**UNITED STATES SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.20549**

**FORM 10-Q**

**(Mark One)**

**x****  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period endedSeptember 30, 2006**

**OR**

**o****  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

**For the transition period from                to                **

**Commission File Number 0-28928**

**ML JWH STRATEGIC ALLOCATION FUNDL.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/oMerrill Lynch Alternative Investments LLC**

**PrincetonCorporate Campus**

**800Scudders Mill Road – Section 2H**

**Plainsboro,New Jersey  08536**

(Address ofprincipal executive offices)

(Zip Code)

**609-282-6091**

(Registrant’s telephone number, including area code)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.

Yeso    No x

Indicate by check mark if the registrant is not required to filereports pursuant to Section 13 or 15(d) of the Act.

Yeso    No x

Indicate by check mark whether the registrant (1)has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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 o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part II of this Form 10-Q or any amendment to this Form 10-Q.    x

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer x |
|---------------------------|---------------------|-------------------------|

 

Indicate by check mark whether registrant is a shell company (asdefined by Rule 12b-2 of the Exchange Act).

Yes o    No x

 

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**ML JWH STRATEGIC ALLOCATION FUND L.P.**

QUARTERLY REPORT FOR SEPTEMBER 30, 2006 ON FORM 10-Q

Table of Contents
| ** ** | ** **                                                                                  | **PAGE** |
|------------|---------------------------------------------------------------------------------------------|----------|
|       | PART I                                                                                      |     |
|       |                                                                                        |     |
| Item 1.    | Financial Statements                                                                        | 2        |
|       |                                                                                        |     |
| Item 2.    | Management’s Discussion and Analysis of Financial  Condition and Results of Operations | 7        |
|       |                                                                                        |     |
| Item 3.    | Quantitative and Qualitative Disclosures About  Market Risk                                 | 15       |
|       |                                                                                        |     |
| Item 4.    | Controls and Procedures                                                                     | 15       |
|       |                                                                                        |     |
|       | PART II                                                                                     |     |
|       |                                                                                        |     |
| Item 1.    | Legal Proceedings                                                                           | 16       |
|       |                                                                                        |     |
| Item 2.    | Changes in Securities and Use of Proceeds                                                   | 16       |
|       |                                                                                        |     |
| Item 3.    | Defaults Upon Senior Securities                                                             | 16       |
|       |                                                                                        |     |
| Item 4.    | Submission of Matters to a Vote of Security Holders                                         | 16       |
|       |                                                                                        |     |
| Item 5.    | Other Information                                                                           | 16       |
|       |                                                                                        |     |
| Item 5a.   | Recent Sales of Unregistered Securities: Uses of  Proceeds From Registered Securities       | 16       |
|       |                                                                                        |     |
| Item 6.    | Exhibits                                                                                    | 16       |

 

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PART I - FINANCIALINFORMATION

Item 1.  FinancialStatements

ML JWH STRATEGICALLOCATION FUND L.P.

(a Delaware Limited Partnership)

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
| ** **                                                                         | ** ** | **September 30,** | ** **    | **December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------|---------------|-----------------------|------------|
| ** **                                                                         | ** ** | **2006**               | ** **    | **2005**              | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**        | ** **    | ** **            | ** ** |
|                                                                               |       |                   |          |                  |       |
| **ASSETS:**                                                                        |       |                   |          |                  |       |
| Equity in commodity  futures trading accounts:                                     |       |                   |          |                  |       |
| Cash                                                                               |       | $                      | 999,521,783   |                  | $          | 1,259,995,704 |   |
| Net unrealized  profit (loss) on open contracts                                    |       | 34,490,051             |          | (4,725,026            | )          |
| Accrued interest                                                                   |       | 4,362,181              |          | 4,186,964             |       |
| Subscriptions  receivable                                                          |       | 10,858                 |          | 11,450                |       |
|                                                                               |       |                   |          |                  |       |
| **TOTAL  ASSETS**                                                                  |       | $                      | 1,038,384,873 |                  | $          | 1,259,469,092 |   |
|                                                                               |       |                   |          |                  |       |
| **LIABILITIES, PARTNERS’ CAPITAL  AND MINORITY INTEREST**                     |       |                   |          |                  |       |
| **LIABILITIES:**                                                                   |       |                   |          |                  |       |
| Brokerage  commissions payable                                                     |       | $                      | 4,975,414     |                  | $          | 6,034,745 |   |
| Profit share  payable                                                              |       | —                 |          | 6,312                 |       |
| Redemptions  payable                                                               |       | 29,479,296             |          | 18,710,981            |       |
| Ongoing offering  costs payable                                                    |       | 125,000                |          | 75,000                |       |
| Administrative  and other fees payable                                             |       | 237,164                |          | 283,221               |       |
|                                                                               |       |                   |          |                  |       |
| Total  liabilities                                                                 |       | 34,816,874             |          | 25,110,259            |       |
|                                                                               |       |                   |          |                  |       |
| **PARTNERS’ CAPITAL:**                                                        |       |                   |          |                  |       |
| General Partner (58,343  and 61,381 Units)                                         |       | 11,119,870             |          | 12,613,943            |       |
| Limited Partner  (5,206,423 and 5,944,149 Units)                                   |       | 992,255,654            |          | 1,221,537,583         |       |
|                                                                               |       |                   |          |                  |       |
| Total partners’  capital                                                      |       | 1,003,375,524          |          | 1,234,151,526         |       |
|                                                                               |       |                   |          |                  |       |
| **MINORITY INTEREST**                                                              |       | 192,475                |          | 207,307               |       |
|                                                                               |       |                   |          |                  |       |
| **TOTAL  LIABILITIES, PARTNERS’ CAPITAL AND MINORITY INTEREST**               |       | $                      | 1,038,384,873 |                  | $          | 1,259,469,092 |   |
|                                                                               |       |                   |          |                  |       |
| **NET ASSET VALUE PER UNIT**  (Based on 5,264,766 and 6,005,530 Units outstanding) |       | $                      | 190.58        |                  | $          | 205.50 |   |

 

See notes to consolidated financial statements.

 

2

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ML JWH STRATEGICALLOCATION FUND L.P.

(a Delaware Limited Partnership)

