10-K405 1 a2071730z10-k405.txt 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (x) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended: December 31, 2001 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 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 (I.R.S. Employer incorporation or organization) Identification No.) C/O MLIM ALTERNATIVE STRATEGIES LLC PRINCETON CORPORATE CAMPUS 800 SCUDDERS MILL ROAD - SECTION 2G PLAINSBORO, NEW JERSEY 08536 ---------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (609) 282-6996 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Limited Partnership Units 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 ----- ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant: the registrant is a limited partnership; as of February 1, 2002, limited partnership units with an aggregate value of $25,683,482 were outstanding and held by non-affiliates. DOCUMENTS INCORPORATED BY REFERENCE The registrant's "2001 Annual Report and Independent Auditors' Report," the annual report to security holders for the fiscal year ended December 31, 2001, is incorporated by reference into Part II, Item 8 and Part IV hereof and filed as an Exhibit herewith. JOHN W. HENRY & CO./MILLBURN L.P. ANNUAL REPORT FOR 2001 ON FORM 10-K TABLE OF CONTENTS
PART I PAGE ------ ---- Item 1. Business...................................................................................... 1 Item 2. Properties.................................................................................... 5 Item 3. Legal Proceedings............................................................................. 5 Item 4. Submission of Matters to a Vote of Security Holders........................................... 6 PART II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................... 6 Item 6. Selected Financial Data....................................................................... 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 12 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................... 16 Item 8. Financial Statements and Supplementary Data................................................... 23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 23 PART III -------- Item 10. Directors and Executive Officers of the Registrant............................................ 23 Item 11. Executive Compensation........................................................................ 25 Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 25 Item 13. Certain Relationships and Related Transactions................................................ 25 PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 26
i PART I ITEM 1: BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS: John W. Henry & Co./Millburn L.P. (the "Partnership") was organized under the Delaware Revised Uniform Limited Partnership Act on August 29, 1989. The original public offering of the Partnership's units of limited partnership interest (the "Series A Units") commenced on September 29, 1989, and the Partnership commenced trading with respect to the Series A Units on January 5, 1990. A second public offering of Series B Units of limited partnership (the "Series B Units") commenced on December 14, 1990. The Partnership began trading with respect to the Series B Units on January 28, 1991. A third public offering of Series C Units of limited partnership (the "Series C Units") commenced on September 13, 1991. The Partnership began trading with respect to the Series C Units on January 2, 1992. The Partnership's objective is achieving, through speculative trading, substantial capital appreciation over time. The proceeds of each of the three series of Units were each initially allocated equally between the Partnership's two trading advisors -- John W. Henry & Company, Inc. ("JWH") and Millburn Ridgefield Corporation ("Millburn") (collectively, the "Advisors"). MLIM Alternative Strategies LLC ("MLIM AS LLC"), formerly Merrill Lynch Investment Partners Inc. ("MLIP"), an indirect wholly-owned subsidiary of Merrill Lynch Investment Managers, LP ("MLIM") which, in turn, is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill Lynch"), is the general partner of the Partnership. Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), the successor to Merrill Lynch Futures, Inc. ("MLF") by merger, is the Partnership's commodity broker. Effective May 31, 2001, MLIP converted to a Delaware limited liability company and changed its name. Effective August 14, 2001, Merrill Lynch Group, Inc. contributed all of the issued and outstanding shares of MLIM AS LLC to its affiliate MLIM in a tax-free reorganization. All of the officers of MLIP at the time continued with their former roles with MLIM AS LLC. The changes had no impact on the Partnership's investors. Effective November 2, 2001, MLF merged into its affiliate, MLPF&S, a wholly owned subsidiary of Merrill Lynch. MLPF&S became the successor party to the agreements between MLF and the Partnership. The terms of the agreements remained unchanged and the merger had no effect on the terms on which the Partnership's transactions were executed. The Advisors have been the Partnership's only trading advisors since inception. Each Advisor was allocated 50% of the total assets of each Series as of the date such Series began trading. Subsequently, these allocations have varied over time, but have been periodically rebalanced to 50%/50%. All series have the same percentage allocation of assets between the Advisors. As of December 31, 2001, 50% of the capital of each series of units was allocated to JWH and 50% was allocated to Millburn. As of December 1, 1996, the Partnership placed all of its assets under the management of the Advisors through investing in two private limited liability companies ("Trading LLCs") sponsored by MLIM AS LLC, each one traded by one of the Advisors. Investing assets in the Trading LLCs rather than trading directly did not change the operation or fee structure of the Partnership. The administrative authority over the Partnership remains with MLIM AS LLC. As of December 31, 2001, the aggregate capitalization of the Partnership was $26,155,682, the total capitalization of the Series A, Series B and Series C Units was $6,932,554, $12,129,855 and $7,093,273, respectively, and the Net Asset Value per Series A, Series B and Series C Units, originally $100 as of January 5, 1990, January 28, 1991 and January 2, 1992, respectively, had risen to $267.82 (excluding a $20 per Series A Unit distribution paid as of November 30, 1990), $217.61 and $169.60, respectively. The highest month-end Net Asset Value per Series A Unit through December 31, 2001 was $339.42 (June 30, 1999, adding back a $20 distribution paid in 1990) and the lowest $100.31 (May 31, 1990); the highest month-end Net Asset Value per Series B Unit through December 31, 2001 was $259.56 (June 30, 1999) and the lowest $91.20 1 (May 31, 1992); the highest month-end Net Asset Value per Series C Unit through December 31, 2001 was $202.28 (June 30, 1999) and the lowest $75.87 (May 31, 1992). (b) FINANCIAL INFORMATION ABOUT SEGMENTS: The Partnership's business constitutes only one segment for financial reporting purposes, i.e., a speculative "commodity pool." The Partnership does not engage in sales of goods or services. (c) NARRATIVE DESCRIPTION OF BUSINESS: GENERAL The Partnership trades (currently through its investment in the Trading LLCs) in the international futures, options on futures and forward markets with the objective of achieving substantial capital appreciation. The Partnership has entered into advisory agreements with each Advisor (the "Advisory Agreement"). JWH trades the Partnership's assets allocated to it in four market sectors -- interest rates, stock indices, currencies and metals -- pursuant to its Financial and Metals Program. Millburn trades the Partnership's assets allocated to it pursuant to its currency program, which concentrates exclusively on currency trading, primarily in the interbank market. One of the objectives of the Partnership is to provide diversification to a limited portion of the risk segment of the Limited Partners' portfolios. Commodity pool performance has historically often demonstrated a low degree of performance correlation with traditional stock and bond holdings. Since it began trading, the Partnership's returns have, in fact, frequently been significantly non-correlated with the United States stock and bond markets. The Partnership accesses the Advisors not by opening individual managed accounts with them, but rather through investing in private funds sponsored by MLIM AS LLC through which the trading accounts of different MLIM AS LLC-sponsored funds managed by the same Advisor and pursuant to the same strategy are consolidated. USE OF PROCEEDS AND INTEREST INCOME MARKET SECTORS. Under the direction of the two Advisors, the Partnership trades a portfolio which is concentrated in the