employ
computerized statistical models to analyze price movements applying various
different quantitative criteria in attempting to identify price trends and
reversals. They also trade in different (but frequently overlapping) market
sectors, as indicated in their respective descriptions.
FROM THE INCEPTION OF TRADING OF THE JWH PROGRAMS (THE PERFORMANCE OF THE
PROGRAMS PRIOR TO JANUARY 1994 IS PRESENTED IN THE STATEMENT OF ADDITIONAL
INFORMATION IN ACCORDANCE WITH APPLICABLE CFTC POLICY), THE GREATEST CUMULATIVE
PERCENTAGE DECLINE IN DAILY NET ASSET VALUE EXPERIENCED IN ANY SINGLE PROGRAM
WAS NEARLY 60% ON A COMPOSITE BASIS, AND CERTAIN INDIVIDUAL ACCOUNTS INCLUDED IN
SUCH PROGRAM EXPERIENCED EVEN GREATER DECLINES. CERTAIN JWH ACCOUNTS HAVE LOST
10% OR MORE IN A SINGLE TRADING DAY. PROSPECTIVE INVESTORS SHOULD UNDERSTAND
THAT SIMILAR OR GREATER DRAWDOWNS ARE POSSIBLE IN THE FUTURE. THERE CAN BE NO
ASSURANCE THAT JWH WILL TRADE PROFITABLY FOR THE FUND OR AVOID SUDDEN AND SEVERE
LOSSES.
See "JWH Performance" beginning on page 51.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
[Download Table]
ASSETS MANAGED
FINANCIAL AND METALS PORTFOLIO JANUARY 1, 1999
------------------------------ ---------------
PROGRAM COMPOSITION: $1,181,728,083
GLOBAL INTEREST RATES
GLOBAL STOCK INDICES
FOREIGN EXCHANGE
PRECIOUS METALS
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT BASIS: (10.1)% (2/96)
WORST PEAK-TO-VALLEY DECLINE
ON AN INDIVIDUAL ACCOUNT BASIS: (30.5)% (6/94-1/95)
1998 COMPOUND ANNUAL RATE OF RETURN : 7.2%
1997 COMPOUND ANNUAL RATE OF RETURN: 15.2%
1996 COMPOUND ANNUAL RATE OF RETURN: 29.7%
1995 COMPOUND ANNUAL RATE OF RETURN: 38.5%
1994 COMPOUND ANNUAL RATE OF RETURN: (5.3)%
AVERAGE COMPOUNDED ANNUALIZED RATE
OF RETURN SINCE JANUARY 1994: 16.0%
AVERAGE COMPOUNDED ANNUALIZED RATE
OF RETURN SINCE INCEPTION IN OCTOBER 1984: 36.7%
The Financial and Metals Portfolio seeks to identify and capitalize on
intermediate and long-term price movements in global financial and precious
metals markets. If a trend is identified, the program attempts to take a
position; in nontrending market environments, the program may remain neutral or
liquidate open positions. Historically, the program has had a low statistical
correlation to the S&P 500.
Currency positions are traded primarily in the interbank market and
occasionally on futures exchanges, and may be held both as outrights --
positions taken in foreign currencies versus the U.S. dollar -- and cross rates
-- foreign currencies against each other. This program began trading client
capital in October 1984.
-39-
[Download Table]
ASSETS MANAGED
ORIGINAL INVESTMENT PROGRAM JANUARY 1, 1999
--------------------------- ---------------
PROGRAM COMPOSITION: $405,066,930
GLOBAL INTEREST RATES
GLOBAL STOCK INDICES
FOREIGN EXCHANGE
FIBER
ENERGY
SOFTS
GRAINS
PRECIOUS AND BASE METALS
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT BASIS: (16.3)% (10/94)
WORST PEAK-TO-VALLEY DECLINE
ON AN INDIVIDUAL ACCOUNT BASIS: (31.0)% (7/94-10/94)
1998 COMPOUND ANNUAL RATE OF RETURN: 10.8%
1997 COMPOUND ANNUAL RATE OF RETURN: 5.7%
1996 COMPOUND ANNUAL RATE OF RETURN: 22.6%
1995 COMPOUND ANNUAL RATE OF RETURN: 53.2%
1994 COMPOUND ANNUAL RATE OF RETURN: (5.7)%
AVERAGE COMPOUNDED ANNUALIZED RATE OF
RETURN SINCE JANUARY 1994: 15.7%
AVERAGE COMPOUNDED ANNUALIZED RATE OF
RETURN SINCE INCEPTION IN OCTOBER 1982: 16.8%
The Original Investment Program seeks to capitalize on long-term trends in
a broad spectrum of worldwide financial and nonfinancial futures markets. The
program always maintains a position -- long or short -- in every market traded.
Historically, it has had a low statistical correlation to the S&P 500.
In 1992, a broad research effort was initiated to enhance the risk-reward
ratios of the Original Investment Program, without changing its fundamental
trading approach. Except for the removal of a few markets traded, the program
had remained virtually unchanged from its inception in 1982 through the middle
of 1992. After extensive testing, a number of strategic adjustments were made
beginning in July 1992: global markets were added; certain markets were removed;
sector allocations were shifted, with greater weighting given to financial
markets; some contracts which had become too illiquid to support sizeable assets
were eliminated. In October 1995 overall position size relative to account
equity was reduced. The quantitative model underlying the program was not
changed. This program began trading client capital in October 1982.
[Download Table]
ASSETS MANAGED
GLOBAL DIVERSIFIED PORTFOLIO JANUARY 1, 1999
---------------------------- ---------------
PROGRAM COMPOSITION: $202,223,023
GLOBAL INTEREST RATES
GLOBAL STOCK INDICES
FOREIGN EXCHANGE
FIBER
ENERGY
SOFTS
GRAINS
PRECIOUS AND BASE METALS
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT BASIS: (11.2)% (2/96)
WORST PEAK-TO-VALLEY DECLINE
ON AN INDIVIDUAL ACCOUNT BASIS: (24.1)% (6/95-10/95)
1998 COMPOUND ANNUAL RATE OF RETURN: 23.6%
1997 COMPOUND ANNUAL RATE OF RETURN: 3.3%
1996 COMPOUND ANNUAL RATE OF RETURN: 26.9%
1995 COMPOUND ANNUAL RATE OF RETURN: 19.6%
1994 COMPOUND ANNUAL RATE OF RETURN: 10.1%
AVERAGE COMPOUNDED ANNUALIZED RATE
OF RETURN SINCE JANUARY 1994: 16.4%
AVERAGE COMPOUNDED ANNUALIZED RATE
OF RETURN SINCE INCEPTION IN JUNE 1988: 23.1%
The Global Diversified Portfolio seeks to capitalize on long-term price
movements in a broad spectrum of financial and nonfinancial markets. The
program does not maintain continuous positions and, in fact, may take a neutral
stance if a long-term trend fails to develop or during periods of nontrending
markets. Historically, the program has had a low statistical correlation to the
S&P 500. The Global Diversified Portfolio began trading client capital in June
1988.
-40-
[Download Table]
ASSETS MANAGED
GLOBAL FINANCIAL PORTFOLIO JANUARY 1, 1999
-------------------------- ---------------
PROGRAM COMPOSITION: $158,157,356
GLOBAL INTEREST RATES
GLOBAL STOCK INDICES
FOREIGN EXCHANGE
ENERGY
PRECIOUS METALS
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT BASIS: (19.5)% (11/94)
WORST PEAK-TO-VALLEY DECLINE
ON AN INDIVIDUAL ACCOUNT BASIS: (48.9)% (7/94-1/95)
1998 COMPOUND ANNUAL RATE OF RETURN: 9.9%
1997 COMPOUND ANNUAL RATE OF RETURN: 4.9%
1996 COMPOUND ANNUAL RATE OF RETURN: 32.4%
1995 COMPOUND ANNUAL RATE OF RETURN: 86.2%
1994 COMPOUND ANNUAL RATE OF RETURN: (37.7)% (7 MOS.)
AVERAGE COMPOUNDED ANNUALIZED RATE
OF RETURN SINCE INCEPTION IN JUNE 1994: 13.3%
The Global Financial Portfolio seeks to identify and capitalize on
long-term price movements in a small group of energy, metals, and financial
markets. The program always maintains a position -- long or short -- in every
market traded. Historically, the program has had a low statistical correlation
to the S&P 500. The program began trading client capital in June 1994.
[Download Table]
ASSETS MANAGED
G-7 CURRENCY PORTFOLIO JANUARY 1, 1999
---------------------- ---------------
PROGRAM COMPOSITION: $95,646,185
FOREIGN EXCHANGE
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT BASIS: (12.3)% (11/94)
WORST PEAK-TO-VALLEY DECLINE
ON AN INDIVIDUAL ACCOUNT BASIS: (31.4)% (10/92-1/95)
1998 COMPOUND ANNUAL RATE OF RETURN: (4.8)%
1997 COMPOUND ANNUAL RATE OF RETURN: 21.0%
1996 COMPOUND ANNUAL RATE OF RETURN: 14.5%
1995 COMPOUND ANNUAL RATE OF RETURN: 32.2%
1994 COMPOUND ANNUAL RATE OF RETURN: (4.9)%
AVERAGE COMPOUNDED ANNUALIZED RATE OF
RETURN SINCE JANUARY 1994: 10.7%
AVERAGE COMPOUNDED ANNUALIZED RATE OF
RETURN SINCE INCEPTION IN FEBRUARY 1991: 13.1%
The G-7 Currency Portfolio seeks to identify and capitalize on intermediate
and long-term price movements in the highly liquid currencies of the Group of
Seven Industrialized nations and Switzerland. The program attempts to take a
position if a trend is identified, and takes a neutral stance during periods of
nontrending markets. Historically, the program has had a low statistical
correlation to the S&P 500.
Not all of the G-7 currencies are traded at all times. Forward positions
are primarily taken on the interbank market as outrights against the U.S.
dollar, or as cross rates, which reduces dependence on the U.S. dollar. G-7
began trading client capital in February 1991.
-41-
[Download Table]
INTERNATIONAL FOREIGN ASSETS MANAGED
EXCHANGE PROGRAM JANUARY 1, 1999
---------------- ---------------
PROGRAM COMPOSITION: $91,588,007
FOREIGN EXCHANGE
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT BASIS: (8.3)% (5/97)
WORST PEAK-TO-VALLEY DECLINE
ON AN INDIVIDUAL ACCOUNT BASIS: (35.9)% (9/92-1/95)
1998 COMPOUND ANNUAL RATE OF RETURN: 14.0%
1997 COMPOUND ANNUAL RATE OF RETURN: 71.1%
1996 COMPOUND ANNUAL RATE OF RETURN: 3.7%
1995 COMPOUND ANNUAL RATE OF RETURN: 16.9%
1994 COMPOUND ANNUAL RATE OF RETURN: (6.3)%
AVERAGE COMPOUNDED ANNUALIZED RATE
OF RETURN SINCE JANUARY 1994: 17.3%
AVERAGE COMPOUNDED ANNUALIZED RATE
OF RETURN SINCE INCEPTION IN AUGUST 1986: 17.1%
The International Foreign Exchange Program seeks to identify and capitalize
on intermediate and long-term price movements in a broad range of both major and
minor currencies on the interbank market. The International Foreign Exchange
Program attempts to take a position if a trend is identified, and takes a
neutral stance if long-term trends fail to continue or during periods of
nontrending markets. Historically, the program has had a low statistical
correlation to the S&P 500.
Positions are taken as outrights against the U.S. dollar, or cross rates,
which eliminates dependence on the dollar. This program began trading client
capital in August 1986.
[Download Table]
JWH GLOBALANALYTICS-TM- ASSETS MANAGED
FAMILY OF PROGRAMS(*) JANUARY 1, 1999
---------------------- ---------------
PROGRAM COMPOSITION: $86,084,216
GLOBAL INTEREST RATES
GLOBAL STOCK INDICES
FOREIGN EXCHANGE
ENERGY
SOFTS
GRAINS
FIBER
PRECIOUS METALS
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT BASIS: (5.0)% (4/98)
WORST PEAK-TO-VALLEY DECLINE
ON AN INDIVIDUAL ACCOUNT BASIS: (5.0)% (5/98)
1998 COMPOUND RATE OF RETURN: (3.6)% (5 MOS.)
1997 COMPOUND RATE OF RETURN: 17.6% (7 MOS.)
AVERAGE COMPOUNDED ANNUALIZED RATE
OF RETURN SINCE INCEPTION IN JUNE 1997: 6.2% (7/96-5/98)
JWH GlobalAnalytics-TM- Family of Programs seeks to identify and invest in
a wide range of price trends -- from very short to exceptionally long term. The
firm's most broadly diversified investment program, JWH GlobalAnalytics remains
neutral if no substantive trends are apparent, and builds or reduces positions
over time as the system indicates.
Introduced in June 1997, JWH GlobalAnalytics is the result of extensive
research and testing by the firm. Unlike other JWH programs, which invest in
intermediate and long-term price movements, JWH GlobalAnalytics integrates a
wide variety of trend identification methodologies into a single, broadly
diversified investment portfolio or family of programs. It invests in both
financial and commodity markets, including certain energy and agricultural
contracts not available through other JWH investment programs.
-------------------
(*)The performance data for this program is only through May 7, 1998. The
program continues to operate, but only as a portion of the Fund and its offshore
counterpart, ML JWH Strategic Allocation Fund Ltd. For performance information
subsequent to May 7, 1998, please see the Exclusive Fund Accounts.
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[Download Table]
ASSETS MANAGED
DOLLAR PROGRAM(*) JANUARY 1, 1999
-------------- ---------------
PROGRAM COMPOSITION: $38,172,172
FOREIGN EXCHANGE
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT BASIS: (8.4)% (5/97)
WORST PEAK-TO-VALLEY DECLINE
ON AN INDIVIDUAL ACCOUNT BASIS: (11.6)% (5/97-9/97)
1998 COMPOUND RATE OF RETURN: (5.0)% (5mos)
1997 COMPOUND ANNUAL RATE OF RETURN: 6.8%
1996 COMPOUND ANNUAL RATE OF RETURN: 10.6% (6 MOS.)
AVERAGE COMPOUNDED ANNUALIZED RATE
OF RETURN SINCE INCEPTION IN JULY 1996: 6.2% (7/96-5/98)
The Dollar Program seeks to identify and capitalize on intermediate and
long-term price movements in the foreign exchange sector, trading major
currencies against the U.S. dollar (outright trading). The program may employ a
neutral stance during periods of nontrending markets.
The program trades the Japanese yen, the Euro, Swiss franc and British
pound. Because this program invests in a limited number of contracts, it may
experience greater volatility than other JWH foreign exchange programs.
[Download Table]
THE WORLD FINANCIAL ASSETS MANAGED
PERSPECTIVE JANUARY 1, 1999
------------------- ---------------
PROGRAM COMPOSITION: $30,125,140
GLOBAL INTEREST RATES
GLOBAL STOCK INDICES
FOREIGN EXCHANGE
ENERGY
PRECIOUS METALS
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT BASIS: (11.7)% (2/94)
WORST PEAK-TO-VALLEY DECLINE
ON AN INDIVIDUAL ACCOUNT BASIS: (25.9)% (7/94-1/95)
1998 COMPOUND ANNUAL RATE OF RETURN: 7.2%
1997 COMPOUND ANNUAL RATE OF RETURN: 10.4%
1996 COMPOUND ANNUAL RATE OF RETURN: 40.9%
1995 COMPOUND ANNUAL RATE OF RETURN: 32.2%
1994 COMPOUND ANNUAL RATE OF RETURN: (15.2)%
AVERAGE COMPOUNDED ANNUALIZED RATE
OF RETURN SINCE JANUARY 1994: 13.3%
AVERAGE COMPOUNDED ANNUALIZED RATE
OF RETURN SINCE INCEPTION IN APRIL 1987: 14.9%
The World Financial Perspective seeks to capitalize on long-term price
movements in financial, metals and energy markets and holds positions from
multiple currency perspectives, including the British pound, the Euro, Japanese
yen, Swiss franc and U.S. dollar. The program always maintains a position --
long or short -- in every market traded. Historically, the program has had a
low statistical correlation to the S&P 500.
-------------------
(*)The performance data for this program is only through May 7, 1998. The
program continues to operate, but only as a portion of the Fund and its offshore
counterpart, ML JWH Strategic Allocation Fund Ltd. For performance information
subsequent to May 7, 1998, please see the Exclusive Fund Accounts.
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[Download Table]
INTERNATIONAL CURRENCY ASSETS MANAGED
AND BOND PORTFOLIO JANUARY 1, 1999
---------------------- ---------------
PROGRAM COMPOSITION: $27,512,908
FOREIGN EXCHANGE
GLOBAL INTEREST RATES
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT BASIS: (7.8)% (7/94)
WORST PEAK-TO-VALLEY DECLINE
ON AN INDIVIDUAL ACCOUNT BASIS: (23.6)% (7/94-1/95)
1998 COMPOUND ANNUAL RATE OF RETURN: 16.1%
1997 COMPOUND ANNUAL RATE OF RETURN: 17.0%
1996 COMPOUND ANNUAL RATE OF RETURN: 19.9%
1995 COMPOUND ANNUAL RATE OF RETURN: 36.5%
1994 COMPOUND ANNUAL RATE OF RETURN: (2.3)%
AVERAGE COMPOUNDED ANNUALIZED RATE OF
RETURN SINCE JANUARY 1994: 16.8%
AVERAGE COMPOUNDED ANNUALIZED RATE OF
RETURN SINCE INCEPTION IN JANUARY 1993: 16.5%
The International Currency and Bond Portfolio seeks to identify and
capitalize on intermediate and long-term price movements in the world's bond and
foreign exchange markets. If a trend is identified, the program will take a
position; in nontrending market environments, the program may liquidate
positions and remain neutral. Historically, the International Currency and Bond
Portfolio has had a low statistical correlation with the S&P 500.
Using a more conservative approach to position size in relation to account
equity than in other JWH programs, the International Currency and Bond Portfolio
targets currencies and the long-term portion of interest rates of major
industrialized nations. Foreign exchange positions are held both as outrights
-- positions taken in foreign currencies versus the U.S. dollar -- and cross
rates -- foreign currencies traded against each other. The International
Currency and Bond Portfolio began trading client capital in January 1993.
[Download Table]
ASSETS MANAGED
WORLDWIDE BOND PROGRAM(*) JANUARY 1, 1999
---------------------- ---------------
PROGRAM COMPOSITION: $24,716,548
INTEREST RATES
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT BASIS: (3.8)% (4/97)
WORST PEAK-TO-VALLEY DECLINE
ON AN INDIVIDUAL ACCOUNT BASIS: (6.2)% (12/96-5/97)
1998 COMPOUND RATE OF RETURN: (0.4)% (5 MOS.)
1997 COMPOUND ANNUAL RATE OF RETURN: 9.5%
1996 COMPOUND ANNUAL RATE OF RETURN: 17.8% (6 MOS.)
AVERAGE COMPOUNDED ANNUALIZED RATE
OF RETURN SINCE INCEPTION IN JULY 1996: 14.0% (7/96-5/98)
The Worldwide Bond Program seeks to capitalize on intermediate and
long-term trends by investing through financial futures in the long-term portion
of global interest rate markets. The program may take a neutral stance during
periods of nontrending markets. Historically, the program has had a low
statistical correlation with the S&P 500.
Although the Worldwide Bond Program concentrates in one sector,
diversification is achieved by trading futures contracts on the interest rate
instruments of numerous countries, including the U.S. 30-year bond, U.S. 10-year
note, British long gilt, the French, German and Italian bonds and Australian
10-year bond. The program also takes smaller position sizes compared to other
JWH programs that participate in multiple market sectors.
-------------------
(*)The performance data for this program is only through May 7, 1998. The
program continues to operate, but only as a portion of the Fund and its offshore
counterpart, ML JWH Strategic Allocation Fund Ltd. For performance information
subsequent to May 7, 1998, please see the Exclusive Fund Accounts.
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EXCLUSIVE FUND ACCOUNTS
Pursuant to a special JWH multi-trading strategy that is currently the
subject of an exclusivity arrangement with one client operating two funds (the
"Exclusive Fund Accounts"), JWH can make various discretionary trading
adjustments for the accounts of those funds, including ongoing allocations and
reallocations of fund assets among the investment programs and periodic position
size in relation to account equity adjustments. As a result of a change made to
these accounts on May 8, 1998, these programs have traded differently from the
other accounts in the respective JWH investment program. For details concerning
the Exclusive Fund Account capsule performance records for these programs see
page 57. Because of the exclusivity agreement related to this trading strategy,
these modified programs are not currently available for investment by other
clients.
JWH PROGRAM SELECTION
JWH's 11 active programs are all available to the JWH Strategic Allocation
Program. As of January 1, 1999, eight programs -- listed above at page 4 --
were being used for the Fund.
The Strategic Allocation Program is not a systematic or even a formalized
strategy for selecting combinations of JWH programs. On the contrary, program
selections and the size of the allocations among them are made entirely by the
subjective, collective judgment of certain JWH principals. From time to time,
these principals consider a wide range of different factors in deciding which
programs to use for the Fund. There is no way to predict which programs will be
used or what allocation of the Fund's assets will be made among the various
programs chosen at any given time or over time. It is also not possible to
predict which factors the JWH principals may consider in selecting any
individual program or program combination.
There is no maximum allocation that may be made to any particular trading
program, but JWH does not expect any allocation to exceed 25% of the Fund's
total trading level (which may range from 50% to 150% of the Fund's Net Assets).
LEVERAGE CONSIDERATIONS
The larger the Fund's market commitment (generally equivalent to the face
amount of the positions held) in relation to its assets, the higher the position
size in relation to account equity at which the Fund is said to be trading. In
general, the larger the Fund's market commitment, the greater the profit
potential as well as risk of loss. JWH adjusts the Fund's market commitment to
levels which JWH believes are consistent with the Fund's desired internal
risk/reward profile. For example, in volatile markets, JWH might decide -- in
order to reduce market exposure and, accordingly, the risk of loss, but with a
corresponding decrease in profit potential -- that the positions ordinarily
appropriate for a $50 million Fund allocation are all a $75 million allocation
should acquire. On the other hand, market factors might cause JWH to decide --
in order to increase market exposure and, accordingly, profit potential as well
as risk of loss -- that the positions ordinarily indicated for a $100 million
allocation are appropriate for a Fund allocation of only $50 million.
At certain times -- such as after substantial gains in several of the
programs -- JWH may conclude that the Fund's portfolio offers more risk than
reward. If so, JWH may reduce the Fund's market commitment, both taking profits
and controlling risk. Conversely, JWH may commit more than the total assets of
the Fund to the markets if the profit potential seems to justify the added risk.
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JOHN W. HENRY & COMPANY, INC.
BACKGROUND
John W. Henry & Company began managing assets in 1981 as a sole
proprietorship and was later incorporated in the State of California as John W.
Henry & Co., Inc. to conduct business as a commodity trading advisor. JWH
reincorporated in Florida in 1997. JWH's offices are at 301 Yamato Road, Suite
2200, Boca Raton, Florida 33431-4931, (561) 241-0018 and One Glendinning Place,
Westport, Connecticut 06880, (203) 221-0431. JWH's registration as a Commodity
Trading Advisor ("CTA"; a person which directs the trading of futures accounts
for clients, including commodity pools) became effective in November 1980. JWH
is a member of the National Futures Association ("NFA") in this capacity.
For a description of the principals of JWH, see "JWH Principals" beginning
at page 48.
TRADING STRATEGY
THE FOLLOWING DESCRIPTION OF JWH'S TRADING STRATEGY RELATES TO JWH
GENERALLY AND NOT TO THE FUND ITSELF.
GENERAL
JWH specializes in managing institutional and individual capital in the
global futures, interest rate and foreign exchange markets. Since 1981, JWH has
developed and implemented proprietary trend-following trading techniques that
focus on long-term rather than short-term, day-to-day trends. As of the date of
this Prospectus, JWH operates eleven trading programs.
IMPLEMENTING THE PROGRAM
The first step in the JWH investment process is the identification of
sustained price movements -- or trends -- in a given market. While there are
many ways to identify trends, JWH uses mathematical models that attempt to
distinguish real trends from interim volatility. It also presumes that trends
often exceed in duration the expectation of the general marketplace.
JWH's historical performance demonstrates that, because trends often last
longer than most market participants expect, significant returns can be
generated from positions held over a long period of time. The first step in the
JWH investment process is the identification of a price trend. JWH focuses on
attempting to implement a trading methodology which identifies a majority of the
significant, as opposed to the more numerous small, price trends in a given
market.
JWH attempts to pare losing positions relatively quickly while allowing
profitable positions to mature. Most losing positions are closed within a few
days or weeks, while others -- those where a profitable trend continues -- are
retained. Positions held for two to four months are not unusual, and positions
have been held for more than one year. Historically, only 30% to 40% of all
trades made pursuant to the investment methods have been profitable. Large
profits on a few trades in positions that typically exist for several months
have produced favorable results overall. Generally, most losing positions are
liquidated within weeks.
The greatest cumulative percentage decline in daily net asset value which
JWH has experienced in any single program was nearly 60% on a composite basis
since its inception. Prospective investors in the Fund should understand that
similar or greater drawdowns are possible in the future.
To reduce exposure to volatility in any particular market, most JWH
programs participate in several markets at one time. In total, JWH participates
in up to 60 markets, encompassing interest rates, foreign exchange, and
commodities such as agricultural products, energy and precious metals. Most
investment programs maintain a consistent portfolio composition to allow
opportunities in as many major market trends as possible.
Throughout the investment process, risk controls designed to reduce the
possibility of an extraordinary loss in any one market are maintained.
Proprietary research is conducted on an ongoing basis to refine the JWH
investment strategies and attempt to reduce volatility while maintaining the
potential for excellent performance.
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JWH at its sole discretion may override computer-generated signals, and may
at times use discretion in the application of its quantitative models which may
affect performance positively or negatively. This could occur, for example,
when JWH determines that markets are illiquid or erratic, such as may occur
cyclically during holiday seasons or on the basis of irregularly occurring
market events. Subjective aspects of JWH's quantitative models also include the
determination of the size of the position in relation to account equity, when an
account should commence trading, markets traded, contracts and contract month
selection, and effective trade execution.
PROGRAM MODIFICATIONS
Proprietary research is conducted on an ongoing basis to refine the JWH
investment strategies and attempt to reduce volatility. 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, or in varying combinations, is a subject of continual
testing, review and evaluation. Extensive research 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 position size in relation to account equity employed. However,
most investment programs maintain a consistent portfolio composition to allow
opportunities in as many major market trends as possible.
All cash in a JWH investment program is available to be used to trade in a
JWH program. The amounts committed to margin will vary from time to time. 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.
ADJUSTING THE SIZE OF THE TRADING POSITIONS TAKEN
Adjustments to the size of trading positions taken in relation to account
equity have been and continue to be an integral part of JWH's investment
strategy. At its discretion, JWH may adjust position size in relation to
account equity in certain markets or entire programs. Position size in relation
to account equity adjustments may be made at certain times for some accounts but
not for others. Factors which may affect the decision to adjust position size
in relation to account equity 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 position
size in relation to account equity may positively or negatively affect
performance, and will alter risk exposure for an account. Position size in
relation to account equity adjustments may lead to greater profits or losses,
more frequent and larger margin calls and greater brokerage expense. No
assurance is given that such position size in relation to account equity
adjustments will be to the financial advantage of investors in the Fund. JWH
reserves the right, at its sole discretion, to adjust its position size in
relation to account equity policy without notification to MLIP.
ADDITION, REDEMPTION AND REALLOCATION OF CAPITAL FOR COMMODITY POOL OR FUND
ACCOUNTS
Investors purchase or redeem Units at Net Asset Value on the close of
business on the last business day of the month. In order to provide market
exposure commensurate with the Fund's equity on the date of these transactions,
JWH's general practice is to adjust positions as near as possible to the close
of business on the last trading date of the month. The intention is to provide
for additions and redemptions at an NAV that will be the same for each of these
transactions, and to eliminate possible variations in Net Asset Values that
could occur as a result of inter-day price changes if, for example, additions
were calculated on the first day of the subsequent month. Therefore, JWH may,
at its sole discretion, adjust its investment of the assets associated with the
addition or redemption as near as possible to the
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close of business on the last business day of the month to reflect the amount
then available for trading. Based on JWH's determination of liquidity or other
market conditions, JWH may decide to commence trading earlier in the day on, or
before, the last business day of the month, or at its sole discretion, delay
adjustments to trading for an account to a date or time after the close of
business on the last day of the month. No assurance is given that JWH will be
able to achieve the objectives described above in connection with Fund equity
level changes. The use of discretion by JWH in the application of this
procedure may affect performance positively or negatively.
PHYSICAL AND CASH COMMODITIES
JWH may from time to time trade in physical or cash commodities for
immediate or deferred delivery, including specifically gold bullion, as well as
futures and forward contracts when JWH believes that cash markets offer
comparable or superior market liquidity or the ability to execute transactions
at a single price. The CFTC does not regulate cash transactions, which are
subject to the risk of counterparty failure, inability or refusal to perform
with respect to such contracts.
THE JOINT VENTURE AGREEMENT
The advisory arrangement between the Fund and JWH is a joint venture, a
general partnership structure. The Joint Venture Agreement establishing the
joint venture terminates December 31, 1999, subject to automatic one-year
renewals, on the same terms, unless either the Fund or JWH elects not to renew.
The Fund has agreed to indemnify JWH and related persons for any claims or
proceedings involving the business or activities of the Fund, provided that the
conduct of such persons does not constitute gross negligence, misconduct or
breach of the Joint Venture Agreement or of any fiduciary obligation to the Fund
and was done in good faith and in a manner reasonably believed to be in, or not
opposed to, the best interests of the Fund.
JWH and related persons will not be liable to the joint venture, the Fund
or any of the partners in connection with JWH's management of the Fund's assets
except (i) by reason of acts or omissions in breach of the Joint Venture
Agreement, (ii) due to their misconduct or negligence, or (iii) by reason of
not having acted in good faith and in the reasonable belief that such actions or
omissions were in, or not opposed to, the best interests of the Fund. Mr. John
W. Henry will not be liable except for his fraud and wilful misconduct.
JWH has invested $100,000 in the joint venture.
JWH PRINCIPALS
The following are the principals of JWH:
The sole shareholder of JWH is the John W. Henry Trust dated July 27, 1990.
Mr. John W. Henry is chairman of the JWH Board of Directors and is trustee and
sole beneficiary of the John W. Henry Trust. Mr. Henry is also a member of the
JWH Investment Policy Committee. 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 investor accounts.
Mr. Henry currently serves on the Board of Directors of the Futures
Industry Association. He also has served on the Board of Directors of the
National Association of Futures Trading Advisors ("NAFTA") and the Managed
Futures Trade Association, and has served on the Nominating Committee of the
NFA. He has also served on a panel created by the Chicago Mercantile Exchange
and the Chicago Board of Trade to study cooperative efforts related to
electronic trading, common clearing and issues regarding a potential merger. In
1989, Mr. Henry established residency in Florida, and since that time has
performed services from that location as well as from the offices of JWH in
Westport, Connecticut. Mr. Henry is a principal of Westport Capital Management
Corporation, Global Capital Management Limited, JWH Investment Management, Inc.,
JWH Asset Management, Inc. and JWH Financial Products, Inc., all of which are
affiliates of JWH. Since the beginning of 1987, Mr. Henry has
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devoted, and will continue to devote, considerable time to activities in
businesses other than JWH and its affiliates.
Mr. Mark H. Mitchell is vice chairman, counsel to the firm and a member of
the JWH Board of Directors. His duties include the coordination and allocation
of responsibilities among JWH and its affiliates. He is also vice chairman and
a director of JWH Asset Management, Inc. and JWH Financial Products, Inc. Prior
to joining JWH in January 1994, Mr. Mitchell was a partner at Chapman and
Cutler, in Chicago, where he headed the law firm's futures law practice from
August 1983 to December 1993. He also served as General Counsel of the Managed
Funds Association ("MFA") and General Counsel of NAFTA. Mr. Mitchell is
currently a member of the Commodity Pool Operator/Commodity Trading Advisor
Advisory Committee. In addition, he has served as a member of the NFA Special
Committee for the Review of Multi-tiered Regulatory Approach to NFA Rules, the
Government Relations Committee of the MFA and the Executive Committee of the Law
and Compliance Division of the FIA. In 1985, he received the Richard P.
Donchian Award for Outstanding Contributions to the Field of Commodity Money
Management. He 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. Verne O. Sedlacek is the president and chief operating officer and a
member of the JWH Investment Policy Committee. Mr. Sedlacek is responsible for
the day-to-day management of the firm. Mr. Sedlacek is also the President and
director of Westport Capital Management Corporation and Global Capital
Management Limited Fund and president of JHW Financial Products, Inc. Prior to
joining JWH in July 1998, Mr. Sedlacek was the executive vice president and
chief financial officer of Harvard Management Company, Inc., a wholly-owned
subsidiary of Harvard University, which at the time of his departure managed
approximately $14 billion of University-related funds. He joined Harvard
Management Company in March 1983 and was responsible for managing the areas of
personnel, budgets, systems, performance analysis, contracts, credit,
compliance, custody, operations, cash management, securities lending and market
risk evaluation. Mr. Sedlacek currently serves on the Board of Directors of the
FIA and the Chicago Mercantile Exchange, and is a member of the Global Markets
Advisory Committee of the CFTC. Mr. Sedlacek received his A.B. in Economics
from Princeton University, M.B.A. in Accounting from New York University and
received his C.P.A. from the State of New York in 1978.
Mr. E. Lyndon Tefft is a senior vice president and the chief financial
officer. He is also the treasurer of Westport Capital Management Corporation
and JWH Asset Management Inc. and vice president of JWH Financial Products, Inc.
Prior to joining JWH in October 1998, Mr. Tefft was the Director of MIS and a
vice president at Harvard Management Company, Inc. where he was responsible for
directing the design, development, and operation of global equity, bond, and
derivative trading, accounting and settlement systems beginning in May 1994.
Mr. Tefft was the director of the Office of Financial Systems (controller) at
Harvard University from July 1983 to April 1994. He was responsible for the
University's centralized controllership, financial reporting, debt management,
and financial operations. Mr. Tefft received a B.S. in Industrial Management
from Purdue University, and an M.B.A. from Wharton School of Business at the
University of Pennsylvania.
Mr. Mark S. Rzepczynski, Ph.D., is a senior vice president, research and
trading and a member of the JWH Investment Policy Committee. Mr. Rzepczynski is
also a vice president of JWH Financial Products, Inc. Prior to joining JWH in
May 1998, Mr. Rzepczynski was vice president and director of taxable credit and
quantitative research in the fixed-income division of Fidelity Management and
Research from May 1995 to April 1998, where he oversaw credit and quantitative
research recommendations for all fidelity taxable fixed-income funds. From
April 1993 to April 1995, Mr. Rzepczynski was a portfolio manager and director
of research for CSI Asset Management, Inc., a fixed-income money management
subsidiary of Prudential Insurance. Mr. Rzepczynski has a B.A. CUM LAUDE in
Economics from Loyola University of Chicago, and an A.M. and Ph.D. in Economics
from Brown University.
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Ms. Elizabeth A. M. Kenton is a senior vice president, compliance. Since
joining JWH in March 1989, Ms. Kenton has held positions of increasing
responsibility in research and development, administration and regulatory
compliance. Ms. Kenton is also senior vice president of JWH Investment
Management, Inc., a director of Westport Capital Management Corporation, the
vice president of JWH Asset Management, Inc. and JWH Financial Products, Inc.,
and a director of Global Capital Management Limited. She received a B.S. in
Finance from Ithaca College.
Mr. David M. Kozak is a senior vice president, general counsel, and
secretary to JWH. He is also secretary of JWH Investment Management, Inc., JWH
Asset Management, Inc., and JWH Financial Products, Inc. and a director and
secretary of Westport Capital Management Corporation. Prior to joining JWH in
September 1995, Mr. Kozak had been a partner at the law firm of Chapman and
Cutler from 1989 and was an associate from September 1983. In his practice
there, he concentrated in commodity futures law, with an emphasis in the area of
commodity money management. Mr. Kozak is currently the secretary and a director
of the MFA, and is a member of that organization's Executive and Government
Relations Committees. He is also a member of the Special Committee on CPO/CTA
Disclosure Issues and the Special Committee for the Review of Multi-Tiered
Regulatory Approach to NFA Rules, both of the NFA. He is also chairman of the
subcommittee on CTA and CPO issues of the Committee on Futures Regulation of the
Association of the Bar of the City of New York. He received a B.A. from Lake
Forest College, an M.A. from The University of Chicago, and a J.D. from Loyola
University of Chicago.
Mr. Kevin S. Koshi is senior vice president, proprietary trading and a
member of the JWH Investment Policy Committee. He is responsible for the
implementation and oversight of the firm's proprietary strategies and
investments. Mr. Koshi joined JWH in August 1988 as a professional in the
Finance Department, and since 1990 has held positions of increasing
responsibility in the Trading Department. He received a B.S. in Finance from
California State University at Long Beach.