CONSOLIDATEDSTATEMENTS OF OPERATIONS

(unaudited)
| ** **                                                                        | ** ** | **For the three** | ** **  | **For the three** | ** ** | **For the nine** | ** ** | **For the nine** | ** **   |
|-----------------------------------------------------------------------------------|------------|-----------------------------|-------------|-----------------------------|------------|----------------------------|------------|----------------------------|--------------|
| ** **                                                                        | ** ** | **months ended**       | ** **  | **months ended**       | ** ** | **months ended**      | ** ** | **months ended**      | ** **   |
| ** **                                                                        | ** ** | **September 30,**      | ** **  | **September 30,**      | ** ** | **September 30,**     | ** ** | **September 30,**     | ** **   |
| ** **                                                                        | ** ** | **2006**                    | ** **  | **2005**                    | ** ** | **2006**                   | ** ** | **2005**                   | ** **   |
|                                                                              |       |                        |        |                        |       |                       |       |                       |         |
| **TRADING  PROFITS (LOSSES):**                                                    |       |                        |        |                        |       |                       |       |                       |         |
|                                                                              |       |                        |        |                        |       |                       |       |                       |         |
| Realized                                                                          |       | $                           | (59,557,532 | )                           | $          | 59,880,490                 |       | $                          | (113,312,139 | ) | $ | (138,990,048 | ) |
| Change in unrealized                                                              |       | 69,080,414                  |        | (35,695,228                 | )          | 39,271,248                 |       | (74,102,639                | )            |
|                                                                              |       |                        |        |                        |       |                       |       |                       |         |
| Total trading profits (losses)                                                    |       | 9,522,882                   |        | 24,185,262                  |       | (74,040,891                | )          | (213,092,687               | )            |
|                                                                              |       |                        |        |                        |       |                       |       |                       |         |
| **INVESTMENT  INCOME:**                                                           |       |                        |        |                        |       |                       |       |                       |         |
|                                                                              |       |                        |        |                        |       |                       |       |                       |         |
| Interest                                                                          |       | 13,472,272                  |        | 11,067,309                  |       | 39,964,208                 |       | 27,499,713                 |         |
|                                                                              |       |                        |        |                        |       |                       |       |                       |         |
| **EXPENSES:**                                                                     |       |                        |        |                        |       |                       |       |                       |         |
|                                                                              |       |                        |        |                        |       |                       |       |                       |         |
| Brokerage commissions                                                             |       | 14,830,304                  |        | 19,067,826                  |       | 48,615,368                 |       | 54,322,863                 |         |
| Administrative and other fees                                                     |       | 707,296                     |        | 891,535                     |       | 2,301,212                  |       | 2,549,363                  |         |
| Ongoing offering costs                                                            |       | 375,000                     |        | 150,000                     |       | 1,075,000                  |       | 250,000                    |         |
|                                                                              |       |                        |        |                        |       |                       |       |                       |         |
| Total expenses                                                                    |       | 15,912,600                  |        | 20,109,361                  |       | 51,991,580                 |       | 57,122,226                 |         |
|                                                                              |       |                        |        |                        |       |                       |       |                       |         |
| **NET  INVESTMENT LOSS**                                                          |       | (2,440,328                  | )           | (9,042,052                  | )          | (12,027,372                | )          | (29,622,513                | )            |
|                                                                              |       |                        |        |                        |       |                       |       |                       |         |
| **INCOME (LOSS) BEFORE MINORITY INTEREST AND  PROFIT SHARE ALLOCATION**           |       | 7,082,554                   |        | 15,143,210                  |       | (86,068,263                | )          | (242,715,200               | )            |
|                                                                              |       |                        |        |                        |       |                       |       |                       |         |
| Profit share allocation                                                           |       | —                      |        | 26                          |       | —                     |       | (6,318                     | )            |
| Minority interest in income (loss)                                                |       | (1,498                      | )           | (2,528                      | )          | 14,832                     |       | 45,527                     |         |
|                                                                              |       |                        |        |                        |       |                       |       |                       |         |
| **NET  INCOME (LOSS)**                                                            |       | $                           | 7,081,056   |                        | $          | 15,140,708                 |       | $                          | (86,053,431  | ) | $ | (242,675,991 | ) |
|                                                                              |       |                        |        |                        |       |                       |       |                       |         |
| **NET  INCOME (LOSS) PER UNIT:**                                                  |       |                        |        |                        |       |                       |       |                       |         |
| Weighted average number of General Partner and  Limited Partner Units outstanding |       | 5,518,762                   |        | 6,132,334                   |       | 5,785,513                  |       | 5,916,918                  |         |
|                                                                              |       |                        |        |                        |       |                       |       |                       |         |
| Net Income  (loss) per weighted average General Partner and Limited Partner Unit  |       | $                           | 1.28        |                        | $          | 2.47                       |       | $                          | (14.87       | ) | $ | (41.01 | ) |

 

See notes to consolidated financial statements.

 

3

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ML JWH STRATEGICALLOCATION FUND L.P.

(a Delaware Limited Partnership)

CONSOLIDATEDSTATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

For the ninemonths ended September 30, 2006 and 2005

(unaudited)
| ** **                                  | ** ** | ** ** | ** ** | **General** | ** ** | **Limited**  | ** ** | ** **    | ** ** |
|---------------------------------------------|------------|------------|------------|-------------|------------|--------------|------------|---------------|------------|
| ** **                                  | ** ** | **Units**  | ** ** | **Partner** | ** ** | **Partners** | ** ** | **Total**     | ** ** |
|                                        |       |       |       |        |       |         |       |          |       |
| PARTNERS’  CAPITAL, December 31, 2004  |       | 5,269,462  |       | $           | 13,425,275 |         | $          | 1,358,373,840 |       | $ | 1,371,799,115 |   |
|                                        |       |       |       |        |       |         |       |          |       |
| Subscriptions                               |       | 1,359,975  |       | 2,102,854   |       | 292,881,729  |       | 294,984,583   |       |
|                                        |       |       |       |        |       |         |       |          |       |
| Net loss                                    |       | —     |       | (2,325,057  | )          | (240,350,934 | )          | (242,675,991  | )          |
|                                        |       |       |       |        |       |         |       |          |       |
| Redemptions                                 |       | (553,642   | )          | —      |       | (117,202,056 | )          | (117,202,056  | )          |
|                                        |       |       |       |        |       |         |       |          |       |
| PARTNERS’  CAPITAL, September 30, 2005 |       | 6,075,795  |       | $           | 13,203,072 |         | $          | 1,293,702,579 |       | $ | 1,306,905,651 |   |
|                                        |       |       |       |        |       |         |       |          |       |
| PARTNERS’  CAPITAL, December 31, 2005  |       | 6,005,530  |       | $           | 12,613,943 |         | $          | 1,221,537,583 |       | $ | 1,234,151,526 |   |
|                                        |       |       |       |        |       |         |       |          |       |
| Subscriptions                               |       | 599,500    |       | 4,888       |       | 116,440,991  |       | 116,445,879   |       |
|                                        |       |       |       |        |       |         |       |          |       |
| Net loss                                    |       | —     |       | (915,640    | )          | (85,137,791  | )          | (86,053,431   | )          |
|                                        |       |       |       |        |       |         |       |          |       |
| Redemptions                                 |       | (1,340,264 | )          | (583,321    | )          | (260,585,129 | )          | (261,168,450  | )          |
|                                        |       |       |       |        |       |         |       |          |       |
| PARTNERS’ CAPITAL, September  30, 2006 |       | 5,264,766  |       | $           | 11,119,870 |         | $          | 992,255,654   |       | $ | 1,003,375,524 |   |

 

See notes to consolidatedfinancial statements.

4

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ML JWH STRATEGICALLOCATION FUND L.P.

(a Delaware Limited Partnership)

NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.               SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

In the opinion ofmanagement, the consolidated financial statements contain all adjustmentsnecessary to present fairly the financial position of ML JWH StrategicAllocation Fund L.P. (the “Partnership”) as of September 30, 2006, and theresults of its operations for the three and nine month periods ended September30, 2006 and 2005. However, the operating results for the interim periods maynot be indicative of the results for the full year. These consolidatedfinancial statements contain the activities of both the Partnership and thejoint venture in which the trading activities occur.

