10-Q 1 a2054469z10-q.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 ------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- ---------------- Commission File Number 0-18215 JOHN W. HENRY & CO./MILLBURN L.P. --------------------------------- (Exact Name of Registrant as specified in its charter) Delaware 06-1287586 ----------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) c/o MLIM Alternative Strategies LLC (formerly, Merrill Lynch Investment Partners, Inc.) Princeton Corporate Campus 800 Scudders Mill Road - Section 2G Plainsboro, New Jersey 08536 ---------------------------- (Address of principal executive offices) (Zip Code) 609-282-6996 ---------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- PART I - FINANCIAL INFORMATION Item 1. Financial Statements JOHN W. HENRY & CO./MILLBURN L.P. (a Delaware Limited Partnership) -------------------------------- STATEMENTS OF FINANCIAL CONDITION

See notes to financial statements. 2 JOHN W. HENRY & CO./MILLBURN LP (a Delaware limited partnership) -------------------------------- STATEMENTS OF OPERATIONS (unaudited)

See notes to financial statements. 3 JOHN W. HENRY & CO./MILLBURN L.P. (a Delaware Limited Partnership) -------------------------------- STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (unaudited)

See notes to financial statements. 4 John W. Henry & Co./Millburn LP -------------------------------- (a Delaware limited partnership) NOTES TO FINANCIAL STATEMENTS (unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared without audit. In the opinion of management, the financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of John W. Henry & Co./Millburn L.P. (the "Partnership") as of June 30, 2001, and the results of its operations for the three and six month periods ended June 30, 2001 and 2000. However, the operating results for the interim periods may not be indicative of the results expected for the full year. Certain information and footnote disclosures normally included in annual financial statements prepared in conformity with accounting principles general accepted in the United States of America have been omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2000 (the "Annual Report"). 2. INVESTMENTS As of June 30, 2001, the Partnership had an investment in ML JWH Financials and Metals Portfolio L.L.C. ("JWH LLC") and Millburn Global L.L.C. ("Millburn LLC") of $14,448,747 and $13,060,463 respectively. For the year ending December 31, 2000, the Partnership had an investment in JWH LLC and Millburn LLC of $15,281,744 and $14,141,401, respectively. Total revenues and fees with respect to the Partnership's investment are set forth as follows: 5

7 Condensed statements of financial condition and statements of operations for JWH LLC and Millburn LLC are set forth as follows:

3. FAIR VALUE AND OFF-BALANCE SHEET RISK The Partnership invests all of its assets in Trading LLCs. Accordingly, the Partnership is invested indirectly in derivative instruments, but does not itself hold any derivative instrument positions. The application of the provisions of Statement of Financial Accounting Standards ("SFAS") No. 133, as amended by SFAS No. 137 and SFAS No. 138, did not have a significant effect on the financial statements of the Partnership. MARKET RISK Derivative financial 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 underlying financial instruments or commodities underlying such derivative instruments frequently resulted in changes in the Trading LLC's net unrealized profit (loss) on such derivative instruments as reflected in the Statements of 8 Financial Condition of the Trading LLCs. 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, through the Trading LLCs, as well as the volatility and liquidity of such markets in which such derivative instruments are traded. The General Partner, MLIM Alternative Strategies LLC, ("MLIM AS LLC") (formerly, Merrill Lynch Investment Partners, Inc.) 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 the Advisors selected from time to time for the Partnership, calculating the Net Asset Value of the Advisors' respective Trading LLC accounts as of the close of business on each day and reviewing outstanding positions for over-concentrations both on an Advisor-by-Advisor and on an overall Partnership basis. While MLIM AS LLC does not itself intervene in the markets to hedge or diversify the Partnership's market exposure, MLIM AS LLC may urge Advisors to reallocate positions, or itself reallocate Partnership assets among Advisors (although typically only as of the end of a month) in an attempt to avoid over-concentration. However, such interventions are unusual. Except in cases in which it appears that an Advisor has begun to deviate from past practice and trading policies or to be trading erratically, MLIM AS LLC's basic risk control procedures consist simply of the ongoing process of advisor monitoring and selection, with the market risk controls being applied by the Advisors themselves. 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 Partnership, through the Trading LLCs, has credit risk in respect of its counterparties and brokers, but attempts to mitigate this risk by dealing almost exclusively with Merrill Lynch entities as clearing brokers. The Partnership, through the Trading LLCs, in its normal course of business, enters into various contracts, with Merrill Lynch Futures ("MLF") acting as its commodity broker. Pursuant to the brokerage agreement with MLF (which includes a netting arrangement), to the extent that such trading results in receivables from and payables to MLF, these receivables and payables are offset and reported as a net receivable or payable and included in the Statements of Financial Condition of the Trading LLCs under Equity in commodity futures trading accounts. 9 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations MONTH-END NET ASSET VALUE PER SERIES A UNIT

