<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 0-16110
ML JWH STRATEGIC ALLOCATION FUND L.P.
-------------------------------------
(Exact name of Registrant as
specified in its charter)
Delaware 13-3887922
------------------------------------ -----------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) No.)
c/o Merrill Lynch Investment Partners Inc.
Merrill Lynch World Headquarters - South Tower, 6th Fl.
World Financial Center New York, New York 10080-6106
-----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
212-236-4161
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------ -----
This document contains 10 pages.
There are no exhibits and no exhibit index filed with this document.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ML JWH STRATEGIC ALLOCATION FUND L.P.
-------------------------------------
(a Delaware limited partnership)
-------------------------------
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
---------------------------------------------
March 31, December 31,
1997 1996
------------- --------------
ASSETS
- ------
Cash on Deposit at Brokers $ 817 $ 726
Accrued Interest 251,950 184,577
U.S. Government obligations 164,035,194 121,535,012
Equity in commodity futures trading
accounts:
Cash and options premium 61,608,036 54,132,103
Net unrealized profit on open
contracts 4,604,089 4,696,372
--------------- ------------
TOTAL $230,500,086 $180,548,790
=============== ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Brokerage commissions payable $ 1,488,565 1,160,945
Profit Share payable 974,522 4,683,010
Redemptions payable 770,912 $ 1,661,675
Organization and initial offering
costs payable 683,712 808,712
Administrative fees payable 48,018 37,450
--------------- ------------
Total liabilities 3,965,729 8,351,792
--------------- ------------
Minority interest 127,224 123,383
--------------- ------------
PARTNERS' CAPITAL:
General Partner (18,177 and 16,643 2,296,475 2,038,044
Units)
Limited Partners (1,770,784 and 224,110,658 188,284,065
1,534,953 Units)
Subscriptions receivables (0 and - (18,248,494)
148,169 Units)
--------------- ------------
Total partners' capital 226,407,133 172,073,615
--------------- ------------
TOTAL $230,500,086 $180,548,790
=============== ============
NET ASSET VALUE PER UNIT (see note 2)
See notes to consolidated financial statements.
2
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L.P.
-------------------------------------
(a Delaware limited partnership)
-------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
For the three
months ended
March 31, 1997
REVENUES:
Trading profit (loss):
Realized $ 8,668,317
Unrealized (92,283)
-----------
Total trading results 8,576,034
-----------
Interest income 2,773,698
-----------
Total revenues 11,349,732
-----------
EXPENSES:
Administrative fees 137,516
Brokerage commissions 4,263,014
-----------
Total expenses 4,400,530
-----------
NET INCOME BEFORE
MINORITY INTEREST 6,949,202
-----------
Minority interest on income/loss (978,363)
-----------
NET INCOME $ 5,970,839
===========
NET INCOME PER UNIT:
Weighted average number of units
outstanding 1,713,819
===========
Weighted average net income per Limited
Partner unit and General Partner unit $3.48
=====
See notes to consolidated financial statements.
3
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L.P.
-------------------------------------
(a Delaware limited partnership)
-------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
For the three months ended March 31, 1997
-----------------------------------------
<TABLE>
<CAPTION>
Limited General Subscriptions
Units Partners Partner Receivable Total
----------- -------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
PARTNERS' CAPITAL, DECEMBER 31, 1996 1,403,427 $188,284,065 $2,038,044 $(18,248,494) $172,073,615
Additions 409,237 32,927,078 194,571 18,248,494 51,370,143
Net Income - 5,906,979 63,860 - 5,970,839
Redemptions (23,703) (3,007,464) - - (3,007,464)
PARTNERS' CAPITAL,
MARCH 31, 1997 1,788,961 $224,110,658 $2,296,475 $ - $226,407,133
=========== ============ ========== =========== ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L.P.
-------------------------------------
(a Delaware limited partnership)
-------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
These consolidated financial statements have been prepared without audit. In
the opinion of management, the consolidated financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of Partnership as of March 31, 1997 and
the results of its operations for the three months ended March 31, 1997.
However, the operating results for the interim periods may not be indicative of
the results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with general accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1996 (the "Annual Report").