Certaininformation and footnote disclosures normally included in annual financialstatements prepared in conformity with accounting principles generally acceptedin the United States of America (“US GAAP”) have been omitted. It is suggestedthat these financial statements be read in conjunction with the financialstatements and notes thereto included in the Partnership’s Annual Report onForm 10-K filed with the Securities and Exchange Commission for the year endedDecember 31, 2005.

The preparation offinancial statements in conformity with US GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ from those estimates.

2.               FAIRVALUE AND OFF-BALANCE SHEET RISK

The nature of thisPartnership has certain risks, which cannot all be presented on the financialstatements.  The following summarizessome of those risks.

Market Risk

Derivativeinstruments involve varying degrees of off-balance sheet market risk. Changesin the level or volatility of interest rates, foreign currency exchange ratesor the market values of the financial instruments or commodities underlyingsuch derivative instruments frequently result in changes in the Partnership’snet unrealized profit (loss) on such derivative instruments as reflected in theConsolidated Statements of Financial Condition. The Partnership’s exposure tomarket risk is influenced by a number of factors, including the relationshipsamong the derivative instruments held by the Partnership as well as thevolatility and liquidity of the markets in which the derivative instruments aretraded.

The GeneralPartner, Merrill Lynch Alternative Investments LLC (“MLAI”) has procedures inplace intended to control market risk exposure, although there can be noassurance that they will, in fact, succeed in doing so.  These procedures focus primarily onmonitoring the trading of John W. Henry & Co., Inc., (“JWH®”), the investment advisor,calculating the Net Asset Value of the Partnership as of the close of businesson each day and reviewing outstanding positions for over-concentrations. WhileMLAI does not itself intervene in the markets to hedge or diversify thePartnership’s market exposure, MLAI may urge JWH® toreallocate positions in an attempt to avoid over-concentration.  However, such interventions are unusual.  Except in cases in which it appears that JWH® has begun to deviate from past practice ortrading policies or to be trading erratically, MLAI’s basic risk controlprocedures consist simply of the ongoing process of advisor monitoring, withthe market risk controls being applied by JWH® itself.

5

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Credit Risk

The risksassociated with exchange-traded contracts are typically perceived to be lessthan those associated with over-the-counter (non-exchange-traded) transactions,because exchanges typically (but not universally) provide clearinghousearrangements 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 thefinancial integrity of the exchange.  Inover-the-counter transactions, on the other hand, traders must rely solely onthe credit of their respective individual counterparties.  Margins, which may be subject to loss in theevent of a default, are generally required in exchange trading, and counterpartiesmay also require margin in the over-the-counter markets.

The credit riskassociated with these instruments from counterparty nonperformance is the netunrealized profit on open contracts, if any, included in the ConsolidatedStatements of Financial Condition.  ThePartnership attempts to mitigate this risk by dealing exclusively with MerrillLynch & Co., Inc. (“Merrill Lynch”) entities as clearing brokers.

The Partnership,in its normal course of business, enters into various contracts, with MerrillLynch Pierce Fenner & Smith Inc. (“MLPF&S”) acting as its commoditybroker.  Pursuant to the brokerageagreement with MLPF&S (which includes a netting arrangement), to the extentthat such trading results in receivables from and payables to MLPF&S, thesereceivables and payables are offset and reported as a net receivable or payableand included in Net unrealized profit (loss) on open contracts on theConsolidated Statements of Financial Condition.

3.                    RECENT ACCOUNTING PRONOUNCEMENTS

InJuly 2006, the Financial Accounting Standards Board (“FASB”) issuedInterpretation No. 48 (“FIN 48”) entitled “Accounting for Uncertainty in IncomeTaxes — an interpretation of FASB Statement No. 109”. FIN 48 prescribes theminimum recognition threshold a tax position must meet in connection withaccounting for uncertainties in income tax positions taken or expected to betaken by an entity before being measured and recognized in the financialstatements. Adoption of FIN 48 is required for fiscal years beginning afterDecember 15, 2006. The impact on the Partnership financial statements, if any,is currently being assessed.

InSeptember 2006, the Securities Exchange Commission (“SEC”) staff also issuedStaff Accounting Bulletin No. 108,*“Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements”* (“SAB 108”). While not anofficial rule or interpretation of the SEC, SAB 108 was issued to address thediversity in practice in quantifying misstatements from prior years andassessing their effect on current year financial statements. SAB 108 iseffective for the first annual period ending after November 15, 2006, withearly application encouraged. The Partnership has assessed the impact of SAB108 on its financial statements and does not expect the impact of adoption tobe material to its financial statements.

In September 2006, the FASBissued Statement of Financial Accounting Standards No. 157, Fair ValueMeasurements (“FAS 157”).  FAS 157 establishes a commondefinition for fair value under accounting principles generally accepted in theUnited States of America, establishes a framework for measuring fair value andexpands disclosure requirements about such fair value measurements.  FAS157 is effective for fiscal years beginning after November 15, 2007.  ThePartnership is currently evaluating the impact of adopting FAS 157 on itsfinancial statements.

6

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Item 2:              Management’sDiscussion and Analysis of Financial Condition and Results of Operations

MONTH-END NETASSET VALUE PER UNIT

 

|      | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** | **Apr.** | ** ** | **May** | ** ** | **Jun.** | ** ** | **July** | ** ** | **Aug.** | ** ** | **Sep** | ** ** |
|------|------------|----------|------------|----------|------------|----------|------------|----------|------------|---------|------------|----------|------------|----------|------------|----------|------------|---------|------------|
| 2005 |       | $        | 224.16     |     | $          | 213.19   |       | $        | 213.18     |    | $          | 190.18   |       | $        | 208.05     |     | $          | 212.63  |       | $ | 215.46 |   | $ | 214.97 |   | $ | 215.10 |   |
| 2006 |       | $        | 198.52     |     | $          | 180.91   |       | $        | 191.14     |    | $          | 213.21   |       | $        | 212.48     |     | $          | 189.18  |       | $ | 176.75 |   | $ | 190.69 |   | $ | 190.58 |   |

 

Performance Summary

January 1, 2006 toSeptember 30, 2006

January 1, 2006 to March31, 2006

The Partnership’s performance was an overall loss for the first quarterwith metals, stock indices, interest rates, and agriculture posting gains whileenergy and currencies posted losses.

The metals sector was the most profitable for thePartnership. The quarter began with gold surging to a 25 year high and silverclimbing to its highest level since March 1984. This occurred because ofconcerns that the U.S. dollar may weaken because of higher oil prices,increasing the metal’s appeal as a hedge against further declines in the U.S.currency. London copper prices rose to a near record as production for theworld’s mines are failing to keep pace with increased demand from countrieslike China, the world’s largest user of the metal. Gold, silver and coppercontinued the upward trend throughout the quarter.

The stock indices were profitable for thePartnership. European stock indices had their best January rally in eight yearsas energy stocks along with miners and steelmakers gained on expectationsearnings would benefit from higher commodity prices. Leading the sector’sperformance was the Nikkei (Osaka), which despite increased volatility causedby geopolitical events, approached a decade high. The middle of the quarter wasvolatile for the stock indices sector as Asian stocks posted their firstmonthly decline since October 2005. The decline was short lived as Asian stocksapproached a 16-year high on surging demand for metals and oil at the end ofthe quarter. The Nikkei 225 climbed above 17,000 for the first time in morethan five years. The All Ordinaries rose 8% this quarter, while the NasdaqComposite Index rose to a five year high.