MONTH-END NET ASSET VALUE PER SERIES B UNIT

MONTH-END NET ASSET VALUE PER SERIES C UNIT

Performance Summary All of the Partnership's assets are invested in Trading LLCs. The Partnership receives trading profits as an investor in Trading LLCs . The following commentary describes the trading results of Trading LLCs. JANUARY 1, 2001 to JUNE 30, 2001 -------------------------------- January 1, 2001 to March 31, 2001 Trading in the interest rate markets was profitable during the quarter. Euro dollar trading was successful in January as the weakening U.S. economy and the Federal Reserve's move to cut interest rates caused Euro dollar futures contracts to rise dramatically from December 2000 lows. Japanese ten-year bonds and Euro-bund cross futures trading was profitable in February and March. Despite its volatility, trading in the currency markets resulted in gains. Losses from the British pound and the Euro offset early gains from Japanese yen positions. By February, the Euro fell from a near high 96 cents back to the 90-cent level, causing losses in long Euro positions. Profits from Japanese yen and Swiss franc positions realized in March erased losses sustained earlier in the quarter. Stock index trading was moderately successful for the Partnership. Profits from Hang Seng and FTSE Financial Times Stock Index outweighed losses from Nikkei 225, DAX German Stock Index and Topix positions. Global equity markets remain caught between negative news about earnings and the potential positive effects of further monetary easings. Metals trading was moderately unprofitable for the Partnership. Gold, copper and aluminum trading alternated between profitability and unprofitability throughout the quarter. April 1, 2001 to June 30, 2001 Trading in the metals sector incurred slight losses. Weakness in the Euro, a decline in the Australian dollar to all time lows and producer and central bank selling sent gold prices lower. Copper trading was unprofitable despite a number of bullish developments due to existing demand constraints. Stock index trading sustained losses throughout the quarter on FTSE Financial Times Stock Index, Nikkei 225 and NASDAQ 100 positions. Trading in the currency markets was not profitable. Losses occurred from Japanese yen positions. The further weakening of the yen displayed how the global economy is not immune to the economic slowdown of the U.S. currency markets remained concerned with a hard landing for the Japanese economy. The Euro continued its downward trend versus the U.S. dollar. Trading in the interest rate sector was highly unprofitable for the Partnership. Positions in Euro-Bund futures, U.S. Treasury bonds and U.S. 10-year notes had significant losses. 10 JANUARY 1, 2000 to JUNE 30, 2000 -------------------------------- January 1, 2000 to March 31, 2000 Currency trading alternated through out the month as gains in Swiss franc positions were outweighed by losses in British pound trading in the beginning of the quarter. Despite evidence of expansion in Europe, the Swiss franc slipped to a 10-year low against the dollar. This move mimicked the decline in the Euro which came after officials from the Group of Seven met and failed to express concern about the low levels of the European currency. Trading during the middle of the quarter was profitable through gains in Euro futures and Japanese yen trading. The Euro's continued weakness can be attributed to a number of factors, including the slow pace of microeconomic reform in Europe, plans for a European withholding tax and the scale of direct investment flows outside of Europe. At the end of the quarter, losses were sustained in Japanese yen and British pound positions. The yen has been strong in spite of Japan's slide back into recession during the second half of 1999. Trading in Nikkei 225 Stock Index positions resulted in losses for the Partnership. The losses suffered early in the quarter rebounded to close at its highest level since 1997 and carried on throughout mid-quarter. Positions in the Nikkei 225 and FTSE Financial Times Stock Index resulted in profits for the Partnership. The economy in the United Kingdom has been growing at a robust pace and is accompanied by low inflation. Metals trading was unprofitable for the quarter. Concerns about higher U.S. interest rates and the sharp declines in global stock prices during January created a somewhat nervous and defensive tone in base metals trading. Trading was unprofitable in February due to losses in gold and aluminum. Mid-month reports showed aluminum