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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, 2002
-------------
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 MLIM Alternative Strategies LLC
Princeton Corporate Campus
800 Scudders Mill Road - Section 2G
Plainsboro, New Jersey 08536
----------------------------
(Address of principal executive offices)
(Zip Code)
609-282-6996
----------------------------------------------------
(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
--- ---
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ML JWH STRATEGIC ALLOCATION FUND L.P.
-------------------------------------
(a Delaware Limited Partnership)
--------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
June 30, December 31,
2002 2001
(unaudited)
-------------- --------------
ASSETS
- ------
Equity in commodity futures trading accounts:
Cash and options premium $ 260,288,772 $ 248,619,755
Net unrealized profit on open contracts 50,271,002 14,955,289
Accrued interest 323,776 372,122
-------------- --------------
TOTAL $ 310,883,550 $ 263,947,166
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Brokerage commissions payable $ 1,489,640 $ 1,236,104
Profit share payable 6,200,455 5,986,222
Redemptions payable 3,857,242 2,523,375
Administrative fees payable 64,767 53,744
-------------- --------------
Total liabilities 11,612,104 9,799,445
-------------- --------------
MINORITY INTEREST 203,880 170,731
PARTNERS' CAPITAL:
General Partner (15,624 and 15,044 Units) 3,160,820 2,556,954
Limited Partners (1,457,857 and 1,479,238 Units) 295,906,746 251,420,036
-------------- --------------
Total partners' capital 299,067,566 253,976,990
-------------- --------------
TOTAL $ 310,883,550 $ 263,947,166
============== ==============
NET ASSET VALUE PER UNIT
(Based on 1,473,481 and 1,494,282 Units outstanding) $ 202.97 $ 169.97
============== ==============
See notes to consolidated financial statements.
2
ML JWH STRATEGIC ALLOCATION FUND L.P.
-------------------------------------
(a Delaware Limited Partnership)
--------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
REVENUES:
Trading profit (loss):
Realized $ 35,109,295 $ (12,791,872) $ 26,171,505 $ 44,305,818
Change in unrealized 47,262,771 (20,052,723) 35,315,857 (44,206,776)
---------------- ---------------- ---------------- ----------------
Total trading results 82,372,066 (32,844,595) 61,487,362 99,042
---------------- ---------------- ---------------- ----------------
Interest income 930,865 2,248,361 1,821,786 6,145,388
---------------- ---------------- ---------------- ----------------
Total revenues 83,302,931 (30,596,234) 63,309,148 6,244,430
---------------- ---------------- ---------------- ----------------
EXPENSES:
Administrative fees 166,879 163,612 319,142 343,169
Brokerage commissions 3,838,217 3,763,075 7,340,255 7,892,891
---------------- ---------------- ---------------- ----------------
Total expenses 4,005,096 3,926,687 7,659,397 8,236,060
---------------- ---------------- ---------------- ----------------
INCOME (LOSS) BEFORE
MINORITY INTEREST AND
PROFIT SHARE ALLOCATION 79,297,835 (34,522,921) 55,649,751 (1,991,630)
Profit Share Allocation (6,198,706) (38,200) (6,208,345) (5,899,681)
Minority Interest in (income) loss (49,020) 22,812 (33,149) 5,598
---------------- ---------------- ---------------- ----------------
NET LOSS $ 73,050,109 $ (34,538,309) $ 49,408,257 $ (7,885,713)
================ ================ ================ ================
NET LOSS PER UNIT:
Weighted average number of General Partner
and Limited Partners Units outstanding 1,498,414 1,510,112 1,498,000 1,551,346
================ ================ ================ ================
Net income (loss) per weighted average
General Partner and Limited Partner Unit $ 48.75 $ (22.87) $ 32.98 $ (5.08)
================ ================ ================ ================
See notes to consolidated financial statements.