2. NET ASSET VALUE PER UNIT
For financial reporting purposes with respect to the Units, the Partnership
deducts organizational and offering costs that are payable to the General
Partner in determining the net asset value per unit. For all other purposes
(including computing net asset value for redemptions) the Partnership deducts
only the organizational and offering reimbursement actually paid. The net asset
value per unit was $126.56 and $122.61 for financial reporting purposes and
$126.92 and $123.16 for all other purposes at March 31, 1997 and December 31,
1996, respectively.
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership's revenues by reporting category for the three months ended
March 31, 1997 were as follows (there were no trading revenues reported for the
first quarter 1996):
1997
----
Interest rate and Stock Indices $ (860,088)
Commodities 2,079,268
Currencies 9,079,867
Energy (2,023,620)
Metals 300,607
-----------
$ 8,576,034
===========
Fair Value
- ----------
The contract/notional values of open contractsas of March 31, 1997 and
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------- ----------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) (Options & Forwards)
------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Interest rate $ 96,961,553 $538,053,267 $144,969,514 $ -
Stock indices 5,636,977 7,066,250 - -
Commodities 23,861,083 14,718,889 6,083,206 17,321,100
Currencies 123,469,379 306,022,618 229,540,645 289,870,043
Energy - 17,254,000 18,094,440 -
Metals 7,707,488 3,717,000 2,693,494 30,540,601
------------ ------------ ------------ ------------
$257,636,480 $886,832,024 $401,381,299 $337,731,744
============ ============ ============ ============
</TABLE>
The majority of the Partnership's derivative financial instruments outstanding
at March 31, 1997, mature within one year.
5
<PAGE>
The contract/notional value of exchange traded and open contracts as of March
31, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------ ------------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) (Options & Forwards)
------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Exchange
traded $133,116,176 $580,809,406 $170,575,723 $ 46,596,770
Non-Exchange
traded 124,520,304 306,022,618 230,805,576 291,134,974
------------ ------------ ------------ ------------
$257,636,480 $886,832,024 $401,381,299 $337,731,744
============ ============ ============ ============
</TABLE>
The average fair value of the derivative instruments held or issued as of the
end of each calendar month during the three months ended March 31, 1997 and
December 31, 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C>
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards Option & Forwards) (Options & Forwards)
------------------ ------------------ ------------------ --------------------
Interest rate $473,093,918 $293,371,407 $ 719,308,090 $ 83,716,105
Stock indices 6,297,423 7,169,802 13,413,720 13,483,911
Commodities 19,209,676 15,004,678 8,192,113 24,113,672
Currencies 215,827,376 432,905,589 300,537,708 312,830,219
Energy 19,207,000 13,115,997 22,546,285 --
Metals 8,815,916 12,357,413 3,818,246 39,804,586
------------ ------------ -------------- ------------
$ 742,451,309 $773,924,886 $1,067,816,162 $473,948,493
============= ============ ============== ============
</TABLE>
At March 31, 1997 and December 31, 1996, $39,229,802 and $26,689,459 of the
Partnership's assets were held in segregated accounts at MLF in accordance with
Commodity Futures Trading Commission regulations.
The gross unrealized profit and the net unrealized profit (loss) on open
contracts as of March 31, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
<S> <C> <C> <C> <C>
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Profit Profit (Loss) Profit Profit
Exchange
traded $7,635,489 $ 6,739,794 $3,013,592 $1,424,907
Non-Exchange
traded 1,343,615 (2,135,705) 6,937,127 3,271,465
---------- ----------- ---------- ----------
$8,979,104 $ 4,604,089 $9,950,719 $4,696,372
========== =========== ========== ==========
</TABLE>
Item 2: Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Operational Overview:
- ---------------------
Due to the nature of the Fund's business, its results of operations depend on
the Trading Manager's ability to ability to recognize and capitalize on trends
and other profit opportunities in different sectors of the world commodity
markets. The Trading Manager's trading methods, are confidential, so that
substantially the only information that can be furnished regarding the Fund's
results of operations is contained in the performance record of its trading.
Unlike operating businesses, general economic or seasonal conditions do not
directly affect the profit potential of the Fund, and its past performance is
not necessarily indicative of future results. Because of the speculative nature
of its trading, operational or economic trends have little relevance to the
Fund's results. Merrill Lynch Investment Partners Inc. (MLIP) believes, however,
that there are certain market conditions, for example, markets with strong price
trends, in which the Fund has a better likelihood of being profitable than in
others.
