JOINT VENTURE AGREEMENT AMENDMENT
This Joint Venture Agreement Amendment dated as of October 1, 2000, by
and between ML JWH STRATEGIC ALLOCATION FUND L.P. (the "Partnership") and XXXX
X. XXXXX & COMPANY INC. ("JWH").
WITNESSETH
WHEREAS, the parties hereto entered into a Joint Venture Agreement dated
as of April 25, 1996 pursuant to which JWH is acting as a commodity trading
advisor for the Partnership (as amended to the date hereof, the "Joint
Venture Agreement," certain defined terms are used herein as defined
therein); and
WHEREAS, the parties hereto wish to amend the Joint Venture Agreement in
order to provide for a reduction of the fees payable to JWH thereunder.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained in the Joint Venture Agreement and herein, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree to
amend the Joint Venture Agreement as follows:
1. AMENDMENT TO SECTION 7. Section 7 of the Joint Venture Agreement is
hereby amended by deleting the amount ".333 of 1%" from the second line
thereof and substituting in lieu thereof the amount ".167 of 1%".
2. AMENDMENTS TO SECTION 8.
(a) Section 8(b)(i) of the Joint Venture Agreement is hereby amended by
deleting the amount "5%" from the seventh and seventeenth lines of such
Section and substituting in lieu thereof the amount "3%".
(b) Section 8(b)(ii) of the Joint Venture Agreement is hereby amended
by deleting the amount "Fifteen percent (15%)" from the first line of such
Section and substituting in lieu thereof the amount "Twenty percent (20%)".
(c) Section 8(b)(iii) of the Joint Venture Agreement is hereby further
amended by deleting the amount "15%" from the fourth line of such Section and
substituting in lieu thereof the amount "20%".
(d) A new Section 8(i) of the Joint Venture Agreement is hereby added
which shall read in its entirety as follows:
"(i) During no calendar quarter through June 30, 2001 shall the
aggregate Management Fees and Profit Shares calculated pursuant to this
Joint Venture Agreement, as amended pursuant to the Joint Venture Agreement
Amendment dated as of October 1, 2000 (the "New Fees") exceed the aggregate
Management Fees and Profit Shares that would have been calculated pursuant
to the Joint Venture Agreement prior to the
effectiveness of the Joint Venture Agreement Amendment dated as of October
1, 2000 (the "Existing Fees"). If for any calendar quarter ending on or
before June 30, 2001 the New Fees, as initially calculated, exceed the
Existing Fees, the Profit Share for such calendar quarter will be reduced
to an amount, which, when added to the Management Fees, causes the New Fees
to equal the Existing Fees.
3. AMENDMENTS TO SCHEDULE I. Schedule I to the Joint Venture Agreement
is hereby amended by (a) deleting the amount "$104,250,000" therefrom and
substituting in lieu thereof $104,000,000", (b) deleting the amount "15%"
therefrom and substituting in lieu thereof the amount "20%"; (c) deleting the
amount "$165,000" therefrom each time that it appears, and substituting in
lieu thereof the amount "$220,000" and (d) deleting the phrase "5% of
month-end assets" therefrom each time that it appears, and substituting in
lieu thereof the phrase "3% of month-end assets".
4. ENTIRE AGREEMENT. This Amendment, together with the Joint Venture
Agreement and all amendments thereto, constitutes the entire agreement among
the parties hereto with respect to the matters referred to herein, and no
other agreement, verbal or otherwise, shall be binding as between the parties
unless it shall be in writing and signed by the party against whom
enforcement is sought.
5. EFFECTIVE DATE. The effective date of this Joint Venture Agreement
Amendment is October 1, 2000, provided that the effective date of the hurdle
rate reduction set forth in Section 2(a) herein is July 1, 2001.
6. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall, however, together constitute one and the
same document.
2
IN WITNESS WHEREOF, the undersigned have hereto duly set forth their
hand as of the 1st day of October, 2000.
ML JWH STRATEGIC ALLOCATION FUND L.P.
BY: XXXXXXX XXXXX INVESTMENT
PARTNERS INC., ITS GENERAL PARTNER
By: /s/ Xxxxxx X. Xxxxx
-------------------------------------
Name: Xxxxxx X. Xxxxx
Title:
XXXX X. XXXXX & COMPANY INC.
By: /s/ Xxxxx X. Xxxxxxxx
-------------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: President & CEO
Confirmed:
not as a Joint Venturer but
solely for the limited purposes
set forth herein
XXXXXXX XXXXX FUTURES INC.