financial, currency and metals markets. The limited focus of the Partnership's trading increases volatility and market risk. MARKET TYPES. The Partnership trades on a variety of United States and foreign futures exchanges. Substantially all of the Partnership's off-exchange trading takes place in the highly liquid, institutionally-based currency forward markets. Many of the Partnership's currency trades are executed in the spot and forward foreign exchange markets (the "FX Markets") where there are no direct execution costs. Instead, the participants, banks and dealers, in the FX Markets take a "spread" between the prices at which they are prepared to buy and sell a particular currency and such spreads are built into the pricing of the spot or forward contracts with the Partnership. In its exchange of futures for physical ("EFP") trading, the Partnership acquires cash currency positions through banks and dealers. The Partnership pays a spread when it exchanges these positions for futures. This spread reflects, in part, the different settlement dates of the cash and the futures contracts, as well as prevailing interest rates, but also includes a pricing spread in favor of the banks and dealers, which may include a Merrill Lynch entity. 2 As in the case of its market sector allocations, the Partnership's commitments to different types of markets -- U.S. and non-U.S., regulated and non regulated -- differ substantially from time to time, as well as over time. The Partnership has no policy restricting its relative commitment to any of these different types of markets. CUSTODY OF ASSETS. All of the Partnership's assets are currently held in customer accounts at Merrill Lynch. INTEREST PAID BY MERRILL LYNCH ON THE PARTNERSHIP'S U.S. DOLLAR AND NON U.S. DOLLAR ASSETS. The Partnership's U.S. dollar assets are maintained at MLPF&S. On assets held in U.S. dollars, Merrill Lynch credits the Partnership with interest at the prevailing 91-day U.S. Treasury bill rate. The Partnership is credited with interest on any of its net gains actually held by Merrill Lynch in non-U.S. dollar currencies at a prevailing local rate received by Merrill Lynch. Merrill Lynch may derive certain economic benefit, in excess of the interest which Merrill Lynch pays to the Partnership, from possession of such assets. Merrill Lynch charges the Partnership Merrill Lynch's cost of financing realized and unrealized losses on the Partnership's non-U.S. dollar-denominated positions. CHARGES Each of the series of Units is subject to the same charges. However, these charges are calculated separately with respect to each Series, each of which maintains its own Net Asset Value. During 2001 and 2000, all of the Partnership's assets were invested in the two Trading LLCs mentioned above. Therefore, no direct charges were incurred by the Partnership during these two years. The Partnership's average month-end Net Assets during 2001, 2000 and 1999 equaled $28,586,131, $30,694,862 and $51,197,421, respectively. The Partnership pays brokerage commissions to MLPF&S at a flat monthly rate of .708 of 1% (an 8.50% annual rate) of the Partnership's month-end assets. Prior to October 1, 2000, the rate was .792 of 1% (a 9.50% annual rate), and the Partnership pays MLIM AS LLC a monthly administrative fee of .021 of 1% (a 0.25% annual rate) of the Partnership's month-end assets. 3
DESCRIPTION OF CURRENT CHARGES RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT MLPF&S Brokerage Commissions A flat-rate monthly commission of 0.708 of 1% of the Partnership's month-end assets (an 8.50% annual rate). Prior to October 1, 2000, the rate was 0.792 of 1% (a 9.50% annual rate). MLIM AS LLC estimates that the round-turn equivalent rates charged to ML Millburn Global L.L.C. ("Millburn LLC") during the years ended 2001, 2000 and 1999 were approximately $242, 324 and $461, respectively. MLIM AS LLC estimates that the round-turn equivalent rates charged to ML JWH Financial and Metals Portfolio L.L.C. ("JWH LLC") during the years ended 2001, 2000 and 1999 were approximately $155, $146 and $316, respectively. MLPF&S Use of Partnership assets Merrill Lynch may derive an economic benefit from the deposit of certain of the Partnership's U.S. dollar assets. MLIM AS LLC Administrative Fees The Partnership pays MLIM AS LLC a monthly Administrative Fee equal to 0.0020833 of 1% (0.25% annually) of the Partnership's month-end assets. MLIM AS LLC pays all of the Partnership's routine administrative costs.