The interest rate sector was profitable for thePartnership, however, the beginning of the quarter was not profitable due thefact the fixed income markets in the U.S., Europe and Japan sold off over fearsof their respective central banks raising interest rates. Performance invarious markets counterbalanced each other in the middle of the quarter.  The sector benefited from Japanese Governmentbonds, which was in a price decline. Eurodollar posted gains, which were offsetby losses in U.S. 30 year Treasury bonds, German bunds and bobl. The quarterended with both the Federal Reserve and the European Central Bank raising theirrespective interest rates 25 basis points. The true catalyst for the sell-offwas growing speculation in the markets that both central banks would be forcedto continue to raise rates after consumer confidence reports released in bothEurope and the U.S. on March 28th were much stronger than expected. The largestgains in this sector were achieved in the German bund and the JapaneseGovernment bond while the largest loss occurred in the Australian three-yearbond as traders increased speculation that the Federal Reserve Bank ofAustralia may have to raise interest rates to keep pace with the U.S. FederalReserve.

The agricultural sector was profitable for thePartnership.  The quarter began withrecord highs as a result of the surging cost of crude oil which increased thedemand for ethanol, a sugar cane by-product. Brazil, the biggest producer andexporter of sugar, is converting more of its cane crop to ethanol to cope with recordgasoline prices. New York (“N.Y.”) coffee rose to seven month highs asworldwide demand outpaced supply. N.Y. coffee and N.Y.

7

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sugar hindered returns in the middle of the quarterwhile trading in CBOT (Chicago Board of Trade) wheat limited losses. CBOT wheatrose to a 20 month high on speculation that unusually hot, dry weather fromTexas to Nebraska reduced U.S. production. The quarter ended with sugar pricesin London rising to their highest levels since 1989 on speculation that a jumpin the cost of oil will force Brazil to direct more of its output towardsproducing ethanol. Wheat was weaker as rains revived winter wheat crops in theU.S. great plains after four months of dry weather. Corn posted a loss for thissector as prices in Chicago rose the most in eight months after U.S. farmerstold the government they plan to slash this year’s plantings to the lowestlevels since 2001.

The energy sector was not profitable for thePartnership. Volatility within the energy sector increased as oil and naturalgas are now being used as “geopolitical weapons” by Iran, Russia, Venezuela andmilitants in Bolivia. Crude oil is up 41 percent from a year ago and 11 percentsince the beginning of the first quarter. However, the gains were not enough tooffset the losses incurred in natural gas, which for the first time in almostsix months dropped below $8 in New York. Natural gas fell 17 percent since thebeginning of the quarter as mild weather in the largest U.S. consuming regionscut demand which limited the need for utilities to pull from reserves. Themarket continued to be apprehensive over the unrest in Iran, Iraq, Nigeria andSaudi Arabia. Limiting losses in the sector was natural gas, as prices fell totheir lowest level in almost nine months as U.S. stockpiles for the week endedFebruary 17, 2006 were almost 700 billion cubic feet above the five yearaverage. The quarter ended with crude oil rising to a two month high andgasoline surged as U.S. fuel supplies declined. Prices fell after Iran statedit would not use crude oil as leverage in a dispute with western countries overits nuclear program.

The currencies sector was the least profitable for the Partnership. Theforeign exchange sector suffered losses as the U.S. dollar posted its biggestmonthly decline against the Euro since November 2004. This was due to themarket’s anticipation of the Federal Reserve’s removal of “measured pace” fromits statement after its meeting on January 31st. The Euro also benefited as the marketwaited for the European Central Bank’s meeting on February 2, 2006 to raiseborrowing costs as Europe’s economy strengthened. The U.S. dollar also sufferedlosses against the Swiss franc, Japanese yen and the Euro. Investors no longerexpect interest rate differentials to benefit the U.S. dollar as the spreadnarrowed between the U.S. and both European and Japanese interest rates. TheU.S. dollar rose against the Euro in the middle of the quarter as new FederalReserve Chairman, Ben S. Bernanke, stated that inflation may quicken. His commentssuggest further tightening by the Federal Reserve. The quarter endedrange-boundtrading continued to negatively affect the Partnership’s long term trendfollowing approach. Although some currencies had directional moves during themonth, they were accompanied by strong reversals.

 

April 1, 2006 to June 30,2006

The Partnershipposted an overall loss for the second quarter with metals, interest rates, andenergy posting gains while stock indices, agriculture and currencies postedlosses.

The metals sectorposted gains for the Partnership. The quarter began with gold surging to a 25year high and silver climbing 51% during this year. This occurred due to theescalating dispute with Iran combined with a falling U.S. dollar which helpedto push the precious metal higher as investors look for a safe-haven given theglobal geopolitical uncertainty. Silver rallied on speculation that investordemand will grow as Barclays Bank PLC began offering an exchange traded fundbacked by the metal.  Both base and preciousmetals began to retreat from highs set in the middle of the quarter. Gold fellto a three month low after reaching a 26-year high in May. The dramaticsell-off was caused by the combination of a stronger U.S. dollar, as investorsbought U.S. dollars as an alternative to gold, and increased speculation thatthe U.S. Federal Reserve could hike interest rates as much as 50 basis points.However, during the last two days of the quarter, gold surged, after the U.S.Federal Reserve suggested it may take a break from raising rates, erod thevalue of the U.S. dollar.

The interest ratesector also posted a gain for the Partnership. European, Japanese and U.S. fixed income markets were sold off thebeginning of the quarter which significantly added to the Partnership’sperformance. The largest gain in the sector was in the German benchmarkten-year bund whose yield rose 22 basis points. This rise was due tospeculation the European Central Bank will raise its key interest rate threemore times this year. The Japanese ten-year bond (JGB’s) also added to thesector’s performance as it fell for a fifth month, the longest since 1990, on

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concerns that theBank of Japan will raise interest rates this year. Yields on U.S. ten-yearTreasuries rose for a fifth straight month mid-quarter, the longest stretchsince 1999. Interest rate speculation occurred at the end of the quarter withthe U.S. Treasury bonds slightly rebounding due to U.S. Federal Reserve hintinga pause in increasing rates in the future.

The energy sectorposted profits for the Partnership primarily due to the increasing price ofcrude oil. Concerns that the United Nations Security Council will imposesanctions that could lead Iran, the fourth-largest oil producer, to cutshipments drove crude oil for June delivery to a new high of $75.35 a barrel.Increased geopolitical uncertainty drove all petroleum based products higher asBrent crude oil for June settlement also reached a new high of $74.79 a barrelon April 21st.While the sector benefited from increased instability in the world, mildweather in the U.S. hindered performance as natural gas fell 20 percent andapproached a nine month low as demand slowed. Brent crude oil for Julysettlement touched a record high of $74.97 a barrel the middle of the quarter,the highest since the contract began trading in 1988, as attacks in Nigeria anddoubts that Iran will embrace a new U.S. backed effort to rein in the country’snuclear program kept crude related products from suffering the severe intramonth reversals that plagued the majority of the other sectors. Weakness in themarkets caused by fears of a slowing world economy was replaced by strength atthe end of the quarter due to renewed tensions in the Middle East andspeculation that gasoline consumption would jump during the 4th ofJuly holiday weekend. Crude oil futures for August delivery touched $74.10 onthe New York Merchant Exchange, after falling to a low of $68.75 during themonth. Natural gas posted gains as prices fell in New York as hot weather easedin the northern U.S. trimming demand for the fuel from power plants, which isused to meet air cooling needs.