3
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, 2002 and 2001
-----------------------------------------------
(unaudited)
General Limited
Units Partner Partners Total
--------------- --------------- --------------- ---------------
PARTNERS' CAPITAL,
December 31, 2000 1,630,261 $ 3,219,589 $ 279,947,681 $ 283,167,270
Net loss - (103,269) (7,782,444) (7,885,713)
Redemptions (158,761) - (27,889,048) (27,889,048)
--------------- --------------- --------------- ---------------
PARTNERS' CAPITAL,
June 30, 2001 1,471,500 $ 3,116,320 $ 244,276,189 $ 247,392,509
=============== =============== =============== ===============
PARTNERS' CAPITAL,
December 31, 2001 1,494,282 $ 2,556,954 $ 251,420,036 $ 253,976,990
Additions 79,465 89,419 12,546,928 12,636,347
Net income - 514,447 48,893,810 49,408,257
Redemptions (100,266) - (16,954,028) (16,954,028)
--------------- --------------- --------------- ---------------
PARTNERS' CAPITAL,
June 30, 2002 1,473,481 $ 3,160,820 $ 295,906,746 $ 299,067,566
=============== =============== =============== ===============
See notes to consolidated financial statements.
4
ML JWH STRATEGIC ALLOCATION FUND L.P.
-------------------------------------
(a Delaware Limited Partnership)
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
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 ML JWH Strategic Allocation
Fund L.P. (the "Partnership") as of June 30, 2002, and the results of its
operations for the three and six months ended June 30, 2002 and 2001.
However, the operating results for the interim periods may not be
indicative of the results for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in conformity with accounting principles
generally accepted in the United States of America 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, 2001.
2. FAIR VALUE AND OFF-BALANCE SHEET RISK
The nature of this Partnership has certain risks, which can not be
presented on the financial statements. The following summarizes some of
those risks.
Market Risk
-----------
Derivative instruments involve varying degrees of off-balance sheet market
risk. Changes in the level or volatility of interest rates, foreign
currency exchange rates or the market values of the financial instruments
or commodities underlying such derivative instruments frequently result in
changes in the Partnership's net unrealized profit (loss) on such
derivative instruments as reflected in the Consolidated Statements of
Financial Condition. The Partnership's exposure to market risk is
influenced by a number of factors, including the relationships among the
derivative instruments held by the Partnership as well as the volatility
and liquidity of the markets in which the derivative instruments are
traded.
MLIM Alternative Strategies LLC ("MLIM AS LLC") 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(R), calculating the Net
Asset Value of the Partnership as of the close of business on each day and
reviewing outstanding positions for over-concentrations. While MLIM AS LLC
does not itself intervene in the markets to hedge or diversify the
Partnership's market exposure, MLIM AS LLC may urge JWH(R) to reallocate
positions in an attempt to avoid over-concentrations. However, such
interventions are unusual. Except in cases in which it appears that JWH(R)
has begun to deviate from past practice or trading policies or to be
trading erratically, MLIM AS LLC's basic risk control procedures consist
simply of the ongoing process of advisor monitoring, with the market risk
controls being applied by JWH(R) itself.
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
5
individual counterparties. Margins, which may be subject to loss in the
event of a default, are generally required in exchange trading, and
counterparties may also require margin in the over-the-counter markets.
The credit risk associated with these instruments from counterparty
nonperformance is the net unrealized profit on open contracts, if any,
included in the Consolidated Statements of Financial Condition. The
Partnership attempts to mitigate this risk by dealing exclusively with
Merrill Lynch entities as clearing brokers.
The Partnership, in its normal course of business, enters into various
contracts, with Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S")
acting as its commodity broker. Pursuant to the brokerage agreement with
MLPF&S (which includes a netting arrangement), to the extent that such
trading results in receivables from and payables to MLPF&S, these
receivables and payables are offset and reported as a net receivable or
payable and included in the Consolidated Statements of Financial Condition
under Equity in commodity futures trading accounts.
Item 2: Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
MONTH-END NET ASSET VALUE PER UNIT
----------------------------------------------------------------------
Jan. Feb. Mar. Apr. May Jun.