By: /s/ Xxxxx X. Xxxxx
-------------------------------
Name: Xxxxx X. Xxxxx
Title: SVP/CFO
3
ML JWH STRATEGIC ALLOCATION FUND L.P.
(A DELAWARE LIMITED PARTNERSHIP)
AND JOINT VENTURE
Consolidated Financial Statements for the years ended
December 31, 2001, 2000 and 1999
and Independent Auditors' Report
[XXXXXXX XXXXX LOGO]
ML JWH STRATEGIC ALLOCATION FUND L.P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Statements of Financial Condition as of December 31, 2001
and 2000 2
Consolidated Statements of Operations for the years ended December 31,
2001, 2000 and 1999 3
Consolidated Statements of Changes in Partners' Capital for the years
ended December 31, 2001, 2000 and 1999 4
Consolidated Financial Data Highlights for the year ended December
31, 2001 5
Notes to Consolidated Financial Statements 6-11
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. (the "Partnership") and
the ML JWH Strategic Joint Venture (the "Joint Venture") as of December 31,
2001 and 2000 and the related consolidated statements of operations and of
changes in partners' capital for each of the three years in the period ended
December 31, 2001, and the consolidated financial data highlights for the
year ended December 31, 2001. These financial statements and financial data
highlights are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
financial data highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial data highlights 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, such consolidated financial statements and consolidated
financial data highlights present fairly, in all material respects, the
financial position of ML JWH Strategic Allocation Fund L.P. and the ML JWH
Strategic Joint Venture as of December 31, 2001 and 2000, and the results of
their operations and changes in their partners' capital and the financial
data highlights for each of the periods presented, in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
New York, New York
February 5, 2002
ML JWH STRATEGIC ALLOCATION FUND L.P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2001 AND 2000
2001 2000
------------ ------------
ASSETS
Equity in commodity futures trading accounts:
Cash and options premiums $248,619,755 $132,821,791
Net unrealized profit on open contracts (Note 2) 14,955,289 50,582,680
Commercial Paper (Cost: $111,460,842) -- 111,460,842
Cash -- 254
Accrued interest (Notes 1 and 4) 372,122 1,840,366
------------ ------------
TOTAL $263,947,166 $296,705,933
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Brokerage commissions payable (Note 4) $ 1,236,104 $ 1,421,678
Profit Share payable (Note 3) 5,986,222 2,594,708
Redemptions payable 2,523,375 9,285,988
Administrative fees payable (Note 4) 53,744 61,812
------------ ------------
Total liabilities 9,799,445 13,364,186
------------ ------------
MINORITY INTEREST 170,731 174,477
------------ ------------
PARTNERS' CAPITAL:
General Partner (15,044 Units and 18,536 Units) 2,556,954 3,219,589
Limited Partners (1,479,238 Units and 1,611,725 Units) 251,420,036 279,947,681
------------ ------------
Total partners' capital 253,976,990 283,167,270
------------ ------------
TOTAL $263,947,166 $296,705,933
============ ============
NET ASSET VALUE PER UNIT $ 169.97 $ 173.69
============ ============
(Based on 1,494,282 and 1,630,261 Units outstanding)
See notes to consolidated financial statements.
2
ML JWH STRATEGIC ALLOCATION FUND L.P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
------------ ------------ ------------
REVENUES
Trading profit (loss):
Realized $ 43,747,023 $ 9,945,923 $ 9,335,723
Change in unrealized (35,627,391) 38,113,338 (14,570,342)
------------ ------------ ------------
Total trading results 8,119,632 48,059,261 (5,234,619)
Interest income (Notes 1 and 4) 9,573,671 17,179,996 17,854,409
------------ ------------ ------------
Total revenues 17,693,303 65,239,257 12,619,790
------------ ------------ ------------
EXPENSES
Brokerage commissions (Note 4) 15,061,052 21,916,843 28,008,137
Administrative fees (Note 4) 654,829 750,433 903,488
Ongoing offering costs (Note 1) -- 174,043 108,777
------------ ------------ ------------
Total expenses 15,715,881 22,841,319 29,020,402
------------ ------------ ------------
INCOME (LOSS) BEFORE PROFIT SHARE
ALLOCATION AND MINORITY INTEREST 1,977,422 42,397,938 (16,400,612)
Profit Share Allocation (Note 3) (5,986,223) (2,594,804) (4,207,762)
Minority interest in (income) loss 3,746 (27,502) 7,926
------------ ------------ ------------
NET INCOME (LOSS) $ (4,005,055) $ 39,775,632 $(20,600,448)
============ ============ ============
NET INCOME (LOSS) PER UNIT:
Weighted average number of General Partner
and Limited Partner Units outstanding (Note 5) 1,506,078 2,109,178 2,325,460
============ ============ ============
Net income (loss) per weighted average General Partner
and Limited Partner Unit $ (2.66) $ 18.86 $ (8.86)
============ ============ ============
See notes to consolidated financial statements.