The stock indicesattributed to the loss posted for the Partnership. The Partnership’sperformance was hindered by increased geopolitical instability in the globalstock markets, as well as a volatile interest rate environment. Asian stocksdropped from a 16-year high at the beginning of the quarter after Chinaunexpectedly raised its key lending rate. The rate rise, along with Chinaasking the nation’s banks to restrict lending to prevent the economy fromoverheating, sent shares of mining companies and commodity producers lower onspeculation that increased borrowing costs could curb demand for raw materialsin the world’s fastest growing major economy. Global equity markets began tofall mid-quarter after the U.S. Federal Reserve met and it became apparent anadditional rate hike was still a possibility in June. The losses continuedthrough the end of the quarter due to mounting speculation that actions of theU.S. Federal Reserve would hurt economic growth and 16 central banks raisedinterest rates to contain inflation. However, as it became evident that theU.S. Federal Reserve was actually closer to ending its rate hiking cycle, worldequity markets rallied. Despite the quarter end rally, the NASDAQ compositeslid 7.2%, its biggest drop since the first quarter of 2005.

The currenciessector was not profitable for the Partnership. In the beginning of the quarter,the currency sector started strong with the largest gain in the British poundwhich posted its first back-to-back monthly gain mid-quarter against the U.S.dollar since the end of 2004.  Animproving economic outlook increased speculation that the Bank of England maylift borrowing costs this year. However, losses were incurred at the end of thequarter by a strengthening of the U.S. dollar relative to most major currencieswhich adversely affected the Partnership. Stronger than expected June ConsumerPrice Index coupled with statements from U.S. Federal Reserve Chairman Bernankecalling recent increases in inflation measures an “unwelcome development”, ledinvestors to speculate that the U.S. Federal Reserve might raise rates 50 basispoints rather than the previously expected 25. The increased rate speculationhelped the U.S. dollar reach an eight-week high of 1.2479 against the Euro. OnJune 29th, theU.S. Federal Reserve raised rates 25 basis points and suggested it may benearing the end of its two-year cycle of rate increases as the statementannouncing their decision indicated that slowing economic growth “should helpto limit inflation pressures”. As a result, the U.S. dollar reversed once againand weakened during the last two days of the month. The U.S. dollar ended thequarter 5.3% lower against the Euro and 2.8% versus the Japanese yen, which wasthe greatest percentage decrease since the last quarter of 2004.

The agricultural sectorwas the least profitable for the Partnership. At the beginning of the quarter,cotton fell to its lowest close since December 2, 2005. Prices were down 3.7%from a year ago after farmers harvested a record 23.72 million bales last year,up 2% from 2004. The gains were not enough however to offset the losses in therest of the sector as choppy price action dominated the sector’s performance.The largest loss occurred in N.Y. coffee

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as growers in LatinAmerica and Africa took advantage of a recent rally to sell beans. Sugar, whosedemand has increased on its ability to be made into ethanol, fell as energy pricesdropped mid-quarter. Sugar prices fell to nearly a three month low in London onspeculation that the European Union will increase exports before the WorldTrade Organization reforms take effect in July. Weather conditions had severeaffects on various crops in the U.S. and around the world at the end of thequarter. CBOT (Chicago Board of Trade) wheat fell to a five-week low in themiddle of June, after warm dry weather in the central U.S. helped farmers speedup the harvest. About 21% of the winter wheat crop had been collected as ofJune 11th,almost double the five-year average of 11%. Corn and soybeans also hinderedperformance as prices in Chicago fell as Midwest rains helped revive cropsafter six weeks of hot, dry weather.

July 1, 2006 to September30, 2006

The Partnership posted anoverall gain for the third quarter with interest rates and energy posting gainswhile stock indices, agriculture, metals and currencies posted losses.

The interest ratesector was the most profitable for the Partnership.  However, the quarter began with losses. Thebenchmark ten-year Japanese Government bond along with the U.S. ten-yearTreasury bond were the worst performers in the sector as the slowing U.S.economy spurred speculation that the Federal Reserve will stop raising  interest rates. The Bank of Japan raised therate between lenders 25 basis points on July 14th ending a five-year policy of keeping borrowingcosts near zero percent. Japanese government bonds, German bunds, and the U.S.benchmark ten-year Treasury bond rallied mid-quarter. Investors drove yieldslower as a smaller than expected increase in consumer prices, as well as asharp drop in industrial production, caused speculation that the Bank of Japanwould keep interest rates at their current level for the remainder of the year.German bunds added to the sector’s gains as yields hit their lowest levelssince March. The rally was due to European Central Bank (“ECB”) President JeanClaude Trichet signaling that the ECB may be ready to raise interest ratesagain at its meeting October 5th.  The sector had additional gains as U.S.Treasuries rose, extending their second straight monthly advance. Bonds weresupported by the Federal Reserve’s decision to benchmark U.S. interest rate at5.25%, ending a record two-year run of 17 straight rate increases. Quarterended as U.S. Treasuries had their biggest quarterly gains in four years andEuropean ten-year bonds posted their first quarterly gain since June 2005. TheU.S. ten-year yield touched a seven month low of 4.53 percent on September 25th, down from 5.14 percent onJune 30th as expectations that the Federal Reserve wouldraise interest rates further gave way to the view that it may lower them in thenear future.  Speculation increased thatthe cumulative effects of 17 U.S. Federal Reserve’s rate increases since June2004 would likely slow the economy and curb inflation.

The energy sectoralso posted gains for the Partnership. Geopolitical events and arecord-breaking heat wave in the midwest and northeastern U.S. causedvolatility throughout the entire energy sector. Natural gas rallied to itsbiggest gain for the year, posting gains of over 44% between July 18th and July 31st. The largest loss occurred in London gasoil as oil prices rose on the back of the rally in natural gas. Crude oilspiked on July 14th to a record $78.40 a barrel on concern thatthe fighting in Lebanon would spread to other parts of the Middle East, whichis the source of about a third of the world’s oil. Mid-quarter natural gasclosed at a six week low due to mild weather across the central and easternUnited States reduced demand for the fuel. The quarter ended as natural gas andcrude oil prices tumbled as mild weather in the U.S. Midwest cut demand andallowed inventories to climb toward an all time high. Natural gas futures forOctober delivery dropped to a four year low of $4.05 amid concerns that storagewill fill up and leave buyers with few places to store the fuel.

The stock indiceswere not profitable for the Partnership. The quarter began with the majority ofworld equity markets trendless as investors continued to speculate over theU.S. Federal Reserve’s next move. Global equities reversed the recent losingtrend and rallied on decreased fears of inflation mid-quarter. U.S. FederalReserve policy makers signaled that the economy may have cooled enough topreclude further interest rate increases for the remainder of the year.European stocks rallied at quarter’s end to a five-year high. Fears that slowereconomic growth in the U.S. and in Japan kept the Nikkei lower for the majorityof the month, however those fears subsided and the Nikkei rallied on signs ofeconomic growth in Japan. A pause in U.S. interest rate increases also easedconcerns of higher borrowing costs that could curb demand in Europe’s largestexport market.