4 Other Bid-ask spreads Bid-ask spreads on forward and related trades. Counterparties Advisors Profit Shares Profit shares of 20% of any New Trading Profit, either as of the end of each calendar quarter or year, achieved by each Advisor's Partnership account, individually, were paid to JWH and Millburn, respectively. Profit Shares are also paid upon redemption of Units. New Trading Profit is calculated separately in respect of each Advisor, irrespective of the overall performance of the Partnership. Advisors Consulting Fees MLPF&S pays the Advisors annual consulting fees of 2% of the average month-end assets allocated to them for management. MLPF&S; Extraordinary expenses Actual costs incurred; none paid to date. Others
REGULATION MLIM AS LLC, the Advisors and MLPF&S are each subject to regulation by the Commodity Futures Trading Commission (the "CFTC") and the National Futures Association (the "NFA"). Other than in respect of its periodic reporting requirements under the Securities Exchange Act of 1934, the Partnership itself is generally not subject to regulation by the Securities and Exchange Commission (the "SEC"). However, MLIM AS LLC itself is registered as an "investment adviser" under the Investment Advisers Act of 1940. MLPF&S is also regulated by the SEC and the National Association of Securities Dealers. (i) through (xii)-- not applicable. (xiii) The Partnership has no employees. (d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS The Partnership trades on a number of foreign commodity exchanges. The Partnership does not engage in the sales of goods or services. ITEM 2: PROPERTIES The Partnership does not use any physical properties in the conduct of its business. The Partnership's only place of business is the place of business of MLIM AS LLC (Princeton Corporate Campus, 800 Scudders Mill Road - Section 2G, Plainsboro, New Jersey 08536). MLIM AS LLC performs all administrative services for the Partnership from MLIM AS LLC's offices. ITEM 3: LEGAL PROCEEDINGS Merrill Lynch, a partner of MLIM, which is the sole member of MLIM AS LLC, and MLPF&S and the 100% indirect owner of all Merrill Lynch entities involved in the operation of the Partnership, as well as certain of its subsidiaries and affiliates have been named as defendants in civil actions, arbitration proceedings and claims arising out of their respective business activities. Although the ultimate outcome of these 5 actions cannot be predicted at this time and the results of legal proceedings cannot be predicted with certainty, it is the opinion of management that the result of these matters will not be materially adverse to the business operations or financial condition of MLIM AS LLC or the Partnership. MLIM AS LLC itself has never been the subject of any material litigation. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Partnership has never submitted any matter to a vote of its Limited Partners. PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Item 5(a) (a) MARKET INFORMATION: There is no established public trading market for the Units, nor will one develop. Limited Partners may redeem Units as of the end of each month at Net Asset Value. (b) HOLDERS: As of December 31, 2001, there were 241, 685 and 361 holders of the Series A, B and C Units, respectively, including MLIM AS LLC. (c) DIVIDENDS: The Partnership has made only one distribution ($20 per Series A Unit payable as of November 30, 1990) since trading commenced. MLIM AS LLC does not presently intend to make any further distributions. Item 5(b) Not applicable. ITEM 6: SELECTED FINANCIAL DATA The following selected financial data has been derived from the audited financial statements of the Partnership. 6
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, INCOME STATEMENT DATA 2001 2000 1999 1998 1997 -------------------------------------------------------------------------------------------------------------------------- | | | | | Revenues: | | | | | | | | | | Income (Loss) from Investments 1,265,275| (2,426,515)| (6,145,111)| 1,867,451| 7,357,688 | ----------------|-----------------|----------------|--------------|-----------------| Net Income (Loss) $ 1,265,275| $ (2,426,515)| $ (6,145,111)| $ 1,867,451| $ 7,357,688 | ====================================================================================
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, BALANCE SHEET DATA 2001 2000 1999 1998 1997 -------------------------------------------------------------------------------------------------------------------------- | | | | | Partnership Net Asset Value $26,155,682| $29,423,145| $42,876,172| $56,163,313| $63,024,164 | Net Asset Value per Series A Unit $267.82| $258.05| $260.14| $296.13| $284.11 | Net Asset Value per Series B Unit $217.61| $209.67| $211.47| $240.61| $230.87 | Net Asset Value per Series C Unit $169.60| $163.40| $164.80| $187.52| $179.92 |
Variations in income statement line items are due to investing assets in the Trading LLCs.
