<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 June 30, 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 0-28928
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 No.)
incorporation or organization)
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)
212-236-5662
--------------------------------------------------------------
(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.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ML JWH STRATEGIC ALLOCATION FUND L.P.
-------------------------------------
(a Delaware limited partnership)
--------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
- ------
Cash on Deposit at Broker $ 2,657 $ 726
Accrued interest 238,206 184,577
U.S. Government obligations 166,956,498 121,535,012
Equity in commodity futures trading
accounts:
Cash and options premium 45,699,664 54,132,103
Net unrealized profit on open 8,065,012 4,696,372
contracts
------------ ------------
TOTAL 220,962,037 180,548,790
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $ 360,610 $ 1,661,675
Special profit share allocation 985,346 4,683,010
payable
Brokerage commissions payable 1,420,678 1,160,945
Organization & initial offering 213,480 808,712
costs payable
Administrative fees payable 45,828 37,450
------------ ------------
Total liabilities 3,025,942 8,351,792
------------ ------------
Minority Interest 123,685 123,383
PARTNERS' CAPITAL:
General Partners (18177 and 16643
Units) 2,225,274 2,038,044
Limited Partners (1757959 and 1534953
Units) 215,587,136 188,284,065
Subscriptions receivable (0 and
148169 Units) - (18,248,494)
------------ ------------
Total partners' capital 217,812,410 172,073,615
------------ ------------
TOTAL $220,962,037 $180,548,790
============ ============
</TABLE>
NET ASSET VALUE PER UNIT (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
-------------------------------------
<TABLE>
<CAPTION>
For the three For the six
months ended months ended
June 30, June 30,
1997 1997
------------ ------------
<S> <C> <C>
REVENUES:
Trading (loss) profit:
Realized $(9,513,484) $ (845,167)
Unrealized 3,460,923 3,368,640
------------ -------------
Total trading results (6,052,561) 2,523,473
------------ -------------
Interest income 3,131,635 5,905,333
------------ -------------
Total revenues (2,920,926) 8,428,806
------------ -------------
EXPENSES:
Administrative fees 139,133 276,649
Brokerage commissions 4,313,001 8,576,105
------------ -------------
Total expenses 4,452,134 8,852,754
------------ -------------
NET INCOME BEFORE
MINORITY INTEREST (7,373,060) (423,948)
Special Profit Share Allocation (3,746) (985,346)
Minority Interest (3,539) (302)
------------ -------------
NET INCOME (LOSS) $(7,380,345) $(1,409,596)
============ =============
NET INCOME (LOSS) PER UNIT:
Weighted average number of units
outstanding 1,784,487 1,749,153
============ =============
Weighted average net income (loss)
per Limited Partner
and General Partner Unit $(4.14) $(0.81)
============ =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L.P.
-------------------------------------
(a Delaware limited partnership)
--------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
-------------------------------------------------------
For the six months ended June 30, 1997 and 1996
-----------------------------------------------
<TABLE>
<CAPTION>
Units Limited General Subscriptions Total
Partners Partner Receivable
---------- -----------------------------------------------------------
PARTNERS' CAPITAL,
<S> <C> <C> <C> <C> <C>
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 ( loss) - (1,398,489) (11,106) - (1,409,595)
Organization and initial
offering costs recovery - 366,712 3,765 - 370,477
Redemptions (36,528) (4,592,230) - - (4,592,230)
------------ -------------- ----------- -------------- -------------
PARTNERS' CAPITAL,
June 30, 1997 1,776,136 $215,587,136 $2,225,274 $ - $217,812,410
============ ============== =========== ============== =============
</TABLE>
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 June 30, 1997 and the
results of its operations for the six months ended June 30, 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 generally 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").
Certain amounts in the prior period have been reclassified to conform to the
current period presentation.
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 $122.63 and $122.61 for financial reporting purposes and
$122.74 and $123.16 for all other purposes at June 30, 1997 and December 31,
1996, respectively.
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership's revenues by reporting category for the respecitive periods
were as follows (there were no trading revenues reported for the first six
months of 1996):
<TABLE>
<CAPTION>
For the three For the six
months ended months ended
June 30, June 30,
1997 1997
---------------- ------------
<S> <C> <C>
Interest rates & Stock indices $ (63,818) $ (923,906)
Commodities 1,744,275 3,823,543
Currencies (3,859,520) 5,220,347
Energy (5,811,455) (7,835,075)
Metals 1,937,957 2,238,564
---------------- ------------
$(6,052,561) $ 2,523,473
================ ============
</TABLE>
The contract/notional values of the Partnership's open derivative instrument
positions as of June 30, 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 $1,100,278,853 $311,688,588 $144,969,514 $ -
Stock Indices 50,798,554 - - -
Commodities 28,257,488 25,656,598 6,083,206 17,321,100
Currencies 484,823,745 278,658,117 229,540,645 289,870,043
Energy 4,189,200 36,578,349 18,094,440 -
Metals 6,505,713 56,768,773 2,693,494 30,540,601
---------------- ------------- --------------- --------------
$1,674,853,553 $709,350,425 $401,381,299 $337,731,744
================ ============= =============== ==============
</TABLE>
5
<PAGE>
The contract/notional value of exchange traded open contracts as of June 30,
1997 and December 31, 1996 were as follows (the Partnership does not trade non-
exchange-traded derivative instruments):
<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 $1,210,008,146 $446,522,871 $170,575,723 $ 46,596,770
Non-Exchange
traded 464,845,407 262,827,554 230,805,576 291,134,974
---------------- ------------- -------------- ---------------
$1,674,853,553 $709,350,425 $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 six months ended June 30, 1997 and the
year ended 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 & $ 668,516,215 $340,636,360 $ 719,308,090 $ 83,716,105
Stock Indices 24,294,733 7,169,802 13,413,720 13,483,911
Commodities 24,907,957 17,727,109 8,192,113 24,113,672
Currencies 364,915,873 427,768,195 300,537,708 312,830,219
Energy 17,034,066 18,867,530 22,546,285 --
Metals 7,478,422 32,777,712 3,818,246 39,804,586
------------------- ----------------- ---------------- ----------------
$1,107,147,266 $844,946,708 $1,067,816,162 $473,948,493
=================== ================= ================ =================
</TABLE>
At June 30, 1997 and December 31, 1996, $35,660,245 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 gain and the net unrealized gain (loss) on open contracts
as of June 30, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------------
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Profit Profit (Loss) Profit Profit (Loss)
------------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Exchange
traded $ 9,171,730 $6,230,648 $3,013,592 $1,424,907
Non-Exchange
traded 7,122,135 1,834,364 6,937,127 3,271,465
------------- ------------ ---------- ------------
$16,293,865 $8,065,012 $9,950,719 $4,696,372
============= ============ =========== ============
</TABLE>
6
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Operational Overview: Advisor Selections
- ----------------------------------------
Due to the nature of the Fund's business, its results of operations depend on
the Trading Manager's 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. 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.