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The agriculturesector posted losses for the Partnership. At the beginning of the quarter,sugar underperformed on speculation that global demand will slow. Sugar priceshave climbed 52% over the past year on the theory that record oil prices wouldspur Brazil, the world’s largest sugar producer, to divert more of its harvestto making ethanol. Corn and soybeans also hurt performance as price volatilitycaused by fluctuating weather conditions in the U.S. Midwest threatened cropyields. A report issued by the U.S. Department of Agriculture that indicatedabout 59% of the corn crop was in good condition, which was the lowestpercentage of the year, contributed to corn price volatility. Losses in wheatmid-quarter were offset by gains in sugar. World sugar production this yearwill be higher than previously forecasted easing a third straight annualshortfall as favorable weather in India helped the harvest. Quarter ended withsugar prices plunging on speculation that demand would fall as lower energycosts discouraged the use of ethanol as an alternative fuel source eroding thevalue of sugar. Cotton prices also fell as speculation that an attempted coupin Thailand, the fifth-largest buyer of the fiber, would reduce imports fromthe United States.

The metals sectorposted losses for the Partnership. Volatility in the gold market increased as fighting escalated in theMiddle East causing the sector to post losses at the beginning of the quarter.The precious metal has gained 90 percent in the past year. Silver’s rally isdue to increased demand throughout the world and expectations of continued ofeconomic expansion in the developing nations. Base and precious metals sufferedas commodities as an asset class had their biggest quarterly decline in atleast 50 years. Gold and silver prices continued to fall as lower energy pricesand a stronger U.S. dollar eroded the appeal of the precious metals as analternative to U.S. stocks and bonds. The Commodity Research Bureau index endedthe third quarter down 12%, its largest decline in at least 50 years.

The currencysector was the least profitable for the Partnership.  Fighting broke out between Israel andHezbollah causing a sharp reversal in the weakening U.S. dollar trend. The U.S.dollar rallied beginning of the quarter as fighting in the Middle Eastescalated sending the currency higher against the Japanese yen and Euro.

Unfortunately,most of the gains disappeared as investors focused on interest rates after theU.S. Federal Reserve Chairman Bernanke stated that “moderation” in the economywas under way. Mid-quarter the Japanese yen fell against the U.S. dollar andthe Euro on increased speculation that the Bank of Japan would keep interestrates at their current levels causing the sector to post profits for thePartnership. However, the quarter ended as volatility increased due tospeculation surrounding the health of the U.S. economy and uncertainty ofglobal inflation. The U.S. dollar fluctuated as differing economic data keptthe marketplace guessing what the U.S. Federal Reserve’s next move might be.

January 1, 2005 toSeptember 30, 2005

January 1, 2005 to March31, 2005

The energy sectorwas the best performing sector for the Partnership.  The quarter began with a loss due to higherenergy prices.  Events in the Middle Eastand bad weather dominated the sector’s price action.  Mid-quarter, energies rallied as commodityprices surged to a 24-year high due to signs of growing global demand foreverything energy-related.  London gasoil and crude oil led performance after the U.S. government reported anunexpected decline in U.S. oil stockpiles. This raised concerns that refineries would have insufficient suppliesfor making gasoline during peak summer demand. A Goldman Sachs prediction that crude oil prices could spike up to ashigh as $105 perbarrel also bolstered the rise in oil prices. In addition, the International Energy Agency raised its prediction forglobal consumption for a third consecutive month, and forecasts of coldertemperatures across Europe and the U.S. also helped to drive energy prices evenhigher.

The agriculturalcommodities sector was profitable for the Partnership for the quarter.  Wheat helped returns as prices fell, early inthe quarter, to a 20-month low after a report showed that U.S. exports slowedwhen the European Union indicated it would subsidize exports of the grain forthe first time since June 2003.  Cornslightly boosted returns as prices fell to the lowest level since June 2001 onslumping demand for record supplies in the U.S., which is the world’s largestproducer and exporter of the grain.  Theforecasted dry season in Brazil was the

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driving factorbehind the majority of the agricultural price movements mid-quarter.  The Partnership was able to benefit fromrising New York (“NY”) coffee prices as production declined and stocks held byroasters and producers fell to their lowest level in 15 years.  Profits from the rally in NY coffee caused bythis forecast were enough to offset the combined losses in various otheragricultural markets including corn, wheat and soybeans.  Soybean prices rose in Chicago amidspeculation that the four-week drought in Brazil will reduce the harvest of theworld’s second biggest crop.  Wheatprices rose, later in the quarter, on speculation that importers will increasepurchases of U.S. supplies.

The stock indicessector was profitable for the quarter. Losses occurred in the beginning of the quarter resulting from a selloff in world equity markets, as stocks weakened because energy prices roseduring January.  Stock indices posted again mid-quarter as the Nikkei rallied on hopes that quicker U.S. growth wouldhelp Japan start an export-led economic recovery.  However, at the end of the quarter, higherbond yields and oil prices made equities less attractive to investors asinflationary pressures started to weigh on the global economy.  In addition, stocks dropped as AmericanInternational Group Inc., the world’s largest insurer, lost its top credit rating.  In addition, General Motors, the world’sthird largest borrower, announced that it was forecasting its biggest quarterlyloss since 1992.  The largest gain wasachieved in the Nasdaq e-mini, while the largest loss occurred in the Nikkei.

The metals sectorwas unprofitable for the quarter.  Theloss in metals was due to the weakness in both gold and aluminum.  Gold, which recently has had a strong inverserelationship with the U.S. dollar, came under pressure as the U.S. dollarstrengthened throughout the beginning of the quarter.  Aluminum sustained losses as supply increasesin Shanghai put pressure on the market. The metals sector posted negative returns, as inflation fears in theU.S. pushed gold prices higher.  Risingenergy prices also bolstered the appeal of the precious metals as a hedgeagainst inflation.  London copper pricesrose after government reports showed Japan’s industrial production gained inJanuary.  The largest gain in this sectorwas achieved in copper, while the largest loss occurred in gold.

The interest ratesector was unprofitable for the quarter. A significant portion of the losses were directly related to the fixedincome sector as the European, Japanese and U.S. bond markets sold off.  The catalyst for the dramatic move higher inworld interest rates was the cumulative effect of increases in both energyprices and inflation expectations.  OnFebruary 10th, thebenchmark U.S. ten-year Treasury note fell from recent highs after joblessclaims unexpectedly declined, exports rose, and the U.S. government sold $14billion ten-year notes at a higher-than-expected yield, a sign of weakdemand.  Federal Reserve Chairman AlanGreenspan’s testimony, prepared for the Senate Banking Committee, further addedpressure to the sector as he stated that the decline in long-term interestrates during the past year “remains a conundrum”. The release of ahigher-than-expected Producer Price Index (+0.8 vs. +0.2) in the U.S. helped tospark inflation fears worldwide and added further to the fixed-income markets’decline.  The largest loss occurred inthe Japanese government bond.