----------------------------------------------------------------------
2001 $172.60 $171.38 $190.83 $172.29 $176.63 $168.12
----------------------------------------------------------------------
2002 $168.42 $162.64 $154.17 $155.57 $168.98 $202.97
----------------------------------------------------------------------
Performance Summary
JANUARY 1, 2002 to JUNE 30, 2002
- --------------------------------
January 1, 2002 to March 31, 2002
Trading in the energy markets was profitable. Trading in natural gas and crude
oil resulted in gains. All markets posted gains in March, as crude and Brent
oil, gas oil, heating oil and unleaded gas produced profits.
Metals trading was moderately profitable. The Japanese government announced that
at the end of March they would no longer guarantee time deposits in excess of
ten million yen. Concerned Japanese citizens purchased physical gold, causing a
rally. Profits were realized in copper, zinc, nickel and silver as industrial
demand in anticipation of a strong global economic recovery pushed prices
higher.
Losses were posted across the board in agricultural commodity trading. Soybean
and sugar combined for the largest losses. The sector was flat by quarter end.
Stock index trading was unprofitable as volatile conditions made it difficult to
generate profits. Losses were realized in the Nikkei, DAX, Eurostoxx and NASDAQ
indices.
The interest rate sector sustained losses throughout the quarter. Optimism
surrounding the Japanese government's proposed anti-deflation measures had a
negative effect on Japanese government bonds. The sector as a whole was
unprofitable, as U.S. and Japanese interest rate contracts were unprofitable.
Significant losses occurred in the currency markets. The U.S. dollar weakened
against major currencies, particularly the Japanese yen. The sector performed
poorly, specifically the U.S. dollar/Japanese yen cross trades, as Japanese
fiscal year-end considerations made trading extremely volatile. Positions in
Swiss franc, Euro and British pound also turned in negative performances.
6
April 1, 2002 to June 30, 2002
Profits resulting from trading in the currency sector provided the
Partnership with an over 33% rate of return (on the total net assets of the
Partnership) for the second quarter. Strong trends developed from a weakening
U.S. dollar, which continued through June. Most of the major currencies made
new highs versus the U.S. dollar in June.
The trading in stock indices found profits from its short positions. Worldwide
equity markets attempted to move higher, but failed and resumed their downtrend.
The interest rate sector was profitable for the Partnership despite its slow
start. The quarter began with a loss as interest rates were particularly
sensitive to economic data that was released, and more so to its varied
interpretations. By quarter end, the Partnership profited from a strong bond
market, which benefited from the weakness in the stock market and unchanged
interest rates.
The metals sector sustained slight losses for the quarter. In June, the uptrend
in gold reversed and losses were sustained on a long position eliminating slight
profits earned earlier in the quarter.
Losses were experienced in the agricultural commodities markets. Positions in
coffee, corn and soybean meal were mostly to blame.
Energy produced losses for the Partnership. Fears of possible supply disruption
abated, stifling a previously strong uptrend. In June, a good crude supply
coupled with tensions in the Middle East provided negative returns for the
month.
JANUARY 1, 2001 to JUNE 30, 2001
- --------------------------------
January 1, 2001 to March 31, 2001
Interest rate trading was the biggest contributor to the Partnership's overall
profitability during the quarter. The sector realized gains in all global bond
markets traded, primarily Asia. Interest rates declined at year-end and the
market reversed in January. Bonds generally benefited from the weakness in the
equity markets. Gains were realized in short-term interest rates on Central Bank
easing and the massive rally in Japanese government bonds as the Japanese
economy showed signs of sputtering.
Currency trading was profitable during the quarter. Currencies suffered losses
early in the quarter by a weakening in the Euro. The Euro tumbled to two-month
lows against the U.S. dollar in the wake of Turkey's lira currency float. Market
concerns about European bank exposure to Turkish assets pushed the Euro to new
lows. Strength in the U.S. dollar in March led to strong profits in Japanese
yen, Euro, Swiss franc and British pound. Cross-rate trading was also profitable
in March.