6
<PAGE>
Results of Operations - General:
- --------------------------------
The Fund is dependent on the ability of John W. Henry & Company, Inc. JWH to
generate profits, through speculative futures trading, sufficient to produce
substantial capital appreciation after payment of all fees and expenses. Such
success is dependent on (i) JWH's selection of and ongoing allocation and
reallocation of Fund assets (and trading level) among the Programs and (ii) the
results achieved by such Programs.
Markets in which sustained price trends occur with some frequency tend to be
more favorable to managed futures investments than "whipsaw," "choppy" markets,
but (i) this is not always the case, (ii) it is impossible to predict when
trending markets will occur and (iii) different Programs are affected
differently by trends in general as well as by particular types of trends.
The Fund controls credit risk in its trading in the derivatives markets by
trading only through Merrill Lynch entities which MLIP believes to be
creditworthy. The Fund attempts to control the market risk inherent in its
derivatives trading by utilizing a multi-program structure. This structure
purposefully attempts to diversify the Fund's Programs among different strategy
types and market sectors in an effort to reduce risk (although the Fund's
portfolio currently consists technical and trend-following approaches).
Performance Summary
- -------------------
During the first three months of 1997, the Fund's average month-end Net Assets
equalled $221,478,429 and the Fund recognized gross trading gains of $8,576,034
or 3.87% of such average month-end Net Assets. Brokerage commissions of
$4,263,014 or 1.92 % and Administrative expenses of $137,516 or .06% of average
month-end Net Assets were paid. Interest income of $2,773,698 or 1.25% of
average month-end Net Assets resulted in net income of $5,970,839 (after
deduction of MLIP's "Minority Interest" in the Trading Partnership) or 2.70% of
average month-end Net Assets which resulted in a 3.05% increase in the Net Asset
Value since December 31, 1996.
During quarter ended March 31, 1997, the Fund experienced 2 profitable month and
1 unprofitable months.
MONTH-END NET ASSET VALUE PER UNIT
January February March
------------------------------------
1997 $126.87 $126.83 $126.92
------------------------------------
Importance of Market Factors
- ----------------------------
In general, MLIP expects that the Fund is most likely to trade successfully in
markets which exhibit strong and sustained price trends. The current Programs
are exclusively technical and trend-following methods. Consequently, one would
expect that in trendless, "choppy" markets the Fund would likely be
unprofitable, while in markets in which major price movements occur, the Fund
would have its best profit potential (although there could be no assurance that
the Fund would, in fact, trade profitably). However, trend-followers not
infrequently will miss major price movements, and market corrections can result
in rapid and material losses (sometimes as much as 5% in a single day).
Although MLIP monitors market conditions and Trading Manager performance on an
ongoing basis in overseeing the Fund's trading, MLIP does not attempt to "market
forecast" or to "match" trading styles with predicted market conditions.
Because the Trading Manager's strategies are proprietary and confidential and
market movements unpredictable, selecting Programs to implement speculative
trading strategies involves considerable uncertainty. Furthermore, the
concentration of the Trading Manager's current portfolio, in terms of the common
emphasis of their strategies on technical and trend-following methods, increases
the risk that unexpectedly bad performance, turbulent market conditions or a
combination of the two will result in significant losses.
JWH anticipates that, over time, a number of changes will be made to both the
selections of and allocations among the Programs used for the Fund. However, as
the Fund will be the first account managed using the JWH Strategic Allocation
Program, JWH cannot predict how frequently the Program combinations or
allocations used for the Fund may be adjusted, and, in any case, the frequency
of such adjustments in any given period may differ significantly from that
during other periods.
Interest Income
- ---------------
The Fund's interest income varies from month to month due to a portion of such
income representing the yield enhancement return achieved by Merrill Lynch Asset
Management Inc. MLAM rather than periodic interest accruals. Although there can
be no assurance that the Fund will not incur losses in its yield enhancement
activities in the future, to date MLAM has achieved a yield for the Fund (on the
approximately 80% to 90% of the Fund's assets managed by MLAM) of approximately
1.02% (annualized) over the prevailing 91-day Treasury bill rate.