The currencysector was the most unprofitable sector in the quarter.  The single most influential factor drivingperformance in this sector was the U.S. dollar. A significant portion of the loss in the beginning of the quarter wasdirectly related to the strength of the U.S. dollar against most majorcurrencies.  The weak U.S. dollar trend,which had dominated the markets during the second half of last year, began toreverse itself as market expectations of a Chinese yuan revaluation by theChinese central bank began to diminish. The weakness of the Japanese yen against the U.S. dollar mid-quarteralso hurt performance.  On February 10th, the U.S. dollar rose to athree-month high against the Japanese yen after a Commerce Department reportshowed the U.S. trade deficit narrowed in January from a previous recordhigh.  The recent U.S. dollar strengthbegan when Federal Reserve Chairman Alan Greenspan predicted that the deficitin the U.S. current account, the broadest measure of trade, may shrink.  Further adding to the Japanese yen’s weaknesswere reports that showed Japanese household spending and industrial output haddropped in December 2004, and that Japan had officially fallen into a recessionfor the fourth time since 1991. Additional losses in this sector occurred as the Swiss franc roseagainst the U.S. dollar on speculation that the Swiss National Bank would raiseits target interest rate.  The largestgain in this sector was achieved in the Japanese yen, while the largest lossoccurred in the Swiss franc.

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April 1, 2005 to June 30,2005

The Partnershipposted trading profits for the quarter, with the currency and fixed incomesectors reporting profits and the remaining sectors posting losses.

The currencysector posted substantial profit for the quarter despite losses early in thequarter due primarily to the strengthening of the Japanese yen. Soon afterward,France’s rejection of the European Union constitution dampened expectations foreconomic growth in the region, resulting in the Euro’s fall to a seven-monthlow against the U.S. dollar. The Euro also weakened against most other majorcurrencies. The decline in the Euro was compounded by a report pronouncing a dropin European business confidence, and the weakening of the Swiss franc againstthe U.S. dollar. The quarter came to a positive close with the U.S. dollarposting its largest quarterly gain against the Euro since 2001. The wideningspread between the two-year U.S. Treasury note and the German schatz, alongwith the rally of the U.S. dollar against the Japanese yen also contributed topositive returns.

The interest ratesector posted gains consistently throughout the quarter. Much of the positivereturn was attributed to the strength in both Germany’s and Japan’s fixedincome markets. The benchmark German ten-year bund reached record highs withthe slowing of the European economy and resultant expectations of an interestrate reduction. Japan’s government bond yields experienced record lows becauseof anticipated economic slowdowns for two main reasons; the projection that thedemand for regional goods would wane because of a slowing U.S. economy, andrecord high oil prices were expected to take a serious toll on the nation.

Agriculturalcommodities experienced losses all throughout the quarter. There was nodiscernable trend through the quarter, as most markets were marked byvolatility. Cotton experienced gains in April before posting significant lossesbecause of a swelling surplus. Further compounding losses was the poorperformance of corn, the largest U.S. crop, as unseasonably cool and dryweather threatened the harvest. Coffee prices took a dive after the marketoverreacted to news of the first rainfall of the year in Vietnam. After itbecame apparent that the country’s largest growing province continued to battlea drought, New York coffee emerged as the strongest performer for the remainderof the quarter. Soybeans also posted positive gains. However, the two positivecontributors could not compensate for the losses incurred throughout thesector.

The metals sectorwas quite volatile during the quarter, ultimately posting a net loss. Adecrease in the Institute for Supply Management Non-Manufacturing BusinessActivity Index in April initially caused base metal prices to fall, whileprecious metals continued to appreciate. Later, the Partnership was able tobenefit from the decline in gold prices and simultaneous strengthening of theU.S. dollar. However, gold went on to experience significant volatility. Goldprices rose as crude oil surged, then dipped with the strengthening of the U.S.economy. Higher interest rates generally made investors more hesitant to holdgold and silver, which do not offer fixed returns. The quarter ended with arelatively strong performance from zinc.

Stock indicesposted slight losses for all three months of the quarter. The sector’slackluster performance is primarily a result of the overall volatility ofequity markets around the world. The quarter is more specifically defined byIBM’s and 3M’s underperformance, the downgrade in Ford’s and GM’s creditratings, and the Federal Reserve’s ninth consecutive hike in its benchmarkinterest rate. The Partnership achieved noteworthy gains in the Eurostoxx 50,while the greatest losses occurred in the Nasdaq e-mini.

The energy sectorwas the most unprofitable sector of the quarter. Although energy has trendedupward in the recent past, a leap in U.S. supplies and OPEC output caused crudeoil prices to take a 15% plunge in April. Additional speculation over theslowing of major economies, such as the U.S., Europe, and Japan, has alsoburdened sector performance. Crude oil temporarily rebounded when U.S. crudeoil stockpiles fell and the Royal Dutch/Shell group announced the closing oftwo refinery units. However, just as it appeared that global demand for oilwould peak to a record 86.4 million barrels a day in the fourth quarter, anEnergy Department report informed investors of an unexpected surge in suppliesbecause of increased productivity in refineries. Overall, all energy sectorcomponents were negative for the majority of the quarter.

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July 1, 2005 toSeptember 30, 2005

The Partnershipposted a gain for the quarter.  Tradingin the energy sector was the most profitable followed by stock indices,agriculture, and metals.  Losses wereposted in the currencies and interest rate sectors.

The energy sectorwas the solid performer for the Partnership during the quarter.  Natural gas and crude oil had the mostsignificant impact, but there were positive returns in every markettraded.  Economic growth in the twolargest oil consumers, the U.S. and China, was a main contributor to the recordprices.  Hot weather in the Midwest andNortheast and Hurricanes Dennis and Emily in the South also influenced pricesearly in the quarter.  Energies rose asfears mounted and were then confirmed about the possibility of HurricaneKatrina paralyzing U.S. oil output, refining and imports along the coast of theGulf of Mexico.  Eight refineries inLouisiana and Mississippi, accounting for more than ten percent of U.S.refining capacity, were closed due to Hurricane Katrina.  Natural gas prices reached record highs, as aresult of Hurricane Katrina and then Hurricane Rita striking the gulfcoast.  Crude oil prices fell late in thequarter after the International Energy Agency said it expected to deliver atleast 35 million barrels of oil and refined products to the U.S. by the end ofOctober to help offset the lost production from rigs and refineries affected bythe hurricanes. However, this was not enough to offset the profits from naturalgas.

Trading in stockindices also posted gains for the Partnership. The Nikkei was the sector’s top performer.  Stocks rose early in the quarter as companiesposted better than expected earnings while economic reports showed tameinflation and growth in retail sales. Japanese stocks rallied on the news that the European Central Bank upgradedits assessment of the Japanese economy, citing improved business confidence andgreater company investments. The Nikkei continued to rise to a new four yearhigh on signs that the world’s second largest economy continued to grow.  The Japanese economy has grown faster in 2005than in the previous 15 years.  Alsohelping to boost the Nikkei during the quarter was a report that showed thatland prices in Tokyo rose for the first time in 15 years and a central bankofficial said deflation may end next quarter. Nevertheless, the sector’s gainswere limited as the majority of the world’s equity markets weakened during thequarter on concerns that record oil prices, caused by Hurricanes Katrina andRita.