------------------------------------------------------------------------------------------------------------------------------- MONTH-END NET ASSET VALUE PER SERIES A UNIT ------------------------------------------------------------------------------------------------------------------------------- Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. ------------------------------------------------------------------------------------------------------------------------------- | | | | | | | | | | | | 1997 $273.52| $270.58| $267.94| $261.04| $251.03| $257.22| $283.93| $270.03| $274.52| $273.84| $277.30| $284.11 | -----------------|--------|---------|---------|---------|--------|---------|---------|---------|----------|---------|----------| 1998 $281.00| $268.85| $270.14| $248.62| $257.02| $249.67| $238.22| $270.01| $305.92| $298.60| $280.52| $296.13 | -----------------|--------|---------|---------|---------|--------|---------|---------|---------|----------|---------|----------| 1999 $287.86| $291.22| $288.12| $297.02| $303.11| $319.42| $310.07| $302.24| $289.40| $263.84| $261.74| $260.14 | -----------------|--------|---------|---------|---------|--------|---------|---------|---------|----------|---------|----------| 2000 $255.72| $238.38| $230.44| $230.52| $221.13| $201.51| $199.30| $197.17| $189.80| $203.48| $220.58| $258.05 | -----------------|--------|---------|---------|---------|--------|---------|---------|---------|----------|---------|----------| 2001 $264.13| $265.03| $297.36| $274.43| $279.83| $265.64| $253.76| $273.60| $283.68| $296.39| $254.29| $267.82 | -------------------------------------------------------------------------------------------------------------------------------
7
------------------------------------------------------------------------------------------------------------------------------- MONTH-END NET ASSET VALUE PER SERIES B UNIT ------------------------------------------------------------------------------------------------------------------------------- Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. ------------------------------------------------------------------------------------------------------------------------------- | | | | | | | | | | | | 1997 $222.32| $219.93| $217.78| $212.17| $204.08| $209.10| $230.77| $219.46| $223.11| $222.53| $225.33| $230.87 | -----------------|--------|---------|---------|---------|--------|---------|---------|---------|----------|---------|----------| 1998 $228.36| $218.48| $219.55| $202.07| $208.90| $202.93| $193.60| $219.40| $248.57| $242.64| $227.97| $240.61 | -----------------|--------|---------|---------|---------|--------|---------|---------|---------|----------|---------|----------| 1999 $233.92| $236.65| $234.15| $241.40| $246.31| $259.56| $251.96| $245.60| $235.20| $214.43| $212.74| $211.47 | -----------------|--------|---------|---------|---------|--------|---------|---------|---------|----------|---------|----------| 2000 $207.89| $193.79| $187.32| $187.37| $179.72| $163.78| $161.98| $160.25| $154.25| $165.39| $179.25| $209.67 | -----------------|--------|---------|---------|---------|--------|---------|---------|---------|----------|---------|----------| 2001 $214.61| $215.32| $241.58| $222.96| $227.36| $215.83| $206.18| $222.29| $230.47| $240.80| $206.64| $217.61 | -------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------- MONTH-END NET ASSET VALUE PER SERIES C UNIT ------------------------------------------------------------------------------------------------------------------------------- Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. ------------------------------------------------------------------------------------------------------------------------------- | | | | | | | | | | | | 1997 $173.26| $171.40| $169.73| $165.35| $159.04| $162.96| $179.85| $171.03| $173.88| $173.43| $175.61| $179.92 | -----------------|--------|---------|---------|---------|--------|---------|---------|---------|----------|---------|----------| 1998 $177.97| $170.27| $171.11| $157.48| $162.80| $158.15| $150.88| $170.99| $193.72| $189.10| $177.67| $187.52 | -----------------|--------|---------|---------|---------|--------|---------|---------|---------|----------|---------|----------| 1999 $182.30| $184.43| $182.48| $188.13| $191.96| $202.28| $196.36| $191.41| $183.30| $ 167.12| $165.80| $164.80 | -----------------|--------|---------|---------|---------|--------|---------|---------|---------|----------|---------|----------| 2000 $162.02| $151.03| $145.99| $146.03| $140.07| $127.64| $126.24| $124.89| $120.24| $ 128.90| $139.70| $163.40 | -----------------|--------|---------|---------|---------|--------|---------|---------|---------|----------|---------|----------| 2001 $167.25| $167.81| $188.27| $173.76| $177.19| $168.20| $160.69| $173.24| $179.62| $ 187.67| $161.04| $169.60 | -------------------------------------------------------------------------------------------------------------------------------