Mr. Matthew J. Driscoll is vice president, chief trader, and a member of
the JWH Investment Policy Committee. He is responsible for the supervision and
administration of all aspects of order execution strategies and implementation
of trading policies and procedures. Mr. Driscoll joined JWH in March 1991 as a
member of its trading department. Since joining the firm he has held positions
of increasing responsibility as they relate to the development and
implementation of JWH's trading strategies and procedures. He has played a
major role in the development of JWH's 24-hour trading operation. Mr. Driscoll
attended Pace 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 Investment Management, Inc.,
JWH Asset Management, Inc. and JWH Financial Products, Inc. Mr. Twist joined
JWH as internal projects manager in September 1991. Mr. Twist's
responsibilities include assisting with the day-to-day administration and
internal projects of JWH's Florida office.
Mr. Julius A. Staniewicz is a vice president, senior strategist, and a
member of the JWH Investment Policy Committee. He is also president of JWH
Asset Management, Inc. and JWH Financial Products, Inc. and a vice president of
Westport Capital Management Corporation. Mr. Staniewicz received a B.A. in
Economics from Cornell University.
The additional principals of JWH have the following titles: Christopher E.
Deakins, vice president, investor services; Nancy O. Fox, vice president,
investment support; Kevin J. Treacy, vice president, corporate finance; Florence
Y. Sofer, vice president, marketing; Paul D. Braica, vice president, analytics;
Andrew D. Willard, vice president, information technology; William G. Kelley,
vice president, investor services, International; and Robert B. Lendrim, vice
president, investor services.
THE INVESTMENT POLICY COMMITTEE
The Investment Policy Committee ("IPC") is a senior-level advisory group,
broadly responsible for evaluating and overseeing the firm's trading policies.
The IPC provides a forum for collective development and implementation of
investment policies. The IPC
-50-
meets periodically to discuss issues relating to implementation of the firm's
investment process and its application to markets, including research on new
investments and strategies in relation to the trading models JWH employs.
Typical issues analyzed by the IPC include liquidity, position size, capacity,
performance cycles, and new product and market strategies. The IPC also
examines regularly the impact of changing market conditions on the firm's
strategic allocation program, a multi-program trading strategy which is
currently part of an exclusivity arrangement with one fund manager. Composition
of the IPC, and participation in its discussions and decisions by non-members,
may vary over time. All recommendations of the IPC are subject to final
approval by the chairman. The IPC does not make day-to-day trading decisions.
JWH PERFORMANCE
GENERAL
The following is the composite performance of all accounts managed by JWH
and JWH Investments, Inc., an affiliate of JWH which has ceased operations All
performance information is current as of December 31, 1998. Not all of these
programs are presently used by the Fund, but any of them might be in the future.
FROM THE INCEPTION OF TRADING OF THE JWH PROGRAMS (IN ACCORDANCE WITH
APPLICABLE CFTC POLICY, THE PERFORMANCE OF THE PROGRAMS PRIOR TO JANUARY 1994 IS
NOT PRESENTED IN THIS PROSPECTUS BUT INSTEAD IS PRESENTED IN THE STATEMENT OF
ADDITIONAL INFORMATION), THE GREATEST CUMULATIVE PERCENTAGE DECLINE IN DAILY NET
ASSET VALUE EXPERIENCED IN ANY SINGLE PROGRAM WAS NEARLY 60% ON A COMPOSITE
BASIS, AND CERTAIN INDIVIDUAL ACCOUNTS INCLUDED IN SUCH PROGRAM EXPERIENCED EVEN
GREATER DECLINES. CERTAIN JWH ACCOUNTS HAVE LOST 10% OR MORE IN A SINGLE
TRADING DAY. PROSPECTIVE INVESTORS SHOULD UNDERSTAND THAT SIMILAR OR GREATER
DRAWDOWNS ARE POSSIBLE IN THE FUTURE. THERE CAN BE NO ASSURANCE THAT JWH WILL
TRADE PROFITABLY FOR THE FUND OR AVOID SUDDEN AND SEVERE LOSSES.
An investor should note that the composite capsule performance
presentations include individual accounts which, even though traded according to
the same investment program, have materially different rates of return. The
reasons for this are numerous material differences among accounts: (a)
procedures governing timing for the commencement of trading and means of moving
toward full portfolio commitment of new accounts; (b) the period during which
accounts are active; (c) client trading restrictions, including futures versus
forward contracts and contract months; (d) trading size to equity ratio
resulting from procedures for the commencement of trading and the appropriate
means of moving toward full portfolio commitment of new accounts and new
capital; (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 a
particular program; (f) the amount of interest income earned by an account,
which will depend on the rates paid by futures commission merchants on equity
deposits and/or on the portion of an account invested in interest-bearing
obligations such as Treasury bills; (g) the amount of management and incentive
fees paid to JWH and the amount of brokerage commissions paid, which will vary
and will depend on the fees negotiated by the client with the broker; (h) the
timing of orders to open or close positions; (i) the market conditions, which in
part determine the quality of trade executions; (j) variations in fill prices;
and (k) timing of additions and withdrawals. Notwithstanding these material
differences among accounts, the composite remains a valid representation of the
accounts included therein.
Composite performance presentation is only allowed for accounts which are
not materially different. To decide if there are material differences among
accounts traded pursuant to the same trading program, the gross trading
performance of each JWH investment program and each individual JWH account
within the relevant program is reviewed and the following parameters established
by interpretations of the Division of Trading and Markets of the CFTC applied
(i) if the arithmetic average of two percentages is greater than 10 percentage
points and the difference between the two is less than 10% of their average;
(ii) if the arithmetic average of the two percentages is greater than 5
percentage points but less than 10 percentage points and the difference between
the two is 1.5 percentage points or less; and (iii) if the arithmetic average of
the two percentages is less
-51-
than 5 percentage points and the difference between the two is 1.0 percentage
point or less. If one of the parameters (i) - (iii) is satisfied in the review,
then the results within the designated range are deemed "materially the same" or
"not materially different." The parameters (i) - (iii) determine if differences
between accounts are material. The gross trading performance of each JWH
investment program and each individual JWH account within the relevant program
not satisfying the above parameters (i) - (iii) is then reviewed to determine
whether any material differences that are detected could produce misleading
composite performance results. With the exception of accounts that were
established at levels below JWH's current minimum account size, JWH's policy is
to provide separate performance capsules when an account is consistently
performing differently on a gross trading basis than the other JWH accounts
traded pursuant to the same trading program and the continued inclusion of that
account in the composite would create a distortion in the composite rate of
return.
The composite rates of return indicated should not be taken as
representative of any rate of return actually achieved by any single account
represented in the records. Investors are further cautioned that the data set
forth in the performance capsule records are not indicative of any results which
may be attained by JWH in the future since past performance is not necessarily
indicative of future results. During the periods covered by the capsule
performance records, and particularly since 1989, JWH has increased and
decreased position size in relation to account equity in certain markets and
entire programs, and also altered the composition of the markets and contracts
for certain programs. In general since 1992, JWH began implementing certain
position size adjustments that were of a more permanent nature. While
historical returns represent actual performance achieved, investors should be
aware that the position size relative to account equity currently utilized may
be significantly different from that used during previous time periods.
Investors should be aware of the following position size adjustments relative to
account equity:
Original Investment Program --
reduced 25% commencing in October 1995
Financial and Metals Portfolio --
reduced 50% commencing in August 1992
Global Financial Portfolio --
reduced 50% commencing in April 1995
G-7 Currency Portfolio --
increased 50% commending in May 1998
International Currency and Bond Portfolio --
increased 30% commencing in May 1998.
While historical returns represent actual performance achieved, investors
should be aware that position size relative to account equity currently utilized
may be significantly different from that used during previous time periods. In
addition, the subjective aspects listed in the "Trading Strategy" section on
page 46 have been utilized more often in recent years and therefore may have had
a more pronounced effect on performance results during recent periods.
Additionally, the choice of an investment program (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), has an
effect on performance results. In reviewing the JWH capsule performance
records, prospective investors should bear in mind the possible effects of these
variations on rates of return and in the application of JWH's investment
methods.
Prior to December 1991 for JWH, and July 1992 for JWHII, capsule
performance records are presented on a cash basis except as otherwise stated in
the notes to the records. The recording of items on a cash basis should not,
for most months, be materially different from presenting such rates of return on
an accrual basis. Any differences in the monthly rates of return between the
two methods are immaterial to the overall performance presented. With the
change to the accrual basis of accounting for incentive fees in December 1991
for JWH, and July 1992 for JWHII, the net effect on monthly net performance and
the rate of return in the capsule performance records of continuing to record
interest income, management fees, commissions and other expenses on a cash basis
is materially equivalent to the full accrual basis. JWH began reflecting all
items of net performance on an accrual basis for the G-7 Currency Portfolio in
July 1992, and at the inception of client trading for the International Currency
and Bond Portfolio, Worldwide Bond Program, Dollar Program,
-52-
and JWH GlobalAnalytics-TM- Family of Programs. In August 1998, JWH made an
adjustment to the accounting method employed for every investment program not
already utilizing the full accrual basis of accounting. This adjustment moved
all JWH investment programs to the full accrual basis beginning on September 1,
1998.
Advisory fees vary from account to account managed pursuant to all
programs. In addition, the calculation of management and incentive fees is
subject to variation due to agreed-upon definitions contained in each account's
advisory agreement. Management fees vary from 0% to 6% of assets under
management; incentive fees vary from 0% to 25% of profits. Such variations in
advisory fees may have a material impact on the performance of an account from
time to time.
NOTES TO JWH PROGRAMS' CAPSULE
PERFORMANCE SUMMARIES AND THE MONTHLY RATES OF RETURN TABLE
Number of open accounts is the number of accounts directed by JWH pursuant
to the investment program shown as of December 31, 1998.
The number of open accounts in the capsules on pages 55 and 56 for the
Financial and Metals Portfolio, the Original Investment Program, the Global
Diversified Portfolio, the Global Financial Portfolio, the G-7 Currency
Portfolio, the JWH Global-Analytics-TM- Family of Programs, the Dollar Program
and the Worldwide Bond Program includes the Exclusive Fund Accounts traded
pursuant to the same trading methodology but pursuant to different position
sizes in relation to account equity.
Assets under management in a program is the aggregate amount of total
equity, excluding "notional" equity under management of JWH in the investment
program shown as of December 31, 1998.
The assets under management in the capsules on pages 39 through 44 for the
Financial and Metals Portfolio, the Original Investment Program, the Global
Diversified Portfolio, the Global Financial Portfolio, the G-7 Currency
Portfolio, the JWH Global-Analytics-TM- Family of Programs, the Dollar Program
and the Worldwide Bond Program includes the Exclusive Fund Accounts traded
pursuant to the same trading methodology but pursuant to different position
sizes in relation to account equity.
Worst monthly decline on an individual account basis within the past five
years is the largest monthly loss experienced by any single account in the
relevant investment program in any calendar month covered by the capsule.
"Loss" for these purposes is calculated on the basis of the loss experienced by
the individual account, expressed as a percentage of total equity (including
"notional" equity) in the account. Worst monthly decline information includes
the month and year of such decline.
Worst peak-to-valley decline on an individual account basis is the largest
percentage decline by any single account in the relevant investment program
(after eliminating the effect of additions and withdrawals) during the period
covered by the capsule from any month-end net asset value, without such month
end net asset value being equaled or exceeded as of a subsequent month-end by
the individual account, expressed as a percentage of the total equity (including
"notional" equity) in the account. The worst peak-to-valley decline since
inception is the worst peak-to-valley decline by the program as a composite.
Compound Annual Rate of Return is calculated by compounding the monthly
rates of return over the number of periods in a given year. For example, each
month's monthly rate of return in hundredths is added to one (1) and the result
is multiplied by the previous month's compounded monthly rate of return
similarly expressed. One (1) is then subtracted from the product. For periods
less than one year, the results are year to date. Average Compounded Annualized
Rate of Return is similarly calculated, except that before subtracting one (1)
from the product, the product is exponentially changed by the factor of one (1)
divided by the number of years in the program's performance record, then one (1)
is subtracted.
Average Compounded Annual Rate of Return is calculated in a manner similar
to Annual Rate of Return except that before subtracting one (1) from the
product, the product is exponentially changed by the factor of one
-53-
(1) divided by the number of years in the performance records and then one (1)
is subtracted.
Monthly Rates of Return are calculated by dividing net performance by the
sum of beginning equity, plus additions minus withdrawals. For such purposes
all additions and withdrawals are effectively treated as if they had been made
on the first day of the month, even if, in fact, they occurred later. If
additions and withdrawals are material to the program's performance, they are
time-weighted. If time-weighting is materially misleading, then the only
accounts traded method is utilized.
Proprietary capital is included in the rates of return for the Financial
and Metals Portfolio, the Original Investment Program, the Global Diversified
Portfolio, the Global Financial Portfolio, the International Currency and Bond
Portfolio and the G-7 Currency Portfolio, but does not have a material impact on
the rates of return.
ADDITIONAL NOTE TO THE YEN FINANCIAL PORTFOLIO SUMMARY AND MONTHLY RATES OF
RETURN TABLE
The Yen Financial Portfolio was traded from the Japanese yen perspective.
As the equity mix between U.S. dollars and Japanese yen varied, performance from
each perspective also varied.
The performance of the Yen Financial Portfolio is presented on an
individual account basis due to material differences among accounts' historical
performance. Account performance varied historically due to a number of factors
unique to this portfolio, including whether the portfolio was denominated in
dollars or yen, the extent of hedging currency conversions, the amounts and
frequency of currency conversions and account size. Several of these factors
that materially influenced performance depended on clients' specific choices
that effectively resulted in customized client portfolios.
ADDITIONAL NOTE TO THE GLOBAL FINANCIAL
PORTFOLIO COMPOSITE PERFORMANCE SUMMARY
AND MONTHLY RATES OF RETURN TABLE
Since the inception of the Global Financial Portfolio, the timing of
individual account openings has had a material impact on compound rates of
return. Based on the account startup methodology used by JWH, the performance
of individual accounts comprising the Global Financial Portfolio composite
performance summary has varied. In 1994, the two accounts that were open
generated separate rates of return of negative 44% and negative 17%,
respectively. For the period January 1995 through June 1995, the three open
accounts achieved separate rates of return of 101%, 75% and 67%. By June 1995,
these accounts maintained mature positions and were performing consistently with
each other. Due to the six month period in 1995 of varied performance, the
three accounts achieved annual rates of return for 1995 of 122%, 92% and 78%.
ADDITIONAL NOTE TO THE PERFORMANCE
SUMMARIES OF THE DISCONTINUED PROGRAMS
Performance summaries are included for InterRate-TM-, the Delevered Yen
Denominated Financial and Metals Profile, the KT Diversified Program and the Yen
Financial Portfolio. All of these programs have been discontinued.
______________________
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[Enlarge/Download Table]
JOHN W. HENRY & COMPANY, INC. PROGRAMS
JANUARY 1, 1994 - DECEMBER 31, 1998
--------------------------------------------------------------------------------------
Financial and Original Global Global
Metals Investment Diversified Financial G-7 Currency
NAME OF PROGRAM: Portfolio Program Portfolio Portfolio Portfolio
--------------------------------------------------------------------------------------
INCEPTION OF CLIENT ACCOUNT
TRADING IN PROGRAM: October 1984 October 1982 June 1988 June 1994 February 1991
--------------------------------------------------------------------------------------
NUMBER OF OPEN ACCOUNTS: 31 20 10 6 6
--------------------------------------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING
"NOTIONAL" EQUITY) IN
PROGRAM: $1,182,000 $405,066,930 $202,223,023 $158,157,356 $95,646,185
--------------------------------------------------------------------------------------
AGGREGATE ASSETS (INCLUDING
"NOTIONAL" EQUITY) IN
PROGRAM: $1,182,000 $405,066,930 $202,223,023 $158,157,356 $95,646,185
--------------------------------------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING
"NOTIONAL" EQUITY) OVERALL $2.3 billion $2.3 billion $2.3 billion $2.3 billion $2.3 billion
--------------------------------------------------------------------------------------
AGGREGATE ASSETS (INCLUDING
NOTIONAL" EQUITY) OVERALL: $2.3 billion $2.3 billion $2.3 billion $2.3 billion $2.3 billion
--------------------------------------------------------------------------------------
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT (10.1)% (16.3)% (11.2)% (19.5)% (12.3)%
BASIS: (2/96) (10/94) (2/96) (11/94) (11/94)
--------------------------------------------------------------------------------------
WORST PEAK-TO-VALLEY
DECLINE ON AN INDIVIDUAL (30.5)% (31.0)% (24.1)% (48.9)% (31.4)%
ACCOUNT BASIS: (6/94-1/95) (7/94-10/94) (6/95-10/95) (7/94-1/95) (10/92-1/95)
--------------------------------------------------------------------------------------
1998 COMPOUND ANNUAL RATE
OF RETURN 7.2% 10.8% 23.6% 9.9% (4.8)%
--------------------------------------------------------------------------------------
1997 COMPOUND ANNUAL RATE
OF RETURN: 15.2% 5.7% 3.3% 4.9% 21.0%
--------------------------------------------------------------------------------------
1996 COMPOUND ANNUAL RATE
OF RETURN: 29.7% 22.6% 26.9% 32.4% 14.5%
--------------------------------------------------------------------------------------
1995 COMPOUND ANNUAL RATE
OF RETURN: 38.5% 53.2% 19.6% 86.2% 32.2%
--------------------------------------------------------------------------------------
1994 COMPOUND ANNUAL RATE (37.7)%
OF RETURN: (5.3)% (5.7)% 10.1% (7 months) (4.9)%
--------------------------------------------------------------------------------------
--------------------------------------------------------
International JWH Global-
Foreign Analytics-TM- International
Exchange Family of Currency and Bond
NAME OF PROGRAM: Program Programs Portfolio
--------------------------------------------------------
INCEPTION OF CLIENT ACCOUNT
TRADING IN PROGRAM: August 1986 June 1997 January 1993
--------------------------------------------------------
NUMBER OF OPEN ACCOUNTS: 4 2 1
--------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING
"NOTIONAL" EQUITY) IN
PROGRAM: $91,588,667 $86,054,216 $27,512,908
--------------------------------------------------------
AGGREGATE ASSETS (INCLUDING
"NOTIONAL" EQUITY) IN
PROGRAM: $91,558,667 $86,054,216 $27,512,908
--------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING
"NOTIONAL" EQUITY) OVERALL $2.3 billion $2.3 billion $2.3 billion
--------------------------------------------------------
AGGREGATE ASSETS (INCLUDING
NOTIONAL" EQUITY) OVERALL: $2.3 billion $2.3 billion $2.3 billion
--------------------------------------------------------
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT (8.3)% (5.0)% (7.8)%
BASIS: (5/97) (4/98) (7/94)
--------------------------------------------------------
WORST PEAK-TO-VALLEY
DECLINE ON AN INDIVIDUAL (35.9)% (5.0)% (23.6)%
ACCOUNT BASIS: (9/92-1/95) (4/98) (7/94-1/95)
--------------------------------------------------------
1998 COMPOUND ANNUAL RATE (3.6)%
OF RETURN 14.0% (5 mos.) 16.1%
--------------------------------------------------------
1997 COMPOUND ANNUAL RATE 17.6%
OF RETURN: 71.1% (7 mos.) 17.0%*
--------------------------------------------------------
1996 COMPOUND ANNUAL RATE
OF RETURN: 3.7% N/A 19.9%*
--------------------------------------------------------
1995 COMPOUND ANNUAL RATE
OF RETURN: 16.9% N/A 36.5%*
--------------------------------------------------------
1994 COMPOUND ANNUAL RATE
OF RETURN: (6.3)% N/A (2.3)%
--------------------------------------------------------
* FROM OCTOBER 1995 TO JULY 1997, THIS PROGRAM WAS COMPRISED OF ONE
PROPRIETARY ACCOUNT.
WORST MONTHLY DECLINE ON AN INDIVIDUAL ACCOUNT BASIS IS THE WORST MONTHLY
RATE OF RETURN DURING ANY MONTH.
WORST PEAK-TO-VALLEY DECLINE IS THE LARGEST PERCENTAGE LOSS WITHOUT SUCH
LOSS BEING EARNED BACK. FOR EXAMPLE, IF THE MONTHLY RATE OF RETURN WAS
(1)% IN EACH OF JULY AND AUGUST, 1% IN SEPTEMBER AND (2)% IN OCTOBER, THE
"PEAK-TO-VALLEY DECLINE" WOULD STILL BE CONTINUING AT THE END OF OCTOBER IN
THE AMOUNT OF APPROXIMATELY (3)%, WHEREAS IF THE MONTHLY RATE OF RETURN HAD
BEEN APPROXIMATELY 3% IN SEPTEMBER, THE "PEAK-TO-VALLEY DECLINE" WOULD HAVE
ENDED AS OF THE END OF AUGUST AT APPROXIMATELY THE (2)% LEVEL.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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[Enlarge/Download Table]
JOHN W. HENRY & COMPANY, INC. PROGRAMS
JANUARY 1, 1994 - DECEMBER 31, 1998 (CONT'D)
-----------------------------------------------------------------------
Delevered Yen
Denominated
The World Worldwide Financial
Financial Dollar Bond and Metals
NAME OF PROGRAM: Perspective Program Program Profile
-----------------------------------------------------------------------
October 1995;
INCEPTION OF CLIENT ACCOUNT ceased trading
TRADING IN PROGRAM: April 1987 July 1996 July 1996 12/96
-----------------------------------------------------------------------
NUMBER OF OPEN ACCOUNTS: 2 2 2 0
-----------------------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING
"NOTIONAL" EQUITY) IN
PROGRAM: $30,125,140 $38,172,172 $24,716,548 $0
-----------------------------------------------------------------------
AGGREGATE ASSETS (INCLUDING
"NOTIONAL" EQUITY) IN
PROGRAM: $30,125,140 $38,172,172 $24,716,548 $0
-----------------------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING
"NOTIONAL" EQUITY) OVERALL: $2.3 billion $2.3 billion $2.3 billion $2.3 billion
-----------------------------------------------------------------------
AGGREGATE ASSETS (INCLUDING
NOTIONAL" EQUITY) OVERALL: $2.3 billion $2.3 billion $2.3 billion $2.3 billion
-----------------------------------------------------------------------
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT (11.7)% (8.4)% (3.8)% (3.2)%
BASIS: (2/94) (5/97) (4/97) (2/96)
-----------------------------------------------------------------------
WORST PEAK-TO-VALLEY
DECLINE ON AN INDIVIDUAL (25.9)% (11.6)% (6.2)% (5.1)%
ACCOUNT BASIS: (7/94-1/95) (5/97-9/97) (12/96-5/97) (2/96-8/96)
-----------------------------------------------------------------------
1998 COMPOUND ANNUAL RATE (5.0)% (0.4)%
OF RETURN 7.2% (5 mos.) (5 mos.) N/A
-----------------------------------------------------------------------
1997 COMPOUND ANNUAL RATE
OF RETURN: 10.4% 6.8% 9.5% N/A
-----------------------------------------------------------------------
1996 COMPOUND ANNUAL RATE 10.6% 17.8%
OF RETURN: 40.9% (6 months) (6 months) 9.4%
-----------------------------------------------------------------------
1995 COMPOUND ANNUAL RATE 0.2%
OF RETURN: 32.2% N/A N/A (3 months)
-----------------------------------------------------------------------
1994 COMPOUND ANNUAL RATE
OF RETURN: (15.2)% N/A N/A N/A
-----------------------------------------------------------------------
----------------------------------------------------------
JWH II
KT Financial
Diversified and Metals
NAME OF PROGRAM: InterRate-TM- Program Portfolio*
----------------------------------------------------------
December 1988; January 1984; September 1991;
INCEPTION OF CLIENT ACCOUNT ceased trading ceased trading ceased trading
TRADING IN PROGRAM: 7/96 2/94 7/95
----------------------------------------------------------
NUMBER OF OPEN ACCOUNTS: 0 0 0
----------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING
"NOTIONAL" EQUITY) IN
PROGRAM: $0 $0 $0
----------------------------------------------------------
AGGREGATE ASSETS (INCLUDING
"NOTIONAL" EQUITY) IN
PROGRAM: $0 $0 $0
----------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING
"NOTIONAL" EQUITY) OVERALL: $2.3 billion $2.3 billion $0
----------------------------------------------------------
AGGREGATE ASSETS (INCLUDING
NOTIONAL" EQUITY) OVERALL: $2.3 billion $2.3 billion $0
----------------------------------------------------------
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT (3.1)% (19.6)% (4.8)%
BASIS: (11/94) (8/93) (7/94)
----------------------------------------------------------
WORST PEAK-TO-VALLEY
DECLINE ON AN INDIVIDUAL (19.7)% (33.9)% (12.2)%
ACCOUNT BASIS: (9/92-11/93) (8/93-2/94) (7/94-12/94)
----------------------------------------------------------
1998 COMPOUND ANNUAL RATE
OF RETURN N/A N/A N/A
----------------------------------------------------------
1997 COMPOUND ANNUAL RATE
OF RETURN: N/A N/A N/A
----------------------------------------------------------
1996 COMPOUND ANNUAL RATE 5.79%
OF RETURN: (7 months) N/A N/A
----------------------------------------------------------
1995 COMPOUND ANNUAL RATE 30.3%
OF RETURN: 5.19% N/A (7 months)
----------------------------------------------------------
1994 COMPOUND ANNUAL RATE (14.0)%
OF RETURN: 3.42% (2 months) (0.8)%
----------------------------------------------------------
* Managed by JWH Investments, Inc. which began managing client assets in
September 1991. JWH Investments, Inc. no longer manages client funds.
WORST MONTHLY DECLINE ON AN INDIVIDUAL ACCOUNT BASIS IS THE WORST MONTHLY
RATE OF RETURN DURING ANY MONTH.
WORST PEAK-TO-VALLEY DECLINE IS THE LARGEST PERCENTAGE LOSS WITHOUT
SUCH LOSS BEING EARNED BACK. FOR EXAMPLE, IF THE MONTHLY RATE OF
RETURN WAS (1)% IN EACH OF JULY AND AUGUST, 1% IN SEPTEMBER AND (2)%
IN OCTOBER, THE "PEAK-TO-VALLEY DECLINE" WOULD STILL BE CONTINUING AT
THE END OF OCTOBER IN THE AMOUNT OF APPROXIMATELY (3)%, WHEREAS IF THE
MONTHLY RATE OF RETURN HAD BEEN APPROXIMATELY 3% IN SEPTEMBER, THE
"PEAK-TO-VALLEY DECLINE" WOULD HAVE ENDED AS OF THE END OF AUGUST AT
APPROXIMATELY THE (2)% LEVEL.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
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[Enlarge/Download Table]
JOHN W. HENRY & COMPANY, INC. PROGRAMS
EXCLUSIVE FUND ACCOUNTS
MAY 8, 1998 - DECEMBER 31, 1998
--------------------------------------------------------------------------------------------
Financial Original Global Global
and Metals Investment Diversified Financial G-7 Currency
Portfolio Program Portfolio Portfolio Portfolio
NAME OF PROGRAM: Exclusive Exclusive Exclusive Exclusive Exclusive
--------------------------------------------------------------------------------------------
INCEPTION OF CLIENT ACCOUNT
TRADING IN PROGRAM: May 1998 May 1998 May 1998 May 1998 May 1998
--------------------------------------------------------------------------------------------
2 profitable 2 profitable 2 profitable 2 profitable 2 profitable
NUMBER OF OPEN ACCOUNTS: 0 unprofitable 0 unprofitable 0 unprofitable 0 unprofitable 0 unprofitable
--------------------------------------------------------------------------------------------
CLOSED ACCOUNTS: 0 0 0 0 0
--------------------------------------------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING
"NOTIONAL" EQUITY) IN
PROGRAM: $62,379,181 $103,353,921 $49,086,889 $78,921,920 $59,254,479
--------------------------------------------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING
"NOTIONAL" EQUITY) OVERALL $2.3 billion $2.3 billion $2.3 billion $2.3 billion $2.3 billion
--------------------------------------------------------------------------------------------
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT (8.6)% (12.0)% (9.3)% (8.7)% (8.6)%
BASIS: (11/98) (11/98) (10/98) (11/98) (11/98)
--------------------------------------------------------------------------------------------
WORST PEAK-TO-VALLEY
DECLINE ON AN INDIVIDUAL (11.7)% (12.0)% (12.2)% (8.7)% (10.2)%
ACCOUNT BASIS: (10/98-11/98) (11/98) (10/98-11/98) (11/98) (11/98)
--------------------------------------------------------------------------------------------
WORST PEAK-TO-VALLEY
DECLINE ON A COMPOSITE (11.6)% (11.8)% (12.2)% (8.6)% (10.0)%
BASIS SINCE INCEPTION: (10/98-11/98) (11/98) (10/98-11/98) (11/98) (11/98)
--------------------------------------------------------------------------------------------
AVERAGE COMPOUNDED
ANNUALIZED RATE OF RETURN: N/A N/A N/A N/A N/A
--------------------------------------------------------------------------------------------
1998 COMPOUND ANNUAL RATE 33.5% 20.2% 39.7% 18.4% 0.7%
OF RETURN: (8 mos.) (8 mos.) (8 mos.) (8 mos.) (8 mos.)
--------------------------------------------------------------------------------------------
1997 COMPOUND ANNUAL RATE
OF RETURN: N/A N/A N/A N/A N/A
--------------------------------------------------------------------------------------------
1996 COMPOUND ANNUAL RATE
OF RETURN: N/A N/A N/A N/A N/A
--------------------------------------------------------------------------------------------
1995 COMPOUND ANNUAL RATE
OF RETURN: N/A N/A N/A N/A N/A
--------------------------------------------------------------------------------------------
1994 COMPOUND ANNUAL RATE
OF RETURN: N/A N/A N/A N/A N/A
--------------------------------------------------------------------------------------------
----------------------------------------------------------
JWH Global-
Worldwide Analytics-TM
Bond Family of Dollar
Program Programs Program
NAME OF PROGRAM: Exclusive Exclusive Exclusive
----------------------------------------------------------
INCEPTION OF CLIENT ACCOUNT
TRADING IN PROGRAM: May 1998 May 1998 May 1998
----------------------------------------------------------
2 profitable 2 profitable 2 profitable
NUMBER OF OPEN ACCOUNTS: 0 unprofitable 0 unprofitable 0 unprofitable
----------------------------------------------------------
CLOSED ACCOUNTS: 0 0 0
----------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING
"NOTIONAL" EQUITY) IN
PROGRAM: $24,716,550 $86,084,215 $38,172,171
----------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING
"NOTIONAL" EQUITY) OVERALL $2.3 billion $2.3 billion $2.3 billion
----------------------------------------------------------
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT (7.0)% (5.8)% (7.2)%
BASIS: (10/98) (11/98) (11/98)
----------------------------------------------------------
WORST PEAK-TO-VALLEY
DECLINE ON AN INDIVIDUAL (7.4)% (6.1)% (7.2)%
ACCOUNT BASIS: (10/98-11/98) (10/98-11/98) (11/98)
----------------------------------------------------------
WORST PEAK-TO-VALLEY
DECLINE ON A COMPOSITE (7.3)% (5.9)% (7.0)%
BASIS SINCE INCEPTION: (10/98-11/98) (10/98-11/98) (11/98)
----------------------------------------------------------
AVERAGE COMPOUNDED
ANNUALIZED RATE OF RETURN: N/A N/A N/A
----------------------------------------------------------
1998 COMPOUND ANNUAL RATE 25.9% 25.5% 2.7%
OF RETURN: (8 mos.) (8 mos.) (8 mos.)
----------------------------------------------------------
1997 COMPOUND ANNUAL RATE
OF RETURN: N/A N/A N/A
----------------------------------------------------------
1996 COMPOUND ANNUAL RATE
OF RETURN: N/A N/A N/A
----------------------------------------------------------
1995 COMPOUND ANNUAL RATE
OF RETURN: N/A N/A N/A
----------------------------------------------------------
1994 COMPOUND ANNUAL RATE
OF RETURN: N/A N/A N/A
----------------------------------------------------------
WORST MONTHLY DECLINE ON AN INDIVIDUAL ACCOUNT BASIS IS THE WORST MONTHLY
RATE OF RETURN DURING ANY MONTH.