inventories monitored by the London Metal Exchange at their highest level in almost three years, resulting in a decrease in prices. Short Eurodollar trading was profitable as the currency continued to decline in January. The European Union ministers blamed the currency's slide in January on rapid U.S. growth and fears that the Federal Reserve will increase U.S. interest rates. These profits were far outweighed by losses in the Japanese 10-year bond, U.S. 10-year Treasury note positions and long U.S. treasury positions as the yield curve fluctuated widely during the quarter. April 1, 2000 to June 30, 2000 Metals trading was unprofitable for the quarter. During the middle of the quarter, copper trading resulted in losses for the sector. A Freeport, Indonesia mine announced output cuts would not be as large as the Indonesian government had forecast, resulting in losses for the Partnership's long positions. Losses continued through the quarter as trading in both base and precious metals was unprofitable as losses were sustained in gold and aluminum positions. As has been the ongoing pattern, gold showed virtually no response to activities in the financial and equity markets, including the surge in energy prices. Currency trading proved unprofitable for the Partnership. Early in the quarter, gains from long Swiss franc positions could not outweighed losses sustained in other currencies. Despite the dramatic interest rate hikes by the Swiss National Bank ("SNB"), the SNB said it will not keep the Swiss franc from rising. Currency trading resulted in losses for the sector during May despite gains in short positions in the British pound, as losses were sustained in Euro futures trading. The Euro rallied to U.S. $0.97 early in June, but faced profit-taking after news of some capital outflow from Euroland. Stock index trading was unprofitable as losses were sustained in Nikkei 225 and S&P 500 positions in the quarter. Signs of rising inflation fueled fears that the Federal Reserve will continue to raise interest rates aggressively to slow the robust economy. 11 Interest rate trading results were unprofitable for the quarter. Losses from U.S. Treasury note trading exceeded gains from Japanese 10-year bond positions. U.S. yields fell during the month as investors shifted to Treasuries due to increased volatility in the NASDAQ and other equity markets. Losses were incurred in Euro dollar and Euro-Bund positions. Short positions resulted in losses as the Euro dollar improved after the European Central Bank's 50 basis point repo rate hike. 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings There are no pending legal proceedings to which the Partnership or MLIM AS LLC is a party. Item 2. Changes in Securities and Use of Proceeds None. None. None. None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other information Effective May 31, 2001, Merrill Lynch Investment Partners, Inc. ("MLIP"), a Delaware corporation and General Partner of the Partnership, converted to a Delaware limited liability company. In connection with the conversion, MLIP's name was changed to MLIM Alternative Strategies LLC ("MLIM AS LLC"). This step was taken in connection with the ongoing reorganization of the various alternative investment groups under the Merrill Lynch Investment Managers umbrella. The change will have no impact on the Partnership's investors. All of the officers of MLIP continue in their former roles with MLIM AS LLC, except that also effective May 31, 2001, Ronald S. Rosenberg, formerly Chief Executive Officer of MLIP, became President of MLIM AS LLC and Fabio P. Savoldelli, formerly President of MLIP, became Chairman and Chief Executive Officer of MLIM AS LLC. In addition, each of the four directors of MLIP now serve on the board of managers of MLIM AS LLC. Item 6. Exhibits and Reports on Form 8-K. (a) EXHIBITS There are no exhibits required to be filed as part of this report. (b) REPORTS ON FORM 8-K There were no reports on Form 8-K filed during the first six months of fiscal 2001. 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JOHN W. HENRY & CO./MILLBURN L.P. By: MLIM ALTERNATIVE STRATEGIES LLC (formerly Merrill Lynch Investment Partners, Inc.) (General Partner) Date: August 13, 2001 By /s/ FABIO SAVOLDELLI -------------------- Fabio Savoldelli Chairman, Chief Executive Officer and Manager Date: August 13, 2001 By /s/ MICHAEL L. PUNGELLO ----------------------- Michael L. Pungello Vice President, Chief Financial Officer and Treasurer 14

HENRY JOHN W & CO/MILLBURN L P 10-Q