3
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, 2001, 2000 AND 1999
UNITS GENERAL PARTNER LIMITED PARTNERS TOTAL
--------- --------------- ---------------- -------------
PARTNERS' CAPITAL,
DECEMBER 31, 1998 2,037,826 $ 2,667,093 $ 311,845,818 $ 314,512,911
Additions 713,679 1,788,180 108,788,920 110,577,100
Net loss -- (289,113) (20,311,335) (20,600,448)
Redemptions (290,942) (78,597) (44,191,107) (44,269,704)
--------- ------------- ------------- -------------
PARTNERS' CAPITAL,
DECEMBER 31, 1999 2,460,563 4,087,563 356,132,296 360,219,859
Additions 108,883 23,717 15,854,642 15,878,359
Net income -- 502,274 39,273,358 39,775,632
Redemptions (939,185) (1,393,965) (131,312,615) (132,706,580)
--------- ------------- ------------- -------------
PARTNERS' CAPITAL,
DECEMBER 31, 2000 1,630,261 3,219,589 279,947,681 283,167,270
Additions 115,245 8,813 18,532,359 18,541,172
Net loss -- (21,881) (3,983,174) (4,005,055)
Redemptions (251,224) (649,567) (43,076,830) (43,726,397)
--------- ------------- ------------- -------------
PARTNERS' CAPITAL,
DECEMBER 31, 2001 1,494,282 $ 2,556,954 $ 251,420,036 $ 253,976,990
========= ============= ============= =============
See notes to consolidated financial statements.
4
ML JWH STRATEGIC ALLOCATION FUND L.P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
CONSOLIDATED FINANCIAL DATA HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, 2001
The following per share unit and ratios have been derived from information
provided in the financial statements.
2001
--------
Increase (Decrease) in Net Asset Value
PER SHARE OPERATING PERFORMANCE:
--------------------------------
Net asset value, beginning of year $ 173.69
Realized trading profit 27.81
Change in unrealized (23.56)
Interest income 6.28
Expenses (14.25)
--------
Net asset value, end of year $ 169.97
========
Total investment return, compounded monthly -2.15%
========
RATIOS TO AVERAGE NET ASSETS:
-----------------------------
Expenses 8.39%
========
Net loss -1.55%
========
See notes to consolidated financial statements.
5
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 Xxxx X. Xxxxx & Company, Inc.
("JWH(R)"), the trading advisor for the Partnership. MLIM Alternative
Strategies LLC ("MLIM AS LLC"), formerly Xxxxxxx Xxxxx Investment Partners
Inc. ("MLIP"), a wholly-owned subsidiary of Xxxxxxx Xxxxx Investment
Managers, LP ("MLIM") which, in turn, is an indirect wholly-owned
subsidiary of Xxxxxxx Xxxxx & Co., Inc. ("Xxxxxxx Xxxxx"), is the general
partner of the Partnership. Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx
Incorporated ("MLPF&S"), the successor to Xxxxxxx Xxxxx Futures Inc.
("MLF") by merger, is the Partnership's commodity broker. MLIM AS LLC and
each Limited Partner share in the profits and losses of the Partnership
in proportion to their respective interests in it.
Effective May 31, 2001, MLIP converted to a Delaware limited liability
company and changed its name. Effective August 14, 2001, Xxxxxxx Xxxxx
Group, Inc. contributed all of the issued and outstanding shares of MLIM AS
LLC to its affiliate MLIM in a tax-free reorganization. All of the officers
of MLIP at the time continued with their former roles with MLIM AS LLC. The
changes had no impact on the Partnership's investors. Effective November 2,
2001, MLF merged into its affiliate, MLPF&S, a wholly owned subsidiary of
Xxxxxxx Xxxxx. MLPF&S became the successor party to the agreements between
MLF and the Partnership. The terms of the agreements remained unchanged and
the merger had no effect on the terms on which the Partnership's
transactions were executed.