WORST PEAK-TO-VALLEY DECLINE IS THE LARGEST PERCENTAGE LOSS WITHOUT SUCH
LOSS BEING EARNED BACK. FOR EXAMPLE, IF THE MONTHLY RATE OF RETURN WAS
(1)% IN EACH OF JULY AND AUGUST, 1% IN SEPTEMBER AND (2)% IN OCTOBER, THE
"PEAK-TO-VALLEY DECLINE" WOULD STILL BE CONTINUING AT THE END OF OCTOBER IN
THE AMOUNT OF APPROXIMATELY (3)%, WHEREAS IF THE MONTHLY RATE OF RETURN HAD
BEEN APPROXIMATELY 3% IN SEPTEMBER, THE "PEAK-TO-VALLEY DECLINE" WOULD HAVE
ENDED AS OF THE END OF AUGUST AT APPROXIMATELY THE (2)% LEVEL.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
-57-
JOHN W. HENRY & COMPANY, INC. PROGRAMS
JANUARY 1, 1994 - DECEMBER 31, 1998
YEN FINANCIAL PORTFOLIO
INCEPTION OF CLIENT ACCOUNT TRADING IN PROGRAM: January 1992
NUMBER OF OPEN ACCOUNTS: 0
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $0
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $0
[Enlarge/Download Table]
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AGGREGATE WORST WORST
ACCOUNT NO. INCEPTION OF ASSETS COMPOUND ANNUAL RATE MONTHLY PEAK-TO-VALLEY
TRADING DECEMBER 31, 1998 OF RETURN % DECLINE % DECLINE %
---------------------------------------------------------------------------------------------------------------------------------
1 1/92 closed - 3/97 1997: (3.3) (3 months) (7.3) - 7/95 (30.5) - 4/95 - 7/96
1996: (8.5)
1995: 20.6
1994: (13.0)
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2 1/93 closed - 1/97 1997: (0.1) (1 month) (6.9) - 7/95 (29.0) - 4/95 - 7/96
1996: (9.9)
1995: 21.0
1994: (8.8)
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3 1/94 closed - 1/97 1997: (2.4) (1 month) (6.0) - 7/95 (26.6) - 4/95 - 7/96
1996: (10.9)
1995: 22.4
1994: (7.5)
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4 6/94 closed - 3/97 1997: 1.4 (3 months) (6.5) - 7/95 (22.3) - 4/95 - 7/96
1996: (0.6)
1995: 24.2
1994: (1.6) (7 months)
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5 8/94 closed - 3/97 1997: (2.4) (3 months) (7.1) - 7/95 (30.4) - 4/95 - 7/96
1996: (6.0)
1995: 21.1
1994: (4.3) (5 months)
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6 1/95 closed - 3/97 1997: (3.7) (3 months) (7.5) - 7/95 (35.5) - 4/95 - 7/96
1996: (13.5)
1995: 13.2
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7 3/94 closed-3/97 1997: 4.0 (3 months) (6.7) - 7/96 (15.9) - 2/96 - 7/96
1996: 7.8
1995: 28.1
1994: (11.2) (10 months)
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9 3/94 closed - 12/94 1994: (7.4) (10 months) (5.4) - 5/94 (10.5) - 4/94 - 12/94
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10 11/93 closed - 8/95 1995: 20.0 (8 months) (9.0) - 8/95 (18.8) - 4/95 - 8/95
1994: (13.4)
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11 11/93 closed - 1/95 1995: (0.6) (1 month) (6.3) - 5/94 (16.5) - 4/94 -1/95
1994: (15.0)
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12 12/92 closed - 3/96 1996: (4.1) (3 months) (4.9) - 7/95 (15.8) - 12/93 - 1/95
1995: 31.4
1994: (14.1)
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13 1/93 closed - 12/95 1995: 10.9 (6.2) - 7/95 (15.8) - 4/95 - 12/95
1994: (4.1)
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14 4/93 closed -9/94 1994: (19.0) (9 months) (5.8) - 5/94 (19.9) - 11/93 - 9/94
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15 1/94 closed - 8/94 1994: (6.7) (8 months) (5.5) - 5/94 (11.0) - 4/94 - 8/94
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16 12/92 closed - 1/96 1996: 0.3 (1 month) (6.0) - 7/95 (12.4) - 4/95 - 10/95
1995: 26.6
1994: (5.1)
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17 3/94 closed - 4/96 1996: (6.3) (4 months) (6.2) - 7/95 (18.5) - 4/95 - 4/96
1995: 18.5
1994: (10.1) (10 months)
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18 12/94 closed - 4/96 1996: (7.8) (4 months) (6.6) - 7/95 (21.1) - 4/95 - 4/96
1995: 18.3
1994: 0.2 (1 month)
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19 6/94 closed - 12/94 1994: (7.9) (7 months) (5.1) - 7/94 (10.4) - 6/94 - 11/94
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PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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JOHN W. HENRY & COMPANY, INC. PROGRAMS
JANUARY 1, 1994 - DECEMBER 31, 1998
YEN FINANCIAL PORTFOLIO (CONT'D)
INCEPTION OF CLIENT ACCOUNT TRADING IN PROGRAM: January 1992
NUMBER OF OPEN ACCOUNTS: 0
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $0
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $0
[Enlarge/Download Table]
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AGGREGATE WORST WORST
ACCOUNT NO. INCEPTION OF ASSETS COMPOUND ANNUAL RATE MONTHLY PEAK-TO-VALLEY
TRADING DECEMBER 31, 1998 OF RETURN % DECLINE % DECLINE %
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20 6/94 closed - 3/95 1995: 48.1 (3 months) (3.6) - 7/94 (9.9) - 6/94 - 1/95
1994: (6.6) (7 months)
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21 4/94 closed - 9/94 1994: (4.6) (6 months) (4.7) - 5/94 (7.0) - 4/94 - 9/94
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22 3/94 closed - 9/94 1994: (9.7) (7 months) (6.3) - 5/94 (11.0) - 4/94 - 9/94
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23 4/94 closed - 9/94 1994: (9.8) (6 months) (9.1) - 5/94 (12.9) - 4/94 - 9/94
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24 4/93 closed - 12/94 1994: (16.6) (6.1) - 5/94 (17.9) -11/93 -12/94
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25 9/93 closed - 12/94 1994: (12.4) (6.0) - 5/94 (14.1) - 4/94 - 12/94
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The Yen Financial Portfolio closed in March 1997.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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[Enlarge/Download Table]
THE JWH PROGRAMS MONTHLY RATES OF RETURN
INTERNATIONAL INTERNATIONAL
FINANCIAL ORIGINAL FOREIGN THE WORLD GLOBAL G-7 CURRENCY GLOBAL
AND METALS INVESTMENT EXCHANGE FINANCIAL DIVERSIFIED CURRENCY AND BOND FINANCIAL
PORTFOLIO PROGRAM PROGRAM PERSPECTIVE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------- ------- ----------- --------- --------- --------- ---------
1998
January (3.5)% (1.3)% (1.6)% 1.8% (3.2)% (4.1)% 1.0% (1.5)%
February (4.0) 2.2 (6.0) 2.5 3.8 (2.6) (2.3) (0.1)
March (1.6) (4.1) 2.9 1.6 (1.4) 4.7 1.3 2.0
April (7.9) (0.5) (3.4) (3.1) (3.2) (1.9) (4.0) (3.5)
May 3.2 4.4 8.2 1.2 3.1 6.6 5.4 2.0
June (4.8) 1.7 19.6 (4.6) (1.3) (2.8) (3.2) (1.0)
July (0.9) (4.0) 1.8 (4.1) 0.1 0.4 0.4 (3.6)
August 17.5 4.0 2.2 9.1 19.5 (2.5) 9.4 5.3
September 15.3 2.7 (6.8) 1.1 9.4 2.0 11.2 4.0
October (3.8) 5.2 7.2 3.2 (9.4) 7.4 (2.2) 2.8
November (7.5) (12.8) (6.1) (8.6) (2.5) (9.1) (5.2) (9.5)
December 8.9 15.4 (1.8) 8.3 9.4 (1.7) 4.8 14.4
COMPOUND
ROR 7.2% 10.8% 14.0% 7.2% 23.6% (4.8)% 16.1% 9.9%
1997
January 4.4% 3.4% 2.9% 1.1% 1.5% 2.5% 2.2% 2.7%
February (2.2) 0.2 9.7 0.2 (0.4) 3.9 1.4 (0.6)
March (0.7) 1.6 4.1 (2.3) (1.0) 0.4 0.0 (0.4)
April (2.9) 0.5 5.0 (0.8) (7.2) 3.1 (1.9) (0.4)
May (8.3) 1.1 (6.9) (5.2) (0.8) (3.3) (2.9) (3.7)
June 4.1 (4.4) 1.5 4.5 (2.1) 5.7 4.9 (2.2)
July 15.8 2.0 9.5 6.0 11.5 4.1 10.2 5.4
August (3.7) (0.8) 7.0 (6.4) (7.8) (3.5) (6.1) (1.4)
September 2.2 (6.0) 2.4 1.1 (0.2) (1.2) 2.8 (2.1)
October 2.0 3.6 5.1 (1.3) 4.5 1.2 2.7 4.2
November 2.5 (0.0) 6.5 8.4 (0.5) 6.0 2.0 (1.5)
December 2.9 4.9 9.2 5.9 7.3 0.9 1.3 5.3
COMPOUND
ANNUAL ROR 15.2% 5.7% 71.1% 10.4% 3.3% 21.0% 17.0%* 4.9%
1996
January 6.0% 5.3% 2.3% 7.4% (1.3)% 2.9% 3.6% 4.8%
February (5.5) (7.4) (4.8) (5.5) (9.8) (4.2) (4.6) (4.2)
March 0.7 1.0 2.9 6.7 1.3 (0.4) 1.1 2.4
April 2.3 3.8 1.0 2.4 7.1 2.2 0.1 1.3
May (1.7) (6.5) 2.0 (2.0) (9.1) 0.7 (0.3) (1.5)
June 2.2 8.0 1.0 2.7 1.7 1.8 (0.8) 1.4
July (1.1) (4.4) (3.0) (2.9) 2.2 (2.7) (2.5) (3.1)
August (0.8) (2.3) (8.1) 1.6 4.5 (4.3) (0.8) 4.3
September 3.2 8.2 1.2 7.8 7.6 1.6 5.2 8.1
October 14.3 10.4 6.1 9.3 14.6 10.9 12.2 8.8
November 10.9 5.2 3.1 9.1 9.1 4.1 7.6 6.3
December (2.6) 1.1 0.7 (0.6) (1.0) 1.8 (1.4) 0.8
COMPOUND
ANNUAL ROR 29.7% 22.6% 3.7% 40.9% 26.9% 14.5% 19.9%* 32.4%
1995
January (3.8)% 2.2% (6.1)% (3.7)% (6.9)% (3.0)% (3.7)% (4.7)%
February 15.7 17.9 7.2 13.7 13.5 9.6 11.1 25.6
March 15.3 16.6 22.2 18.3 8.5 21.2 11.2 44.4
April 6.1 9.1 2.5 3.7 7.3 2.2 3.7 7.0
May 1.2 (4.4) (5.3) (3.3) 1.2 (4.3) 7.7 (5.1)
June (1.7) 1.7 (0.6) (2.6) (1.7) (0.2) (2.0) (1.0)
July (2.3) (0.0) (5.5) 0.5 (8.9) (1.8) (2.8) 1.4
August 2.1 (3.9) 5.8 1.7 (5.0) 5.3 (0.3) 4.6
September (2.1) (3.9) 0.5 (3.9) (5.1) 1.8 0.7 (4.9)
October 0.3 3.3 1.5 3.9 (2.2) 2.0 0.6* 4.0
November 2.6 1.1 (2.8) (0.1) 5.9 (1.3) 5.1 0.4
December 1.7 6.8 (0.6) 2.4 14.9 (0.8) 1.5 1.8
COMPOUND
ANNUAL ROR 38.5% 53.2% 16.9% 32.2% 19.6% 32.2% 36.5%* 86.2%
--------------
*From October 1995 to July 1997, this program was comprised of one proprietary
account.
MONTHLY RATE OF RETURN IS NET PERFORMANCE DIVIDED BY BEGINNING EQUITY; "ROR"
MEANS "RATE OF RETURN."
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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[Enlarge/Download Table]
THE JWH PROGRAMS MONTHLY RATES OF RETURN (CONT'D)
INTERNATIONAL INTERNATIONAL
FINANCIAL ORIGINAL FOREIGN THE WORLD GLOBAL G-7 CURRENCY GLOBAL
AND METALS INVESTMENT EXCHANGE FINANCIAL DIVERSIFIED CURRENCY AND BOND FINANCIAL
PORTFOLIO PROGRAM PROGRAM PERSPECTIVE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------- ------- ----------- --------- --------- --------- ---------
1994
January (2.9)% (2.9)% 1.0% (4.6)% (2.6)% (1.3)% (2.2)% N/A
February (0.6) 1.5 (3.0) (0.0) (0.8) (1.7) 1.5 N/A
March 7.2 4.4 (0.2) 9.2 4.0 0.9 5.4 N/A
April 0.9 0.2 (1.7) 0.9 0.9 (1.3) 3.0 N/A
May 1.3 5.5 (1.8) 2.4 7.9 (1.0) 4.3 N/A
June 4.5 6.6 3.2 1.7 10.8 7.9 4.8 9.8%
July (6.1) (7.1) (2.5) (8.9) (2.6) (3.5) (6.7) (7.4)
August (4.1) (4.7) (0.3) (3.1) (6.4) (0.3) (3.0) (8.8)
September 1.5 (2.8) 2.7 (0.0) 2.1 2.9 0.9 (4.0)
October 1.7 (14.1) 4.2 0.2 (3.6) 4.1 0.1 (8.3)
November (4.4) 10.2 (6.7) (5.8) 5.6 (7.2) (4.8) (17.4)
December (3.5) (0.0) (0.8) (6.8) (4.1) (3.6) (4.7) (7.7)
COMPOUND
ANNUAL ROR (5.3)% (5.7)% (6.3)% (15.2)% 10.1% (4.9)% (2.3)% (37.7)%
(7 MOS.)
--------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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THE JWH PROGRAMS MONTHLY RATES OF RETURN (CONT'D)
[Download Table]
DOLLAR* WORLDWIDE* JWH GLOBALANALYTICS-TM- *
PROGRAM BOND PROGRAM FAMILY OF PROGRAMS
------- ------------ -------------------------
1998
January (1.9)% 3.4% (1.8)%
February (3.5) (0.8) (1.1)
March 3.5 (0.7) 4.7
April (2.4) (2.8) (4.9)
May 1.3* 1.6* 6.2*
June
July
August
September
October
November
December
COMPOUND
ROR (5.0)% (0.4)% (3.6)%
1997
January 7.2% 0.9% N/A
February 1.7 (0.6) N/A
March 1.1 (0.1) N/A
April 2.9 (3.7) N/A
May (8.4) (0.6) N/A
June (1.0) 1.8 3.2%
July 2.3 9.3 8.4
August (3.5) (3.1) (4.4)
September (1.0) 4.0 3.4
October 1.7 1.7 0.7
November 4.4 (1.5) 0.5
December (0.1) 1.7 5.0
COMPOUND
ANNUAL ROR 6.8% 9.5% 17.6%
(7 MOS.)
1996
January N/A N/A N/A
February N/A N/A N/A
March N/A N/A N/A
April N/A N/A N/A
May N/A N/A N/A
June N/A N/A N/A
July (1.2)% 1.4% N/A
August (2.3) 1.4 N/A
September 0.1 3.7 N/A
October 7.4 6.9 N/A
November 3.8 5.9 N/A
December 2.7 (2.3) N/A
COMPOUND
ROR 10.6% 17.8% N/A
(6 MOS.) (6 MOS.)
--------------
MONTHLY RATE OF RETURN IS NET PERFORMANCE DIVIDED BY BEGINNING EQUITY; "ROR"
MEANS "RATE OF RETURN."
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-----------------
* The performance data for this program is only through May 7, 1998. The
program continues to operate, but only as a portion of the Fund and its offshore
counterpart, ML JWH Strategic Allocation Fund Ltd. For performance information
subsequent to May 7, 1998, please see the Exclusive Fund Accounts.
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[Enlarge/Download Table]
THE JWH PROGRAMS
EXCLUSIVE FUND ACCOUNTS
MONTHLY RATES OF RETURN
JWH GLOBAL-
FINANCIAL ORIGINAL GLOBAL GLOBAL G-7 WORLDWIDE ANALYTICS-TM-
AND METALS INVESTMENT DIVERSIFIED FINANCIAL CURRENCY BOND FAMILY OF DOLLAR
PORTFOLIO PROGRAM PORTFOLIO PORTFOLIO PORTFOLIO PROGRAM PROGRAM PROGRAM
EXCLUSIVE EXCLUSIVE EXCLUSIVE EXCLUSIVE EXCLUSIVE EXCLUSIVE EXCLUSIVE EXCLUSIVE
--------- --------- --------- --------- --------- --------- --------- ---------
1998
January
February
March
April
May 3.5% 4.8% 5.1% 2.9% 6.0% 1.6% 6.2% 1.3%
June (5.2)% 2.5% (0.6)% (0.3)% (2.5)% (1.7)% (1.9)% (1.2)%
July (0.3)% (3.5)% 1.4% (3.2)% 0.6% 0.6% 0.6% (0.3)%
August 19.1% 5.5% 22.1% 6.6% (2.4)% 13.7% 12.4% (2.4)%
September 17.8% 3.7% 11.0% 5.0% 2.1% 11.5% 8.2% 4.8%
October (3.4)% 4.4% (9.3)% 2.0% 8.1% (7.0)% (0.3)% 5.6%
November (8.5)% (11.8)% (3.2)% (8.6)% (8.5)% (0.3)% (5.6)% (7.0)%
December 10.1% 15.2% 10.8% 14.2% (1.7)% 6.6% 4.8% 2.5%
COMPOUND
ANNUAL ROR 33.5% 20.2% 39.7% 18.4% 0.7% 25.9% 25.5% 2.7%
---------------
MONTHLY RATE OF RETURN IS NET PERFORMANCE DIVIDED BY BEGINNING EQUITY; "ROR"
MEANS "RATE OF RETURN."
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-63-
MERRILL LYNCH INVESTMENT
PARTNERS INC.
BACKGROUND AND PRINCIPALS
Merrill Lynch Investment Partners Inc., an indirect subsidiary of ML&Co.,
attempts to provide quality alternative investments for its clients. MLIP is
one of the largest sponsors of managed futures funds in terms both of assets
invested in funds for which it serves as trading manager or sponsor, and of
financial and personnel resources. While MLIP concentrated its efforts
primarily on managed futures investments during its early years of operation,
since 1996 MLIP has offered a number of multi-advisor and single-advisor hedge
funds. MLIP has dedicated significant resources to the growth of its hedge fund
business, and has the investment management, operational, administrative,
research and risk management experience to manage substantial assets in both
managed futures and hedge fund investments in the global financial markets. As
of March 1, 1999, MLIP was acting as trading manager or sponsor to futures and
hedge funds in which approximately $3 billion of client capital was invested.
MLIP's registration as a Commodity Pool Operator ("CPO"; a person which
organizes or manages investment funds which trade futures) became effective in
October 1986.
The following are the principal officers and the directors of MLIP.
JOHN R. FRAWLEY, JR. Chairman, Chief Executive Officer, President and
Director
JEFFREY F. CHANDOR Senior Vice President, Director of Sales,
Marketing and Research and Director
JO ANN DI DARIO Vice President, Chief Financial Officer and
Treasurer (until April 30, 1999)
MICHAEL L. PUNGELLO Vice President, Chief Financial Officer and
Treasurer (effective May 3, 1999)
JOSEPH H. MOGLIA Director
ALLEN N. JONES Director
STEPHEN G. BODURTHA Director
STEVEN B. OLGIN Vice President, Secretary and Director of
Administration
John R. Frawley, Jr. was born in 1943. Mr. Frawley is Chairman, Chief
Executive Officer, President and a Director of MLIP and Co-Chairman of 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 formation in 1990 through
its dissolution in 1994. Mr. Frawley has served four consecutive one-year terms
as Chairman of the Managed Funds Association (formerly, the Managed Futures
Association), a national trade association that represents the managed futures,
hedge funds and fund of funds industry. Mr. Frawley currently serves as a
member of the CFTC's Global Markets Advisory Committee.
Jeffrey F. Chandor was born in 1942. Mr. Chandor is Senior Vice President,
Director of Sales, Marketing and Research and a Director of MLIP. He joined
MLPF&S in 1971 and has served as the Product Manager of International
Institutional Equities, Equity Derivatives and Mortgage-Backed Securities as
well as Managing Director of International Sales in the United States, and
Managing Director of Sales in Europe. Mr. Chandor holds a Bachelor of Arts
degree from Trinity College, Hartford, Connecticut. Mr.
-64-
Chandor is serving a two-year term as a director of the Managed Funds
Association.
Jo Ann Di Dario was born in 1946. Until April 30, 1999, Ms. Di Dario is
Vice President, Chief Financial Officer and Treasurer of MLIP. Before joining
MLIP in May 1998, she was self-employed for one year. From February 1996 to May
1997, she worked as a consultant for Global Asset Management, an international
mutual fund organizer and operator headquartered in London, where she offered
advice on restructuring their back-office operations. From May 1992 to January
1996, she served as a Vice President of Meridian Bank Corporation, a regional
bank holding company. She was responsible for managing the treasury operations
of Meridian Bank Corporation including its wholly-owned subsidiary, Meridian
Investment Company Inc. From September 1991 to May 1992, Ms. Di Dario managed
the Domestic Treasury Operations of First Fidelity Bank, a regional bank. From
January 1991 to September 1991, Ms. Di Dario was self-employed. For the
previous five years, Ms. Di Dario was Vice President, Secretary and Controller
of Caxton Corporation, a Commodity Pool Operator and Commodity Trading Advisor.
Her background includes seven years of public accounting experience, and she
graduated with high honors from Stockton State College with a Bachelor of
Science degree in Accounting.
Michael L. Pungello was born in 1957. Effective May 3, 1999, Mr. Pungello
will become Vice President, Chief Financial Officer and Treasurer of MLIP. He
was First Vice President and Senior Director of Finance for Merrill Lynch's
Operations, Services and Technology Group from January 1998 to March 1999.
Prior to that, Mr. Pungello spent over 18 years with Deloitte & Touche LLP, and
was a partner in their financial services practice from June 1990 to December
1997. He graduated from Fordham University in 1979 with a Bachelor of Science
degree in Accounting and received his Master of Business Administration degree
in Finance from New York University in 1987.
Joseph H. Moglia was born in 1949. Mr. Moglia is a Director of MLIP. In
1971, he graduated from Fordham University with a Bachelor of Arts degree in
Economics. He later received his Master of Science degree from the University
of Delaware. He taught at the high school and college level for sixteen years.
Mr. Moglia joined MLPF&S in 1984, and has served in a number of senior roles,
including Director of New York Fixed Income Institutional Sales, Director of
Global Fixed Income Institutional Sales, and Director of the Municipal Division.
He is currently Senior Vice President and Director of the Investment Strategy
and Product Group in Merrill Lynch Private Client, and Director of Middle
Markets.
Allen N. Jones was born in 1942. Mr. Jones is a Director of MLIP and, from
July 1995 until January 1998, Mr. Jones was also Chairman of the Board of
Directors of MLIP. Mr. Jones graduated from the University of Arkansas with a
Bachelor of Science, Business Administration degree in 1964. Since June 1992,
Mr. Jones has held the position of Senior Vice President of MLPF&S. From June
1992 through February 1994, Mr. Jones was the President and Chief Executive
Officer of Merrill Lynch Insurance Group, Inc. ("MLIG") and remains on the Board
of Directors of MLIG and its subsidiary companies. From February 1994 to April
1997, Mr. Jones was the Director of Individual Financial Services of the Merrill
Lynch Private Client Group. In April 1997, Mr. Jones became the Director of
Private Client marketing.
Stephen G. Bodurtha was born in 1958. Mr. Bodurtha is a Director of MLIP.
In 1980, Mr. Bodurtha graduated from Wesleyan University, Middletown,
Connecticut with a Bachelor of Arts degree in Government, MAGNA CUM LAUDE. From
1980 to 1983, Mr. Bodurtha worked in the Investment Banking Division of Merrill
Lynch. In 1985, he was awarded his Master of Business Administration degree
from Harvard University, where he also served as Associates Fellow (1985-1986).
From 1986 to 1989, Mr. Bodurtha held the positions of Associate and Vice
President with Kidder, Peabody & Co., Incorporated where he worked in their
Financial Futures & Options Group. Mr. Bodurtha joined MLPF&S in 1989 and has
held the position of First Vice President since 1995. He has been the Director
in charge of the Structured Investments Group of MLPF&S since 1995.
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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 Funds Association's Government Relations Committee and has
served as an arbitrator for the NFA. Mr. Olgin is also a member of the
Committee on Futures Regulation of the Association of the Bar of the City of New
York.
THE PERFORMANCE OF THE OTHER FUNDS FOR WHICH MLIP HAS ACTED AS TRADING
MANAGER OR SPONSOR IS SET FORTH BEGINNING AT PAGE 95 OF THIS PROSPECTUS. MOST
OF THESE FUNDS, HOWEVER, ARE MATERIALLY DIFFERENT INVESTMENTS FROM THE FUND,
EITHER USING ADVISORS OTHER THAN JWH OR MULTIPLE INDEPENDENT ADVISORS IN
ADDITION TO JWH.
MERRILL LYNCH FUTURES INC.
MLF, the exclusive clearing futures broker for the Fund, is a clearing
member of The Board of Trade of the City of Chicago, the Chicago Mercantile
Exchange, the New York Mercantile Exchange and all other principal United States
commodity exchanges. The principal office of MLF is located at World Financial
Center, 250 Vesey Street, 23rd Floor, New York, New York 10281-1323.
The Customer Agreement between MLF and the Fund provides that MLF will not
be liable except for actions constituting negligence or misconduct, or for
actions taken by it in compliance with instructions given by JWH.
LITIGATION
JWH LITIGATION
There neither now exists nor has there previously ever been any material
administrative, civil or criminal action against JWH or its principals.
MERRILL LYNCH LITIGATION
MLIP has never been the subject of any material litigation.
APPLICABLE CFTC RULES REQUIRE THAT THE FOLLOWING PROCEEDING BE DISCLOSED,
ALTHOUGH MLIP DOES NOT CONSIDER IT TO BE MATERIAL.
On June 24, 1997, the CFTC accepted an Offer of Settlement from MLF and
others, in a matter captioned "In the Matter of Mitsubishi Corporation and
Merrill Lynch Futures Inc., ET AL.," CFTC Docket No. 97-10, pursuant to which
MLF, without admitting or denying the allegations against it, consented to a
finding by the CFTC that MLF had violated Section 4c(a)(A) of the Commodity
Exchange Act, relating to wash sales (the CFTC alleged that the customer entered
nearly simultaneous orders without the intent to engage in a BONA FIDE trading
transaction), and CFTC Regulation 1.37(a), relating to recordkeeping
requirements. MLF agreed to cease and desist from violating Section 4c(a)(A) of
the Act and Regulation 1.37(a), and to pay a civil monetary penalty of $175,000.
CONFLICTS OF INTEREST
GENERAL
Neither MLIP nor JWH has established any formal procedures to resolve the
following conflicts of interest. Consequently, there is no independent control
on how MLIP or JWH resolves these conflicts which can be relied upon by
investors as ensuring that the Fund is treated equitably with other MLIP or JWH
clients.
Because no formal procedures are in place for resolving conflicts, they may
be resolved by
-66-
MLIP and/or JWH in a manner which causes the Fund losses. The value of limited
partners' investment may be diminished by actions or omissions which independent
third parties could have prevented or corrected.
Although the following conflicts of interest are present in the operation
of the Fund, MLIP does not believe that they are likely to have a material
adverse effect on its performance. This belief is based on a number of factors,
including the following.
(i) JWH trades all similarly situated MLIP accounts in parallel, placing bulk
orders which are allocated among the JWH accounts pursuant to
pre-established procedures. Consequently, JWH has little opportunity to
prefer another MLF client over the Fund.
(ii) MLF simply receives and executes JWH's bulk orders based on
pre-established procedures. MLF has no ability in allocating positions
to favor one account over another.
(iii) JWH charges all similar accounts the same fees.
(iv) MLIP, as a fiduciary, is prohibited from benefiting itself at the expense
of the Fund.
In MLIP's view, the most important conflict of interest relating to the
Fund is that the business terms applicable to Merrill Lynch's dealings with the
Fund were not negotiated when they were initially established. These business
terms are described in detail in this Prospectus in order to give prospective
investors ample opportunity to accept or reject such terms. However, it may be
difficult for investors to assess, for example, the extent of the adverse impact
which the high level of the Fund's brokerage commissions has on its long-term
prospects for profitability.
MLIP
MLIP organized and controls the Fund. MLIP and its affiliates are the
primary service providers to the Fund and will remain so even if using other
firms might be better for the Fund. Futures trading is highly competitive. To
the extent that Merrill Lynch entities continue to be retained by the Fund
despite providing non-competitive services, the Fund is likely to incur losses.
MLIP allocates its resources among a number of different funds. MLIP has
financial incentives to favor certain funds over the Fund.
The business terms of the Fund -- other than the fees and Profit Shares due
to JWH which were negotiated between MLIP and JWH -- were not negotiated. MLIP
unilaterally established these terms, balancing marketing and performance
considerations and its interest in maximizing the revenues generated to MLIP.
MLIP'S INTEREST IN MAXIMIZING ITS REVENUES COULD CAUSE IT TO TAKE ACTIONS
WHICH ARE DETRIMENTAL TO THE FUND IN ORDER TO INCREASE MLIP'S INCOME FROM THE
FUND OR DECREASE ITS COSTS IN SPONSORING THE FUND. ALSO, BECAUSE MLIP DOES NOT
HAVE TO COMPETE WITH THIRD PARTIES TO PROVIDE SERVICES TO THE FUND, THERE IS NO
INDEPENDENT CHECK ON THE QUALITY OF SUCH SERVICES. THEORETICALLY, MLIP MAY
LOWER THE QUALITY OF SUCH SERVICES IN ORDER TO MAXIMIZE THE NET REVENUES WHICH
IT RECEIVES FROM THE FUND, WHILE AT THE SAME TIME CAUSING THE NET ASSET VALUE
PER UNIT TO DECLINE.
MLF; MLIB; MLAM
GENERAL
MLF executes trades for different clients in the same markets at the same
time. Consequently, other clients may receive better prices on the same trades
than the Fund, causing the Fund to pay higher prices for its positions.
Many MLF clients pay lower brokerage rates than the Fund. Brokerage
commissions are a major drag on the Fund's performance, and the cumulative
effect of the higher rates paid by the Fund is material.
-67-
MLF and MLIB each must allocate their resources among many different
clients. They all have financial incentives to favor certain accounts over the
Fund. Because of the competitive nature of the markets in which they trade, to
the extent that any of MLF or MLIB prefer other clients over the Fund, the Fund
is likely to incur losses.
MLF, MLIB AND MLAM DO NOT HAVE TO COMPETE TO PROVIDE SERVICES TO THE FUND;
CONSEQUENTLY, THERE IS NO INDEPENDENT CHECK ON THE QUALITY OF THEIR SERVICES.
JWH
GENERAL
JWH manages many accounts other than the Fund. Consequently, JWH may
devote less resources to the Fund's trading than JWH otherwise might, to the
detriment of the Fund.
Certain of JWH's principals devote a substantial portion of their business
time to ventures other than managing the Fund, including ventures unrelated to
futures trading. The Fund may be at a competitive disadvantage to other
accounts which are managed by advisors who devote their entire attention to
futures trading.
JWH may not be willing to make certain highly successful programs available
to the Fund due to the Fund's expense level or other reasons.
THE LESS SUCCESSFUL THE PROGRAMS CHOSEN FOR THE FUND BY JWH, THE LESS
SUCCESSFUL THE FUND WILL BE. IF JWH DOES NOT MAKE CERTAIN PROGRAMS AVAILABLE TO
THE FUND FOR REASONS OTHER THAN WHAT JWH CONSIDERS TO BE THE FUND'S BEST
INTERESTS, THE FUND WILL SUFFER.
FINANCIAL INCENTIVES TO DISFAVOR THE FUND
The Profit Shares received by JWH are based on the Fund's overall
performance, not the performance of any individual program. JWH could increase
the Profit Shares it could receive from some programs included in the Strategic
Allocation Program by using them on a stand-alone basis for clients other than
the Fund.
If the Fund has losses, JWH may have an incentive to prefer other clients
because JWH could begin to receive incentive compensation from such clients
without having to earn back any losses.
ANY ACTION WHICH JWH TAKES TO MAXIMIZE ITS REVENUES BY DISFAVORING THE
FUND, EITHER IN RESPECT OF THE RESOURCES DEVOTED TO ITS TRADING OR THE PROGRAMS
SELECTED FOR IT, COULD ADVERSELY AFFECT THE FUND'S PERFORMANCE, PERHAPS TO A
MATERIAL EXTENT.
In selecting the programs for the Fund, JWH has an opportunity to promote
new programs, even if such programs are not yet proven managing client assets
and may cause significant losses to the Fund.
FINANCIAL CONSULTANTS
Financial Consultants are the individual Merrill Lynch brokers who deal
directly with Merrill Lynch clients. Financial Consultants are compensated, in
part, on the basis of the amount of securities commissions which they generate
from client transactions. Financial Consultants receive initial selling
commissions and ongoing compensation on the Units they sell and have a financial
incentive to encourage investors to purchase and not to redeem their Units.
PROPRIETARY TRADING
MLIP, its affiliates and related persons may trade in the commodity markets
for their own accounts as well as for the accounts of their clients. Such
persons may take positions which are the same as or opposite to those held by
the Fund.
JWH and Mr. Henry may engage in discretionary trading for their own
accounts, and may trade for the purpose of testing new investment programs and
concepts, as long as such trading does not amount to a breach of fiduciary duty.
In the course of such trading, JWH and Mr. Henry may take positions in their own
accounts which are the same as or opposite to client positions, due to testing a
new quantitative model or program, a neutral allocation system, and/or trading
pursuant to individual discretionary methods; on occasion, their orders may
receive better fills than client accounts. Records for these accounts will not
be made available to limited partners.
Employees and principals of JWH (other than Mr. Henry) are not permitted to
trade on a
-68-
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., for
which JWH is the trading advisor. Records of these accounts will not be made
available to limited partners.
Records of proprietary trading will not be available for inspection by
limited partners.
Proprietary trading by MLIP, JWH or their respective officers or employees
could, if substantial in size, cause losses for the Fund by increasing the cost
at which it must acquire and liquidate positions. Over time, the losses
resulting from such increased prices could make it difficult for the Fund to
earn profits even if its trading were otherwise successful.
TRANSACTIONS BETWEEN MERRILL LYNCH AND THE FUND
All of the service providers to the Fund, other than JWH, are affiliates of
Merrill Lynch. Merrill Lynch negotiated with JWH over the level of its advisory
fees and Profit Shares. However, none of the fees paid by the Fund to any
Merrill Lynch party were negotiated, and they are higher than would have been
obtained in arm's-length bargaining.
The Fund pays Merrill Lynch substantial Brokerage Commissions and
Administrative Fees as well as bid-ask spreads on forward currency trades. The
Fund also pays MLF interest on short-term loans extended by MLF to cover losses
on foreign currency positions and permits Merrill Lynch to retain a portion of
the benefit derived from possession of the Fund's assets.
Within the Merrill Lynch organization, MLIP is the direct beneficiary of
the revenues received by different Merrill Lynch entities from the Fund. MLIP
controls the management of the Fund and serves as its promoter. Although MLIP
has not sold any assets, directly or indirectly, to the Fund, MLIP makes
substantial profits from the Fund due to the foregoing revenues.
No loans have been, are or will be outstanding between MLIP or any of its
principals and the Fund.
MLIP pays substantial selling commissions (4% of the subscription price of
Units) and trailing commissions (3% annually of the average Net Asset Value per
Unit, beginning in the thirteenth month after a Unit is sold) to MLPF&S for
distributing the Units. MLIP is ultimately paid back for these expenditures
from the revenues it receives from the Fund.
Descriptions of the dealings between the Fund and Merrill Lynch are set
forth under "Selected Financial Data," "Interest Income Arrangements" and
"Analysis of Fees and Expenses Paid by the Fund."
SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT
The Fund's Limited Partnership Agreement effectively gives MLIP, as general
partner, full control over the management of the Fund. Limited partners have no
voice in its operations. In addition, MLIP in its operation of the Fund is
specifically authorized to engage in the transactions described herein
(including those involving affiliates of MLIP), and is exculpated and
indemnified by the Fund against claims sustained in connection with the Fund,
provided that such claims were not the result of negligence or misconduct and
that MLIP determined that such conduct was in the best interests of the Fund.
Although as limited partners, investors have no right to participate in the
control or management of the Fund, they are entitled to: (i) vote on a variety
of different matters; (ii) receive annual audited financial statements,
unaudited monthly reports and timely tax information; (iii) inspect the Fund's
books and records; (iv) redeem Units; and (v) not to have the business terms of
the Fund changed in a manner which increases the compensation received by MLIP
or its affiliates without their unanimous consent.
-69-
Limited partners' voting rights extend to any proposed change in the
Limited Partnership Agreement which would adversely affect them, as well as to
their right to terminate the Fund's contracts with affiliates of MLIP. Limited
partners also have the right to call meetings of the Fund in order to permit
limited partners to vote on any matter on which they are entitled to vote,
including the removal of MLIP as general partner of the Fund.
Limited partners or their duly authorized representatives may inspect the
Fund's books and records, for any purpose reasonably related to their status as
limited partners in the Fund, during normal business hours upon reasonable
written notice to the MLIP. They may also obtain copies of such records upon
payment of reasonable reproduction costs; provided, however, that such limited
partners represent that the inspection and/or copies of such records will not be
for commercial purposes unrelated to such limited partners' interest in the
Fund.
The Limited Partnership Agreement contains restrictions on MLIP's ability
to raise Brokerage Commissions, Administrative Fees and other revenues received
by Merrill Lynch from the Fund, as well as certain other limitations on the
various conflicts of interest to which MLIP is subject in operating the Fund.
The Limited Partnership Agreement provides for the economic and tax
allocations of the Fund's profit and loss. Economic allocations are based on
investors' capital accounts, and the tax allocations generally attempt to
equalize tax and capital accounts by, for example, making a priority allocation
of taxable income to limited partners who redeem at a profit.
A limited partner may transfer or assign his units in the Fund only upon
prior written notice to MLIP and subject to approval of the assignee. MLIP will
provide consent when it is satisfied that the transfer complies with applicable
laws, and it has received an opinion of counsel that such transfer will not
adversely affect the tax classification of the Fund as a partnership. An
assignee not admitted to the Fund as a limited partner will have only limited
rights to share the profits and capital of the Fund and a limited redemption
right.
The General Partner may amend the Limited Partnership Agreement in any
manner not adverse to the limited partners without need of obtaining their
consent. These amendments can be for clarification of inaccuracies or
ambiguities, modifications in response to changes in tax code or regulations or
any other changes MLIP deems advisable so long as they do not change the basic
investment policy or structure.
The Fund has agreed to indemnify MLIP, as general partner, for actions
taken on behalf of the Fund, provided that MLIP's conduct was in the best
interests of the Fund and the conduct was not the result of negligence or
misconduct. Indemnification by the Fund for alleged violation of securities
laws is only available if the following conditions are satisfied:
1) a successful adjudication on the merits of each count alleged has been
obtained, or
2) such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction; or
3) a court of competent jurisdiction approves a settlement of the claims
and finds indemnification of the settlement and related costs should
be made; and
4) in the case of 3), the court has been advised of the position of the
SEC and the states in which the Units were offered and sold as to
indemnification for the violations.
-70-
TAX CONSEQUENCES
IN THE OPINION OF SIDLEY & AUSTIN, THE FOLLOWING SUMMARY OF THE TAX
CONSEQUENCES TO UNITED STATES TAXPAYERS WHO ARE INDIVIDUALS IS MATERIALLY
CORRECT. SIDLEY & AUSTIN'S OPINION IS FILED AS AN EXHIBIT TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
PARTNERSHIP TAX STATUS OF THE FUND
Both the Fund and the Fund/JWH joint venture are taxed as partnerships and
do not pay federal income tax. Based on the income expected to be earned by the
Fund and the Fund/JWH joint venture, neither will be taxed as a "publicly-traded
partnership."
TAXATION OF PARTNERS ON PROFITS OR LOSSES OF THE FUND
Each Partner must pay tax on his share of the Fund's income and gains.
Such share must be included each year in a Partner's taxable income whether or
not such Partner has redeemed Units. In addition, a Partner may be subject to
paying taxes on the Fund's interest income even though the Net Asset Value per
Unit has decreased due to trading losses. See "-- Tax on Capital Gains and
Losses; Interest Income," below.
The Fund provides each Partner with an annual schedule of his share of tax
items. The Fund generally allocates these items equally to each Unit. However,
when a Partner redeems Units, the Fund allocates capital gains or losses so as
to eliminate any difference between the redemption proceeds and the tax accounts
of such Units.
LIMITED DEDUCTIBILITY OF FUND LOSSES AND DEDUCTIONS
A Partner may not deduct Fund losses or deductions in excess of his tax
basis in his Units as of year-end. Generally, a Partner's tax basis in his
Units is the amount paid for such Units reduced (but not below zero) by his
share of any Fund distributions, losses and deductions and increased by his
share of the Fund's income and gains.
LIMITED DEDUCTIBILITY FOR CERTAIN EXPENSES
Individual taxpayers are subject to material limitations on their ability
to deduct investment advisory expenses and other expenses of producing income.
Sidley & Austin has opined that the amount, if any, of the Fund's expenses which
might be subject to this limitation should be DE MINIMIS. However, the IRS
could take a different position. The Fund's Profit Share is structured as a
priority allocation of the Fund's trading profits (if any) to JWH. The IRS
could contend that the Profit Share should be characterized as an investment
advisory expense. If the Profit Share were treated as an investment advisory
expense, individual taxpayers would pay tax on $100 of net profits for every $85
increase in Net Asset Value of their Units, and the Profit Share would be
subject to limited deductibility.