Trading inagricultural commodities posted gains for the Partnership as well.  New York coffee was the sector’s bestperformer and cotton the worst.  Coffeeprices fell due to mild weather in Brazil, the biggest coffee producer, andplentiful supply for U.S. processors. New York coffee prices continued to fall as Brazil announced that itscoffee harvest was larger than expected this year and that next year’s cropwould increase by 26%.  Gains werelimited as New York coffee futures rose after flooding caused by HurricaneKatrina put bean inventories at risk in New Orleans, the second largest coffeeport in the U.S.  Soybean prices fell asexpectation that August rains revived crops stressed by hot, dry weather inJune and July.  Corn also helped thesector’s performance as prices fell on continued expectations for the secondbiggest U.S. crop ever.  Wheat futuresfor December delivery rose 9.8% in September as U.S. production fell more thanexpected because of a disease in the spring crop in the Great Plains.

The metals sectorposted nominal gains despite losses posted in the first half of the quarter.  Gold prices fell early in the quarter as theU.S. dollar strengthened, reducing the metal’s appeal as an alternativeinvestment.  However, the positiveperformance of copper limited losses within the sector.  Stronger global economic data increased speculationthat demand for metals may increase.  Thecumulative effects of violent price action in the currencies and fixed incomemarkets, along with the market impact of Hurricane Katrina, led gold to underperform mid-quarter; however late in the quarter gold rallied and reached a 17year high amid concerns about rising consumer prices and energy costs.  Higher energy prices that resulted fromHurricanes Katrina and Rita sparked inflationary worries and drove gold priceshigher making the precious metal a good potential hedge against inflation.

Trading in thecurrency sector posted losses for the Partnership despite gains early in thequarter. China revalued its yuan for the first time in a decade.  The Partnership profited as the U.S. dollarcontinued to benefit from the growing yield advantage against the Japanese yen,British pound and Swiss franc.  U.S.economic data, such as higher than expected durable goods orders, suggestedthat growth might accelerate in the second half of the year.

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Weakness in theBritish pound against the U.S. dollar helped performance, but its declineagainst the Euro detracted from performance. The U.S. dollar fell mid-quarter against the Euro and the Japanese yenas a result of speculation that the record high oil prices would slow U.S.economic growth thereby reducing expectations for how much the Federal Reservewill raise interest rates this year.  The U.S. dollar’s weakness was further exacerbated after manufacturingin the Chicago region unexpectedly shrank for the first time since April2004.  The weakness in the U.S. dollarwas further compounded by strength in the Japanese yen.  Once it became evident that the FederalReserve would continue to raise interest rates and thus keep its yieldadvantage, the U.S. dollar reversed its losing trend and began to rally.  While the sector’s performance suffered asthe U.S. dollar rallied against the Euro, Swiss franc and British pound, it wasable to limit the losses with its performance against the Japanese yen and theBrazilian real.

The largest losseswere posted in the interest rate sector. Stronger than expected economic growthin the U.S., Europe and Japan caused a sell off in global bond markets.  U.S. Treasuries fell as reports showed the economymay be growing fast enough to spur inflation. The yield on Japan’s government bonds rose on signs that Japan’seconomic recovery could be sustainable. Meanwhile, German ten-year bunds, Europe’s benchmark, fell as variousEuropean government reports on manufacturing factory orders and exports rose,beating expectations.  Further pressurewas placed on European fixed income markets as French unemployment unexpectedlydropped.  In the U.S., speculation grewthat growth in the world’s largest economy was strong enough to prompt the FederalReserve to keep hiking interest rates into next year.  In Japan, Japanese government bonds fell tolevels not seen since March as the Japanese economy appeared to be acceleratingfaster than expected.  However, as itbecame apparent that Hurricane Katrina would make landfall and cause widespreaddamage to the U.S. gulf coast region and its industries, global bond marketsrallied.  The German ten-year bundcontinued to fall on concerns record high energy prices would slow the Euroregion’s economy.  The U.S. fixed incomesector suffered as volatility caused by the hurricanes took its toll.  Global fixed income markets all sufferedloses after having rallied in the wake of Hurricane Katrina.  U.S. Treasuries fell as it became apparentthat the Federal Reserve not only had no intention of taking a pause in raisinginterest rates, but was actually more concerned with the possibility of risinginflation than the possibility of a slow down in the economy caused by thehurricanes.  The German bund continued tosuffer losses as inflation in the 12 nations using the Euro accelerated inSeptember to the fastest pace in more than a year due to record high energyprices.

Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk

Not applicable

Item4. Controls and Procedures

MLAI, the General Partner of ML JWH  Strategic Allocation  Fund  L.P., with the participation of the General Partner’s Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Partnership as of the end of the period of this quarterly report, and, based on this evaluation, has concluded that these disclosure controls and procedures are effective. Additionally, there were no significant changes in the Partnership’s internal controls or in other factors that could significantly affect these controls subsequent to the date of this evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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PART II - OTHER INFORMATION

Item 1.                                     LegalProceedings

Neither the Partnership nor MLAI has ever been the subject of anymaterial litigation.  Merrill Lynch isthe 100% indirect owner of MLAI, MLPF&S and all other Merrill Lynchentities involved in the operation of the Partnership.  Merrill Lynch as well as certain of itssubsidiaries and affiliates have been named as defendants in civil actions,arbitration proceedings and claims arising out of their respective businessactivities. Although the ultimate outcome of these actions cannot be predictedat this time and the results of legal proceedings cannot be predicted withcertainty, it is the opinion of management that the result of these matterswill not be materially adverse to the business operations or the financialcondition of MLAI or the Partnership.

Item 2.                                     Changesin Securities and Use of Proceeds

(a) None.

(b) None.

(c) None.

(d) The Partnershiporiginally registered 2,000,000 units of limited partnership interest.  The Partnership subsequently registered anadditional 10,508,667 units of limited partnership interest.

 

As of September 30, 2006,the Partnership has sold 10,364,277units of limited partnership interest, withan aggregate price of$1,970,467,208.

 

Item 3.                                     DefaultsUpon Senior Securities

None.

 

Item 4.                                     Submissionof Matters to a Vote of Security Holders

None.

 

Item5                                        Other Information

None

 

Item 5 (a)                       Recent Sale of Unregistered Securities;Uses of Proceeds From Registered Securities:

Notapplicable

 

Item6.                                     Exhibits

The following exhibitsare incorporated by reference or are filed herewith to this Quarterly Report onForm 10-Q:

31.01 and

31.02                                             Rule13a-14(a)/15d-14(a) Certifications

 

Exhibit 31.01

and 31.02:                   Are filedherewith.

 

32.01 and

32.02                                             Section1350 Certifications

Exhibit 32.01

and 32.02                      Are filedherewith.

16

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|                     | ML JWH STRATEGIC ALLOCATION  FUND L.P. |
|--------------------------|----------------------------------------|
|                     |                                   |
|                     | By: MERRILL LYNCH ALTERNATIVE          |
|                     |   INVESTMENTS LLC            |
|                     | (General  Partner)                     |
|                     |                                   |
| Date: November  14, 2006 | By                                     | /s/ BENJAMIN WESTON |   |
|                     |                                   | Benjamin Weston |   |
|                     |                                   | Chief Executive Officer and President |
|                     |                                   | (Principal Executive Officer) |

 

 
| Date: November 14, 2006 | By     | /s/ BARBRA E. KOCSIS                         |   |
|-------------------------|--------|----------------------------------------------|--------|
|                    |   | Barbra E. Kocsis                             |   |
|                    |   | Chief Financial Officer                      |
|                    |   | (Principal Financial and Accounting Officer) |

 

17

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