Trading in stock indices was profitable despite a slow start to the quarter. The
NASDAQ continued its slide into the new year, reaching a new 52 week low during
February. The Nikkei 225 set a 15-year low during February. Equity indices, in
general, declined sharply in March, leading to profits from short positions.
Agricultural commodities posted gains for the quarter. Corn and sugar were the
primary drivers for poor performance for January. This sector rebounded in March
as solid gains were attributable to sugar, corn and cotton all falling to new
contract lows.
Metals trading was moderately successful. Positions in gold were profitable amid
the Bank of England gold sale, but they failed to offset losses in other metals
traded in January. Gains in copper failed to offset losses in aluminum, nickel
and silver in February. All contracts were slightly profitable in March, leading
to a gain in the overall sector.
7
Energy trading was the lone sector which sustained losses for the quarter.
Losses were incurred when U.S. oil prices gained more than $2 a barrel on an
OPEC announcement that it would cut production by 1.5 million barrels a day
beginning February 1. OPEC officials made a follow-up announcement that they may
need to act again on concern of a cooling economy may reduce demand for oil
products.
April 1, 2001 to June 30, 2001
Trading in agricultural commodities was the sole profitable strategy for the
Partnership. Corn and cotton markets were profitable throughout the quarter.
Sugar positions sustained losses early on but rebounded by quarter end.
Energy trading was unprofitable despite posting the first monthly gain for the
sector for the year. Energy contracts in crude oil and heating oil had losses in
April and June. These losses offset the gains realized from natural gas
contracts in May. The gains were attributed to the sharp decline in prices and
from generally weakened markets.
The metals sector suffered losses during the quarter. Losses were incurred in
the gold markets in April and May, but rebounded slightly by June. Base metals
were mixed to flat. Silver and aluminum markets were unprofitable. Copper
trading was slightly profitable in June.
Losses were sustained in currency trading. In April, Pacific rim and European
currencies suffered losses, while slight profits were generated in the Mexican
peso, the Euro/Canadian dollar cross and the Thai baht. European currencies
rebounded in May. The quarter ended with losses in the Japanese yen and crosses
involving the yen.
Trading in stock indices was unprofitable. The sharp decline in stock prices in
April contributed to losses in all markets traded. Across the board market
volatility continued into May. By June, most markets were flat but losses were
sustained in NASDAQ and German DAX trading.
Trading in the interest rates sector was difficult, leading to substantial
losses. British and Japanese interest rate markets was the only profitable
sector. The Eurobond market and the U.S. interest rate complex proved tough to
trade and were the primary reason the sector lost money overall.
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
Not applicable
8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending proceedings to which the Partnership or
MLIM AS LLC is a party.
Item 2. Changes in Securities and Use of Proceeds
(a) None.
(b) None.
(c) None.
(d) 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
report.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the first six
months of fiscal 2002.
9
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: MLIM ALTERNATIVE STRATEGIES LLC
(General Partner)
Date: August 15, 2002 By /s/ FABIO P. SAVOLDELLI
-----------------------
Fabio P. Savoldelli
Chairman, Chief Executive Officer and Manager
(Principal Executive Officer)
Date: August 15, 2002 By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
10
EXHIBIT 99
FORM OF CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63
OF TITLE 18 OF THE UNITED STATES CODE
We, Fabio P. Savoldelli and Michael L. Pungello, the chief executive officer and
chief financial officer, respectively, of MLIM Alternative Strategies LLC,
general partner of ML JWH Strategic Allocation Fund L.P., certify that (i) the
quarterly report Form 10-Q fully complies with the requirements of Section 13(a)
or 15(d) of the Securities and Exchange Act of 1934 and (ii) the information
contained in the Form 10-Q fairly presents, in all material respects, the
financial condition and results of operations of ML JWH Strategic Allocation
Fund L.P.
Date: August 15, 2002 By /s/ FABIO P. SAVOLDELLI
-----------------------
Fabio P. Savoldelli
Chairman, Chief Executive Officer and Manager
(Principal Executive Officer)
Date: August 15, 2002 By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
11