The Joint Venture trades in the international futures and forward markets,
applying multiple proprietary trading strategies under the direction of
JWH(R). JWH(R) selects, allocates and reallocates the Partnership's assets
among different combinations of JWH(R)'s programs--an approach which JWH(R)
refers to as the "JWH Strategic Allocation Program."
The consolidated financial statements include the accounts of the Joint
Venture to which the Partnership 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.
ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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
6
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH MANAGEMENT
Prior to June 2000, the Partnership invested a portion of its assets in
obligations of the U.S. Treasury and certain U.S. government agencies
("Government Securities") under the direction of MLIM, within the
parameters established by MLIM AS LLC, for which MLIM accepted no
responsibility. These investments were carried at fair value. Effective
June 2000, the Partnership liquidated the Government Securities held and
now can invest a portion of its assets in Commercial Paper. These holdings
generally have maturities of 30, 60 or 90 days and are held to maturity.
The investments in Commercial Paper are directed by MLIM AS LLC. The
Partnership did not hold Commercial Paper as of December 31, 2001.
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 (loss) on open contracts from one period to the next is
reflected in Change in unrealized under Trading profit (loss) in the
Consolidated Statements of Operations.
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
Consolidated 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.
ONGOING OFFERING COSTS, OPERATING EXPENSES AND SELLING COMMISSIONS
MLIM AS LLC is entitled to receive, from the Partnership, ongoing offering
cost reimbursements subject to a ceiling of up to .25 of 1% of the
Partnership's average month-end assets in any fiscal year. MLIM AS LLC
suspended the reimbursement on August 31, 2000, however, the reimbursement
can be reinstated if the Partnership is opened to a new offering.
MLIM AS LLC 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 3). MLIM AS LLC receives an administrative
fee, as well as a portion of the brokerage commissions paid to MLPF&S by
the Joint Venture (See Note 4).
No selling commissions have been or are paid directly by the Limited
Partners. All selling commissions are paid by MLIM AS LLC.
INCOME TAXES
7
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.
DISTRIBUTIONS
The Limited Partners are entitled to receive, equally per Unit, any
distribution which may be made by the Partnership. No such distributions
have been declared for the years ended December 31, 2001 or 2000.
REDEMPTIONS
A Limited Partner may 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 acquired Units at more than one time, Units are
treated on a "first-in, first-out" basis for purposes of determining
whether redemption charges are applicable. Redemption charges are
subtracted from redemption proceeds and paid to MLIM AS LLC.
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.
2. CONDENSED SCHEDULE OF INVESTMENTS
In March 2001, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee issued Statement of Position
("SOP") 01-1, "Amendment to Scope of Statement of Position 95-2,
Financial Reporting by Nonpublic Investment Partnerships, to Include
Commodity Pools" effective for fiscal years ending after December 15, 2001.
Accordingly, commodity pools are now required to include a condensed
schedule of investments identifying those investments which constitute
more than 5% of net assets, taking long and short positions into account
separately.
The Partnership's investments, defined as Net unrealized profit on open
contracts on the Consolidated Statement of Financial Condition, as of
December 31, 2001, are as follows.
8
LONG POSITIONS SHORT POSITIONS
-------------- --------------- NET UNREALIZED
UNREALIZED PERCENT OF UNREALIZED PERCENT OF PROFIT (LOSS) ON PERCENT OF
COMMODITY INDUSTRY SECTOR PROFIT (LOSS) NET ASSETS PROFIT (LOSS) NET ASSETS OPEN POSITIONS NET ASSETS
------------------------- ------------- ---------- ------------- ---------- ---------------- ----------
Agriculture $ (10,988) 0.00% $ 760,155 0.30% $ 749,167 0.29%
Currencies 511,386 0.20% 14,680,710 5.78% 15,192,096 5.98%
Energy -- 0.00% (530,666) (0.21)% (530,666) (0.21)%
Interest rates (409,594) -0.16% 2,348,107 0.92% 1,938,513 0.76%
Metals (752,911) (0.30)% (1,930,634) (0.76)% (2,683,545) (1.06)%
Stock indices 289,724 0.11% -- 0.00% 289,724 0.11%
---------- ------------ ------------
Total $ (372,383) (0.15)% $ 15,327,672 6.04% $ 14,955,289 5.89%
========== ============ ============
3. JOINT VENTURE AGREEMENT
The Partnership and JWH(R) entered into a Joint Venture Agreement as of the
commencement of operations whereby JWH(R) contributed $100,000 to the Joint
Venture and the Partnership contributed substantially all of its capital.