Individuals cannot deduct investment advisory expenses in calculating their
alternative minimum tax.
YEAR-END MARK-TO-MARKET OF OPEN POSITIONS
Section 1256 Contracts are futures, futures options traded on U.S.
exchanges, certain foreign currency contracts and stock index options. Certain
of the Fund's open positions are Section 1256 Contracts . Section 1256
Contracts which remain open at the end of each year are treated for tax purposes
as if such positions had been sold and any gain or loss recognized. The gain or
loss on Section 1256 Contracts is characterized as 40% short-term capital gain
or loss and 60% long-term capital gain or loss regardless of how long any given
position has been held. Non-U.S. exchange-traded futures and forwards are
non-Section 1256 Contracts. Gain or loss on non-Section 1256 Contracts will be
recognized when sold by the Fund and will be primarily short-term gain or loss.
TAX ON CAPITAL GAINS AND LOSSES; INTEREST INCOME
As described under "-- Year-End Mark-to-Market of Open Positions," the
Fund's trading, not including its cash management which generates primarily
ordinary income, generates 60% long-term
-71-
capital gains or losses and 40% short-term capital gains or losses from its
Section 1256 Contracts and primarily short-term capital gain or loss from its
non-Section 1256 Contracts. Individuals pay tax on long-term capital gains at a
maximum rate of 20%. Short-term capital gains are subject to tax at the same
rates as ordinary income, with a maximum rate of 39.6% for individuals.
Individual taxpayers may deduct capital losses only to the extent of their
capital gains plus $3,000. Accordingly, the Fund could incur significant losses
but a limited partner be required to pay taxes on his share of the Fund's
interest income.
If an individual taxpayer incurs a net capital loss for a year, he may
elect to carryback (up to three years) the portion of such loss which consists
of a net loss on Section 1256 Contracts. A taxpayer may deduct such losses only
against net capital gain for a carryback year to the extent that such gain
includes gains on Section 1256 Contracts. To the extent that a taxpayer could
not use such losses to offset gains on Section 1256 Contracts in a carryback
year, the taxpayer may carryforward such losses indefinitely as losses on
Section 1256 Contracts.
SYNDICATION EXPENSES
The $629,523 in organizational and initial offering costs reimbursed by the
Fund to MLIP were non-deductible syndication expenses, as will any costs
associated with the offering of the Units under this Prospectus and any
subsequent ongoing offering expenses incurred by the Fund. The IRS could also
contend that a portion of the Brokerage Commissions paid to MLF and/or the
Administrative Fees paid to MLIP constitute non-deductible syndication expenses.
THE 3% EMPLOYEE DISCOUNT
MLIP contributes 3% of the purchase date Net Asset Value per Unit to the
Fund for each Unit purchased by Merrill Lynch officers and employees. These
officers and employees report the MLIP contribution as ordinary income in the
year of purchase, and acquire a tax basis in their Units of 100% of the purchase
date Net Asset Value of such Units.
UNRELATED BUSINESS TAXABLE INCOME
Tax-exempt limited partners will not be required to pay tax on their share
of income or gains of the Fund, provided that such limited partners do not
purchase Units with borrowed funds.
IRS AUDITS OF THE FUND AND ITS PARTNERS
The IRS is required to audit Fund-related items at the Fund rather than the
partner level. MLIP is the Fund's "tax matters partner" with general authority
to determine the Fund's responses to a tax audit. If an audit of the Fund
results in an adjustment, all partners may be required to pay additional taxes
plus interest as well as penalties, and could themselves be audited.
STATE AND OTHER TAXES
In addition to the federal income tax consequences described above, the
Fund and the partners may be subject to various state and other taxes.
--------------------
PROSPECTIVE INVESTORS ARE
URGED TO CONSULT THEIR TAX
ADVISERS BEFORE DECIDING
WHETHER TO INVEST.
SELLING COMMISSIONS
No selling commissions are paid from the proceeds of subscriptions. MLIP
provides production credits to the Selling Agent on Unit sales. Production
credits are internal bookkeeping entries, a percentage of which is paid by MLIP
in cash to the Selling Agent.
The Selling Agent receives initial production credits of 4% of the purchase
price of all Units. However, no initial production credits are provided on
sales of Units to officers and employees of Merrill Lynch at 97% of Net Asset
Value.
-72-
MLIP also provides ongoing production credits on Units which remain
outstanding more than twelve months. Ongoing production credits are only paid
on Units sold by Financial Consultants registered with the CFTC and who have
passed either the Series 3 National Commodity Futures Examination or the Series
31 Managed Futures Funds Examination. Ongoing production credits equal 3% per
annum of the average month-end Net Asset Value per Unit, beginning in the second
year after sale.
In the Selling Agreement, JWH and MLIP have agreed to indemnify the Selling
Agent against certain liabilities that the Selling Agent may incur as a result
of their respective conduct in connection with the offering and sale of the
Units, including liabilities under the Securities Act of 1933 and the Commodity
Exchange Act.
LAWYERS; ACCOUNTANTS
Sidley & Austin has advised MLIP, MLF and MLPF&S on the offering of the
Units. Sidley & Austin drafted "Tax Consequences."
The balance sheet of MLIP as of December 25, 1998 and the consolidated
financial statements of the Fund as of December 31, 1998, 1997 and 1996 included
herein have been audited by Deloitte & Touche LLP.
-73-
INDEX TO FINANCIAL STATEMENTS
[Download Table]
PAGE
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ML JWH STRATEGIC ALLOCATION FUND L.P.
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . 75
Consolidated Statements of Financial Condition. . . . . . . . . . . . . 76
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . 77
Consolidated Statements of Changes in Partners' Capital . . . . . . . . 78
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . 79
MERRILL LYNCH INVESTMENT PARTNERS INC.
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . 87
Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Notes to Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . 89
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.
---------------
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INDEPENDENT AUDITORS' REPORT
TO THE PARTNERS OF
ML JWH STRATEGIC ALLOCATION FUND L.P.:
We have audited the accompanying consolidated statements of financial condition
of ML JWH Strategic Allocation Fund L.P. (a Delaware limited partnership; the
"Partnership") and its joint venture with John W. Henry & Company, Inc. (the
"Joint Venture") as of December 31, 1998 and 1997, and the related consolidated
statements of income and changes in partners' capital for the years ended
December 31, 1998 and 1997 and the period from July 15, 1996 (commencement of
operations) to December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of ML JWH Strategic Allocation Fund
L.P. and the Joint Venture as of December 31, 1998 and 1997 and 1996 and the
results of their operations for the years ended December 31, 1998 and 1997 and
the period from July 15, 1996 (commencement of operations) to December 31, 1996
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
February 4, 1999
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ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
[Enlarge/Download Table]
1998 1997
-------------- --------------
ASSETS:
Equity in commodity futures trading accounts:
Cash and options premiums $34,991,460 $42,006,060
Net unrealized profit on open contracts 26,157,000 14,377,004
Government securities (Cost: $263,057,253 and $170,434,242) 263,939,939 170,955,529
Cash 57,273
Accrued interest (Note 3) 3,064,653 1,826,823
-------------- --------------
TOTAL $328,210,325 $229,165,416
-------------- --------------
-------------- --------------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Brokerage commissions payable (Note 3) $2,086,278 $1,473,380
Profit Share payable (Note 2) 5,436,351 2,640,194
Redemptions payable 5,952,585 1,116,238
Administrative fees payable (Note 3) 67,299 47,527
Organizational and initial offering costs payable (Note 1) _ 114,951
-------------- --------------
Total liabilities 13,542,513 5,392,290
-------------- --------------
MINORITY INTEREST 154,901 135,830
-------------- --------------
PARTNERS' CAPITAL:
General Partner (17,281 Units and 18,177 Units) 2,667,093 2,455,940
Limited Partners (2,020,625 Units and 1,634,252 Units 311,845,818 221,181,356
Total partners' capital 314,512,911 223,637,296
-------------- --------------
TOTAL $328,210,325 $229,165,416
-------------- --------------
-------------- --------------
NET ASSET VALUE PER UNIT (NOTE 4)
See notes to consolidated financial statements.
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ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
1998 AND 1997 AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
[Download Table]
1998 1997 1996
-------- -------- --------
REVENUES:
Trading profit:
Realized $35,957,735 $18,820,033 $29,800,074
Change in unrealized 12,141,395 10,201,917 4,696,372
------------- ------------- -------------
Total trading results 48,099,130 29,021,950 34,496,446
Interest income (Note 3) 12,766,955 12,021,263 3,030,330
Total revenues 60,866,085 41,043,213 37,526,776
------------- ------------- -------------
EXPENSES:
Brokerage commissions (Note 3) 19,086,026 17,377,236 4,873,368
Administrative fees (Note 3) 615,678 560,556 157,205
------------- ------------- -------------
Total expenses 19,701,704 17,937,792 5,030,573
------------- ------------- -------------
INCOME BEFORE PROFIT SHARE
ALLOCATION AND MINORITY
INTEREST 41,164,381 23,105,421 32,496,203
Profit Share Allocation (Note 2) (5,436,351) (2,640,194) (4,683,010)
Minority interest in income (19,071) (12,447) (23,383)
------------- ------------- -------------
NET INCOME $35,708,959 $20,452,780 $27,789,810
------------- ------------- -------------
------------- ------------- -------------
NET INCOME PER UNIT:
Weighted average number of
General Partner and Limited
Partner Units outstanding
(Note 5) 1,736,281 1,739,531 1,163,568
------------- ------------- -------------
------------- ------------- -------------
Net income per weighted average
General Partner and Limited
Partner Unit $20.57 $11.76 $23.88
------------- ------------- -------------
------------- ------------- -------------
See notes to consolidated financial statements.
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ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997 AND THE PERIOD
FROM JULY 15, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
[Enlarge/Download Table]
LIMITED GENERAL SUBSCRIPTIONS
UNITS PARTNERS PARTNER RECEIVABLE TOTAL
----------- ------------- ------------ ------------- -------------
Initial offering 14,832 $100,516,800 $1,483,200 $ -- $102,000,000
Organizational and initial
offering costs -- (985,459) (14,541) -- (1,000,000)
Additions 1,565,526 64,575,292 198,925 -- 64,774,217
Redemptions (28,762) (3,241,918) -- -- (3,241,918)
Net Income -- 27,419,350 370,460 -- 27,789,810
Subscriptions Receivable (148,169) -- -- (18,248,494) (18,248,494)
----------- ------------- ------------ ------------- -------------
PARTNERS' CAPITAL,
DECEMBER 31, 1996 1,403,427 188,284,065 2,038,044 (18,248,494) 172,073,615
Organizational and initial
offering cost recovery -- 366,712 3,765 -- 370,477
Additions 409,237 32,969,453 152,196 18,248,494 51,370,143
Redemptions (160,235) (20,629,719) -- -- (20,629,719)
Net Income -- 20,190,845 261,935 -- 20,452,780
----------- ------------- ------------ ------------- -------------
PARTNERS' CAPITAL,
DECEMBER 31, 1997 1,652,429 221,181,356 2,455,940 -- 223,637,296
Additions 713,063 100,796,172 214,178 -- 101,010,350
Redemptions (327,666) (45,513,612) (330,082) -- (45,843,694)
Net Income -- 35,381,902 327,057 -- 35,708,959
----------- ------------- ------------ ------------- -------------
PARTNERS' CAPITAL,
DECEMBER 31, 1998 2,037,826 $311,845,818 $2,667,093 $ -- $314,512,911
----------- ------------- ------------ ------------- -------------
----------- ------------- ------------ ------------- -------------
See notes to consolidated financial statements.
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ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
ML JWH Strategic Allocation Fund L.P. (the "Partnership") was organized
under the Delaware Revised Uniform Limited Partnership Act on December 11, 1995
and commenced trading on July 15, 1996. When available for investment, the
Partnership issues new units of limited partnership interest ("Units") at Net
Asset Value as of the beginning of each calendar month. The Partnership engages
in the speculative trading of futures, options on futures and forward contracts
on a wide range of commodities through its joint venture (the "Joint Venture")
with John W. Henry & Company, Inc. ("JWH"), the trading advisor for the
Partnership, and investing in Government Securities, as defined. Merrill Lynch
Investment Partners Inc. ("MLIP" or the "General Partner") a wholly-owned
subsidiary of Merrill Lynch Group Inc., which, in turn, is a wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("Merrill Lynch"), is the general
partner of the Partnership. Merrill Lynch Futures Inc. ("MLF"), a Merrill Lynch
affiliate, is the Partnership's commodity broker and Merrill Lynch Asset
Management Inc. ("MLAM"), also an affiliate of Merrill Lynch, provides cash
management services to the Partnership. Substantially all of the Partnership's
assets are held in accounts maintained at Merrill Lynch, Pierce, Fenner & Smith
Incorporated, also a Merrill Lynch affiliate.
The General Partner has agreed to maintain a general partner's interest of
at least 1% of the total capital in the Partnership. The General Partner and
the Limited Partners share in the profits and losses of the Partnership in
proportion to their respective interests in it.
The Joint Venture trades in the international futures and forward markets,
applying multiple proprietary trading strategies under the direction of JWH.
JWH selects, allocates and reallocates the Partnership's assets among different
combinations of JWH's programs--an approach which JWH refers to as the "JWH
Strategic Allocation Program."
The consolidated financial statements include the accounts of the Joint
Venture to which the Partnership has contributed substantially all of its
capital, representing a current equity interest in the Joint Venture of
approximately 99%. All related transactions between the Partnership and the
Joint Venture are eliminated in consolidation. Certain of the prior year
balances have been reclassified to conform with the current year's presentation.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
U.S. GOVERNMENT SECURITIES
The Partnership invests a portion of its assets in obligations of the U.S.
Treasury and certain U.S. government agencies ("Government Securities") under
the direction of MLAM within the parameters established by MLIP for which MLAM
accepts no responsibility. These investments are carried at fair value.
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ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
REVENUE RECOGNITION
Commodity futures, options on futures and forward contract transactions are
recorded on the trade date, and open contracts are reflected in net unrealized
profit on open contracts in the Consolidated Statements of Financial Condition
at the difference between the original contract value and the market value (for
those commodity interests for which market quotations are readily available) or
at fair value. The change in net unrealized profit on open contracts and
Government Securities from one period to the next is reflected in change in
unrealized in the Consolidated Statements of Income.
FOREIGN CURRENCY TRANSACTIONS
The Partnership's functional currency is the U.S. dollar; however, it
transacts business in currencies other than the U.S. dollar. Assets and
liabilities denominated in currencies other than the U.S. dollar are translated
into U.S. dollars at the rates in effect at the dates of the Statements of
Financial Condition. Income and expense items denominated in currencies other
than the U.S. dollar are translated into U.S. dollars at the rates in effect
during the period. Gains and losses resulting from the translation to U.S.
dollars are reported in total trading results currently.
ORGANIZATIONAL AND INITIAL OFFERING COSTS, ONGOING OFFERING COSTS, OPERATING
EXPENSES AND SELLING COMMISSIONS
The General Partner advanced all organizational and initial offering costs
relating to the Partnership. The Partnership reimbursed the General Partner for
such costs in 24 monthly installments. For financial reporting purposes, the
Partnership deducted the estimated organizational and initial offering
reimbursement costs of $1,000,000 from the Partners' capital at inception. For
all other purposes (including determining the Net Asset Value of the Units), the
Partnership deducted the organizational and initial offering cost reimbursements
only as actually paid. Adjustments in the final organizational and initial
offering costs were added back to the Partners' capital.
Although, according to the terms of the Prospectus, as of September 1,
1998, the General Partner is entitled to receive, from the Partnership, ongoing
offering cost reimbursements (estimated at $500,000) of up to 0.25% of 1% of the
Partnership's average month-end assets, the General Partner in 1998 paid for all
ongoing offering costs incurred in connection with the offering of Units. The
Partnership may reimburse the General Partner for ongoing offering expenses in
connection with the 1999 offering of Units. The General Partner pays for all
routine operating costs (including legal, accounting, printing, postage and
similar administrative expenses) of the Partnership, including the Partnership's
share of any such costs incurred by the Joint Venture (See Note 2), The General
Partner receives an administrative fee, as well as a portion of the brokerage
commissions paid to MLF by the Joint Venture.
No selling commissions have been or are paid directly by the Limited
Partners. All selling commissions are paid by MLIP.
INCOME TAXES
No provision for income taxes has been made in the accompanying
consolidated financial statements as each Partner is individually responsible
for reporting income or loss based on such Partner's respective share of the
Partnership's income and expenses as reported for income tax purposes.
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ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
DISTRIBUTIONS
The Unitholders are entitled to receive, equally per Unit, any distribution
which may be made by the Partnership. No such distributions had been made as of
December 31, 1998.
REDEMPTIONS
A Limited Partner may require the Partnership to redeem some or all of such
Partner's Units at Net Asset Value as of the close of business on the last
business day of any month upon ten calendar days' notice. Units redeemed on or
prior to the end of the twelfth full month after purchase are assessed an early
redemption charge of 3% of their Net Asset Value as of the date of redemption.
If an investor acquires Units at more than one time, such Units are treated on a
"first-in, first-out" basis for purposes of determining whether redemption
charges are applicable.
DISSOLUTION OF THE PARTNERSHIP
The Partnership will terminate on December 31, 2026 or at an earlier date
if certain conditions occur, as well as under certain other circumstances as set
forth in the Limited Partnership Agreement.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (the "Statement"). Such Statement is
effective for fiscal years commencing after June 15, 1999. The General Partner
does not believe that the Statement will have a significant effect on the
financial statements of the Partnership.
2. JOINT VENTURE AGREEMENT
The Partnership and JWH entered into a Joint Venture Agreement as of the
commencement of operations whereby JWH contributed $100,000 to the Joint Venture
and the Partnership contributed substantially all of its capital. The Joint
Venture Agreement initially expired September 30, 1997, subject to two one-year
renewals at the option of MLIP. The renewal options were exercised at September
30, 1998 and 1997. As of October 30, 1998, the Joint Venture Agreement was
amended to allow the Joint Venture Agreement to continue in effect until
December 31, 1999 and for automatic renewal for successive annual terms. The
General Partner is the manager of the Joint Venture, while JWH has sole
discretion in determining the commodity futures, options on futures and forward
trades to be made on its behalf, subject to the trading limitations outlined in
the Joint Venture Agreement.
Pursuant to the Joint Venture Agreement, JWH and the Partnership share in
the profits of the Joint Venture based on equity ownership provided that 15% of
the Partnership's allocable quarterly New Trading Profits, as defined, are
allocated to JWH. Losses are allocated to JWH and the Partnership based on
equity ownership.
Pursuant to the Joint Venture Agreement, JWH's share of profits may earn
interest at the prevailing rates for 91-day U.S. Treasury bills or such share of
profits may participate in the profits and losses of the Joint Venture. For the
year ended December 31, 1998, JWH received a profit share allocation of
$5,383,828 and earned interest of $52,523 on such amount. For the year ended
December 31, 1997, JWH received a profit share allocation of $2,601,187 and
earned interest of $39,007 on such amount. For the period from July 15, 1996 to
December 31, 1996, JWH received a
-81-
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
profit share allocation of $4,675,905, and earned interest of $7,105 on such
amount.
3. RELATED PARTY TRANSACTIONS
Approximately 80% of the Joint Venture's U.S. dollar assets are managed by
MLAM, pursuant to guidelines established by MLIP for which MLAM assumes no
responsibility, in the Government Securities market. MLF pays MLAM annual
management fees of .20 of 1% on the first $25 million of certain assets
("Capital"), including assets of the Joint Venture managed by MLAM, .15 of 1% on
the next $25 million of Capital, .125 of 1% on the next $50 million, and .10 of
1% on Capital in excess of $100 million. Such fees are paid quarterly in
arrears and are calculated on the basis of the average daily assets managed by
MLAM.
A portion of the Joint Venture's U.S. dollar assets is maintained at MLF.
On assets held in U.S. dollars, Merrill Lynch credits the Joint Venture with
interest at the prevailing 91-day U.S. Treasury bill rate. The Joint Venture is
credited with interest on any of its net gains actually held by Merrill Lynch in
non-U.S. dollar currencies at a prevailing local rate received by Merrill Lynch.
Merrill Lynch may derive certain economic benefit in excess of the interest
which Merrill Lynch pays to the Joint Venture, from possession of such assets.
Merrill Lynch charges the Joint Venture Merrill Lynch's cost of financing
realized and unrealized losses on the Joint Venture's non-U.S.
dollar-denominated positions.
The Joint Venture pays brokerage commissions to MLF at a flat rate of .646
of 1% (a 7.75% annual rate) of the Joint Venture's month-end assets, and pays
MLIP a monthly administrative fee of .021 of 1% (a .25% annual rate) of the
Joint Venture's month-end assets. Month-end assets are not reduced, for
purposes of calculating brokerage and administrative fees, by any accrued
brokerage commissions, administrative fees, Profit Shares or other fees or
charges.
MLIP estimates that the round-turn equivalent commission rate charged to
the Joint Venture during the years ended December 31, 1998 and 1997 and for the
period from July 15, 1996 (commencement of operations) to December 31, 1996 was
approximately $145, $212 and $208 (not including, in calculating round-turn
equivalents, forward contracts on a futures-equivalent basis).
MLF pays JWH annual Consulting Fees of 4% of the Partnership's average
month-end assets, after reduction for a portion of the brokerage commissions.
Many of the Joint Venture's currency trades are executed in the spot and
forward foreign exchange markets (the "FX Markets") where there are no direct
execution costs. Instead, the participants, banks and dealers, including
Merrill Lynch International Bank ("MLIB"), in the FX Markets take a "spread"
between the prices at which they are prepared to buy and sell a particular
currency and such spreads are built into the pricing of the spot or forward
contracts with the Joint Venture. The General Partner anticipates that some of
the Joint Venture's foreign currency trades will be executed through MLIB, an
affiliate of the General Partner. MLIB has discontinued the operation of the
foreign exchange service desk, which included seeking multiple quotes from
counterparties unrelated to MLIB for a service fee and trade execution.
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ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In its exchange of futures for physical ("EFP") trading, the Joint Venture
acquires cash currency positions through banks and dealers, including Merrill
Lynch. The Joint Venture pays a spread when it exchanges these positions for
futures. This spread 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 the banks and dealers, which may include a
Merrill Lynch entity.
4. NET ASSET VALUE PER UNIT
For financial reporting purposes, the Partnership deducted the total
organizational and initial offering cost reimbursement payable to MLIP at
inception. For all other purposes (including computing Net Asset Value for
redemptions), the Partnership deducted the organizational and initial offering
cost reimbursements only as actually paid. The final payment was deducted from
the Net Asset Value in June 1998. As of December 31, 1997, the Net Asset Value
per Unit was $135.34 for financial reporting purposes and $135.40 for all other
purposes. As of December 31, 1998, the Net Asset Value per Unit was $154.34 for
financial reporting purposes and for all other purposes.
5. WEIGHTED AVERAGE UNITS
The weighted average number of Units outstanding was computed for purposes
of disclosing net income per weighted average Unit. The weighted average Units
outstanding at December 31, 1998, 1997 and 1996 equals the Units outstanding as
of such date, adjusted proportionately for Units sold and redeemed based on the
respective length of time each was outstanding during the year.
6. FAIR VALUE AND
OFF-BALANCE SHEET RISK
The Joint Venture trades futures, options on futures and forward contracts
in interest rates, stock indices, commodities, currencies, energy and metals.
The Joint Venture's total trading results by reporting category for the years
ended December 31, 1998, 1997 and 1996 were as follows:
[Download Table]
1998 TOTAL
TRADING RESULTS
---------------
Interest rates and
stock indices $44,472,322
-----------
Commodities 218,353
Currencies 1,242,166
Energy 9,562,147
Metals (7,395,858)
$ 48,099,130
------------
------------
[Download Table]
1997 TOTAL 1996 TOTAL
TRADING TRADING RESULTS
--------------- ---------------
Interest rates and stock
indices $ 19,982,977 $18,719,739
Commodities (2,328,550) (2,473,692)
Currencies 19,023,250 10,116,005
Energy (14,267,006) 6,404,320
Metals 6,611,279 1,730,074
$ 29,021,950 $ 34,496,446
---------- ----------
---------- ----------
MARKET RISK
Derivative financial instruments involve varying degrees of off-balance
sheet market risk, and changes in the level or volatility of interest rates,
foreign currency exchange rates or market values of the financial instruments or
commodities underlying such derivative instruments frequently result in changes
in the Partnership's net unrealized profit on such derivative instruments as
reflected in the Consolidated Statements of Financial Condition. The Joint
Venture's exposure to market risk is influenced by a number
-83-
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
of factors, including the relationships among the derivative instruments held by
the Joint Venture as well as the volatility and liquidity in the markets in
which such derivative instruments are traded.
The General Partner has procedures in place intended to control market risk
exposure, although there can be no assurance that they will, in fact, succeed in
doing so. These procedures focus primarily on monitoring the trading of JWH and
reviewing outstanding positions for over-concentrations. While the General
Partner does not itself intervene in the markets to hedge or diversify the Joint
Venture's market exposure, the General Partner may urge JWH to reallocate
positions in an attempt to avoid over-concentrations. However, such
interventions are unusual. Except in cases in which it appears that JWH has
begun to deviate from past practice and trading policies or to be trading
erratically (which has not occurred to date), the General Partner's basic risk
control procedures consist simply of monitoring JWH, with the market risk
controls being applied by JWH itself.
FAIR VALUE
The derivative instruments traded by the Joint Venture are marked to market
daily with the resulting unrealized profit recorded in the Consolidated
Statements of Financial Condition and the related profit reflected in trading
revenues in the Consolidated Statements of Income.
The contract/notional values of the open derivative instrument positions as
of December 31, 1998 and 1997 were as follows:
[Download Table]
1998
------------------
COMMITMENT COMMITMENT
TO PURCHASE TO SELL
(FUTURES, OPTIONS (FUTURES, OPTIONS
AND FORWARDS) AND FORWARDS)
---------------- -----------------
Interest rates and
Stock indices $1,092,704,439 $ 856,715,210
Commodities 25,732,606 34,202,326
Currencies 240,511,095 176,535,503
Energy -- 34,390,257
Metals -- 40,529,780
$1,358,948,140 $1,142,373,076
-------------- --------------
-------------- --------------
1997
------------------
COMMITMENT COMMITMENT
TO PURCHASE TO SELL
(FUTURES, OPTIONS (FUTURES, OPTIONS
AND FORWARDS) AND FORWARDS)
---------------- -----------------
Interest rates and
Stock indices $926,562,961 $351,175,040
Commodities 21,239,916 27,160,968
Currencies 199,371,182 390,721,620
Energy -- 39,106,920
Metals 18,503,375 43,958,106
---------- ----------
$ 1,165,677,434 $ 852,122,654
-------------- --------------
-------------- --------------
Substantially all of the Joint Venture's derivative financial instruments
outstanding as of December 31, 1998 expire within one year.
The contract/notional values of the Joint Venture's open exchange-traded
and non-exchange-traded derivative financial instrument positions as of December
31, 1998 and 1997 were as follows:
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ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
[Download Table]
1998
---------------------------
COMMITMENT COMMITMENT
TO PURCHASE TO SELL
(FUTURES, OPTIONS AND (FUTURES, OPTIONS AND
FORWARDS) FORWARDS)
--------- ---------
Exchange- $ 1,314,058,020 $ 1,057,972,923
Traded
Non-Exchange-
Traded 44,890,120 84,400,153
$1,358,948,140 $ 1,412,373,076
-------------- ---------------
-------------- ---------------
1997
---------------------------
COMMITMENT COMMITMENT
TO PURCHASE TO SELL
(FUTURES, OPTIONS AND (FUTURES, OPTIONS AND
FORWARDS) FORWARDS)
--------- ---------
Exchange- $791,818,184 $468,259,393
Traded
Non-Exchange-
Traded 373,859,250 383,863,261
$1,165,677,434 $ 852,122,654
-------------- -------------
-------------- -------------
The average fair values, based on contract/ notional values, of the Joint
Venture's derivative instrument positions which were open as of the end of each
calendar month during the years ended December 31, 1998 and 1997 were as
follows:
[Download Table]
1998
---------------------------
COMMITMENT COMMITMENT
TO PURCHASE TO SELL
(FUTURES, OPTIONS AND (FUTURES, OPTIONS AND
FORWARDS) FORWARDS)
--------- ---------
Interest rates and
Stock indices $ 1,203,084,796 $ 469,701,059
Commodities 14,712,644 35,906,262
Currencies 380,746,340 388,335,661
Energy 8,369,033 33,942,343
Metals 15,928,582 30,607,494
---------- ----------
$ 1,622,841,395 $ 958,492,819
---------------- --------------
---------------- --------------
1997
---------------------------
COMMITMENT COMMITMENT
TO PURCHASE TO SELL
(FUTURES, OPTIONS AND (FUTURES, OPTIONS AND
FORWARDS) FORWARDS)
--------- ---------
Interest rates and
Stock indices $ 1,010,667,321 $ 263,783,626
Commodities 25,901,996 21,055,353
Currencies 395,236,535 484,258,015
Energy 22,168,532 21,307,623
Metals 36,089,734 9,266,297
----------- ----------
$1,463,240,681 $ 826,494,351
--------------- --------------
--------------- --------------
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 markets 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 require margin in the over-the-counter markets.
The fair value amounts in the above tables represent the extent of the
Joint Venture's market exposure in the particular class of derivative
instrument, but not the credit risk associated with
-85-
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
counterparty nonperformance. The credit risk associated with these instruments
from counterparty nonperformance is the net unrealized profit included on the
Consolidated Statements of Financial Condition.
The gross unrealized profit and the net unrealized profit on the Joint
Venture's open derivative instrument positions as of December 31, 1998 and 1997
were as follows:
[Download Table]
1998
-------------------
GROSS NET
UNREALIZED PROFIT UNREALIZED PROFIT (LOSS)
----------------- ------------------------
Exchange-
Traded $ 34,342,877 $ 27,254,898
Non-Exchange-
Traded 347,586 (4,097,898)
-------- -----------
$ 34,690,463 $ 26,157,090
------------- -------------
------------- -------------
1997
-------------------
GROSS NET
UNREALIZED PROFIT UNREALIZED PROFIT
----------------- -----------------
Exchange-
Traded $ 14,037,333 $ 12,316,384
Non-Exchange-
Traded 8,613,088 2,060,620
---------- ---------
$ 22,650,421 $ 14,377,004
-------------- -------------
-------------- -------------
The Joint Venture has credit risk in respect of its counterparties and
brokers, but attempts to control this risk by dealing almost exclusively with
Merrill Lynch entities as counterparties and brokers.
The Joint Venture, in its normal course of business, enters into various
contracts, with MLF acting as its commodity broker. Pursuant to the brokerage
agreement with MLF (which includes a netting arrangement), 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.
-86-
INDEPENDENT AUDITORS' REPORT
MERRILL LYNCH INVESTMENT PARTNERS INC.:
We have audited the accompanying balance sheet of Merrill Lynch Investment
Partners Inc. (the "Company") as of December 25, 1998. 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 at December 25, 1998 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
February 5, 1999
-87-
MERRILL LYNCH INVESTMENT PARTNERS INC.
BALANCE SHEET
DECEMBER 25, 1998
--------------------------------------------------------------------------------
[Download Table]
ASSETS
Cash $ 937,966
Investments in affiliated partnerships 11,710,545
Due from parent and affiliate 20,683,294
Receivables from affiliated partnerships 5,047,501
Deferred charges 22,982,728
Advances and other receivables 15,055,652
Fixed assets -- net of accumulated depreciation
of $1,464,216 464,518
Other assets 1,146,000
---------------
TOTAL ASSETS $78,028,204
---------------
---------------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 14,502,593
Due to affiliate 2,755,842
Current and deferred income taxes 13,313,206
---------------
Total liabilities 30,571,641
---------------
STOCKHOLDER'S EQUITY:
Preferred stock, par value $10.00 per share --
1,000 shares authorized; none outstanding --
Common stock, par value $10.00 per share --
1,000 shares authorized; 100 shares outstanding 1,000
Additional paid-in capital 16,915,000
Retained earnings 30,540,563
---------------
Total stockholder's equity $47,456,563
---------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $78,028,204
---------------
---------------
See Notes to Balance Sheet.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY.
-88-
MERRILL LYNCH INVESTMENT PARTNERS INC.
NOTES TO BALANCE SHEET
DECEMBER 25, 1998
--------------------------------------------------------------------------------
1. ORGANIZATION AND
SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Merrill Lynch Investment Partners Inc. (the "Company") is a wholly-owned
subsidiary of Merrill Lynch Group, Inc., which, in turn, is 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 and is registered
as an investment adviser under the Investment Advisers Act of 1940. The Company
serves as the sole general partner of The Futures Expansion Fund Limited
Partnership, The Growth and Guarantee Fund L.P., ML Futures Investments II L.P.,
ML Futures Investments L.P., John W. Henry & Co./Millburn L.P., The S.E.C.T.O.R.
Strategy Fund-SM- L.P., The SECTOR Strategy Fund-SM- II L.P., The JWH Global
Asset Fund L.P., The SECTOR Strategy Fund-SM- V L.P., ML Global Horizons L.P.,
ML/AIS L.P., ML Select Hedge I L.P., The SECTOR Strategy Fund-SM- VI L.P., MLS
Managed Futures Fund L.P., ML Principal Protection L.P., ML Select Futures I
L.P. (formerly ML Chesapeake L.P.) and ML JWH Strategic Allocation Fund L.P.
(collectively, the "Affiliated Partnerships"). The Company is also an investor
in a joint venture (ML/AIG Asset Management L.L.C.) which is the general partner
of ML/AIG Multi-Strategy Fund L.P. Additionally, the Company has sponsored or
initiated the formation of various offshore entities engaged in the speculative
trading of futures, options on futures, futures and options on forward
contracts.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENTS IN AFFILIATED PARTNERSHIPS
The Company's investments in its Affiliated Partnerships are accounted for
under the equity method of accounting.
DEFERRED CHARGES
Deferred charges represent compensation to ML&Co. affiliates for the sale
of fund units to their customers. Such costs are amortized over 12, 24, 36 or
48-month periods.
2. RELATED PARTIES
The Company's officers and directors are also officers of other
subsidiaries of ML&Co. An affiliate bears all of the Company's facilities and
employee costs, for which it is reimbursed by the Company. Another affiliate,
Merrill Lynch Futures Inc.,
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY.
-89-
MERRILL LYNCH INVESTMENT PARTNERS INC.
NOTES TO BALANCE SHEET
DECEMBER 25, 1998
--------------------------------------------------------------------------------
executes and clears the Affiliated Partnerships' trades, as well as those of
various offshore funds sponsored or managed by the Company, for which it
receives a fee, generally based on the net assets of the Affiliated Partnerships
and offshore funds.
ML&Co. is holder of the Company's excess cash, which is available on demand
to meet current liabilities. ML&Co. credits the Company with interest, at a
floating rate approximating ML&Co.'s average borrowing rate, based on the
Company's average daily balances receivable. At December 25, 1998,
approximately $20,700,000 was subject to this agreement.
At December 25, 1998, the Company had receivables from Affiliated
Partnerships and offshore funds for certain administrative, management and
redemption fees, all of which are expected to be collected within 90 days.
Additionally, the Company had receivables from certain Affiliated Partnerships
and offshore funds for organizational and initial offering costs paid on behalf
of such funds which are being reimbursed to the Company over various time
periods (not exceeding three years).
On September 25, 1998, the Company paid a dividend to Merrill Lynch Group
Inc., consisting of $140,000,000.
The Company has determined that there may have been a miscalculation in the
interest credited by an affiliate of the Company, to certain Affiliated
Partnerships and related offshore entities of which the Company is the sponsor,
for a period prior to November 1996. Accordingly, ML&Co. is crediting current
and former investors in affected funds, with additional interest amounts
totaling approximately $28,500,000, which includes compound interest.
Approximately $26,500,000 was paid to investors as of December, 1998 with the
remaining balance of $2,000,000 recorded as a liability on the balance sheet.
The Company has determined that interest has been calculated appropriately since
November 1996.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY.
-90-
MERRILL LYNCH INVESTMENT PARTNERS INC.
NOTES TO BALANCE SHEET
DECEMBER 25, 1998
--------------------------------------------------------------------------------
3. INVESTMENTS IN AFFILIATED PARTNERSHIPS
The limited partnership agreements of the Affiliated Partnerships require
the Company to make certain minimum capital contributions to them. At December
25, 1998, the Company was in compliance with all such requirements.
At December 25, 1998, the Company's investments in its Affiliated
Partnerships were as follows:
ML Principal Protection L.P.
$ 1,490,297
ML Global Horizons L.P.
1,450,760
The SECTOR Strategy Fund-SM- II L.P
397,602
John W. Henry & Company/Millburn L.P.
615,277
The SECTOR Strategy Fund-SM- VI L.P.
244,581
The JWH Global Asset Fund L.P.
529,386
The S.E.C.T.O.R. Strategy Fund-SM- L.P.
203,553
ML Futures Investments L.P.
247,117
The SECTOR Strategy Fund-SM- V L.P.
154,234
ML Futures Investments II L.P.
127,711
The Growth and Guarantee Fund L.P.