Liquidity
- ---------
The Fund's assets, including the assets managed by MLAM, are available to margin
the Fund's futures positions and earn interest income and to be withdrawn, as
necessary, to pay redemptions and expenses. Other than potential limitations on
liquidity, due, for example, to daily price fluctuation limits, which are
inherent in the Fund's futures and forward trading, the Fund's assets are highly
liquid and are expected to remain so. To date, the Fund has experienced no
meaningful periods of illiquidity in any of the numerous markets traded by the
Advisors.
7
<PAGE>
Although Units may be redeemed at any month-end, no one who cannot afford to
commit funds to a comparatively illiquid investment should subscribe to the Fund
(redemption penalties apply through the end of the first twelve months after the
beginning of the calendar quarter as of which a Unit is issued). MLIP believes
that investors who are not prepared to regard the Fund essentially as a medium-
to long-term investment should not purchase Units.
Capital Resources
- -----------------
The Fund raises capital only through the sale of Units. The net proceeds of the
ongoing offering of the Units, plus the related general partnership
contributions by MLIP, are placed under the management of JWH.
The amount of capital raised for the Fund does not have a significant impact on
its operations, as, other than a de minims organizational and initial offering
cost reimbursement obligation, the Fund has no capital expenditure or working
capital requirements other than for moneys to pay trading losses, brokerage
commissions, Administrative Fees and Profit Shares (all of which should be
generally proportional to the capital available to a particular series of
Units). Within broad ranges of capitalization, the Advisors' trading positions
should increase or decrease in approximate proportion to the size of the Fund
account managed by each of them, respectively
The Fund raises additional capital only through the sale of Units. The Fund is
prohibited from borrowing under the terms of the Limited Partnership Agreement.
Due to the nature of the Fund's business, substantially all of its assets are
and will be represented by cash, Government Securities and short-term foreign
sovereign debt obligations, while it maintains its primary market exposure
through futures and forward contract positions.
Inflation is not a significant factor in the Fund's profitability, although
inflationary cycles can give rise to the type of major price movements which can
have a materially favorable or adverse impact on the Fund's performance.
Changes in the level of prevailing interest rates (a factor generally associated
with inflation) could have a material effect on the percentage of the total
capital attributable to various series of Units which is committed to trading,
as interest rates affect the calculation of the discounted minimum Net Asset
Value per Unit which ML&Co. has guaranteed to investors.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending proceedings to which the Partnership or the General
Partner is a party.
In September 1996, JWH was named as a co-defendant in class action lawsuits
brought in the California Superior Court, Los Angeles County and in the New York
Supreme Court, New York County. In November, JWH was named as a co-defendant in
a class action complaint filed in Superior Court of the State of Delaware for
Newcastle County that contained the same allegations as the New York and
California complaints. The actions, which seek unspecified damages, purport to
be brought on behalf of investors in certain Dean Witter, Discover & Co. ("Dean
Witter") commodity pools, some of which are advised by JWH, and are primarily
directed at Dean Witter's alleged fraudulent selling practices in connection
with the marketing of those pools. JWH is essentially alleged to have aided and
abetted or directly participated with Dean Witter in those practices. JWH
believes the allegations against it are without merit; it intends to contest
these allegations vigorously, and is convinced that it will be shown to have
acted properly and in the best interest of the investors.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
There are no exhibits required to be filed as part of this document.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the first three months of
fiscal 1997.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ML JWH STRATEGIC ALLOCATION FUND L.P.
By: MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
Date: May 13, 1997 By /s/JOHN R. FRAWLEY, JR.
------------------------------------------
John R. Frawley, Jr.
President, Chief Executive Officer
and Director
Date: May 13, 1997 By /s/MICHAEL A. KARMELIN
------------------------------------------
Michael A. Karmelin
Chief Financial Officer,
and Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION, CONSOLIDATED STATEMENTS OF OPERATIONS,
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<RECEIVABLES> 66464892
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 164035194
<PP&E> 0
<TOTAL-ASSETS> 230500086
<SHORT-TERM> 4092953
<PAYABLES> 0
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 226407133
<TOTAL-LIABILITY-AND-EQUITY> 230500086
<TRADING-REVENUE> 8576034
<INTEREST-DIVIDENDS> 2773678
<COMMISSIONS> 4400530
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 0
<INCOME-PRETAX> 5970839
<INCOME-PRE-EXTRAORDINARY> 5970839
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5970839
<EPS-PRIMARY> 3.48
<EPS-DILUTED> 3.48
</TABLE>