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 six months of 1997, the Fund's average month-end Net Assets
equaled $221,717,442 and the Fund recognized gross trading gains of $2,523,473
or 1.14% of such average month-end Net Assets. Brokerage commissions of
$8,576,105 or 3.87 % and Administrative expenses of $276,649 or .13% of average
month-end Net Assets were paid. Interest income of $5,905,333 or 2.66% of
average month-end Net Assets resulted in net loss of $1,409,596 (after deduction
of MLIP's "Minority Interest" and the Special profit share allocation of
$985,648 in the Trading Partnership) or .64% of average month-end Net Assets
which resulted in a .34% decrease in the Net Asset Value since December 31,
1996.
During the six months ended June 30, 1997, the Fund experienced 3 profitable
month and 3 unprofitable months.
MONTH-END NET ASSET VALUE PER UNIT
January February March April May June
-------------------------------------------------------------
1997 $126.87 $126.83 $126.92 $126.34 $122.41 $122.74
-------------------------------------------------------------
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 is the first account managed using the JWH Strategic Allocation
Program, JWH cannot predict how frequently the Program combinations or
allocations used for the
7
<PAGE>
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
2.89% (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.
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 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.
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 a class action
lawsuit 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.
On June 24, 1997, the Commodity Futures Trading Commission("CFTC")
accepted an Offer of Settlement from Merrill Lynch Futures Inc. ("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 (the "Act"), relating to wash sales, 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.
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
James M. Bernard, formerly a Senior Vice President of MLIP is no longer
with the firm.
Michael A. Karmelin has been appointed Chief Financial Officer, Vice
President and Treasurer of MLIP. Mr. Karmelin assumed these positions on April
14, 1997, when he completed his tenure as Chief Financial Officer of Merrill
Lynch, Hubbard Inc. ("ML Hubbard"), a sponsor of real estate limited
partnerships. Mr. Karmelin was born in 1947. Mr. Karmelin joined ML Hubbard in
January 1994 as a Vice President. From May 1994 until he joined MLIP, Mr.
Karmelin was the Chief Financial Officer of ML Hubbard, responsible for its
accounting, treasury and tax functions. Prior to joining ML Hubbard, Mr.
Karmelin held several senior financial positions with Merrill Lynch & Co., Inc.
("ML&Co.") and Merrill Lynch, Pierce, Fenner & Smith Incorporated from December
1985 to December 1993, including Vice President/Senior Financial Officer
Corporate Real Estate and Purchasing, Manager Commitment Control/Capital
Budgeting, and Senior Project Manager/Project Analysis. Prior to joining
ML&Co., Mr. Karmelin was employed at Avco Corporation for 17 years, where he
held a variety of financial positions. Mr. Karmelin holds a B.B.A. degree in
Accounting from Baruch College, C.U.N.Y. and a Master of Business Administration
degree in Corporate Strategy and Finance from New York University. Mr. Karmelin
passed the Certified Public Accountant examination in 1974 and is a member of
the Treasury Management Association, the Institute of Management Accountants and
The Strategic Leadership Forum.
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 six 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: August 13, 1997 By /s/JOHN R. FRAWLEY, JR.
John R. Frawley, Jr.
President, Chief Executive Officer
and Director
Date: August 13, 1997 By /s/MICHAEL A. KARMELIN
Michael A. Karmelin
Chief Financial Officer, Vice President
and Treasurer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JAN-30-1997
<CASH> 2,657
<RECEIVABLES> 54,002,882
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 166,956,498
<PP&E> 0
<TOTAL-ASSETS> 220,962,037
<SHORT-TERM> 0
<PAYABLES> 3,149,627
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 217,812,410
<TOTAL-LIABILITY-AND-EQUITY> 220,962,037
<TRADING-REVENUE> 2,523,473
<INTEREST-DIVIDENDS> 5,905,333
<COMMISSIONS> 9,838,402
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 0
<INCOME-PRETAX> (1,409,596)
<INCOME-PRE-EXTRAORDINARY> (1,409,596)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,409,596)
<EPS-PRIMARY> (.81)
<EPS-DILUTED> (.81)
</TABLE>