148,226
The Futures Expansion Fund Limited
Partnership
92,239
ML Select Futures I L.P. (formerly ML
Chesapeake L.P.)
87,355
ML/AIG Asset Management L.L.C.
2,450,351
ML JWH Strategic Allocation Fund L.P.
2,557,076
ML Select Hedge Fund L.P.
507,250
ML/AIS L.P.
295,902
MLS Managed Futures Fund L.P.
111,628
Total
$11,710,545
-----------
-----------
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY.
-91-
MERRILL LYNCH INVESTMENT PARTNERS INC.
NOTES TO BALANCE SHEET
DECEMBER 25, 1998
--------------------------------------------------------------------------------
The following represents condensed combined financial information of the
Affiliated Partnerships as of December 25, 1998 (in thousands):
[Download Table]
Assets $955,906
--------
--------
Liabilities 67,785
Partners' capital 888,121
--------
Total $955,906
--------
--------
The Company's Affiliated Partnerships trade various futures, options on
futures, forwards and options on forward contracts. Risk to such partnerships
arises from the possible adverse changes in the market value of such contracts
and the potential inability of counterparties to perform under the terms of the
contracts. The risk to the Company is represented by the portion of its
investments in Affiliated Partnerships derived from the unrealized gains
contained in such Partnerships' net asset values.
4. INCOME TAXES
The results of operations of the Company are included in the consolidated
Federal and combined state and local income tax return of ML&Co. It is the
policy of ML&Co. to allocate current and deferred taxes associated with such
operating results to its respective subsidiaries in a manner which approximates
the separate Company method. ML&Co. and its affiliates use the asset and
liability method in providing income tax on all transactions that have been
recognized in the financial statements.
The Company provides for deferred income taxes resulting from temporary
differences which arise from recording deferred charges in different years for
income tax reporting purposes than for financial reporting purposes. At
December 25, 1998, the Company had no deferred tax assets. Deferred tax
liabilities consisted of the following:
[Download Table]
State and local $2,419,343
Federal 7,197,341
----------
$9,616,684
----------
----------
As part of the consolidated group, the Company transfers to ML&Co. its
current Federal, state and local tax liabilities. During 1998, the Company
transferred $25,195,316 in current taxes payable to ML&Co. At December 25,
1998, the Company had a current tax payable with ML&Co. of $7,998,513.
5. NET WORTH AGREEMENTS
Pursuant to the limited partnership agreements of the Affiliated
Partnerships, the Company is required to meet certain net worth requirements.
The Company's net worth, as defined, approximated $30,700,000 at December 25,
1998, which, in the opinion of the Company's counsel, met all such requirements.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY.
-92-
MERRILL LYNCH INVESTMENT PARTNERS INC.
NOTES TO BALANCE SHEET
DECEMBER 25, 1998
--------------------------------------------------------------------------------
6. COMMITMENTS
The Company is obligated to pay to the affiliates, from its own funds and
without reimbursement by its Affiliated Partnerships, ongoing compensation (a
2-5% annual rate) of the average month-end net assets, accrued monthly and paid
quarterly, for units in such partnerships outstanding for more than twelve
months.
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company enters into interest-rate swap transactions involving
off-balance-sheet financial instruments. These off-balance-sheet financial
instruments are subject to varying degrees of market and credit risk.
MARKET RISK - Market risk is the risk that a change in the level of one or
more market prices, rates, indices, volatilities, correlations or other factors,
such as liquidity, will result in losses for a specified position or portfolio.
CREDIT RISK - The Company's exposure to credit risk arises from the
possibility that a counterparty to a transaction might fail to perform under its
contractual commitment, resulting in the Company incurring a loss. The Company
has credit guidelines that limit the Company's transactions to Merrill Lynch
affiliates whose performance is guaranteed by Merrill Lynch.
As of December 31, 1998, the contractual or notional amounts related to
these interest rate swaps was $100,000,000.
Interest rate swaps involve the exchange of payments based on fixed or
floating rates applied to notional amounts. The contractual or notional amounts
related to these financial instruments reflect the volume and activity and do
not reflect the amounts at risk. The amounts at risk are generally limited to
the unrealized market valuation gains on the instruments and will vary based on
changes in market value. Unrealized gains on interest rate swaps are recognized
gross in the balance sheet.
8. CONCENTRATIONS OF CREDIT RISK
The Company has credit risk because the counterparties with respect to the
Company's interest rate swaps are Merrill Lynch or its affiliates.
9. DERIVATIVE FINANCIAL INSTRUMENTS
The Company's interest rate swaps are derivative financial instruments
which are entered into for hedging other transactions.
DERIVATIVE FINANCIAL INSTRUMENTS USED FOR OTHER THAN TRADING PURPOSES - The
Company entered into the interest rate swaps to hedge exposures or to modify the
characteristics of financial instruments or transactions.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY.
-93-
MERRILL LYNCH INVESTMENT PARTNERS INC.
NOTES TO BALANCE SHEET
DECEMBER 25, 1998
--------------------------------------------------------------------------------
Derivatives used for hedging purposes include swaps, forwards, futures and
purchased options. Unrealized gains or losses on these derivative contracts are
recorded on the same basis as the underlying assets or liabilities (that is,
hedges of financial instruments that are marked to market are also market to
market, while hedges of financial instruments recorded at cost or of anticipated
transactions are deferred). Open derivative contracts, which are linked to
assets or liabilities that are sold or otherwise disposed of, are terminated at
the time of disposition.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY.
-94-
PERFORMANCE OF OTHER
MLIP FUNDS
GENERAL
THE FOLLOWING PERFORMANCE INFORMATION IS REQUIRED BY THE CFTC. HOWEVER,
THE FUND AND ITS OFFSHORE COUNTERPART ARE THE ONLY MLIP FUNDS WHICH USE THE JWH
STRATEGIC ALLOCATION PROGRAM.
The performance summaries for the other publicly-offered single advisor
funds sponsored by MLIP is included above at page 17.
MLIP deleverages the trading of its "principal protection" funds in order
to protect ML&Co. under its guarantee. Multi-advisor funds without "principal
protection" features typically trade on a fully-leveraged basis. The Fund has
no "principal protection" feature and may trade on either an "upleveraged" or a
"deleveraged" basis.
The "Managed Account Program" is MLIP's program of privately offered funds.
The CFTC defines a "multi-advisor" fund as one in which no advisor is
allocated more than 25% of the fund's assets available for trading.
"Selected-advisor" fund is the term used by MLIP to describe funds with a number
of advisors but in which certain advisors may, at least from time to time, be
allocated in excess of 25% of the fund's trading assets.
Performance prior to January 1, 1994 has not been included in accordance
with CFTC policy.
INTEREST INCOME MAY BE A SIGNIFICANT PORTION OF A COMMODITY POOL'S INCOME AND
CAN RESULT IN PROFITS DESPITE TRADING LOSSES.
--------------------------------------
SEE THE DEFINITIONS OF WORST MONTHLY DECLINE, WORST PEAK-TO-VALLEY DECLINE AND
MONTHLY RATE OF RETURN AT PAGES 53 AND 54.
TABLE OF CONTENTS
PAGES
-----
A. MLIP Managed Account Program Single-Advisor Funds
(Without "Principal Protection" Features). . . . . . . . . . . 96 - 98
B. MLIP Selected-Advisor and Multi-Advisor Funds
(Without "Principal Protection" Features). . . . . . . . . . . 99 - 101
C. MLIP Selected-Advisor and Multi-Advisor Funds
(With "Principal Protection" Features) . . . . . . . . . . . .102 - 103
-95-
MLIP MANAGED ACCOUNT PROGRAM SINGLE ADVISOR FUNDS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
DECEMBER 31, 1998
[Enlarge/Download Table]
WORST MONTHLY
TYPE OF INCEPTION OF AGGREGATE DECEMBER 31, 1998 DECLINE
NAME OF FUND OFFERING TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH
---------------------------------------------------------------------------------------------------------------------------------
ML/AIS Ltd. Private July 1997 $43,698,119 $12,954,838 (13.09)% (9/98)
---------------------------------------------------------------------------------------------------------------------------------
ML/AIS L.P. Private July 1997 $44,183,126 $12,004,711 (13.10)% (9/98)
---------------------------------------------------------------------------------------------------------------------------------
ML Global Investments Fund Private April 1997 $61,906,000 $79,044,757 (3.36)% (2/98)
Ltd.
---------------------------------------------------------------------------------------------------------------------------------
ML/APAM Ltd. Private April 1997 $85,421,080 $32,775,366 (19.24)% (10/98)
---------------------------------------------------------------------------------------------------------------------------------
ML Select Futures L.P. Private April 1996 $13,414,177 $9,572,097 (7.86)% (8/97)
---------------------------------------------------------------------------------------------------------------------------------
ML Strategic Portfolio Fund Private July 1995 $55,530,000 dissolved as of (1.58)% (6/97)
Ltd. 2/28/98
---------------------------------------------------------------------------------------------------------------------------------
The JWH Global Asset Fund Private June 1995 $196,196,093 $139,053,596 (8.17)% (5/97)
Ltd. - Series B
---------------------------------------------------------------------------------------------------------------------------------
The RXR Defensive Equity Private Nov. 1993 $45,455,000 dissolved as of (17.91)% (2/96)
Alternative Account L.P. I 5/31/96
---------------------------------------------------------------------------------------------------------------------------------
ML Select Futures Ltd. Private Aug. 1993 $66,350,141 $12,149,023 (7.73)% (8/97)
---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE RATE OF
RETURN
JAN. 1, 1994 1997
(OR INCEPTION) 1998 COMPOUND
WORST TO COMPOUND ANNUAL ANNUAL
PEAK-TO-VALLEY DECLINE DECEMBER 31, 1998 RATE OF RATE OF
NAME OF FUND % PERIOD (OR DISSOLUTION) RETURN RETURN
----------------------------------------------------------------------------------------------------------------------------------
ML/AIS Ltd. (40.33)% (7/97-10/98) (27.19) (23.03)% (5.40)%
(6 mos.)
----------------------------------------------------------------------------------------------------------------------------------
ML/AIS L.P. (35.04)% (7/97-10/98) (20.64)% (15.83)% (5.72)%
(6 mos.)
----------------------------------------------------------------------------------------------------------------------------------
12.26%
ML Global Investments Fund (3.56)% (1/98-2/98) 27.49% 13.56% (9 mos.)
Ltd. (composite)(1) (composite)* (composite)*
----------------------------------------------------------------------------------------------------------------------------------
3.58%
ML/APAM Ltd. (53.76)% (1/98-12/98) (52.10)% (53.76)% (9 mos.)
(composite)* (composite)* (composite)*
----------------------------------------------------------------------------------------------------------------------------------
ML Select Futures L.P. (7.86)% (8/97) 50.87% 29.78% 9.43%
----------------------------------------------------------------------------------------------------------------------------------
ML Strategic Portfolio Fund (1.58)% (6/97) 93.31% 1.31% 14.66%
Ltd. (2 mos.)
----------------------------------------------------------------------------------------------------------------------------------
The JWH Global Asset Fund (18.56)% (1/98-7/98) 60.95% 5.47% 20.50%
Ltd. - Series B
----------------------------------------------------------------------------------------------------------------------------------
The RXR Defensive Equity (42.98)% (1/94-12/94) (5.60)% N/A N/A
Alternative Account L.P. I
----------------------------------------------------------------------------------------------------------------------------------
ML Select Futures Ltd. (8.58)% (5/96-7/96) 73.99% 16.10% 8.71%
----------------------------------------------------------------------------------------------------------------------------------
1996
COMPOUND 1995 1994
ANNUAL COMPOUND COMPOUND
RATE OF ANNUAL ANNUAL
NAME OF FUND RETURN RATE OF RETURN RATE OF RETURN
-------------------------------------------------------------------------------------------
ML/AIS Ltd. N/A N/A N/A
-------------------------------------------------------------------------------------------
ML/AIS L.P. N/A N/A N/A
-------------------------------------------------------------------------------------------
ML Global Investments Fund N/A N/A N/A
Ltd.
-------------------------------------------------------------------------------------------
ML/APAM Ltd. N/A N/A N/A
-------------------------------------------------------------------------------------------
ML Select Futures L.P. 6.23% N/A N/A
(9 mos.)
-------------------------------------------------------------------------------------------
ML Strategic Portfolio Fund 38.69% 19.99% N/A
Ltd. (6 mos.)
-------------------------------------------------------------------------------------------
The JWH Global Asset Fund 27.64% (0.78)% N/A
Ltd. - Series B (7 mos.)
-------------------------------------------------------------------------------------------
The RXR Defensive Equity (18.46)% 103.03% (42.98)%
Alternative Account L.P. I (5 mos.)
-------------------------------------------------------------------------------------------
ML Select Futures Ltd. 9.32% 8.29% 16.45%
-------------------------------------------------------------------------------------------
* The composite return of the fund, not the performance of any individual
series of units or shares.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE UNITS
COULD INCUR SUBSTANTIAL LOSSES. THE MLIP POOLS INCLUDED IN THE FOREGOING
TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
-96-
MLIP MANAGED ACCOUNT PROGRAM SINGLE ADVISOR FUNDS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
DECEMBER 31, 1998
[Enlarge/Download Table]
WORST MONTHLY
TYPE OF INCEPTION OF AGGREGATE DECEMBER 31, 1998 DECLINE
NAME OF FUND OFFERING TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH
---------------------------------------------------------------------------------------------------------------------------------
ML Hyman Beck Ltd. Private Aug. 1993 $28,963,729 dissolved as of (9.04)% (2/96)
11/30/98
---------------------------------------------------------------------------------------------------------------------------------
ML Mountain Partners Ltd. Private July 1993 $29,571,566 dissolved as of (17.17)% (2/94)
12/22/94
---------------------------------------------------------------------------------------------------------------------------------
The JWH Global Asset Fund Private Aug. 1991 $96,867,360 $47,948,747 (8.03)% (4/98)
L.P.
---------------------------------------------------------------------------------------------------------------------------------
The JWH Global Asset Fund Private June 1990 $97,112,854 $34,825,531 (6.53)% (2/96)
Ltd. - Series A
---------------------------------------------------------------------------------------------------------------------------------
The Moore Capital Fund II Private Sep. 1992 Ecu 7,763,565 dissolved as of (8.10)% (11/94)
Ltd. 12/31/98
---------------------------------------------------------------------------------------------------------------------------------
The Moore Global Investment Private Sep. 1990 $77,853,580 dissolved as of (7.30)% (2/94)
Fund Ltd. 5/31/95
---------------------------------------------------------------------------------------------------------------------------------
The Leyden Investment Fund Private June 1991 $6,708,424 dissolved as of (17.91)% (2/96)
Ltd. 10/31/96
---------------------------------------------------------------------------------------------------------------------------------
The Leyden Investment Fund Private June 1991 $30,637,006 dissolved as of (19.68)% (3/94)
L.P. 12/31/94
---------------------------------------------------------------------------------------------------------------------------------
ML Liberty Management Fund Private Oct. 1992 $20,495,843 dissolved as of (5.17)% (7/94)
Ltd. 12/31/98
---------------------------------------------------------------------------------------------------------------------------------
ML North Cove Fund Ltd. Private Jan. 1993 $98,273,603 $37,472,856 (6.22)% (2/94)
---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE RATE OF
RETURN
JAN. 1, 1994 1997
(OR INCEPTION) 1998 COMPOUND
WORST TO COMPOUND ANNUAL ANNUAL
PEAK-TO-VALLEY DECLINE DECEMBER 31, 1998 RATE OF RATE OF
NAME OF FUND % PERIOD (OR DISSOLUTION) RETURN RETURN
----------------------------------------------------------------------------------------------------------------------------------
ML Hyman Beck Ltd. (19.02)% (7/95-2/96) 11.48% (7.29)% 21.08%
----------------------------------------------------------------------------------------------------------------------------------
ML Mountain Partners Ltd. (60.57)% (8/93-8/94) (32.20)% N/A N/A
----------------------------------------------------------------------------------------------------------------------------------
The JWH Global Asset Fund (17.60)% (1/98-7/98) 111.99% 7.13% 14.74%
L.P.
----------------------------------------------------------------------------------------------------------------------------------
The JWH Global Asset Fund (16.91)% (7/94-1/95) 91.85% 14.98% 7.13%
Ltd. - Series A
----------------------------------------------------------------------------------------------------------------------------------
The Moore Capital Fund II (26.79)% (2/94-2/95) 75.52% 17.67% 27.15%
Ltd.
----------------------------------------------------------------------------------------------------------------------------------
The Moore Global Investment (23.05)% (2/94-2/95) (16.37)% N/A N/A
Fund Ltd.
----------------------------------------------------------------------------------------------------------------------------------
The Leyden Investment Fund (28.53)% (2/96-9/96) (15.77)% N/A N/A
Ltd.
----------------------------------------------------------------------------------------------------------------------------------
The Leyden Investment Fund (28.91)% (9/93-12/94) (27.30)% N/A N/A
L.P.
----------------------------------------------------------------------------------------------------------------------------------
ML Liberty Management Fund (6.76)% (2/94-5/94) 68.45% 12.23% 18.01%
Ltd.
----------------------------------------------------------------------------------------------------------------------------------
ML North Cove Fund Ltd. (23.99)% (2/94-2/95) 96.83% 18.27% 27.67%
----------------------------------------------------------------------------------------------------------------------------------
1996
COMPOUND 1995 1994
ANNUAL COMPOUND COMPOUND
RATE OF ANNUAL ANNUAL
NAME OF FUND RETURN RATE OF RETURN RATE OF RETURN
--------------------------------------------------------------------------------------------------------------
ML Hyman Beck Ltd. 2.54% 6.79% (9.31)%
--------------------------------------------------------------------------------------------------------------
ML Mountain Partners Ltd. N/A N/A (32.20)%
--------------------------------------------------------------------------------------------------------------
The JWH Global Asset Fund 29.83% 39.62% (4.86)%
L.P.
--------------------------------------------------------------------------------------------------------------
The JWH Global Asset Fund 24.18% 38.19% (9.24)%
Ltd. - Series A
--------------------------------------------------------------------------------------------------------------
The Moore Capital Fund II 24.95% 21.27% (22.58)%
Ltd.
--------------------------------------------------------------------------------------------------------------
The Moore Global Investment N/A 1.65% (17.73)%
Fund Ltd. (5 mos.)
--------------------------------------------------------------------------------------------------------------
The Leyden Investment Fund (20.98)% 24.93% (14.68)%
Ltd. (10 mos.)
--------------------------------------------------------------------------------------------------------------
The Leyden Investment Fund N/A N/A (27.30)%
L.P.
--------------------------------------------------------------------------------------------------------------
ML Liberty Management Fund 5.55% 15.70% 4.15%
Ltd.
--------------------------------------------------------------------------------------------------------------
ML North Cove Fund Ltd. 27.70% 23.09% (17.07)%
--------------------------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE UNITS
COULD INCUR SUBSTANTIAL LOSSES. THE MLIP POOLS INCLUDED IN THE FOREGOING
TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
-97-
MLIP MANAGED ACCOUNT PROGRAM SINGLE ADVISOR FUNDS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
DECEMBER 31, 1998
[Enlarge/Download Table]
WORST MONTHLY
TYPE OF INCEPTION OF AGGREGATE DECEMBER 31, 1998 DECLINE
NAME OF FUND OFFERING TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH
---------------------------------------------------------------------------------------------------------------------------------
ML Harmon Cove Fund Ltd. Private Jan. 1993 $125,121,453 $72,063,266 (1.57)% (6/96)
---------------------------------------------------------------------------------------------------------------------------------
ML/Essex Fund Ltd. Private Aug. 1991 $1,870,286 dissolved as of (7.75)% (1/94)
4/30/97
---------------------------------------------------------------------------------------------------------------------------------
InterRate-TM- Limited Private Dec. 1988 $7,429,200 dissolved as of -- --
1/31/94
---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE RATE OF
RETURN
JAN. 1, 1994 1997
(OR INCEPTION) 1998 COMPOUND
WORST TO COMPOUND ANNUAL ANNUAL
PEAK-TO-VALLEY DECLINE DECEMBER 31, 1998 RATE OF RATE OF
NAME OF FUND % PERIOD (OR DISSOLUTION) RETURN RETURN
----------------------------------------------------------------------------------------------------------------------------------
ML Harmon Cove Fund Ltd. (1.57)% (6/96) 80.35% 12.79% 12.23%
(composite)* (composite)* (composite)*
----------------------------------------------------------------------------------------------------------------------------------
ML/Essex Fund Ltd. (11.18)% (4/96-7/96) 44.57% N/A 18.02%
(4 months)
----------------------------------------------------------------------------------------------------------------------------------
InterRate-TM- Limited -- -- .55% N/A N/A
----------------------------------------------------------------------------------------------------------------------------------
1996
COMPOUND 1995 1994
ANNUAL COMPOUND COMPOUND
RATE OF ANNUAL ANNUAL
NAME OF FUND RETURN RATE OF RETURN RATE OF RETURN
------------------------------------------------------------------------------------------
ML Harmon Cove Fund Ltd. 14.45% 6.08% 17.35%
(composite)* (composite)* (composite)*(2)
-------------------------------------------------------------------------------------------
ML/Essex Fund Ltd. 17.46% 11.60% (6.54)%
-------------------------------------------------------------------------------------------
InterRate-TM- Limited N/A N/A 0.55%
(1 month)
-------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE UNITS
COULD INCUR SUBSTANTIAL LOSSES. THE MLIP POOLS INCLUDED IN THE FOREGOING
TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
-98-
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
DECEMBER 31, 1998
[Enlarge/Download Table]
WORST
INCEPTION WORST MONTHLY PEAK-TO-VALLEY
TYPE OF OF AGGREGATE DECEMBER 31, 1998 DECLINE DECLINE
NAME OF FUND OFFERING TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH % PERIOD
------------------------------------------------------------------------------------------------------------------------------------
ML Futures Investments II L.P. Public May 1988 $269,810,800 $11,209,662 (9.93)% (7/96) (16.76)% (5/96-7/96)
------------------------------------------------------------------------------------------------------------------------------------
ML Futures Investments L.P. Public Mar. 1989 $86,500,700 $21,027,262 (5.43)% (4/98) (10.85)% (6/95-7/96)
------------------------------------------------------------------------------------------------------------------------------------
The John W. Henry & Public Jan. 1990 $18,182,000 $13,379,531 (9.58)% (2/96) (19.33)% (7/94-1/95)
Co./Millburn L.P.
(Series A Units)
------------------------------------------------------------------------------------------------------------------------------------
The John W. Henry & Public Jan. 1991 $50,636,000 $28,093,880 (9.41)% (2/96) (19.32)% (7/94-1/95)
Co./Millburn L.P.
(Series B Units)
------------------------------------------------------------------------------------------------------------------------------------
The John W. Henry & Public Jan. 1992 $40,000,000 $14,689,901 (9.54)% (2/96) (19.20)% (7/94-1/95)
Co./Millburn L. P.
(Series C Units)
------------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Public July 1992 $13,353,600 dissolved as (7.04)% (2/96) (11.45)% (2/96-7/96)
Fund-SM- IV L.P. of 6/30/97
(Series B Units)
------------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Private July 1992 $9,131,000 dissolved as (7.32)% (2/96) (10.79)% (1/94-1/95)
Fund-SM- International IV of 6/30/97
Ltd. (Series B Shares)
------------------------------------------------------------------------------------------------------------------------------------
ML Global Horizons L.P. Public Jan. 1994 $174,343,595 $104,435,612 (6.42)% (2/96) (6.52)% (4/98-7/98)
------------------------------------------------------------------------------------------------------------------------------------
ML Global Horizons Ltd. Private Jan. 1994 $170,520,490 $56,881,062 (6.29)% (2/96) (6.62)% (4/98-7/98)
(Series A)
------------------------------------------------------------------------------------------------------------------------------------
ML Global Horizons Ltd. Private Sept. 1994 $3,708,415 $2,249,313 (5.66)% (2/96) (6.61)% (4/98-1/98)
(Series B)
------------------------------------------------------------------------------------------------------------------------------------
The JLI Trading Co. Fund Private Mar. 1995 $14,300,136 dissolved as (6.93)% (2/96) (11.18)% (4/97-10/97)
of 2/28/98
------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE RATE
OF RETURN
JAN. 1, 1994 1998 1997 1996 1995 1994
(OR INCEPTION) TO COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
DECEMBER 31, ANNUAL ANNUAL ANNUAL ANNUAL ANNUAL
1998 RATE OF RATE OF RATE OF RATE OF RATE OF
NAME OF FUND (OR DISSOLUTION) RETURN RETURN RETURN RETURN RETURN
---------------------------------------------------------------------------------------------------------
ML Futures Investments II L.P. 30.78% 5.91% 4.78% 2.05% 17.07% (1.36)%
---------------------------------------------------------------------------------------------------------
ML Futures Investments L.P. 42.36% 6.97% 9.22% 5.87% 11.80% 2.95%
---------------------------------------------------------------------------------------------------------
The John W. Henry & 73.54% 4.24% 12.49% 20.09% 34.89% (8.64)%
Co./Millburn L.P.
(Series A Units)
---------------------------------------------------------------------------------------------------------
The John W. Henry & 73.22% 4.20% 12.46% 20.03% 34.49% (8.43)%
Co./Millburn L.P.
(Series B Units)
---------------------------------------------------------------------------------------------------------
The John W. Henry & 74.33% 4.20% 12.47% 19.54% 35.08% (7.88)%
Co./Millburn L. P.
(Series C Units)
---------------------------------------------------------------------------------------------------------
The SECTOR Strategy 17.91% N/A 1.09% 12.50% 12.01% (7.44)%
Fund-SM- IV L.P. (6 mos.)
(Series B Units)
---------------------------------------------------------------------------------------------------------
The SECTOR Strategy 11.95% N/A 0.84% 6.97% 14.51% (9.37)%
Fund-SM- International IV (6 mos.)
Ltd. (Series B Shares)
---------------------------------------------------------------------------------------------------------
ML Global Horizons L.P. 63.41% 6.22% 7.61% 14.96% 19.48% 4.08%
---------------------------------------------------------------------------------------------------------
ML Global Horizons Ltd. 63.43% 6.79% 6.21% 15.51% 19.77% 4.15%
(Series A)
---------------------------------------------------------------------------------------------------------
ML Global Horizons Ltd. 67.81% 6.79% 6.71% 15.63% 22.62% 3.86%
(Series B) (4 mos.)
---------------------------------------------------------------------------------------------------------
The JLI Trading Co. Fund 22.73% 3.99% 4.08% 10.68% 2.45% N/A
(2 mos.) (10 mos.)
----------------------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE UNITS
COULD INCUR SUBSTANTIAL LOSSES. THE MLIP POOLS INCLUDED IN THE FOREGOING
TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
-99-
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
DECEMBER 31, 1998
[Enlarge/Download Table]
WORST
INCEPTION WORST MONTHLY PEAK-TO-VALLEY
TYPE OF OF AGGREGATE DECEMBER 31, 1998 DECLINE DECLINE
NAME OF FUND OFFERING TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH % PERIOD
------------------------------------------------------------------------------------------------------------------------------------
Permal F/X, Financials & Private July 1992 $106,495,710 MLIP resigned (5.67)% (2/94) (12.24)% (2/94-4/94)
Futures Ltd. as trading
manager as of
3/31/96
------------------------------------------------------------------------------------------------------------------------------------
ML Japan Investment Private Aug. 1993 Y1,050,000,000 dissolved as of (3.52)% (7/94) (7.32)% (1/94-2/95)
Partners Ltd. 6/30/96
------------------------------------------------------------------------------------------------------------------------------------
ML Futures Investments Ltd. Private Mar. 1989 $68,202,237 dissolved as of (6.17)% (2/94) (11.10)% (1/94-2/94)
8/31/94
------------------------------------------------------------------------------------------------------------------------------------
Currency Investment Partners Private April 1991 $55,114,566 dissolved as of (2.39)% (7/94) (16.10)% (7/91-5/94)
Ltd. 8/31/94
------------------------------------------------------------------------------------------------------------------------------------
Commodity Trading Company, Private July 1991 $25,797,626 dissolved as of (6.47)% (2/94) (18.26)% (1/92-2/94)
Ltd. 10/31/94
------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE RATE
OF RETURN
JAN. 1, 1994 1998 1997 1996 1995 1994
(OR INCEPTION) TO COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
DECEMBER 31, ANNUAL ANNUAL ANNUAL ANNUAL ANNUAL
1998 RATE OF RATE OF RATE OF RATE OF RATE OF
NAME OF FUND (OR DISSOLUTION) RETURN RETURN RETURN RETURN RETURN
----------------------------------------------------------------------------------------------------------------
Permal F/X, Financials & 15.87% N/A N/A 6.63% 14.78% (5.33)%
Futures Ltd. (3 mos.)
----------------------------------------------------------------------------------------------------------------
ML Japan Investment (3.89)% N/A N/A (1.69)% 3.95% (5.95)%
Partners Ltd. (6 mos.)
----------------------------------------------------------------------------------------------------------------
ML Futures Investments Ltd. (3.78)% N/A N/A N/A N/A (3.78)%
(8 mos.)
----------------------------------------------------------------------------------------------------------------
Currency Investment Partners (4.05)% N/A N/A N/A N/A (4.05)%
Ltd. (8 mos.)
----------------------------------------------------------------------------------------------------------------
Commodity Trading Company, 6.21% N/A N/A N/A N/A 6.21%
Ltd. (10 mos.)
----------------------------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE UNITS
COULD INCUR SUBSTANTIAL LOSSES. THE MLIP POOLS INCLUDED IN THE FOREGOING
TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
-100-
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
DECEMBER 31, 1998
[Enlarge/Download Table]
WORST
INCEPTION WORST MONTHLY PEAK-TO-VALLEY
TYPE OF OF AGGREGATE DECEMBER 31, 1998 DECLINE DECLINE
NAME OF FUND OFFERING TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH % PERIOD
------------------------------------------------------------------------------------------------------------------------------------
ML Institutional Public Feb. 1992 $57,312,700 dissolved as of (3.58)% (1/94) (8.78)% (10/93-4/94)
Partners L.P. 12/31/94
------------------------------------------------------------------------------------------------------------------------------------
Daiwa Hudson River Fund Private Feb. 1994 $7,044,701 dissolved as of (4.72)% (3/94) (17.21)% (2/94-1/95)
2/29/96
------------------------------------------------------------------------------------------------------------------------------------
ML/AIG Multi-Strategy Private July 1996 $111,147,571 $57,244,114 (4.74)% (8/98) (11.78)% (6/98-10/98)
Fund Ltd.
------------------------------------------------------------------------------------------------------------------------------------
ML/AIG Multi-Strategy Private Jan. 1997 $85,350,000 $41,828,971 (5.13)% (8/98) (11.75)% (5/98-10/98)
Fund L.P.
------------------------------------------------------------------------------------------------------------------------------------
ML Select Hedge I L.P. Private Jan. 1998 $88,910,000 $75,001,458 (6.52)% (8.98) (11.45)% (8/98-10/98)
------------------------------------------------------------------------------------------------------------------------------------
ML Select Hedge D L.P. Private April 1998 $55,965,300 $33,753,030 (21.03) (9/98) (43.50)% (4/98-10/98)
------------------------------------------------------------------------------------------------------------------------------------
ML Select Hedge I Ltd. Private April 1998 $86,007,300 $85,300,578 (11.04) (8.98) (11.07)% (4/98-8/98)
------------------------------------------------------------------------------------------------------------------------------------
ML/Convergence Ltd. Private May 1998 $25,990,700 $9,445,774 (33.24) (9/98) (64.63)% (8/98-12/98)
------------------------------------------------------------------------------------------------------------------------------------
ML S Managed Futures Private Sept. 1998 $12,550,000 $12,743,627 (0.03) (10/98) (0.03)% (10/98)
L.P.
------------------------------------------------------------------------------------------------------------------------------------
Global Protection Private July 1998 $55,145,000 $58,014,913 (0.54)% (7/98) (0.54)% (7/98)
Advantage Fund
------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE RATE
OF RETURN
JAN. 1, 1994 1998 1997 1996 1995 1994
(OR INCEPTION) TO COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
DECEMBER 31, ANNUAL ANNUAL ANNUAL ANNUAL ANNUAL
1998 RATE OF RATE OF RATE OF RATE OF RATE OF
NAME OF FUND (OR DISSOLUTION) RETURN RETURN RETURN RETURN RETURN
-----------------------------------------------------------------------------------------------------------------
ML Institutional (4.06)% N/A N/A N/A N/A (4.06)%
Partners L.P. (composite)* (composite)*
-----------------------------------------------------------------------------------------------------------------
Daiwa Hudson River Fund .65% N/A N/A 0.26% 19.82% (16.22)%
(2 mos.) (11 mos.)
-----------------------------------------------------------------------------------------------------------------
ML/AIG Multi-Strategy 7.54% (7.62)% 11.15% 4.74% N/A N/A
Fund Ltd. (6 mos.)
-----------------------------------------------------------------------------------------------------------------
ML/AIG Multi-Strategy 9.24% (6.23)% 16.50% N/A N/A N/A
Fund L.P.
-----------------------------------------------------------------------------------------------------------------
ML Select Hedge I L.P. 5.52% 5.52% N/A N/A N/A N/A
(composite)*
-----------------------------------------------------------------------------------------------------------------
ML Select Hedge D L.P. (39.69)% (36.69)% N/A N/A N/A N/A
(9 mo.)
-----------------------------------------------------------------------------------------------------------------
ML Select Hedge I Ltd. (1.20)% (1.20)% N/A N/A N/A N/A
(composite)* (9 mo.)
(composite)*
-----------------------------------------------------------------------------------------------------------------
ML/Convergence Ltd. (63.35)% N/A N/A N/A N/A N/A
(8 months)
-----------------------------------------------------------------------------------------------------------------
ML S Managed Futures 1.53% N/A N/A N/A N/A N/A
L.P. (4 months)
-----------------------------------------------------------------------------------------------------------------
Global Protection 7.05% N/A N/A N/A N/A N/A
Advantage Fund (6 months)
-----------------------------------------------------------------------------------------------------------------
* The composite return of the fund, not the performance of any individual series
of units or shares.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE UNITS
COULD INCUR SUBSTANTIAL LOSSES. THE MLIP POOLS INCLUDED IN THE FOREGOING
TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
-101-
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
(WITH "PRINCIPAL PROTECTION" FEATURES)
DECEMBER 31, 1998
[Enlarge/Download Table]
DECEMBER 31, WORST MONTHLY WORST
TYPE OF INCEPTION OF AGGREGATE 1998 DECLINE PEAK-TO-VALLEY DECLINE
NAME OF FUND OFFERING TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH % PERIOD
------------------------------------------------------------------------------------------------------------------------
ML Principal Public Oct. $163,402,575 $79,106,838 (3.70)% (2/96) (3.70)% (2/96)
Protection L.P. 1994
------------------------------------------------------------------------------------------------------------------------
ML Principal Private Oct. $1,147,670,544 $617,674,183 (3.72)% (2/96) (3.72)% (2/96)
Protection Plus Ltd. 1994
------------------------------------------------------------------------------------------------------------------------
The S.E.C.T.O.R. Public July $125,853,001 $18,934,681 (6.13)% (8/97) (12.70)% (3/97-4/98)
Strategy Fund-SM- L.P. 1990
------------------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM- II Public Dec. $136,410,000 $10,700,064 (4.73)% (2/96) (15.93)% (8/93-1/95)
L.P. (SECTOR II 1990
Units)
------------------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM- Private Dec. $55,181,600 dissolved as of (4.56)% (8/94) (16.49)% (8/93-1/95)
International II 1990 12/31/95
Ltd.
------------------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM- Public July $194,005,000 $23,091,118 (8.64)% (2/96) (9.30)% (2/96-3/96)
II L.P. (SECTOR 1991
III Units)
------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE
RATE OF RETURN
JAN. 1, 1994 (OR 1998 1997 1996 1995 1994
INCEPTION) TO COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
DECEMBER 31, ANNUAL ANNUAL ANNUAL ANNUAL ANNUAL
1998 RATE OF RATE OF RATE OF RATE OF RATE OF
NAME OF FUND (OR DISSOLUTION) RETURN RETURN RETURN RETURN RETURN
---------------------------------------------------------------------------------------------------------------
ML Principal 36.42% 4.60% 6.01% 9.36% 10.55% 1.76%
Protection L.P. (composite)* (composite)* (composite)* (composite)* (composite)* (2 1/2 mos.)
---------------------------------------------------------------------------------------------------------------
ML Principal 37.22% 3.84% 6.54% 10.01% 11.10% 1.48%
Protection Plus Ltd. (composite)* (composite)* (composite)* (composite)* (composite)* (2 1/2 mos.)
---------------------------------------------------------------------------------------------------------------
The S.E.C.T.O.R 18.29% (2.74)% 0.03% 12.40% 19.25% (9.29)%
Strategy Fund-SM- L.P.
---------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM- II 29.65% 1.51% 9.02% 14.60% 13.50% (9.93)%
L.P. (SECTOR II
Units)
---------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM- 9.58% N/A N/A N/A 21.27% (9.64)%
International II
Ltd.