As of October 30, 1998, the Joint Venture Agreement was amended to allow
the Joint Venture Agreement to continue in effect until December 31, 2000
subject to automatic one-year renewals on the same terms, unless either the
Partnership or JWH(R) elects not to renew. The Joint Venture Agreement was
renewed for the year ended December 31, 2002. MLIM AS LLC is the manager of
the Joint Venture, while JWH(R) 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(R) and the Partnership share
in the profits of the Joint Venture based on equity ownership provided that
20%, increased from 15% on October 1, 2000, of the Partnership's allocable
quarterly New Trading Profits, as defined, are allocated to JWH(R). Losses
are allocated to JWH(R) and the Partnership based on equity ownership.
Pursuant to the Joint Venture Agreement, JWH(R)'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 years ended December 31, 2001, 2000 and 0000, XXX(X)
received a profit share allocation of $5,861,385, $2,586,818 and $4,103,927
and earned interest of $124,838, $7,986 and $103,835 on such amounts,
respectively.
4. RELATED PARTY TRANSACTIONS
Prior to June 2000, approximately 80% of the Joint Venture's U.S. dollar
assets were managed by MLIM, pursuant to the guidelines established by MLIM
AS LLC for which MLIM assumed no responsibility, in the Government
Securities market. MLPF&S paid MLIM annual management fees of .20 of 1% on
the first $25 million of certain assets of MLIM AS
LLC-Sponsored-Funds("Capital"), including the Joint Venture's assets
managed by XXXX, .00 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 were paid quarterly in arrears and were calculated on
the basis of the average daily Capital managed by MLIM. As of June 2000,
the Government Securities were liquidated and the management agreement with
MLIM was terminated. Commercial Paper was then purchased. MLPF&S acts as
custodian for the cash assets utilized in the Commercial Paper Program. As
of December 31, 2001, no Commercial Paper was held by the Partnership.
9
A portion of the Joint Venture's U.S. dollar assets is maintained at
MLPF&S. On assets held in U.S. dollars, Xxxxxxx Xxxxx credits the Joint
Venture with interest at the prevailing 91-day U.S. Treasury xxxx rate. The
Joint Venture is credited with interest on any of its assets and net gains
actually held by Xxxxxxx Xxxxx in non-U.S. dollar currencies at a
prevailing local rate received by Xxxxxxx Xxxxx. Xxxxxxx Xxxxx may derive
certain economic benefit in excess of the interest which Xxxxxxx Xxxxx pays
to the Joint Venture, from possession of such assets.
Xxxxxxx Xxxxx charges the Joint Venture at prevailing local rates for
financing realized and unrealized losses on the Joint Venture's non-U.S.
dollar-denominated positions.
The Joint Venture currently pays brokerage commissions to MLPF&S at a flat
monthly rate of .479 of 1% (a 5.75% annual rate) of the Joint Venture's
month-end assets. Prior to October 1, 2000, the brokerage commission rate
was .646 of 1% per month (a 7.75% annual rate). The Joint Venture also pays
MLIM AS LLC a monthly administrative fee of .021 of 1% (a 0.25% 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.
MLIM AS LLC estimates that the round-turn equivalent commission rate
charged to the Joint Venture during the years ended December 31, 2001, 2000
and 1999 was approximately $98, $121 and $264 (not including, in
calculating round-turn equivalents, forward contracts on a
futures-equivalent basis).
MLPF&S pays JWH(R) annual Consulting Fees of 2%, reduced from 4% on October
1, 2000, of the Partnership's average month-end assets, after reduction for
a portion of the brokerage commissions.
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 for the years ended December 31, 2001, 2000 and 1999
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 nature of this Partnership has certain risks, which cannot 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 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
10
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 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 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
Xxxxxxx Xxxxx entities as clearing brokers.
The Partnership, in its normal course of business, enters into various
contracts, with 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.
To the best of the knowledge and belief of the
undersigned, the information contained in this
report is accurate and complete.
Xxxxxxx X. Xxxxxxxx
Chief Financial Officer
MLIM Alternative Strategies LLC
General Partner of
ML JWH Strategic Allocation Fund L.P.
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