---------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM- 37.46% 4.81% 12.98% 9.74% 9.30% (3.22)%
II L.P. (SECTOR
III Units)
---------------------------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE UNITS
COULD INCUR SUBSTANTIAL LOSSES. THE MLIP POOLS INCLUDED IN THE FOREGOING
TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
-102-
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
(WITH "PRINCIPAL PROTECTION" FEATURES)
DECEMBER 31, 1998
[Enlarge/Download Table]
DECEMBER 31, WORST MONTHLY WORST
TYPE OF INCEPTION OF AGGREGATE 1998 DECLINE PEAK-TO-VALLEY DECLINE
NAME OF FUND OFFERING TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH % PERIOD
------------------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM-
International II Private July $85,701,800 dissolved as of (4.41)% (2/26) (6.77)% (4/95-9/95)
Ltd. Series III 1991 10/31/98
Shares)
------------------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM- Public July $75,646,400 dissolved as of (6.41)% (2/96) (10.45)% (2/96-7/96)
IV L.P. (Series A 1992 6/30/97
Units)
------------------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM-
International IV Private July $55,189,400 dissolved as (6.22)% (2/96) (8.30)% (1/94-1/95)
Ltd. (Series A 1992 of 6/30/97
Shares)
------------------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM- Public Jan. $137,500,000 $9,750,926 (7.51)% (2/96) (10.14)% (2/96-6/96)
V L.P. 1993
------------------------------------------------------------------------------------------------------------------------
SECTOR-SM-
International Private Sept. $163,806,100 dissolved as of (4.60)% (2/94) (10.42)% (9/93-2/94)
Limited 1993 9/30/98
------------------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM- Private Jan. $81,252,600 dissolved as of (3.53)% (8/97) (8.00)% (6/95-10/95)
International V 1993 12/31/97
Ltd.
------------------------------------------------------------------------------------------------------------------------
Yen Linked ML Private Oct. Y37,997,3000,000 Y29,379,291,919 (2.12)% (7/96) (3.54)% (3/97-4/98)
PPP Ltd. 1995
------------------------------------------------------------------------------------------------------------------------
MLIP Management Private Nov. DM152,269,500 DM155,435,119 (1.62)% (10/98) (1.62)% (10/98)
DM-PPP Portfolio 1997
------------------------------------------------------------------------------------------------------------------------
The SECTOR Public Sept. $108,693,900 $19,571,183 (5.89)% (7/96) (8.97)% (5/96-7/96)
Strategy Fund-SM- 1993
VI L.P.
------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE
RATE OF RETURN
JAN. 1, 1994 (OR 1998 1997 1996 1995 1994
INCEPTION) TO COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
DECEMBER 31, ANNUAL ANNUAL ANNUAL ANNUAL ANNUAL
1998 RATE OF RATE OF RATE OF RATE OF RATE OF
NAME OF FUND (OR DISSOLUTION) RETURN RETURN RETURN RETURN RETURN
---------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM-
International II 28.83% 5.14% 3.71% 14.01% 2.84% 0.77%
Ltd. Series III
Shares)
---------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM- 15.18% N/A 1.16% 10.02% 9.78% (5.73)%
IV L.P. (Series A (6 mos.)
Units)
---------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM-
International IV 11.61% N/A 0.46% 7.06% 11.84% (7.21)%
Ltd. (Series A (6 mos.)
Shares)
---------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM- 27.72% 1.43% 11.00% 3.11% 14.22% (3.68)%
V L.P.
---------------------------------------------------------------------------------------------------------------
SECTOR-SM-
International 16.81% 3.07% 4.80% 4.63% 7.65% (3.99)%
Limited
---------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM- 31.78% N/A 9.39% 12.87% 11.11% (3.94)%
International V
Ltd.
---------------------------------------------------------------------------------------------------------------
0.16%
Yen Linked ML 1.83% (1.78)% 0.71% 2.78% (3 mos) N/A
PPP Ltd. (composite)* (composite)* (composite)* composite)* (composite*)
---------------------------------------------------------------------------------------------------------------
0.62%
MLIP Management 6.07% 5.42% (2 mos.) N/A N/A N/A
DM-PPP Portfolio (composite)* (composite)* (composite)*
---------------------------------------------------------------------------------------------------------------
The SECTOR
Strategy Fund-SM- 25.01% 4.43% 8.08% 4.62% 6.72% (0.80)%
VI L.P.
---------------------------------------------------------------------------------------------------------------
The composite return of the fund, not the performance of any individual series
of units or shares.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE UNITS
COULD INCUR SUBSTANTIAL LOSSES. THE MLIP POOLS INCLUDED IN THE FOREGOING
TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
-103-
[MERRILL LYNCH BULL LOGO]
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
ML JWH STRATEGIC ALLOCATION FUND L.P.
2,061,429
LIMITED PARTNERSHIP UNITS
-------------------------
THIS IS A SPECULATIVE, LEVERAGED INVESTMENT WHICH INVOLVES THE RISK OF LOSS.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
SEE "THE RISKS YOU FACE" BEGINNING AT PAGE 8 IN PART ONE.
--------------------------------------------------------------------------------
THIS PROSPECTUS IS IN TWO PARTS: A DISCLOSURE
DOCUMENT AND A STATEMENT OF ADDITIONAL
INFORMATION. THESE PARTS ARE BOUND
TOGETHER, AND BOTH CONTAIN
IMPORTANT INFORMATION.
--------------------------------------------------------------------------------
MERRILL LYNCH, PIERCE, FENNER MERRILL LYNCH
& SMITH INCORPORATED INVESTMENT PARTNERS INC.
SELLING AGENT GENERAL PARTNER
-------------------------
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
Futures Markets and Trading Methods. . . . . . . . . . . . . . . . . . . . . 1
Past Performance of JWH Trading Programs . . . . . . . . . . . . . . . . . . 3
Exhibit A: Fourth Amended and Restated
Limited Partnership Agreement. . . . . . . . . . . . . . . . . . . . . . LPA-i
Exhibit B: Subscription Requirements . . . . . . . . . . . . . . . . . SR-1
Exhibit C: Subscription Instructions. . . . . . . . . . . . . . . . . . SA-(i)
-i-
FUTURES MARKETS AND TRADING METHODS
THE FUTURES AND FORWARD MARKETS
FUTURES AND FORWARD CONTRACTS
Futures contracts in the United States can only be traded on approved
exchanges and call for the future delivery of various commodities. These
contractual obligations may be satisfied either by taking or making physical
delivery or by making an offsetting sale or purchase of a futures contract on
the same exchange.
Forward currency contracts are traded off-exchange through banks or
dealers. In such instances, the bank or dealer generally acts as principal in
the transaction and charges "bid-ask" spreads.
Futures and forward trading is a "zero-sum," risk transfer economic
activity. For every gain there is an equal and offsetting loss.
HEDGERS AND SPECULATORS
The two broad classifications of persons who trade futures are "hedgers"
and "speculators." Hedging is designed to minimize the losses that may occur
because of price changes, for example, between the time a merchandiser contracts
to sell a commodity and the time of delivery. The futures and forward markets
enable the hedger to shift the risk of price changes to the speculator. The
speculator risks capital with the hope of making profits from such changes.
Speculators, such as the Fund, rarely take delivery of the physical commodity
but rather close out their futures positions through offsetting futures
contracts.
EXCHANGES; POSITION AND DAILY LIMITS; MARGINS
Each of the commodity exchanges in the United States has an associated
"clearinghouse." Once trades made between members of an exchange have been
cleared, each clearing broker looks only to the clearinghouse for all payments
in respect of such broker's open positions. The clearinghouse "guarantee" of
performance on open positions does not run to customers. If a member firm goes
bankrupt, customers could lose money.
JWH trades for the Fund on a number of foreign commodity exchanges.
Foreign commodity exchanges differ in certain respects from their United States
counterparts and are not regulated by any United States agency.
The CFTC and the United States exchanges have established "speculative
position limits" on the maximum positions that speculative traders, such as JWH,
may hold or control in futures contracts on certain commodities.
Most United States exchanges limit the maximum change in futures prices
during any single trading day. Once the "daily limit" has been reached, it
becomes very difficult to execute trades. Because these limits apply on a
day-to-day basis, they do not limit ultimate losses, but may reduce or eliminate
liquidity.
When a position is established, "initial margin" is deposited. On most
exchanges, at the close of each trading day "variation margin," representing the
unrealized gain or loss on the open positions, is either credited to or debited
from a trader's account. If "variation margin" payments cause a trader's
"initial margin" to fall below "maintenance margin" levels, a "margin call" is
made, requiring the trader to deposit additional margin or have his position
closed out.
TRADING METHODS
Managed futures strategies are generally classified as either (i)
systematic or discretionary; and (ii) technical or fundamental.
SYSTEMATIC AND DISCRETIONARY TRADING APPROACHES
A systematic trader relies on trading programs or models to generate
trading signals. Discretionary traders make trading decisions on the basis of
their own judgment.
-1-
Each approach involves 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 signaled by a system.
TECHNICAL AND FUNDAMENTAL ANALYSIS
Technical analysis operates on the theory that market prices, momentum and
patterns at any given point in time reflect all known factors affecting the
supply and demand for a particular commodity. Consequently, technical analysis
focuses on market data as the most effective means of attempting to predict
future prices.
Fundamental analysis, in contrast, focuses on the study of factors external
to the markets, for example: weather, the economy of a particular country,
government policies, domestic and foreign political and economic events, and
changing trade prospects. Fundamental analysis assumes that markets are
imperfect and that market mispricings can be identified.
TREND-FOLLOWING
Trend-following advisors try to take advantage of major price movements, in
contrast with traders who focus on making many small profits on short-term
trades or through relative value positions. Trend-following traders assume that
most of their trades will be unprofitable. They look for a few large profits
from big trends. During periods with no major price movements, a
trend-following trading advisor is likely to have big losses.
RISK CONTROL TECHNIQUES
Trading advisors often adopt risk management principles. Such principles
typically restrict the size of positions taken as well as establishing stop-loss
points at which losing positions must be liquidated. However, no risk control
technique can assure that big losses will be avoided.
THE JWH PROGRAMS ARE SYSTEMATIC, TECHNICAL AND TREND-FOLLOWING.
-2-
SUPPLEMENTAL PAST PERFORMANCE OF JWH TRADING PROGRAMS
The following are brief summaries and performance information for the
period from inception through December 1993 of the currently offered JWH
Programs which began trading client capital prior to 1994. Not all of the
programs are presently used by JWH in trading for the Fund, but any of them may
be.
ORIGINAL INVESTMENT PROGRAM
Broadly Diversified
Program
Composition: Global Interest Rates Energy
Global Stock Indices Softs
Foreign Exchange Grains
Fiber Precious and Base Metals
The Original Investment Program seeks to capitalize on long-term trends in a
broad spectrum of worldwide financial and nonfinancial futures markets. The
program always maintains a position - long or short - in every market traded.
Historically, it has had a low statistical correlation to the S&P 500.
In 1992, a broad research effort was initiated to enhance the risk-reward ratios
of the Original Investment Program, without changing its fundamental trading
approach. Except for the removal of a few markets traded, the program had
remained virtually unchanged from its inception in 1982 through the middle of
1992. After extensive testing, a number of strategic adjustments were made
beginning in July 1992: global markets were added; sector allocations were
shifted, with greater weighting given to financial markets; some contracts which
had become too illiquid to support sizeable assets were eliminated; and overall
position size relative to account equity was reduced. The quantitative model
underlying the program was not changed. Today, the Original Investment Program
is one of JWH's largest and best-performing programs, manifesting lower
volatility since 1992.
This program began trading client capital in October 1982.
[Enlarge/Download Table]
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Monthly Rates of Return (%)
----------------------------------------------------------------------------------------------------------------------------------
Compound
Year January February March April May June July August September October November December Annual ROR
----------------------------------------------------------------------------------------------------------------------------------
1998 -1.3 2.2 -4.1 -0.5 4.4 1.7 -4.0 4.0 2.7 5.2 -12.8 15.4 10.8
----------------------------------------------------------------------------------------------------------------------------------
1997 3.4 0.2 1.6 0.5 1.1 -4.4 2.0 -0.8 -6.0 3.6 -0.0 4.9 5.7
----------------------------------------------------------------------------------------------------------------------------------
1996 5.3 -7.4 1.0 3.8 -6.5 8.0 -4.4 -2.3 8.2 10.4 5.2 1.1 22.6
----------------------------------------------------------------------------------------------------------------------------------
1995 2.2 17.9 16.6 9.1 -4.4 1.7 -0.0 -3.9 -3.9 3.3 1.1 6.8 53.2
----------------------------------------------------------------------------------------------------------------------------------
1994 -2.9 1.5 4.4 0.2 5.5 6.6 -7.1 -4.7 -2.8 -14.1 10.2 -0.0 -5.7
----------------------------------------------------------------------------------------------------------------------------------
1993 -0.8 9.5 -3.5 10.4 0.1 -4.1 14.9 -3.6 0.6 -1.5 3.5 11.4 40.6
----------------------------------------------------------------------------------------------------------------------------------
1992 -6.1 -8.8 0.7 -0.8 -4.5 8.3 9.1 9.1 -2.7 2.2 3.6 2.2 10.9
----------------------------------------------------------------------------------------------------------------------------------
1991 -0.5 0.3 -2.1 -5.8 4.4 -0.7 -7.4 -3.6 10.7 -3.9 -1.3 17.7 5.4
----------------------------------------------------------------------------------------------------------------------------------
1990 7.1 -2.0 18.4 12.4 -10.9 7.2 10.9 19.1 -2.1 -1.9 1.0 -2.3 66.8
----------------------------------------------------------------------------------------------------------------------------------
1989 0.8 -19.9 11.7 -5.1 29.0 -3.9 8.1 -13.7 -13.2 -12.0 7.4 9.8 -10.8
----------------------------------------------------------------------------------------------------------------------------------
1988 -6.9 4.7 -16.1 -5.1 3.6 13.9 -19.8 -4.3 6.3 -2.5 1.6 -12.5 -35.2
----------------------------------------------------------------------------------------------------------------------------------
1987 9.0 3.7 2.7 21.9 0.8 -3.5 8.8 -3.1 -10.4 35.8 16.5 11.9 129.8
----------------------------------------------------------------------------------------------------------------------------------
1986 -4.4 22.2 15.4 -5.8 -2.8 -2.1 11.5 7.2 -2.9 -10.3 -1.9 -3.0 19.8
----------------------------------------------------------------------------------------------------------------------------------
1985 2.4 0.9 -8.8 -17.1 11.0 4.4 16.8 1.7 -15.5 9.6 7.4 18.6 26.8
----------------------------------------------------------------------------------------------------------------------------------
1984 5.5 -4.8 -7.5 -2.1 16.6 -10.3 28.7 -9.0 16.0 -5.2 -2.2 12.5 34.7
----------------------------------------------------------------------------------------------------------------------------------
1983 14.4 -28.6 1.6 4.9 8.3 -9.6 10.9 13.4 -7.3 -3.3 -6.4 -2.5 -12.4
----------------------------------------------------------------------------------------------------------------------------------
1982 N/A N/A N/A N/A N/A N/A N/A N/A N/A 7.1 -16.8 2.7 -8.5
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PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
-3-
GLOBAL DIVERSIFIED PORTFOLIO
Broadly Diversified
Program
Composition: Global Interest Rates Energy
Global Stock Indices Softs
Foreign Exchange Grains
Fiber Precious and Base Metals
The Global Diversified Portfolio seeks to capitalize on long-term price
movements in a broad spectrum of financial and nonfinancial markets. The
program does not maintain continuous positions and, in fact, may take a neutral
stance if a long-term trend fails to develop or during periods of nontrending
markets. Historically, the program has had a low statistical correlation to the
S&P 500. It is available to investors on a limited basis.
The Global Diversified Portfolio began trading client capital in June 1988.
[Enlarge/Download Table]
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Monthly Rates of Return (%)
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Compound
Year January February March April May June July August September October November December Annual ROR
----------------------------------------------------------------------------------------------------------------------------------
1998 -3.2 3.8 -1.4 -3.2 3.1 -1.3 0.1 19.5 9.4 -9.4 -2.5 9.4 23.6
----------------------------------------------------------------------------------------------------------------------------------
1997 1.5 -0.4 -1.0 -7.2 -0.8 -2.1 11.5 -7.8 -0.2 4.5 -0.5 7.3 3.3
----------------------------------------------------------------------------------------------------------------------------------
1996 -1.3 -9.8 1.3 7.1 -9.1 1.7 2.2 4.5 7.6 14.6 9.1 -1.0 26.9
----------------------------------------------------------------------------------------------------------------------------------
1995 -6.9 13.5 8.5 7.3 1.2 -1.7 -8.9 -5.0 -5.1 -2.2 5.9 14.9 19.6
----------------------------------------------------------------------------------------------------------------------------------
1994 -2.6 -0.8 4.0 0.9 7.9 10.8 -2.6 -6.4 2.1 -3.6 5.6 -4.1 10.1
----------------------------------------------------------------------------------------------------------------------------------
1993 1.7 16.6 2.9 6.6 1.5 1.0 14.3 -0.0 -4.2 0.1 3.1 6.1 59.8
----------------------------------------------------------------------------------------------------------------------------------
1992 -12.3 -15.2 1.1 -3.9 -1.9 6.5 17.4 6.1 -5.3 -1.6 -0.2 -0.1 -12.6
----------------------------------------------------------------------------------------------------------------------------------
1991 -1.3 7.1 -4.9 3.8 2.5 1.6 -16.8 0.4 18.2 0.2 1.9 28.2 40.4
----------------------------------------------------------------------------------------------------------------------------------
1990 16.9 27.9 10.7 5.9 -15.1 3.1 5.3 12.0 8.2 -6.9 -0.3 -2.3 77.5
----------------------------------------------------------------------------------------------------------------------------------
1989 1.1 1.4 0.5 -1.8 18.7 -14.5 17.4 -12.6 -7.8 -15.7 21.7 5.0 4.8
----------------------------------------------------------------------------------------------------------------------------------
1988 N/A N/A N/A N/A N/A 26.2 -15.9 20.9 -7.2 2.1 1.0 -5.4 16.2
----------------------------------------------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
-4-
FINANCIAL AND METALS PORTFOLIO
Financial
Program
Composition: Global Interest Rates Foreign Exchange
Global Stock Indices Precious Metals
The Financial and Metals Portfolio seeks to identify and capitalize on
intermediate and long-term price movements in global financial and precious
metals markets. If a trend is identified, the program attempts to take a
position; in nontrending market environments, the program may remain neutral or
liquidate open positions. Historically, the program has had a low statistical
correlation to the S&P 500.
Currency positions are traded primarily in the interbank market and occasionally
on futures exchanges, and may be held both as outrights - positions taken in
foreign currencies versus the U.S. dollar - and as cross rates - foreign
currencies against each other.
This program began trading client capital in October 1984.
[Enlarge/Download Table]
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Monthly Rates of Return (%)
----------------------------------------------------------------------------------------------------------------------------------
Compound
Year January February March April May June July August September October November December Annual ROR
----------------------------------------------------------------------------------------------------------------------------------
1998 -3.5 -4.0 -1.6 -7.9 3.2 -4.8 -0.9 17.5 15.3 -3.8 -7.5 8.9 7.2
----------------------------------------------------------------------------------------------------------------------------------
1997 4.4 -2.2 -0.7 -2.9 -8.3 4.1 15.8 -3.7 2.2 2.0 2.5 2.9 15.2
----------------------------------------------------------------------------------------------------------------------------------
1996 6.0 -5.5 0.7 2.3 -1.7 2.2 -1.1 -0.8 3.2 14.3 10.9 -2.6 29.7
----------------------------------------------------------------------------------------------------------------------------------
1995 -3.8 15.7 15.3 6.1 1.2 -1.7 -2.3 2.1 -2.1 0.3 2.6 1.7 38.5
----------------------------------------------------------------------------------------------------------------------------------
1994 -2.9 -0.6 7.2 0.9 1.3 4.5 -6.1 -4.1 1.5 1.7 -4.4 -3.5 -5.3
----------------------------------------------------------------------------------------------------------------------------------
1993 3.3 13.9 -0.3 9.3 3.3 0.1 9.7 -0.8 0.2 -1.1 -0.3 2.9 46.8
----------------------------------------------------------------------------------------------------------------------------------
1992 -18.0 -13.5 3.0 -12.2 -5.7 21.9 25.5 10.2 -5.2 -4.5 -0.8 -2.6 -10.9
----------------------------------------------------------------------------------------------------------------------------------
1991 -2.3 3.8 4.5 -0.8 -0.3 -1.3 -13.4 4.8 25.8 -7.7 6.6 39.4 61.9
----------------------------------------------------------------------------------------------------------------------------------
1990 28.0 19.5 11.4 2.4 -22.7 6.9 12.2 11.2 8.3 -5.0 3.1 -3.7 83.6
----------------------------------------------------------------------------------------------------------------------------------
1989 31.7 -8.7 8.5 3.2 37.0 -6.6 4.4 -8.2 -14.9 -17.5 21.6 -4.5 34.6
----------------------------------------------------------------------------------------------------------------------------------
1988 -12.6 9.8 -2.3 -15.0 0.3 44.2 5.5 6.9 -8.1 2.5 5.2 -19.2 4.0
----------------------------------------------------------------------------------------------------------------------------------
1987 33.0 12.1 34.2 18.2 -7.2 -10.7 12.2 -14.6 -8.9 28.0 32.5 21.2 *252.4
----------------------------------------------------------------------------------------------------------------------------------
1986 4.8 21.9 -6.3 3.7 -17.5 17.6 25.0 9.4 -0.2 2.6 -3.6 -0.5 61.5
----------------------------------------------------------------------------------------------------------------------------------
1985 6.6 17.7 -9.3 -7.8 -7.7 -1.8 41.3 -10.1 -27.3 6.4 26.6 1.9 20.7
----------------------------------------------------------------------------------------------------------------------------------
1984 N/A N/A N/A N/A N/A N/A N/A N/A N/A 1.6 -3.2 11.7 9.9
----------------------------------------------------------------------------------------------------------------------------------
* The timing of additions and withdrawals materially inflated the 1987 rate
of return. The three accounts that were open for the entire year of 1987
achieved rates of return of 138%, 163% and 259%.
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
-5-
THE WORLD FINANCIAL PERSPECTIVE
Financial
Program
Composition: Global Interest Rates Foreign Exchange
Global Stock Indices Energy
Precious Metals
The World Financial Perspective seeks to capitalize on long-term price movements
in financial, metals and energy markets and holds positions from multiple
currency perspectives, including the British pound, the Euro, Japanese yen,
Swiss franc and U.S. dollar. The program always maintains a position - long or
short - in every market traded. Historically, the program has had a low
statistical correlation to the S&P 500.
[Enlarge/Download Table]
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Monthly Rates of Return (%)
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Compound
Year January February March April May June July August September October November December Annual ROR
----------------------------------------------------------------------------------------------------------------------------------
1998 1.8 2.5 1.6 -3.1 1.2 -4.6 -4.1 9.1 1.1 3.2 -8.6 8.3 7.2
----------------------------------------------------------------------------------------------------------------------------------
1997 1.1 0.2 -2.3 -0.8 -5.2 4.5 6.0 -6.4 1.1 -1.3 8.4 5.9 10.4
----------------------------------------------------------------------------------------------------------------------------------
1996 7.4 -5.5 6.7 2.4 -2.0 2.7 -2.9 1.6 7.8 9.3 9.1 -0.6 40.9
----------------------------------------------------------------------------------------------------------------------------------
1995 -3.7 13.7 18.3 3.7 -3.3 -2.6 0.5 1.7 -3.9 3.9 -0.1 2.4 32.2
----------------------------------------------------------------------------------------------------------------------------------
1994 -4.6 -0.0 9.2 0.9 2.4 1.7 -8.9 -3.1 -0.0 0.2 -5.8 -6.8 -15.2
----------------------------------------------------------------------------------------------------------------------------------
1993 -1.9 11.0 -10.3 6.6 2.7 1.5 12.3 -5.2 0.3 -7.1 -2.6 8.4 13.7
----------------------------------------------------------------------------------------------------------------------------------
1992 -21.6 -9.7 -0.5 -0.9 3.2 5.6 3.1 10.7 -10.0 -12.9 9.5 3.2 -23.2
----------------------------------------------------------------------------------------------------------------------------------
1991 -7.3 -3.0 14.5 -0.1 7.9 -2.7 -13.1 4.1 -4.8 -5.2 5.3 23.5 14.6
----------------------------------------------------------------------------------------------------------------------------------
1990 8.4 -8.6 4.4 0.4 -4.2 3.3 0.7 54.2 9.5 -6.7 -12.8 -7.0 32.1
----------------------------------------------------------------------------------------------------------------------------------
1989 24.1 -11.6 13.8 3.5 13.5 6.9 -5.9 -1.1 -11.2 -11.5 10.7 9.3 38.8
----------------------------------------------------------------------------------------------------------------------------------
1988 -13.1 5.0 -17.9 2.6 -1.5 8.6 -6.9 -3.1 15.9 10.4 2.5 -1.2 -4.0
----------------------------------------------------------------------------------------------------------------------------------
1987 N/A N/A N/A 2.7 -0.3 -4.2 17.0 -21.2 -14.4 21.3 25.1 32.4 55.6
----------------------------------------------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
-6-
INTERNATIONAL CURRENCY AND BOND PORTFOLIO
Financial
Program
Composition: Foreign Exchange
Global Interest Rates
The International Currency and Bond Portfolio seeks to identify and capitalize
on intermediate and long-term price movements in the world's bond and foreign
exchange markets. If a trend is identified, the program will take a position;
in nontrending market environments, the program may liquidate positions and
remain neutral. Historically, the International Currency and Bond Portfolio has
had a low statistical correlation with the S&P 500.
Using a more conservative approach to position size in relation to account
equity than in other JWH programs, the International Currency and Bond Portfolio
targets currencies and the long-term portion of interest rates of major
industrialized nations. Foreign exchange positions are held both as outrights -
positions taken in foreign currencies versus the U.S. dollar - and as cross
rates - foreign currencies traded against each other.
The International Currency and Bond Portfolio began trading client capital in
January 1993.
[Enlarge/Download Table]
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Monthly Rates of Return (%)
----------------------------------------------------------------------------------------------------------------------------------
Compound
Year January February March April May June July August September October November December Annual ROR
----------------------------------------------------------------------------------------------------------------------------------
1998 1.0 -2.3 1.3 -4.0 5.4 -3.2 0.4 9.4 11.2 -2.2 -5.2 4.8 16.1
----------------------------------------------------------------------------------------------------------------------------------
1997 2.2 1.4 0.0 -1.9 -2.9 4.9 10.2 -6.1 2.8 2.7 2.0 1.3 17.0
----------------------------------------------------------------------------------------------------------------------------------
1996 3.6 -4.6 1.1 0.1 -0.3 -0.8 -2.5 -0.8 5.2 12.2 7.6 -1.4 19.9
----------------------------------------------------------------------------------------------------------------------------------
1995 -3.7 11.1 11.2 3.7 7.7 -2.0 -2.8 -0.3 0.7 0.6 5.1 1.5 36.5
----------------------------------------------------------------------------------------------------------------------------------
1994 -2.2 1.5 5.4 3.0 4.3 4.8 -6.7 -3.0 0.9 0.1 -4.8 -4.7 -2.3
----------------------------------------------------------------------------------------------------------------------------------
1993 -1.6 7.3 -0.9 -1.3 -0.3 3.3 4.1 3.7 0.1 -1.6 -0.4 1.9 14.8
----------------------------------------------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
-7-
INTERNATIONAL FOREIGN EXCHANGE PROGRAM
Foreign Exchange
Program
Composition: Foreign Exchange
The International Foreign Exchange Program seeks to identify and capitalize on
intermediate and long-term price movements in a broad range of both major and
minor currencies on the interbank market. The International Foreign Exchange
Program attempts to take a position if a trend is identified, and takes a
neutral stance if long-term trends fail to continue or during periods of
nontrending markets. Historically, the program has had a low statistical
correlation to the S&P 500.
Positions are taken as outrights against the U.S. dollar, or as cross rates,
which eliminates dependence on the dollar. This program began trading client
capital in August 1986.
[Enlarge/Download Table]
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Monthly Rates of Return (%)
----------------------------------------------------------------------------------------------------------------------------------
Compound
January February March April May June July August September October November December Annual ROR
----------------------------------------------------------------------------------------------------------------------------------
1998 -1.6 -6.0 2.9 -3.4 8.2 19.6 1.8 2.2 -6.8 7.2 -6.1 -1.8 14.0
----------------------------------------------------------------------------------------------------------------------------------
1997 2.9 9.7 4.1 5.0 -6.9 1.5 9.5 7.0 2.4 5.1 6.5 9.2 71.1
----------------------------------------------------------------------------------------------------------------------------------
1996 2.3 -4.8 2.9 1.0 2.0 1.0 -3.0 -8.1 1.2 6.1 3.1 0.7 3.7
----------------------------------------------------------------------------------------------------------------------------------
1995 -6.1 7.2 22.2 2.5 -5.3 -0.6 -5.5 5.8 0.5 1.5 -2.8 -0.6 16.9
----------------------------------------------------------------------------------------------------------------------------------
1994 1.0 -3.0 -0.2 -1.7 -1.8 3.2 -2.5 -0.3 2.7 4.2 -6.7 -0.8 -6.3
----------------------------------------------------------------------------------------------------------------------------------
1993 -5.2 5.3 0.4 -2.7 1.9 3.9 5.0 -4.5 -1.0 -4.0 -3.1 0.4 -4.5
----------------------------------------------------------------------------------------------------------------------------------
1992 -12.0 -6.9 2.9 -9.9 3.0 12.8 7.2 20.1 -5.9 -1.9 0.3 -0.6 4.5
----------------------------------------------------------------------------------------------------------------------------------
1991 -7.8 -7.6 27.5 1.7 0.8 8.7 -10.3 -4.0 6.0 -0.6 -0.1 26.5 38.7
----------------------------------------------------------------------------------------------------------------------------------
1990 1.1 -1.3 6.2 1.8 -7.8 14.6 24.9 18.9 -3.6 2.4 -0.1 -1.0 65.1
----------------------------------------------------------------------------------------------------------------------------------
1989 11.5 -17.7 2.3 1.3 10.1 -3.6 -16.5 -24.2 -21.9 1.8 10.4 12.3 -37.0
----------------------------------------------------------------------------------------------------------------------------------
1988 -23.2 0.5 8.7 11.3 32.4 7.5 5.3 5.6 -5.3 2.5 8.7 -6.7 45.4
----------------------------------------------------------------------------------------------------------------------------------
1987 3.4 0.5 2.9 -3.5 -11.7 3.7 -4.9 -12.9 4.9 15.2 14.0 14.6 23.4
----------------------------------------------------------------------------------------------------------------------------------
1986 N/A N/A N/A N/A N/A N/A N/A 8.7 -0.2 13.7 0.9 -0.7 23.6
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PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
-8-
G-7 CURRENCY PORTFOLIO
Foreign Exchange
Program
Composition: Foreign Exchange
The G-7 Currency Portfolio seeks to identify and capitalize on intermediate and
long-term price movements in the highly liquid currencies of the Group of Seven
Industrialized nations and Switzerland. The program attempts to take a position
if a trend is identified, and takes a neutral stance during periods of
nontrending markets. Historically, the program has had a low statistical
correlation to the S&P 500.
Not all of the G-7 currencies are traded at all times. Forward positions are
primarily taken on the interbank market as outrights against the U.S. dollar, or
as cross rates, which reduces dependence on the U.S. dollar. G-7 began trading
client capital in February 1991.
[Enlarge/Download Table]
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Monthly Rates of Return (%)
----------------------------------------------------------------------------------------------------------------------------------
Compound
Year January February March April May June July August September October November December Annual ROR
----------------------------------------------------------------------------------------------------------------------------------
1998 -4.1 -2.6 4.7 -1.9 6.6 -2.8 0.4 -2.5 2.0 7.4 -9.1 -1.7 -4.8
----------------------------------------------------------------------------------------------------------------------------------
1997 2.5 3.9 0.4 3.1 -3.3 5.7 4.1 -3.5 -1.2 1.2 6.0 0.9 21.0
----------------------------------------------------------------------------------------------------------------------------------
1996 2.9 -4.2 -0.4 2.2 0.7 1.8 -2.7 -4.3 1.6 10.9 4.1 1.8 14.5
----------------------------------------------------------------------------------------------------------------------------------
1995 -3.0 9.6 21.2 2.2 -4.3 -0.2 -1.8 5.3 1.8 2.0 -1.3 -0.8 32.2
----------------------------------------------------------------------------------------------------------------------------------
1994 -1.3 -1.7 0.9 -1.3 -1.0 7.9 -3.5 -0.3 2.9 4.1 -7.2 -3.6 -4.9
----------------------------------------------------------------------------------------------------------------------------------
1993 -4.4 7.9 -0.3 -1.8 -1.0 4.6 2.6 -5.0 -1.8 -5.4 -0.6 -0.5 -6.3
----------------------------------------------------------------------------------------------------------------------------------
1992 -10.7 -1.4 -0.1 -2.6 1.8 10.0 5.8 10.9 1.6 2.3 -0.3 -1.8 14.6
----------------------------------------------------------------------------------------------------------------------------------
1991 N/A -1.8 19.6 0.8 3.5 7.8 -2.9 -4.1 2.1 0.5 1.7 15.7 48.5
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PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
-9-
JWH PERFORMANCE
GENERAL
The preceding is the composite performance of the currently offered JWH
Programs which began trading client capital prior to 1994. All performance
information is current as of December 31, 1998. Not all of these programs are
presently used by the Fund, but any of them might be in the future.
From the inception of trading of the JWH programs (, the greatest
cumulative percentage decline in daily net asset value experienced in any single
program was nearly 60% on a composite basis, and certain individual accounts
included in such program experienced even greater declines. Certain JWH
accounts have lost 10% or more in a single trading day. Prospective investors
should understand that similar or greater drawdowns are possible in the future.
THERE CAN BE NO ASSURANCE THAT JWH WILL TRADE PROFITABLY FOR THE FUND OR AVOID
SUDDEN AND SEVERE LOSSES.
An investor should note that the composite capsule performance
presentations include individual accounts which, even though traded according to
the same investment program, have materially different rates of return. The
reasons for this are numerous material differences among accounts: (a)
procedures governing timing for the commencement of trading and means of moving
toward full portfolio commitment of new accounts; (b) the period during which
accounts are active; (c) client trading restrictions, including futures versus
forward contracts and contract months; (d) trading size to equity ratio
resulting from procedures for the commencement of trading and the appropriate
means of moving toward full portfolio commitment of new accounts and new
capital; (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 a
particular program; (f) the amount of interest income earned by an account,
which will depend on the rates paid by futures commission merchants on equity
deposits and/or on the portion of an account invested in interest-bearing
obligations such as Treasury bills; (g) the amount of management and incentive
fees paid to JWH and the amount of brokerage commissions paid, which will vary
and will depend on the fees negotiated by the client with the broker; (h) the
timing of orders to open or close positions; (i) the market conditions, which in
part determine the quality of trade executions; (j) variations in fill prices;
and (k) timing of additions and withdrawals. Notwithstanding these material
differences among accounts, the composite remains a valid representation of the
accounts included therein.
Composite performance presentation is only allowed for accounts which
are not materially different. To decide if there are material differences
among accounts traded pursuant to the same trading program, the gross trading
performance of each JWH investment program and each individual JWH account
within the relevant program is reviewed and the following parameters
established by interpretations of the Division of Trading and Markets of the
CFTC applied (i) if the arithmetic average of two percentages is greater than
10 percentage points and the difference between the two is less than 10% of
their average; (ii) if the arithmetic average of the two percentages is
greater than 5 percentage points but less than 10 percentage points and the
difference between the two is 1.5 percentage points or less; and (iii) if the
arithmetic average of the two percentages is less than 5 percentage points
and the difference between the two is 1.0 percentage point or less. If one
of the parameters (i) - (iii) is satisfied in the review, then the results
within the designated range are deemed "materially the same" or "not
materially different." The parameters (i) - (iii) determine if differences
between accounts are material. The gross trading performance of each JWH
investment program and each individual JWH account within the relevant
program not satisfying the above parameters (i) - (iii) is then reviewed to
determine whether any material differences that are detected could produce
misleading composite performance results. With the exception of accounts
that were established at levels below JWH's current minimum account size,
JWH's
-10-
policy is to provide separate performance capsules when an account is
consistently performing differently on a gross trading basis than the other
JWH accounts traded pursuant to the same trading program and the continued
inclusion of that account in the composite would create a distortion in the
composite rate of return.
The composite rates of return indicated should not be taken as
representative of any rate of return actually achieved by any single account
represented in the records. Investors are further cautioned that the data set
forth in the performance capsule records are not indicative of any results which
may be attained by JWH in the future since past performance is not necessarily
indicative of future results. During the periods covered by the capsule
performance records, and particularly since 1989, JWH has increased and
decreased position size in relation to account equity in certain markets and
entire programs, and also altered the composition of the markets and contracts
for certain programs. In general since 1992, JWH began implementing certain
position size adjustments that were of a more permanent nature. While
historical returns represent actual performance achieved, investors should be
aware that the position size relative to account equity currently utilized may
be significantly different from that used during previous time periods.
Investors should be aware of the following position size adjustments relative to
account equity:
Original Investment Program --
reduced 25% commencing in October 1995
Financial and Metals Portfolio --
reduced 50% commencing in August 1992
G-7 Currency Portfolio --
increased 50% commending in May 1998
International Currency and Bond Portfolio --
increased 30% commencing in May 1998.
While historical returns represent actual performance achieved, investors
should be aware that position size relative to account equity currently utilized
may be significantly different from that used during previous time periods. In
addition, the subjective aspects listed in the "Trading Strategy" section on
page 46 of Part One have been utilized more often in recent years and therefore
may have had a more pronounced effect on performance results during recent
periods. Additionally, the choice of an investment program (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), has an effect on performance results. In reviewing the JWH capsule
performance records, prospective investors should bear in mind the possible
effects of these variations on rates of return and in the application of JWH's
investment methods.
Prior to December 1991 for JWH, and July 1992 for JWHII, capsule
performance records are presented on a cash basis except as otherwise stated
in the notes to the records. The recording of items on a cash basis should
not, for most months, be materially different from presenting such rates of
return on an accrual basis. Any differences in the monthly rates of return
between the two methods are immaterial to the overall performance presented.
With the change to the accrual basis of accounting for incentive fees in
December 1991 for JWH, and July 1992 for JWHII, the net effect on monthly net
performance and the rate of return in the capsule performance records of
continuing to record interest income, management fees, commissions and other
expenses on a cash basis is materially equivalent to the full accrual basis.
JWH began reflecting all items of net performance on an accrual basis for the
G-7 Currency Portfolio in July 1992, and at the inception of client trading
for the International Currency and Bond Portfolio. In August 1998, JWH made
an adjustment to the accounting method employed for every investment program
not already utilizing the full accrual basis of accounting. This adjustment
moved all JWH investment programs to the full accrual basis beginning on
September 1, 1998.
Advisory fees vary from account to account managed pursuant to all
programs. In addition, the calculation of management and incentive fees is
subject to variation due to agreed-upon definitions contained in each account's
advisory agreement.
-11-
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.
Proprietary capital is included in the rates of return for the Financial
and Metals Portfolio, the Original Investment Program, the Global Diversified
Portfolio, the Global Financial Portfolio, the International Currency and Bond
Portfolio, the G-7 Currency Portfolio and the International Foreign Exchange
Program, but does not have a material impact on the rates of return.
NOTES TO JWH PROGRAMS' CAPSULE
PERFORMANCE SUMMARIES AND THE MONTHLY RATES OF RETURN TABLE
Compound Annual Rate of Return is calculated by compounding the monthly
rates of return over the number of periods in a given year. For example, each
month's monthly rate of return in hundredths is added to one (1) and the result
is multiplied by the previous month's compounded monthly rate of return
similarly expressed. One (1) is then subtracted from the product. For periods
less than one year, the results are year to date.
Average Compounded Annual Rate of Return is calculated in a manner similar
to Annual Rate of Return except that before subtracting one (1) from the
product, the product is exponentially changed by the factor of one (1) divided
by the number of years in the performance records and then one (1) is
subtracted.
Monthly Rates of Return are calculated by dividing net performance by the
sum of beginning equity, plus additions minus withdrawals. For such purposes
all additions and withdrawals are effectively treated as if they had been made
on the first day of the month, even if, in fact, they occurred later. Beginning
in December 1991, if additions and withdrawals are material to the program's
performance, they are time-weighted. If time-weighting is materially
misleading, then the only accounts traded method is utilized.
-12-
EXHIBIT A
ML JWH STRATEGIC ALLOCATION FUND L.P.
FOURTH AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
Dated as of
May 1, 1999
MERRILL LYNCH INVESTMENT PARTNERS INC.
GENERAL PARTNER
ML JWH STRATEGIC ALLOCATION FUND L.P.
FOURTH AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
TABLE OF CONTENTS PAGE
----
1. Formation and Name. . . . . . . . . . . . . . . . . . . . . . . . LPA-1
2. Principal Office. . . . . . . . . . . . . . . . . . . . . . . . . LPA-1
3. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . LPA-1
4. Term, Fiscal Year and Net Assets. . . . . . . . . . . . . . . . . LPA-1
(a) Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . LPA-1
(b) Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . LPA-2
(c) Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . LPA-2
5. Net Worth of General Partner . . . . . . . . . . . . . . . . . . LPA-2
6. Capital Contributions. . . . . . . . . . . . . . . . . . . . . . LPA-2
7. Allocation of Profits and Losses . . . . . . . . . . . . . . . . LPA-2
(a) Capital Accounts and Financial Allocations. . . . . . . . . LPA-2
(b) Tax Allocations. . . . . . . . . . . . . . . . . . . . . . . LPA-2
(c) Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . LPA-3
(d) Limited Liability of Limited Partners . . . . . . . . . . . LPA-4
8. Management of the Partnership. . . . . . . . . . . . . . . . . . LPA-4
(a) General. . . . . . . . . . . . . . . . . . . . . . . . . . . LPA-4
(b) Fiduciary Duties . . . . . . . . . . . . . . . . . . . . . . LPA-5
(c) Loans; Investments. . . . . . . . . . . . . . . . . . . . . LPA-5
(d) Certain Conflicts of Interest Prohibited . . . . . . . . . . LPA-6
(e) Certain Agreements . . . . . . . . . . . . . . . . . . . . . LPA-6
(f) No "Pyramiding" . . . . . . . . . . . . . . . . . . . . . . LPA-6
(g) Other Activities . . . . . . . . . . . . . . . . . . . . . . LPA-6
(h) Status of Joint Venture. . . . . . . . . . . . . . . . . . . LPA-6
9. Audits and Reports. . . . . . . . . . . . . . . . . . . . . . . . LPA-6
10. Assigning Units. . . . . . . . . . . . . . . . . . . . . . . . . LPA-7
11. Redeeming Units. . . . . . . . . . . . . . . . . . . . . . . . . LPA-7
12. Offering of Units. . . . . . . . . . . . . . . . . . . . . . . . LPA-8
13. Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . LPA-8
14. Withdrawal of a Partner. . . . . . . . . . . . . . . . . . . . . LPA-9
15. Standard of Liability; Indemnification . . . . . . . . . . . . . LPA-9
(a) Standard of Liability for the General Partner . . . . . . . LPA-9
(b) Indemnification of the General Partner by the Partnership . LPA-9
(c) Indemnification of the Partnership by the Partners. . . . . LPA-11
16. Amendments; Meetings. . . . . . . . . . . . . . . . . . . . . . . LPA-11
(a) Amendments with Consent of the General Partner. . . . . . . LPA-11
(b) Amendments and Actions without Consent of the General
Partner. . . . . . . . . . . . . . . . . . . . . . . . . . LPA-11
(c) Meetings; Other Voting Matters. . . . . . . . . . . . . . . LPA-12
17. Benefit Plan Investors. . . . . . . . . . . . . . . . . . . . . . LPA-12
18. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . LPA-13
19. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . LPA-13
(a) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . LPA-13
(b) Binding Effect. . . . . . . . . . . . . . . . . . . . . . . LPA-13
(c) Captions. . . . . . . . . . . . . . . . . . . . . . . . . . LPA-13
(d) Close of Business . . . . . . . . . . . . . . . . . . . . . LPA-13
----------------------------------------------
MERRILL LYNCH INVESTMENT PARTNERS INC.
GENERAL PARTNER
LPA (i)
ML JWH STRATEGIC ALLOCATION FUND L.P.
FOURTH AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
This Fourth Amended and Restated Limited Partnership Agreement (this
"Agreement") is made as of May 1, 1999, by and among Merrill Lynch Investment
Partners Inc., a Delaware corporation, as general partner (the "General
Partner"), and each Limited Partner.
WITNESSETH:
1. FORMATION AND NAME.
The parties hereby form and continue ML JWH STRATEGIC ALLOCATION FUND L.P.
(the "Partnership") under the Delaware Revised Uniform Limited Partnership Act
(the "Act").
2. PRINCIPAL OFFICE.
The principal office of the Partnership is c/o the General Partner,
Princeton Corporate Campus, 800 Scudders Mill Road, Section 2G, Plainsboro, New
Jersey 08536; telephone: (609) 282-8560. The registered office and agent for
service of process in the State of Delaware is c/o The Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801.
3. BUSINESS.
(a) BUSINESS. The Partnership's business is to trade futures and forward
contracts on all manner of commodities, financial instruments and currencies;
physical commodities; securities; and any rights, interests or options relating
to the foregoing. The Partnership may engage in all activities necessary,
convenient or incidental to the foregoing businesses
(b) OBJECTIVE. The objective of the Partnership's business is substantial
capital appreciation of its assets through speculative trading.
(c) JOINT VENTURE. The Partnership currently trades through a joint
venture (the "Joint Venture") with John W. Henry & Company, Inc. ("JWH"). As
the Partnership owns substantially all of the Joint Venture, the term
"Partnership" refers to the Partnership, the Joint Venture or both as the
context may require.
4. TERM, FISCAL YEAR AND NET ASSETS.
(a) TERM. The Partnership began on December 11, 1995 and will dissolve on
the earlier of: (1) December 31, 2026; (2) receipt by the General Partner of 90
days' notice to dissolve from Limited Partners owning more than 50% of the
outstanding Units; (3) withdrawal, insolvency or dissolution of the General
Partner, or any other event that causes the General Partner to cease to be a
general partner of the Partnership unless (i) at the time of such event there is
at least one remaining general partner of the Partnership who carries on the
business of the Partnership, or (ii) within 90 days after such event all
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of the date of such event, of one or more general
partners of the Partnership; (4) a decline in the aggregate Net Assets of the
Partnership to less than $250,000; (5) a decline in the Net Asset Value per Unit
to $25 or less; (6) dissolution of the Partnership as otherwise provided in this
Agreement; or (7) any other event requiring dissolution.
Upon dissolution of the Partnership, the General Partner, or another person
approved by a majority of the Units, shall act as liquidator trustee.
LPA-1
(b) FISCAL YEAR. January 1 through December 31.
(c) NET ASSETS. Net Assets are determined in accordance with generally
accepted accounting principles.
A futures or futures option traded on a United States commodity exchange is
valued at its settlement price. If such a contract cannot be liquidated, the
settlement price on the first day on which it can be liquidated is used or such
other value as the General Partner deems fair and reasonable. The liquidating
value of a forward or of a futures or futures option not traded on a United
States commodity exchange is its liquidating value as determined by the General
Partner on a basis consistently applied for each different type of contract.
The Partnership liability for reimbursing its organizational and initial as
well as ongoing offering costs to the General Partner reduced or reduces Net
Assets only as paid out or amortized.
Reserves may be created and charged against Net Assets in the discretion of
the General Partner.
5. NET WORTH OF GENERAL PARTNER.
The General Partner agrees that it will maintain a net worth of at least 5%
of the total contributions to the Partnership and all other partnerships of
which the General Partner is general partner. This agreement may be modified if
counsel opines that such change will not adversely affect the partnership
taxation of the Partnership, and if such change meets applicable state
securities laws or guidelines.
The General Partner will not permit its net worth to decline below $10
million without the consent of a majority of the Units.
6. CAPITAL CONTRIBUTIONS.
The Partners' respective capital contributions shall be as shown on the
books and records of the Partnership.
7. ALLOCATION OF PROFITS AND LOSSES.
(a) CAPITAL ACCOUNTS AND FINANCIAL ALLOCATIONS. Each Unit has a
capital account, whose initial balance is the amount paid for such Unit.
As of the close of business (as determined by the General Partner) on the
last business day of each month, any increase or decrease in the Partnership's
Net Assets during such month shall be credited or charged equally to all
outstanding Units.
(b) TAX ALLOCATIONS. As of each December 31, income and expense and
capital gain or loss shall be allocated among the Partners for tax purposes.
Capital gain and capital loss shall be allocated separately and not netted.
(1) First, items of ordinary income and expense, including all items of
gain and loss attributable to MLAM's cash management activities, shall be
allocated equally among the Units outstanding as of the end of each month in
which such items accrued.
(2) Second, Capital Gain or Loss shall be allocated as follows:
(A) Each Unit has a tax account with an initial balance equal to the
amount paid for such Unit. As of the end of each month through March 31, 1999,
the balance of such tax account shall be reduced by the Unit's allocable share
of the amount paid by the Partnership to the General Partner for organizational
and initial offering cost reimbursements, as well as by the Unit's allocable
share of any amount paid or amortized by the Partnership in respect of such
month for the costs of the ongoing offering of the Units. These adjustments
shall be made prior to the following allocations of capital gain or loss.
As of the end of each fiscal year:
(i) Each tax account shall be increased by the amount of income or
Capital Gain allocated to each Unit pursuant to Sections 7(b)(1) and
7(b)(2)(C).
LPA-2
(ii) Each tax account shall be decreased by the amount of expense or
Capital Loss allocated to each Unit pursuant to Sections 7(b)(1) and
7(b)(2)(E) and by the amount of any distributions paid to each Unit other
than upon redemption.
(iii) When a Unit is redeemed, its tax account is eliminated.
(B) Each Partner who redeems a Unit during or as of the end of a fiscal
year shall be allocated Capital Gain up to the amount of the excess of the
amount received on redemption (before taking into account any early redemption
charges) over the tax account allocable to such Unit (any such excess being
referred to as an "Excess"). In the event that the aggregate amount of Capital
Gain available to be allocated pursuant to this Section is less than the
aggregate amount of Capital Gain required to be so allocated, the aggregate
amount of available Capital Gain shall be allocated among all such Partners in
the ratio which each such Partner's aggregate Excess bears to the aggregate
Excess of all such Partners.
(C) Capital Gain remaining after the allocation described in Section
7(b)(2)(B) shall be allocated among all Partners with outstanding Units whose
capital accounts are in excess of their tax accounts based on the ratio of each
such Partner's Excess to the aggregate Excess of all such Partners. Any
remaining Capital Gain shall then be allocated equally to all Units.
(D) Each Partner who redeems a Unit during or as of the end of a fiscal
year shall be allocated Capital Loss up to the amount of the sum of the excess
of the tax account allocable to such Unit over the amount received on redemption
(before taking into account any early redemption charges; and such excess being
referred to as a "Negative Excess"). In the event the aggregate amount of
Capital Loss available to be allocated pursuant to this Section is less than the
aggregate amount required to be so allocated, the aggregate amount of available
Capital Loss shall be allocated among all such Partners in the ratio 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)(2)(D) shall be allocated among all Partners with outstanding Units whose
tax accounts are in excess of their capital accounts based on the ratio of each
such Partner's Negative Excess to the aggregate Negative Excess of all such
Partners. Any remaining Capital Loss shall then be allocated equally to all
Units.
(F) For purposes of this Section 7(b)(2), "Capital Gain" or "Capital Loss"
shall mean gain or loss characterized as gain or loss from the sale or exchange
of a capital asset by the Internal Revenue Code of 1986, as amended (the
"Code"), provided, however, that Capital Gain and Loss shall not include gain or
loss relating to MLAM's cash management activities which shall be allocated
pursuant to Section 7(b)(1).
(3) The Partnership's intent is to allocate taxable profit and loss the
same way as financial profit and loss, trying to eliminate any difference
between a Partner's capital account and his or her tax account, consistent with
principles set forth in Section 704 of the Code, including without limitation a
"Qualified Income Offset."
(4) The allocations of profit and loss shall not exceed the allocations
permitted under Subchapter K of the Code, as determined by the General Partner.
(5) The General Partner's interest in the Partnership is treated on a
Unit-equivalent basis for allocation purposes.
The General Partner may adjust the allocations set forth in this Section
7(b), in its discretion, if the General Partner believes that doing so will
achieve more equitable allocations or ones more consistent with the Code.
(c) EXPENSES. The General Partner was reimbursed by the Partnership for
organizational and
LPA-3
initial offering costs in 24 monthly installments ending June
30, 1998.
The General Partner pays all of the Partnership's routine legal, accounting
and administrative expenses (other than as provided in the following paragraph),
and none of the General Partner's "overhead" expenses (including, but not
limited to, salaries, rent and travel expenses) are charged to the Partnership.
The General Partner receives a monthly Administrative Fee of 0.02083 of 1%
(0.25% annually) of the month-end assets of the Partnership.
The Partnership pays the costs of the continuous offering of the Units
(other than selling commissions and ongoing compensation); provided, that the
General Partner absorbs all such costs in excess of 0.25% of the Partnership's
average month-end Net Assets in any fiscal year.
Any goods and services provided to the Partnership by the General Partner
shall be provided at rates and terms at least as favorable as those which may be
obtained from third parties in arm's-length negotiations. All of the expenses
which are for the Partnership's account shall be billed directly to the
Partnership.
The General Partner pays the selling commissions and ongoing compensation
due on the Units.
The Partnership will pay any taxes applicable to it and any charges
incidental to its trading.
(d) LIMITED LIABILITY OF LIMITED PARTNERS. Each Unit, when purchased in
accordance with this Agreement, shall be fully-paid and nonassessable, except as
otherwise provided by law.
8. MANAGEMENT OF THE PARTNERSHIP.
(a) GENERAL. The General Partner shall manage the business of the
Partnership.
The General Partner shall determine what distributions, if any, shall be
made to the Partners.
The General Partner may take such actions relating to the business of the
Partnership as the General Partner deems necessary or advisable and which are
consistent with the terms of this Agreement.
All Limited Partners consent to the General Partner's selection of: (i)
John W. Henry & Company, Inc. as trading manager; (ii) MLAM as provider of cash
management services; (iii) Merrill Lynch Futures Inc. as the Partnership's
commodity broker; (iv) the General Partner's Foreign Exchange Desk; and (v)
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Futures
Inc. as the Partnership's custodians.
The General Partner is specifically authorized by each Limited Partner to
enter into the cash management arrangements described under "Interest Income
Arrangements" in the prospectus for the Units current at the time such Limited
Partner last purchased Units (the "Prospectus").
The General Partner is hereby specifically authorized to enter into,
deliver and perform on behalf of the Partnership, the business arrangements
referred to in the Prospectus.
The General Partner may engage such persons as the General Partner in its
sole judgment shall deem advisable for operating the business of the
Partnership; provided, that no such arrangement shall allow brokerage
commissions and Administrative Fees above those described in the Prospectus or
permitted under applicable North American Securities Administrators Association,
Inc. Guidelines for the Registration of Commodity Pool Programs (the "NASAA
Guidelines") in effect as of the date of the Prospectus, whichever is higher.
The General Partner will reimburse the Partnership, on an annual basis, to
the extent that the Partnership's brokerage commissions plus the annual
Administrative Fee have exceeded 14% of the
LPA-4
Partnership's average month-end Net Assets during the preceding year.
The Partnership's brokerage commissions and Administrative Fees, taken
together, may not be increased above an annual level equal to 8.0% of the
Partnership's average month-end assets without the unanimous consent of all
Limited Partners.
The General Partner shall reimburse the Partnership for any fees paid by
the Partnership to any trading advisor during any fiscal year, to the extent
that such fees exceed the 6% annual management fees and the 15% of new trading
profits quarterly profit shares contemplated by the NASAA Guidelines during such
year. Any such reimbursement shall be made on a present value basis, fully
compensating the Partnership for having made payments at any time during the
year which would not otherwise have been due from it. The General Partner shall
disclose any such reimbursement in the Annual Report delivered to Limited
Partners.
No compensation paid by the Partnership to any party may be increased
without prior written notice to Limited Partners within sufficient time for them
to redeem prior to such increase becoming effective. Such notification shall
contain a description of Limited Partners' voting and redemption rights as well
as a description of any material effect of such increase.
Any material change in the Partnership's basic investment policies or
structure requires the approval of a majority of the Units.
The General Partner is the "tax matters partner" of the Partnership, and
the Partnership of the Joint Venture.
The General Partner has authority to cause the Partnership to take such
actions as manager of the Joint Venture as the General Partner may deem
appropriate, subject to the fiduciary obligations and other restrictions
applicable to the General Partner as general partner of the Partnership.
(b) FIDUCIARY DUTIES. The General Partner shall be under a fiduciary duty
to conduct the affairs of the Partnership in the best interests of the
Partnership. The Limited Partners will under no circumstances be deemed to have
contracted away the fiduciary obligations owed to them by the General Partner
under the common law.
The General Partner's fiduciary duty includes, among other things, the
safekeeping of all Partnership funds and assets and the use thereof for the
benefit of the Partnership. The funds of the Partnership will not be commingled
with the funds of any other person or entity (deposit of funds with a commodity
or securities broker, clearinghouse or forward dealer or entering into joint
ventures or partnerships shall not be deemed to constitute "commingling" for
these purposes).
The General Partner shall at all times act with integrity and good faith
and exercise due diligence in all activities relating to the conduct of the
business of the Partnership and in resolving conflicts of interest. The
Partnership's brokerage arrangements shall be non-exclusive, and the brokerage
commissions paid by the Partnership shall be competitive. The Partnership shall
seek the best price and services available for its commodity transactions.
(c) LOANS; INVESTMENTS. The Partnership shall not make loans. The
General Partner shall make no loans to the Partnership unless approved by the
Limited Partners in accordance with Section 16(a). If the General Partner makes
a loan to the Partnership, the General Partner shall not receive interest in
excess of its interest costs, nor may the General Partner receive interest in
excess of the amounts which would be charged to the Partnership (without
reference to the General Partner's financial resources or guarantees) by
unrelated banks on comparable loans for the same purpose. The General Partner
shall not receive "points" or other financing charges or fees regardless of the
amount.
The Partnership shall not invest in any debt instruments other than
Government Securities and
LPA-5
other CFTC-authorized investments, or invest in any equity security without
prior notice to Limited Partners.
(d) CERTAIN CONFLICTS OF INTEREST PROHIBITED. No person or entity may
receive, directly or indirectly, any advisory fees or profit shares from
entities in which the Partnership participates, for investment advice or
management who shares or participates in any commodity brokerage commissions
paid by the Partnership; and no broker may pay, directly or indirectly, rebates
or give-ups to any trading advisor, the General Partner or any of their
respective affiliates. Such prohibitions may not be circumvented by any
reciprocal business arrangements; provided, however, that the foregoing shall
not prohibit the payment, from the commodity brokerage commissions paid by the
Partnership, of fees for MLAM's cash management services to the Partnership. No
trading advisor for the Partnership shall be affiliated with the Partnership's
commodity broker, the General Partner or any of their affiliates.
(e) CERTAIN AGREEMENTS. Any agreements between the Partnership and the
General Partner or any affiliate of the General Partner shall be terminable by
the Partnership on no more than 60 days' written notice.
All trading advisors used by the Partnership must satisfy the experience
requirements of the NASAA Guidelines.
The maximum period covered by any contract entered into by the Partnership,
except for the various provisions of the Selling Agreement which survive the
final closing of the sale of the Units, shall not exceed one year.
(f) NO "PYRAMIDING." The Partnership is prohibited from "pyramiding."
(g) OTHER ACTIVITIES. The General Partner engages in other business
activities and shall not be required to refrain from any such activities,
whether or not in competition with the Partnership. Neither the Partnership nor
any of the Partners shall have any rights in such activities. Limited Partners
may similarly engage in any such other business activities.
The General Partner shall devote to the Partnership such time as the
General Partner deems advisable to conduct the Partnership's business.
(h) STATUS OF JOINT VENTURE. The General Partner is prohibited from using
the Joint Venture to provide a means to do indirectly what the General Partner
could not do directly in managing the Partnership.
9. AUDITS AND REPORTS.
The Partnership's books shall be audited annually by an independent
certified public accountant. The Partnership will use its best efforts to cause
each Limited Partner to receive (i) within 90, but in no event later than 120
days, after the close of each fiscal year certified financial statements of the
Partnership for the fiscal year then ended, (ii) no later than March 15 all tax
information relating to the prior fiscal year necessary to complete his federal
income tax return and (iii) such other information as the CFTC may by regulation
require.
The General Partner shall include in the Annual Reports sent to Limited
Partners an estimate of the round-turn equivalent brokerage commission rate paid
by the Partnership during the preceding year.
The General Partner will, with the assistance of the Partnership's
commodity broker, make an annual review of the Partnership's commodity brokerage
arrangements. In connection with such review, the General Partner will
determine, to the extent practicable, the commodity brokerage rates charged to
other major commodity pools whose trading and operations are, in the opinion of
the General Partner, comparable to those of the Partnership, in order to assess
whether the rates charged to the Partnership are competitive in light of the
services it receives. If, as a result of such review, the General Partner
determines that such rates are not so competitive, the General Partner will
notify the Limited Partners, describing the rates
LPA-6
charged to the Partnership and several funds which are, in the General Partner's
opinion, comparable to the Partnership.
In addition to the undertakings in the preceding paragraph, the Partnership
will seek the best price and services available on its commodity brokerage
transactions. All brokerage transactions will be effected at competitive rates.
The General Partner will annually review the brokerage rates paid by the
Partnership to guarantee that the criteria set forth in this paragraph are
followed. The General Partner may not rely solely on the rates charged by other
major commodity pools in complying with this paragraph.
Limited Partners or their duly authorized representatives may inspect the
Partnership's books and records, for any purpose reasonably related to their
status as Limited Partners in the Fund, during normal business hours upon
reasonable written notice to the General Partner. They may also obtain copies
of such records upon payment of reasonable reproduction costs; provided,
however, that such Limited Partners shall represent that the inspection and/or
copies of such records will not be for commercial purposes unrelated to such
Limited Partners' interest in the Partnership.
The General Partner shall calculate the approximate Net Asset Value per
Unit on a daily basis and furnish such information upon request to any Limited
Partner.
The General Partner will send written notice to each Limited Partner within
seven days of any decline in the Partnership's Net Asset Value or in the Net
Asset Value per Unit to 50% or less of such Net Asset Value as of the previous
month-end. Any such notice shall contain a description of Limited Partners'
voting rights.
The General Partner shall maintain and preserve all Partnership records for
a period of not less than 6 years.
10. ASSIGNING UNITS.
Each Limited Partner agrees that he will not assign, transfer or otherwise
dispose of any interest in his Units in violation of any applicable federal or
state securities laws or without giving written notice to the General Partner.
No assignment, transfer or disposition of Units shall be effective against the
Partnership or the General Partner until the first day of the month following
the month in which the General Partner receives such notice. The General
Partner may, in its sole discretion, waive any such notice.
No assignee, except with the consent of the General Partner, may become a
substituted Limited Partner. The General Partner intends to so consent,
provided that the General Partner and the Partnership receive an opinion of
counsel to the General Partner that such admission will not adversely affect the
tax classification of the Partnership as a partnership. If the General Partner
withholds consent, an assignee shall not become a substituted Limited Partner,
and shall not have any of the rights of a Limited Partner, except that the
assignee shall be entitled to receive that share of capital and profits and
shall have that right of redemption to which his assignor would otherwise have
been entitled.
Each Limited Partner agrees that with the consent of the General Partner
any assignee may become a substituted Limited Partner without the consent of any
Limited Partner.
11. REDEEMING UNITS.
Units may be redeemed as of the close of business on the last day of any
month, provided that all liabilities, contingent or otherwise, of the
Partnership have been paid or there remains property of the Partnership
sufficient to pay them.
Any number of whole Units may be redeemed.
Units redeemed on or before the end of the twelfth full calendar month
after issuance are subject
LPA-7
to early redemption charges of 3% of the Net Asset Value at which they are
redeemed. Such charges will be paid to the General Partner. Units are issued,
for purposes of determining whether an early redemption charge is due, on the
first day of the month after the related subscription is received. No
redemption charges will be applicable to Limited Partners who redeem because the
Partnership's expenses have been increased.
If a Limited Partner acquires Units at more than one time, such Units will
be treated on a "first-in, first-out" basis for purposes of applying the early
redemption charges and the tax allocations in Section 7(b).
Requests for redemption must be received by the General Partner at least 10
calendar days before the requested redemption date. Such requests need not be
in writing so long as the redeeming Limited Partner has a Merrill Lynch customer
securities account.
If, as of the close of business on any day, the Net Asset Value per Unit
has decreased (i) to $50 or less, after adding back all distributions or (ii) to
below 50% of the prior month's Net Asset Value per Unit, the Partnership will
liquidate all open positions as expeditiously as possible and suspend trading.
Within 10 business days after the suspension of trading, the General Partner
will declare a Special Redemption Date, which will be a business day within 30
business days from the suspension of trading. The General Partner shall mail
notice of such date to each Limited Partner by first-class mail, postage
prepaid, not later than 10 business days prior to such Special Redemption Date,
together with instructions as to the procedure such Limited Partner must follow
to have his Units redeemed on such Date (in general, Limited Partners will be
required to redeem all of their Units on a Special Redemption Date if any are
redeemed). A Partner who redeems will receive the Net Asset Value of his Units,
determined as of the close of business on such Special Redemption Date. No
redemption charges will apply on any such Date. If, after a Special Redemption
Date, the Net Assets of the Partnership are at least $250,000 and the Net Asset
Value per Unit is in excess of $25, the Partnership may, in the discretion of
the General Partner, resume trading.
The General Partner, in its discretion, may declare a Special Redemption
Date. If the General Partner does so, the General Partner need not again call a
Special Redemption Date.
The General Partner may, in its discretion, declare additional regular
redemption dates for Units, permit certain Limited Partners to redeem at other
than month-end and waive the 10-day notice period otherwise required to effect
redemptions.
Redemption payments will be made within 10 business days after the
month-end of redemption, except that under special circumstances, including, but
not limited to, inability to liquidate commodity positions as of a redemption
date or default or delay in payments due the Partnership, the Partnership may
correspondingly delay redemption payments.
The General Partner may require a Limited Partner to redeem all or part of
such Limited Partner's Units if the General Partner considers doing so to be
desirable for the protection of the Partnership, and will use best efforts to do
so to the extent necessary to prevent the Partnership from being deemed to hold
"plan assets" under the provisions of the Employee Retirement Income Security
Act of 1974 ("ERISA") or the Code.
12. OFFERING OF UNITS.
The General Partner may, in its discretion, continue or terminate the
offering of the Units on a public or private basis.
All sales of Units in the United States will be conducted by registered
brokers.
13. POWER OF ATTORNEY.
Each Limited Partner hereby irrevocably appoints the General Partner and
each officer of the General Partner, with full power of substitution, as his
true and lawful attorney-in-fact, in his name, place and stead, to execute,
acknowledge, swear to,
LPA-8
deliver and file, record in public offices and publish: (i) this Agreement,
including any amendments; (ii) certificates of limited partnership or assumed
name, including amendments, with respect to the Partnership; (iii) all
conveyances and other instruments which the General Partner deems appropriate to
qualify or continue the Partnership in the State of Delaware and any other
jurisdictions in which the Partnership may conduct business, or which may be
required to be filed by the Partnership or the Partners under the laws of any
jurisdiction; and (iv) to file, prosecute, defend, settle or compromise
litigation, claims or arbitrations on behalf of the Partnership. The Power of
Attorney granted herein shall be deemed to be coupled with an interest, shall
survive and shall not be affected by the subsequent incapacity, disability or
death of a Limited Partner.
14. WITHDRAWAL OF A PARTNER.
The Partnership shall be dissolved upon the withdrawal, dissolution,
insolvency or removal of the General Partner, or any other event that causes the
General Partner to cease to be a general partner under the Act, unless the
Partnership is continued pursuant to the terms of Section 4(a)(3). In addition,
the General Partner may withdraw from the Partnership, without any breach of
this Agreement, at any time upon 120 days' written notice by first class mail,
postage prepaid, to each Limited Partner. If the General Partner withdraws as
general partner, and the Partnership's business is continued pursuant to the
terms of Section 4(a)(3)(ii), the withdrawing General Partner shall pay all
expenses incurred by the Partnership as a result of its withdrawal.
The General Partner may not assign its general partner interest or its
obligation to direct the trading of the Partnership's 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.
A Limited Partner ceasing to be a limited partner will not terminate or
dissolve the Partnership. No Limited Partner, including such Limited Partner's
estate, custodian or personal representative, shall have any right to redeem or
value such Limited Partner's interest in the Partnership except as provided in
Section 11. Each Limited Partner agrees that in the event of his death, he
waives on behalf of himself and of his estate, and directs the legal
representatives of his estate and any person interested therein to waive, any
inventory, accounting or appraisal of the assets of the Partnership and any
right to an audit or examination of the books of the Partnership. Nothing in
this Section 14 shall, however, waive any right for a Limited Partner to be
informed of the Net Asset Value of his Units, to receive periodic reports,
audited financial statements and other pertinent information from the General
Partner or the Partnership or to redeem or transfer Units.
15. STANDARD OF LIABILITY; INDEMNIFICATION.
(a) STANDARD OF LIABILITY FOR THE GENERAL PARTNER. The General Partner
and its Affiliates, as defined below, shall have no liability to the
Partnership or to any Partner for any loss suffered by the Partnership which
arises out of any action or inaction of the General Partner or its Affiliates
if the General Partner, in good faith, determined that such course of conduct
was in the best interests of the Partnership, and such course of conduct did
not constitute negligence or misconduct on behalf of the General Partner or
its Affiliates.
(b) INDEMNIFICATION OF THE GENERAL PARTNER BY THE PARTNERSHIP. To the
fullest extent permitted by law, subject to this Section 15, the General Partner
and its Affiliates shall be indemnified by the Partnership against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims
sustained by them in connection with the Partnership; provided, that such claims
were not the result of negligence or misconduct on the part of the General
Partner or its Affiliates, and the General Partner, in good faith, determined
that such conduct was in the best interests of the Partnership; and provided
further, that Affiliates of the General Partner shall be entitled to
indemnification only for losses incurred by such Affiliates in performing the
LPA-9
duties of the General Partner and acting wholly within the scope of the
authority of the General Partner.
Notwithstanding anything to the contrary contained in the preceding
paragraph, none of the General Partner, its Affiliates or any persons acting as
selling agent for the Units shall be indemnified for any losses, liabilities or
expenses arising from or out of an alleged violation of federal or state
securities laws unless (1) there has been a successful adjudication on the
merits of each count involving alleged securities law violations as to the
particular indemnitee and the court approves indemnification of the litigation
costs, or (2) such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction as to the particular indemnitee and the court
approves indemnification of the litigation costs, or (3) a court of competent
jurisdiction approves a settlement of the claims against a particular indemnitee
and finds that indemnification of the settlement and related costs should be
made.
In any claim for indemnification for federal or state securities law
violations, the party seeking indemnification shall place before the court the
position of the Securities and Exchange Commission, the California Department of
Corporations, the Massachusetts Securities Division, the Pennsylvania Securities
Commission, the Tennessee Securities Division, the Texas Securities Board and
any other state or applicable regulatory authority with respect to the issue of
indemnification for securities law violations.
The Partnership shall not bear the cost of that portion of any insurance
which insures any party against any liability the indemnification of which is
herein prohibited.
For the purposes of this Section 15, the term, "Affiliates," shall mean any
person acting on behalf of or performing services on behalf of the Partnership
or Joint Venture who: (1) directly or indirectly controls, is controlled by, or
is under common control with the General Partner; or (2) owns or controls 10% or
more of the outstanding voting securities of the General Partner; or (3) is an
officer or director of the General Partner; or (4) if the General Partner is an
officer, director, partner or trustee, is any entity for which the General
Partner acts in any such capacity.
Advances from Partnership funds to the General Partner and its Affiliates
for legal expenses and other costs incurred as a result of any legal action
initiated against the General Partner by a Limited Partner are prohibited.
Advances from Partnership funds to the General Partner and its Affiliates
for legal expenses and other costs incurred as a result of a legal action will
be made only if the following three conditions are satisfied: (1) the legal
action relates to the performance of duties or services by the General Partner
or its Affiliates on behalf of the Partnership (or Joint Venture); (2) the legal
action is initiated by a third party who is not a Limited Partner; and (3) the
General Partner or its Affiliates undertake to repay the advanced funds, with
interest from the initial date of such advance, to the Partnership in cases in
which they would not be entitled to indemnification under the standard of
liability set forth in Section 15(a).
In no event shall any indemnity or exculpation provided for herein be more
favorable to the General Partner or any Affiliate than that contemplated by the
NASAA Guidelines as in effect on the date of this Agreement.
In no event shall any indemnification permitted by this Section 15(b) be
made by the Partnership unless all provisions of this Section for the payment of
indemnification have been complied with in all respects. Furthermore, it shall
be a precondition of any such indemnification that the Partnership receive a
determination of qualified 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
LPA-10
Partnership hereunder shall be made only as provided in the specific case.
In no event shall any indemnification obligations of the Partnership under
this Section 15(b) subject a Limited Partner to any liability in excess of that
contemplated by Section 7(d).
(c) INDEMNIFICATION OF THE PARTNERSHIP BY THE PARTNERS. In the event the
Partnership is made a party to any claim, dispute or litigation or otherwise
incurs any loss or expense as a result of or in connection with any Partner's
activities, obligations or liabilities unrelated to the Partnership's business,
such Partner shall indemnify and reimburse the Partnership for all such loss and
expense incurred, including reasonable attorneys' fees.
The General Partner shall indemnify and hold the Partnership harmless from
all loss or expense which the Partnership may incur (including, without
limitation, any indemnity payments) as a result of (i) the differences between
MLAM's standard of liability and indemnity under the Investment Advisory
Contract, (ii) the differences between Merrill Lynch, Pierce, Fenner & Smith
Incorporated's standard of liability and indemnity under the Custody Agreement
or (iii) the differences between John W. Henry & Company, Inc.'s standard of
liability and indemnity under the Joint Venture Agreement (in the case of
actions by third parties other than Limited Partners) and, in each case, the
General Partner's standard of liability as set forth herein.
The General Partner shall also indemnify and hold the Partnership harmless
from all loss and expense which the Partnership may incur (including, without
limitation, indemnity payments) as a result of the commercial relationship
between the Partnership and John W. Henry & Company, Inc., or any other advisor
selected for the Partnership, being structured as a joint venture rather than
through an advisory agreement.
16. AMENDMENTS; MEETINGS.
(a) AMENDMENTS WITH CONSENT OF THE GENERAL PARTNER. The General
Partner may amend this Agreement with the approval the majority of the Units.
No meeting procedure or specified notice period is required in the case of
amendments made with the consent of the General Partner, mere receipt of an
adequate number of unrevoked written consents being sufficient. The General
Partner may also amend this Agreement without the consent of the Limited
Partners in order: (i) to clarify any clerical inaccuracy or ambiguity or
reconcile any inconsistency (including any inconsistency between this
Agreement and the Prospectus); (ii) to effect the intent of the allocations
proposed herein to the maximum extent possible in the event of a change in
the Code or the interpretations thereof affecting such allocations; (iii) to
attempt to ensure that the Partnership is taxed as a partnership; (iv) to
qualify or maintain the qualification of the Partnership as a limited
partnership in any jurisdiction; (v) to change this Agreement as required by
the Staff of the Securities and Exchange Commission, any other federal agency
or any state "Blue Sky" official or in order to opt to be governed by any
amendment or successor statute to the Act; (vi) to make any amendment to this
Agreement which the General Partner deems advisable, provided that such
amendment is not adverse to the Limited Partners; and (vii) to make any
amendment to this Agreement required by law.
(b) AMENDMENTS AND ACTIONS WITHOUT CONSENT OF THE GENERAL PARTNER. In any
vote called by the General Partner or pursuant to Section 16(c), upon the
affirmative vote of a majority of the Units, the following actions may be taken,
irrespective of whether the General Partner concurs: (i) this Agreement may be
amended, provided, however, that the approval of all Limited Partners shall be
required in the case of amendments changing or altering this Section 16,
extending the term of the Partnership or increasing the brokerage commissions or
Administrative Fees payable by the Partnership; (ii) the Partnership may be
dissolved; (iii) the General Partner may be removed and replaced; (iv) a new
general partner may be elected if the General
LPA-11
Partner withdraws from the Partnership; (v) the sale of all or substantially all
of the assets of the Partnership may be approved; and (vi) any contract with the
General Partner or any of its affiliates may be disapproved of and terminated
upon 60 days' notice.
No reduction of any Limited Partner's capital account or modification of
the percentage of profits, losses or distributions to which a Limited Partner is
entitled shall be made without such Limited Partner's written consent;
(c) MEETINGS; OTHER VOTING MATTERS. Any Limited Partner may obtain from
the General Partner, provided that reasonable copying and mailing costs are paid
in advance, a list of the names, addresses and number of Units held by each
Limited Partner. Such list will be mailed by the General Partner within 10 days
of the receipt of the request; provided, that the General Partner may require
any Limited Partner requesting such information to submit written confirmation
that such information will not be used for commercial purposes unrelated to such
Limited Partner's interest as a Limited Partner.
Upon receipt of a written proposal, signed by Limited Partners owning at
least 10% of the Units, that a meeting of the Partnership be called to vote on
any matter on which the Limited Partners are entitled to vote, the General
Partner will, by written notice to each Limited Partner of record sent by
certified mail within 15 days after such receipt, call the meeting. Such
meeting shall be held at least 30 but not more than 60 days after the mailing of
such notice, and such notice shall specify the date, a reasonable place and time
for such meeting, as well as its purpose.
In determining whether a majority of the Units has approved an action or
amendment, only Units owned by Limited Partners shall be counted. Any Units
acquired by the General Partner or any of its Affiliates will be non-voting, and
will not be considered outstanding for purposes of determining whether the
majority approval of the outstanding Units has been obtained.
The General Partner may not restrict the voting rights of Limited Partners
as set forth herein.
In the event that this Agreement is to be amended in any material respect,
the amendment will not become effective prior to all Limited Partners having an
opportunity to redeem their Units.
17. BENEFIT PLAN INVESTORS.
Each Limited Partner that is an "employee benefit plan" as defined in and
subject to ERISA, or a "plan" as defined in Section 4975 of the Code
(collectively, a "Plan"), and each fiduciary who has caused a Plan to become a
Limited Partner (a "Plan Fiduciary"), represents and warrants that: (a) the
Plan Fiduciary has considered an investment in the Partnership in light of the
risks relating thereto; (b) the Plan Fiduciary has determined that the
investment in the Partnership is consistent with the Plan Fiduciary's
responsibilities under ERISA; (c) the investment in the Partnership does not
violate the terms of any legal document constituting the Plan or any trust
agreement thereunder; (d) the Plan's investment in the Partnership has been duly
authorized and approved by all necessary parties; (e) none of the General
Partner, John W. Henry & Company, Inc., any of their respective affiliates or
any of their respective agents or employees: (i) has investment discretion with
respect to the assets of the Plan used to purchase Units; (ii) has authority or
responsibility to or regularly gives investment advice with respect to the
assets of the Plan used to purchase Units for a fee and pursuant to an agreement
or understanding that such advice will serve as a primary basis for investment
decisions with respect to the Plan and that such advice will be based on the
particular investment needs of the Plan; or (iii) is an employer maintaining or
contributing to the Plan; and (f) the Plan Fiduciary: (i) is authorized to
make, and is responsible for, the decision of the Plan to invest in the
Partnership, including the determination that such investment is consistent with
the requirement imposed by Section 404 of ERISA that Plan investments be
diversified so as to minimize the risks of large losses; (ii) is independent of
the General Partner, John W. Henry & Company,
LPA-12
Inc. and any of their respective affiliates; and (iii) is qualified to make
such investment decision.
18. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW; PROVIDED, THAT THE FOREGOING
CHOICE OF LAW SHALL NOT RESTRICT THE APPLICATION OF ANY STATE'S SECURITIES LAWS
TO THE SALE OF UNITS TO ITS RESIDENTS OR WITHIN SUCH STATE.
19. MISCELLANEOUS.
(a) NOTICES. All notices under this Agreement must be in writing and will
be effective upon personal delivery, or if sent by first class mail, postage
prepaid, upon the deposit of such notice in the United States mail.
(b) BINDING EFFECT. This Agreement shall inure to and be binding upon
all of the parties hereto and all parties indemnified under Section 15, as well
as their respective successors and assigns, custodians, estates, heirs and
personal representatives.
For purposes of determining the rights of any Partner or assignee
hereunder, the Partnership and the General Partner may rely upon the Partnership
records as to who are Partners and assignees, and all Partners and assignees
agree that their rights shall be determined and they shall be bound thereby.
(c) CAPTIONS. Captions are not part of this Agreement.
(d) CLOSE OF BUSINESS. The General Partner will decide when the close of
business occurs.
* * * * *
THE PARTIES HEREBY EXECUTE THIS FOURTH AMENDED AND RESTATED LIMITED
PARTNERSHIP AGREEMENT AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN.
GENERAL PARTNER: LIMITED PARTNERS:
MERRILL LYNCH INVESTMENT MERRILL LYNCH INVESTMENT
PARTNERS INC. PARTNERS INC.
Attorney-in-Fact
By /s/ JOHN R. FRAWLEY, JR. By /s/ JOHN R. FRAWLEY, JR.
------------------------ ------------------------
John R. Frawley, Jr. John R. Frawley, Jr.
President and President and
Chief Executive Officer Chief Executive Officer
LPA-13
EXHIBIT B
ML JWH STRATEGIC ALLOCATION FUND L.P.
--------------------
SUBSCRIPTION REQUIREMENTS
GENERAL
By submitting a Subscription Agreement Signature Page, you (i) subscribe to
purchase Units, (ii) authorize the Selling Agent to debit your subscription from
your Merrill Lynch customer securities account and (iii) agree to the terms of
the Limited Partnership Agreement.
REPRESENTATIONS AND WARRANTIES
You represent and warrant to the Fund, MLIP and their respective affiliates
as follows:
(a) You are of legal age and legally competent to execute the Subscription
Agreement Signature Page.
(b) All information on your Subscription Agreement Signature Page is correct
and complete. You will immediately contact MLIP if there is any change in
such information.
(c) Your subscription is made with your own funds and for your own account.
(d) Your subscription, if made as custodian for a minor, is a gift you have
made to such minor or, if not a gift, the following representations as to
net worth and annual income apply to such minor personally.
(e) If you are subscribing in a representative capacity, you have full power
and authority to purchase the Units on behalf of the entity for which you
are acting, and such entity has full power and authority to purchase such
Units.
(f) You either are, or are not required to be, registered with the CFTC or a
member of the NFA.
(g) If you are acting on behalf of an "employee benefit plan," you confirm the
representations set forth in Section 17 of the Limited Partnership
Agreement.
INVESTOR SUITABILITY
YOU SHOULD NOT INVEST MORE THAN 10% OF YOUR READILY MARKETABLE ASSETS IN
THE FUND.
ELIGIBLE INVESTORS MUST HAVE (i) A NET WORTH OF AT LEAST $150,000
(EXCLUSIVE OF HOME, FURNISHINGS AND AUTOMOBILES) OR (ii) AN ANNUAL GROSS INCOME
OF AT LEAST $45,000 AND A NET WORTH OF AT LEAST $45,000 (EXCLUSIVE OF HOME,
FURNISHINGS AND AUTOMOBILES).
THE FOLLOWING REQUIREMENTS APPLY TO RESIDENTS OF VARIOUS STATES (NET WORTH
FOR SUCH PURPOSES IN ALL CASES IS EXCLUSIVE OF HOME, FURNISHINGS AND
AUTOMOBILES).
1. Arizona, Massachusetts, Mississippi, North Carolina, Oklahoma, Oregon,
Tennessee and Texas -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual income of at least $60,000.
2. California -- Net worth of at least $100,000 and an annual income of at
least $65,000 or, in the alternative, a net worth of at least $250,000.
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. Notwithstanding any
other provisions of the Prospectus, the minimum investment for individual
retirement accounts in Iowa is 25 Units or $2,500, if less, rather than 20 Units
or $2,000, if less.
4. Maine -- Net worth of at least $200,000 or a net worth of at least
$50,000 and an annual income of at least $50,000. ALL MAINE RESIDENTS,
INCLUDING EXISTING INVESTORS IN THE FUND SUBSCRIBING FOR ADDITIONAL UNITS, MUST
EXECUTE A SUBSCRIPTION AGREEMENT SIGNATURE PAGE. MAINE RESIDENTS MUST SIGN A
SUBSCRIPTION AGREEMENT SIGNATURE PAGE SPECIFICALLY PREPARED FOR MAINE RESIDENTS.
5. Michigan -- Net worth of at least $225,000 or a net worth of at least
$60,000 and
SR-1
taxable income in 1997 of at least $60,000. ALL MICHIGAN RESIDENTS, INCLUDING
EXISTING INVESTORS IN THE FUND SUBSCRIBING FOR ADDITIONAL UNITS, MUST EXECUTE A
SUBSCRIPTION AGREEMENT SIGNATURE PAGE.
6. Minnesota -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual income of at least $60,000. Minnesota residents are
deemed not to represent that their receipt of the Prospectus was accompanied by
summary Fund financial information current within 60 calendar days and are
deemed not to represent that the Prospectus that they received was dated within
nine months of their subscription for Units.
7. Missouri -- Net worth of at least $225,000 or a net worth of at least
$100,000 and an annual income of at least $100,000. Missouri residents are
deemed not to represent that their receipt of the Prospectus was accompanied by
summary Fund financial information current within 60 calendar days and are
deemed not to represent that the Prospectus that they received was dated within
nine months of the date of their subscription for Units.
8. 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.
9. Pennsylvania -- Net worth of a least $175,000 or a net worth of at
least $100,000 and an annual taxable income of at least $50,000. Pennsylvania
residents are deemed not to represent that their receipt of the Prospectus was
accompanied by summary Fund financial information current within 60 calendar
days and are deemed not to represent that the Prospectus that they received was
dated within nine months of their subscription for Units.
10. South Carolina -- Net worth of at least $100,000 or a net income in
1997 some portion of which was subject to maximum federal and state income tax.
11. South Dakota -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000. South Dakota residents
are deemed not to represent that their receipt of the Prospectus was accompanied
by summary Fund financial information current within 60 calendar days and are
deemed not to represent that the Prospectus that they received was dated within
nine months of their subscription for Units.
YOU MAY REVOKE YOUR SUBSCRIPTION AT ANY TIME WITHIN
FIVE BUSINESS DAYS OF SUBMISSION.
SR-2
EXHIBIT C
ML JWH STRATEGIC ALLOCATION FUND L.P.
--------------------
SUBSCRIPTION INSTRUCTIONS
YOU SHOULD CAREFULLY READ AND REVIEW BOTH PARTS OF THE PROSPECTUS AND THE
ACCOMPANYING SUMMARY FUND FINANCIAL INFORMATION.
EXISTING INVESTORS SUBSCRIBING FOR ADDITIONAL UNITS (EXCEPT MAINE AND
MICHIGAN RESIDENTS) NEED NOT COMPLETE AN ADDITIONAL SUBSCRIPTION AGREEMENT
SIGNATURE PAGE. SUCH INVESTORS' MERRILL LYNCH FINANCIAL CONSULTANTS WILL
RECONFIRM THEIR SUITABILITY.
FILL IN ALL OF THE BOXES ON PAGES SA-4 AND SA-5 TYPE OR PRINT USING BLACK
INK ONLY AND ONE LETTER OR NUMBER PER BOX, AS FOLLOWS:
Item 1 -- Financial Consultants must complete the information required.
Item 2 -- Enter the dollar amount to be purchased or check the appropriate
dollar amount of subscription. ONLY WHOLE UNITS WILL BE SOLD. THE
LARGEST NUMBER OF WHOLE UNITS POSSIBLE AT THE PURCHASE DATE NET ASSET
VALUE PER UNIT WILL BE PURCHASED. FRACTIONAL UNITS WILL NOT BE SOLD.
Item 3 -- Enter customer's Merrill Lynch Account Number.
Item 4 -- Enter the Social Security Number or Taxpayer ID Number. In case
of joint ownership, either Social Security Number may be used.
The Signature Page is generally self-explanatory; however, we have provided
specific instructions for the following:
TRUST -- Enter the Trust name on line 7 and the trustee's name on line 8,
followed by "Trustee." If applicable, use line 9 for the custodian's name,
followed by "Custodian." BE SURE TO FURNISH THE TAXPAYER ID NUMBER OF THE
TRUST.
CUSTODIAN UNDER UNIFORM GIFTS TO MINORS ACT -- Complete line 5 with the
name of minor 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 -- Enter the exact name in which the
5,6,7 Units are to be held.
Item 9 -- Complete information as required.
Item 10 -- The investor(s) (EXCEPT CURRENT INVESTORS IN THE FUND OTHER THAN
RESIDENTS OF MAINE OR MICHIGAN) must execute the Subscription
Agreement Signature Page (Item 10, Page SA-5) 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 SIGNATURE PAGE (PAGES SA-2
AND SA-3) SHOULD NOT BE EXECUTED.
--------------------------------------------
Instructions to Financial Consultants:
THE EXECUTED SUBSCRIPTION AGREEMENT
SIGNATURE PAGE MUST BE RETAINED
IN THE BRANCH OFFICE.
SUITABILITY RECONFIRMATIONS (I.E., SUBSCRIPTION AGREEMENT SIGNATURE PAGES
EXECUTED BY FINANCIAL CONSULTANTS OR ANOTHER FORM OF WRITTEN RECONFIRMATION
APPROVED BY THE BRANCH OFFICE) MUST ALSO BE RETAINED IN THE BRANCH OFFICE.
SA-i
ML JWH STRATEGIC ALLOCATION FUND L.P.
LIMITED PARTNERSHIP UNITS
--------------------
BY EXECUTING THIS SUBSCRIPTION AGREEMENT SUBSCRIBERS ARE
NOT WAIVING ANY RIGHTS UNDER THE SECURITIES ACT
OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934
--------------------
SUBSCRIPTION AGREEMENT
ML JWH STRATEGIC ALLOCATION FUND L.P.
c/o Merrill Lynch Investment Partners Inc.
General Partner
Princeton Corporate Campus
800 Scudders Mill Road
Section 2G
Plainsboro, New Jersey 08536
Dear Sirs:
1. I subscribe for the dollar amount indicated on the Subscription
Agreement Signature Page.
The purchase price is the Net Asset Value per Unit -- 97% of the Net
Asset Value per Unit if I am a Merrill Lynch officer or employee (retirement
accounts do not qualify for discounts).
The purchase date for my Units is the first day of the calendar month
immediately following this subscription being accepted. My Financial Consultant
will tell me the settlement date for my purchase, which will be not more than 5
business days after the purchase date. I will have the subscription funds in my
Merrill Lynch customer securities account on such settlement date.
2. I have received both parts of the Prospectus together with the
accompanying summary Fund financial information. I understand that by
submitting this Subscription Agreement I am making the representations and
warranties set forth in Exhibit B -- Subscription Requirements in the
Prospectus.
3. I irrevocably appoint MLIP as my true and lawful
Attorney-in-Fact, with full power of substitution, to execute, deliver and
record any documents or instruments which MLIP considers appropriate to carry
out the provisions of the Limited Partnership Agreement.
4. THIS SUBSCRIPTION AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE
OF NEW YORK.
NO ONE SHOULD INVEST MORE THAN 10% OF HIS OR HER
READILY MARKETABLE ASSETS IN THE FUND.
SA-1
[Enlarge/Download Table]
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1 Financial Consultant / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Name First M.I. Last Sub. Order Ref. #
Financial Consultant / / / /-/ / / /-/ / / / / Financial Consultant Number / / / / / Branch Wire Code / / / /
Phone Number
-------------------------------------------------------------------------------------------------------------------
ML JWH STRATEGIC ALLOCATION FUND L.P.
LIMITED PARTNERSHIP UNITS
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE
PLEASE PRINT OR TYPE. USE BLACK INK ONLY AND ONLY ONE CHARACTER PER BOX.
I subscribe for Limited Partnership Units in ML JWH Strategic Allocation
Fund L.P. (the "Fund") and authorize Merrill Lynch, Pierce, Fenner & Smith
Incorporated to debit my customer securities account in the amount set forth
below. The Units are sold at Net Asset Value (97% of such Net Asset Value
for Merrill Lynch officers and employees).
I acknowledge receipt of the Prospectus of the Fund together with
summary Fund financial information.
If I am a participant in a Merrill Lynch sponsored IRA, BASIC-TM- or SEP
account and am purchasing Units for such an account, I hereby acknowledge
that:
1. An amount at least equal to the purchase price for the Units is in an
IRA, BASIC-TM- or SEP account at Merrill Lynch, Pierce, Fenner
& Smith Incorporated;
2. The minimum value of all securities and funds in such IRA,
BASIC-TM- or SEP account is $20,000;
3. The minimum subscription is $2,000 and the amount of this subscription
is no more than 10% of the value of the IRA, BASIC-TM- or SEP
account on the subscription date; and
4. Each separate IRA, BASIC-TM- or SEP account of the investor
seeking to purchase Units meets the above eligibility requirements.
[Enlarge/Download Table]
2 / / / / / / / / $5,000 / / $2,000 / / 3 / / / /-/ / / / / /
Dollar Amount, Minimum $5,000; $2,000 Merrill Lynch Account #
for IRAs, tax-exempt investors and
existing Limited Partners subscribing
for additional Units; Incremental
Investments in $100 multiples.
Subscription amounts will be used to
purchase the largest number of whole
Units possible at the purchase date Net
Asset Value per Unit. No fractional
Units will be issued.
4 / / / /-/ / /-/ / / / / / / /-/ / / / / / / /
Social Security Number or Taxpayer ID Number
Limited Partner Name
5 / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
First Name M.I. Last Name
Joint Limited 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 Residentce Address)
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Street Number Street Name Apt. Number
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Bldg. No. City State Zip Code
/ / / / / / / / / / / / / / / /
Country (If Other Than U.S.A.)
Mailing Address of Limited Partner (If Other Than Residence Address)
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Street Number Street Name Apt. Number
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Bldg. No. P.O. Box No. City State Zip Code
/ / / / / / / / / / / / / / / /
Country (If Other Than U.S.A.)
/ / Check box if Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") is custodian.
Name of Custodian, If Not Merrill Lynch
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Mailing Address of Custodian, Other Than Merrill Lynch
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Street Number Street Name Apt Number
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Bldg. No. P.O. Box No. City State Zip Code
/ / / / / / / / / / / / / / / /
Country (If Other Than U.S.A.)
SA-2
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
ML JWH STRATEGIC ALLOCATION FUND L.P.
LIMITED PARTNERSHIP UNITS
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE (CONTINUED)
[Enlarge/Download Table]
----------------------------------------------------------------------------------------------------------------
10 FOR USE BY INVESTOR
X X
---------------------------------------------- -------------------------------------------------------
Signature of Investor Date Signature of Joint Investor (if any) Date
( ) --- Subscription for the series of Units to be sold as of
---- ----------------------------------------
Telephone Number of Investor [insert date]
---------------------------------------
SUBMITTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE
IN NO RESPECT CONSTITUTES A WAIVER OF ANY RIGHTS UNDER THE SECURITIES ACT OF
1933 OR UNDER THE SECURITIES EXCHANGE ACT OF 1934. I ACKNOWLEDGE THAT I HAVE
RECEIVED THE PROSPECTUS OF THE FUND DATED _________________, 1999 TOGETHER
WITH SUMMARY FUND FINANCIAL INFORMATION.
I have checked the following box if I am subject to backup withholding under
the provisions of Section 3406(a)(1)(C) of the Internal Revenue Code: / /.
Under the penalties of perjury, by signature above I hereby certify that the
Social Security Number or Taxpayer ID Number shown on the front of this
Subscription Agreement and Power of Attorney Signature Page next to my name
is my true, correct and complete Social Security Number or Taxpayer ID Number
and that the information given in the immediately preceding sentence is true,
correct and complete.
--------------------------------------------------------------------------------
11 FINANCIAL CONSULTANT MUST SIGN
I have reasonable grounds to believe, based on information obtained from the
investor concerning his/her investment objectives, other investments,
financial situation and needs and any other information known by me, that
investment in the Fund is suitable for such investor in light of his/her
financial position, net worth and other suitability characteristics. I have
also informed the investor of the unlikelihood of a public trading market
developing for the Units.
The Financial Consultant MUST sign below in order to substantiate compliance
with NASD Business Conduct Rule 2810.
X
------------------------------------------------ --------------------------
Financial Consultant Signature Date
Office Manager approval of Merrill Lynch sponsored retirement account
purchases.
X
------------------------------------------------ --------------------------
Office Manager Signature Date
--------------------------------------------------------------------------------
[Download Table]
DATE RECEIVED COUNTRY CODE ADDITIONAL ORDER CONTROL NUMBER
FOR OFFICE USE ONLY / / / / / / / / / / / / / / / / / /
SA-3
[Enlarge/Download Table]
EXECUTION COPY
-------------------------------------------------------------------------------------------------------------------
1 Financial Consultant / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Name First M.I. Last Sub. Order Ref. #
Financial Consultant / / / /-/ / / /-/ / / / / Financial Consultant Number / / / / / Branch Wire Code / / / /
Phone Number
-------------------------------------------------------------------------------------------------------------------
ML JWH STRATEGIC ALLOCATION FUND L.P.
LIMITED PARTNERSHIP UNITS
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE
PLEASE PRINT OR TYPE. USE BLACK INK ONLY AND ONLY ONE CHARACTER PER BOX.
I subscribe for Limited Partnership Units in ML JWH Strategic Allocation
Fund L.P. (the "Fund") and authorize Merrill Lynch, Pierce, Fenner & Smith
Incorporated to debit my customer securities account in the amount set forth
below. The Units are sold at Net Asset Value (97% of such Net Asset Value
for Merrill Lynch officers and employees).
I acknowledge receipt of the Prospectus of the Fund together with
summary Fund financial information.
If I am a participant in a Merrill Lynch sponsored IRA, BASIC-TM- or SEP
account and am purchasing Units for such an account, I hereby acknowledge
that:
1. An amount at least equal to the purchase price for the Units is in an
IRA, BASIC-TM- or SEP account at Merrill Lynch, Pierce, Fenner
& Smith Incorporated;
2. The minimum value of all securities and funds in such IRA,
BASIC-TM- or SEP account is $20,000;
3. The minimum subscription is $2,000 and the amount of this subscription
is no more than 10% of the value of the IRA, BASIC-TM- or SEP
account on the subscription date; and
4. Each separate IRA, BASIC-TM- or SEP account of the investor
seeking to purchase Units meets the above eligibility requirements.
[Enlarge/Download Table]
2 / / / / / / / / $5,000 / / $2,000 / / 3 / / / /-/ / / / / /
Dollar Amount, Minimum $5,000; $2,000 Merrill Lynch Account #
for IRAs, tax-exempt investors and
existing Limited Partners subscribing
for additional Units; Incremental
Investments in $100 multiples.
Subscription amounts will be used to
purchase the largest number of whole
Units possible at the purchase date Net
Asset Value per Unit. No fractional
Units will be issued.
4 / / / /-/ / /-/ / / / / / / /-/ / / / / / / /
Social Security Number or Taxpayer ID Number
Limited Partner Name
5 / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
First Name M.I. Last Name
Joint Limited 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 Residentce Address)
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Street Number Street Name Apt. Number
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Bldg. No. City State Zip Code
/ / / / / / / / / / / / / / / /
Country (If Other Than U.S.A.)
Mailing Address of Limited Partner (If Other Than Residence Address)
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Street Number Street Name Apt. Number
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Bldg. No. P.O. Box No. City State Zip Code
/ / / / / / / / / / / / / / / /
Country (If Other Than U.S.A.)
/ / Check box if Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") is custodian.
Name of Custodian, If Not Merrill Lynch
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Mailing Address of Custodian, Other Than Merrill Lynch
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Street Number Street Name Apt Number
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Bldg. No. P.O. Box No. City State Zip Code
/ / / / / / / / / / / / / / / /
Country (If Other Than U.S.A.)
SA-4
EXECUTION COPY
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
ML JWH STRATEGIC ALLOCATION FUND L.P.
LIMITED PARTNERSHIP UNITS
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE (CONTINUED)
[Enlarge/Download Table]
----------------------------------------------------------------------------------------------------------------
10 FOR USE BY INVESTOR
X X
---------------------------------------------- -------------------------------------------------------
Signature of Investor Date Signature of Joint Investor (if any) Date
( ) --- Subscription for the series of Units to be sold as of
---- ----------------------------------------
Telephone Number of Investor [insert date]
---------------------------------------
SUBMITTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE
IN NO RESPECT CONSTITUTES A WAIVER OF ANY RIGHTS UNDER THE SECURITIES ACT OF
1933 OR UNDER THE SECURITIES EXCHANGE ACT OF 1934. I ACKNOWLEDGE THAT I HAVE
RECEIVED THE PROSPECTUS OF THE FUND DATED _________________, 1999 TOGETHER
WITH SUMMARY FUND FINANCIAL INFORMATION.
I have checked the following box if I am subject to backup withholding under
the provisions of Section 3406(a)(1)(C) of the Internal Revenue Code: / /.
Under the penalties of perjury, by signature above I hereby certify that the
Social Security Number or Taxpayer ID Number shown on the front of this
Subscription Agreement and Power of Attorney Signature Page next to my name
is my true, correct and complete Social Security Number or Taxpayer ID Number
and that the information given in the immediately preceding sentence is true,
correct and complete.
--------------------------------------------------------------------------------
11 FINANCIAL CONSULTANT MUST SIGN
I have reasonable grounds to believe, based on information obtained from the
investor concerning his/her investment objectives, other investments,
financial situation and needs and any other information known by me, that
investment in the Fund is suitable for such investor in light of his/her
financial position, net worth and other suitability characteristics. I have
also informed the investor of the unlikelihood of a public trading market
developing for the Units.
The Financial Consultant MUST sign below in order to substantiate compliance
with NASD Business Conduct Rule 2810.
X
------------------------------------------------ --------------------------
Financial Consultant Signature Date
Office Manager approval of Merrill Lynch sponsored retirement account
purchases.
X
------------------------------------------------ --------------------------
Office Manager Signature Date
--------------------------------------------------------------------------------
[Download Table]
DATE RECEIVED COUNTRY CODE ADDITIONAL ORDER CONTROL NUMBER
FOR OFFICE USE ONLY / / / / / / / / / / / / / / / / / /
SA-5
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
Merrill Lynch Investment Partners Inc. will advance all ongoing
offering costs, as described in the Prospectus, for which it shall be reimbursed
by the Registrant on May 31, 1999. Such ongoing offering costs are estimated at
$500,000. The following is an estimate of such costs:
[Download Table]
Approximate
Amount
Securities and Exchange Commission Registration Fee. . . . . . . $40,080*
National Association of Securities Dealers, Inc. Filing Fee. . . $14,920*
Printing Expenses. . . . . . . . . . . . . . . . . . . . . . . . $125,000
Fees of Certified Public Accountants . . . . . . . . . . . . . . $50,000
Blue Sky Expenses (Excluding Legal Fees) . . . . . . . . . . . . $40,000
Fees of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . $150,000
Advertising and Sales Literature . . . . . . . . . . . . . . . . $25,000
Miscellaneous Offering Costs . . . . . . . . . . . . . . . . . . $54,000
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $500,000
--------
--------
-----------------------
* Fees marked with an asterisk are exact rather than estimated and approximate.
-------------------
Item 14. Indemnification of Directors and Officers.
Section 15 of the Limited Partnership Agreement (attached as Exhibit A
to the prospectus which forms a part of the Registration Statement) provides for
the indemnification of Merrill Lynch Investment Partners Inc. ("MLIP"), the
general partner of the Registrant, and certain of its Affiliates by the
Registrant. "Affiliates" shall mean any person performing services on behalf of
the Registrant who: (1) directly or indirectly controls, is controlled by, or is
under common control with MLIP; or (2) owns or controls 10% or more of the
outstanding voting securities of MLIP; or (3) is an officer or director of MLIP;
or (4) if MLIP is an officer, director, partner or trustee, is any entity for
which MLIP acts in any such capacity. Indemnification is to be provided for any
loss suffered by the registrant which arises out of any action or inaction, if
the party, in good faith, determined that such course of conduct was in the best
interest of the Registrant and such conduct did not constitute negligence or
misconduct. MLIP and its affiliates will only be entitled to indemnification
for losses incurred by such affiliates in performing the duties of MLIP and
acting wholly within the scope of the authority of MLIP.
In the Selling Agreement, John W. Henry & Co., Inc. ("JWH") has agreed
to indemnify each person who controls MLIP within the meaning of Section 15 of
the Securities Act of 1933 and each person who signed this Registration
Statement or is a director of MLIP against losses, claims, damages, liabilities
or expenses arising out of or based upon any untrue statement or omission or
alleged untrue statement or omission relating or with respect to JWH or any
principal of JWH or their operations, trading systems, methods or performance,
which was made in any preliminary prospectus, this Registration Statement as
declared effective, the Prospectus included in this Registration Statement when
declared effective, or in any amendment or supplement thereto and furnished by
or approved by JWH for inclusion therein. JWH has also agreed to contribute to
the amounts paid by such controlling persons, signatees or directors in respect
of any such losses, claims, damages, liabilities or expenses in the event that
the foregoing indemnity is unavailable or insufficient.
Item 15. Recent Sales of Unregistered Securities.
None.
II-2
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:
3.02 Fourth Amended and Restated Limited Partnership Agreement of
(amended) the Registrant (included as Exhibit A to the Prospectus).
5.01(a) Opinion of Sidley & Austin relating to the legality of the
Units.
8.01(a) Opinion of Sidley & Austin with respect to Federal Income Tax
consequences.
10.05 Form of Subscription Agreement and Power of Attorney
(amended) (included as Exhibit C to the Prospectus).
10.10 Second Amendatory Agreement of Selling Agreement, Joint
Venture Agreement, and Customer Agreement.
23.09 Consent of Deloitte & Touche LLP.
23.10 Consent of Sidley & Austin.
------------------
THE FOLLOWING EXHIBITS ARE INCORPORATED BY REFERENCE HEREIN
FROM THE EXHIBITS OF THE SAME DESCRIPTION AND NUMBER FILED
WITH AMENDMENT NO. 2 TO THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM S-1 (REGISTRATION NO. 33-80509), FILED
WITH THE COMMISSION ON APRIL 23, 1996, WHICH BECAME
EFFECTIVE APRIL 25, 1996).
Exhibit
Number Description of Document
------ -----------------------
1.01 Form of Selling Agreement among the Registrant, MLIP, Merrill
(amended) Lynch Futures Inc. ("Merrill Lynch Futures"), Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the "Selling Agent") and
JWH.
3.01(i) Certificate of Limited Partnership of the Registrant.
5.01(b) Opinion of Richards, Layton & Finger relating to the legality
of the Units.
10.01 Form of Joint Venture Agreement among the Registrant, MLIP,
Merrill Lynch Futures and JWH.
10.02 Form of Customer Agreement between the Registrant and Merrill
Lynch Futures.
10.03 Foreign Exchange Desk Service Agreement.
10.06 Form of Investment Advisory Contract among the Registrant's
joint venture with JWH, MLIP, Merrill Lynch Futures and
Merrill Lynch Asset Management, L.P.
10.07 Form of Custody Agreement among the Registrant, MLIP and the
Selling Agent.
II-3
99.01 Securities and Exchange Commission Release No. 33-
6815--Interpretation and Request for Public
Comment--Statement of the Commission Regarding Disclosure by
Issuers of Interests in Publicly Offered Commodity Pools (54
Fed. Reg. 5600; February 6, 1989).
99.02 Commodity Futures Trading Commission--Interpretative
Statement and Request for Comments --Statement of the
Commodity Futures Trading Commission Regarding Disclosure by
Commodity Pool Operators of Past Performance Records and Pool
Expenses and Requests for Comments (54 Fed. Reg. 5597;
February 6, 1989).
99.03 North American Security Administrators Association Guidelines
for Registration of Commodity Pool Programs.
------------------
Item 17.
The undersigned registrant hereby undertakes:
(a) RULE 415 OFFERINGS
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial BONA FIDE offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) INDEMNIFICATION
Insofar as indemnification for liabilities under the Securities Act
of 1933 may be permitted to officers, directors or controlling persons of the
registrant pursuant to the provisions described in Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by an officer, director, or controlling person of the registrant in the
successful defense of any such action, suit or proceeding) is asserted by
such officer, director or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
General Partner of the Registrant has duly caused this Registration Statement or
Registration Statement Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York in the State of New York on
the 29 day of March, 1999.
ML JWH Strategic Allocation Fund L.P.
By: Merrill Lynch Investment Partners Inc.
General Partner
By: /s/ JOHN R. FRAWLEY, JR.
----------------------------
John R. Frawley, Jr.
Chairman, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Registration Statement Amendment has been signed below
by the following person on behalf of Merrill Lynch Investment Partners Inc.,
General Partner of the Registrant, in the capacities and on the date indicated.
/s/ JOHN R. FRAWLEY, JR. Chairman, Chief Executive March 29, 1999
---------------------------- Officer, President and
John R. Frawley, Jr. Director (Principal Executive
Officer)
/s/ JO ANN DI DARIO Vice President, Chief March 29, 1999
---------------------------- Financial Officer and
Jo Ann Di Dario Treasurer (Principal Financial
and Accounting Officer)
/s/ JEFFREY F. CHANDOR Senior Vice President, March 29, 1999
---------------------------- Director of Sales, Marketing
Jeffrey F. Chandor and Research and Director
/s/ STEPHEN G. BODURTHA Director March 29, 1999
----------------------------
Stephen G. Bodurtha
/s/ ALLEN N. JONES Director March 29, 1999
----------------------------
Allen N. Jones
/s/ JOSEPH H. MOGLIA Director March 29, 1999
----------------------------
Joseph H. Moglia
(Being the principal executive officer, the principal financial and
accounting officer and a majority of the directors of Merrill Lynch Investment
Partners Inc.)
MERRILL LYNCH INVESTMENT PARTNERS INC.
General Partner of Registrant
By /s/ JOHN R. FRAWLEY, JR. March 29, 1999
------------------------
John R. Frawley, Jr.
Chairman, Chief Executive
Officer and President
II-5
EXHIBIT INDEX
Exhibit
Number Description of Document
------- -----------------------
5.01 Opinion of Sidley & Austin relating to the legality of the
Units.
8.01 Opinion of Sidley & Austin with respect to federal income tax
consequences.
10.10 Form of Second Amendatory Agreement of Selling Agreement,
Joint Venture Agreement and Customer Agreement.
23.07 Consent of Deloitte & Touche LLP.
23.08 Consent of Sidley & Austin.
Dates Referenced Herein and Documents Incorporated by Reference
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