Pursuant to CFTC policy, monthly performance is presented from January 1, 1997 even though all Series were outstanding prior to such date. 8 JOHN W. HENRY & CO./MILLBURN L.P. (SERIES A UNITS) DECEMBER 31, 2001 TYPE OF POOL: Selected-Advisor/Publicly-Offered/Non-"Principal Protected"(1) INCEPTION OF TRADING: January 5, 1990 AGGREGATE SUBSCRIPTIONS: $18,182,000 CURRENT CAPITALIZATION: $6,932,554 WORST MONTHLY DRAWDOWN(2):(14.20)% (11/01) WORST PEAK-TO-VALLEY DRAWDOWN(3):(40.59)% (7/99-9/00) NET ASSET VALUE PER SERIES A UNIT, DECEMBER 31, 2001: $267.82
----------------------------------------------------------------------------------- MONTHLY RATES OF RETURN(4) ----------------------------------------------------------------------------------- MONTH 2001 2000 1999 1998 1997 ----------------------------------------------------------------------------------- | | | | January 2.36% (1.70)%| (2.79)%| (1.09)%| 8.31% | ------------------------------------------------|-----------|----------|-----------| February 0.34 (6.78) | 1.17 | (4.32) | (1.07) | ------------------------------------------------|-----------|----------|-----------| March 12.20 (3.33) | (1.06) | 0.48 | (0.98) | ------------------------------------------------|-----------|----------|-----------| April (7.71) 0.03 | 3.09 | (7.97) | (2.58) | ------------------------------------------------|-----------|----------|-----------| May 1.97 (4.07) | 2.05 | 3.38 | (3.83) | ------------------------------------------------|-----------|----------|-----------| June (5.07) (8.87) | 5.38 | (2.86) | 2.47 | ------------------------------------------------|-----------|----------|-----------| July (4.47) (1.10) | (2.93) | (4.58) | 10.38 | ------------------------------------------------|-----------|----------|-----------| August 7.82 (1.07) | (2.53) | 13.34 | (4.90) | ------------------------------------------------|-----------|----------|-----------| September 3.69 (3.74) | (4.25) | 13.30 | 1.66 | ------------------------------------------------|-----------|----------|-----------| October 4.48 7.21 | (8.83) | (2.39) | (0.25) | ------------------------------------------------|-----------|----------|-----------| November (14.20) 8.40 | (0.80) | (6.05) | 1.26 | ------------------------------------------------|-----------|----------|-----------| December 5.32 16.99 | (0.61) | 5.56 | 2.46 | ------------------------------------------------|-----------|----------|-----------| Compound Annual 3.79% (0.81)%| (12.15)%| 4.24% | 12.49% | Rate of Return -----------------------------------------------------------------------------------
(1) Pursuant to applicable CFTC regulations, a "Multi-Advisor" fund is defined as one that allocates no more than 25% of its trading assets to any single manager. As the Partnership allocates over 25% of its assets to each of JWH and Millburn, it is referred to as a "Selected-Advisor" fund. Certain funds, including funds sponsored by MLIM AS LLC, are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment. The CFTC refers to such funds as "Principal Protected." The Partnership has no such feature. (2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since January 1, 1997 by the Series; a Drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures. (3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since January 1, 1997 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end. For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level. (4) Monthly Rate of Return is the net performance of the Series during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total equity of the Series as of the beginning of such month. 9 JOHN W. HENRY & CO./MILLBURN L.P. (SERIES B UNITS) DECEMBER 31, 2001 TYPE OF POOL: Selected-Advisor/Publicly-Offered/Non-"Principal Protected"(1) INCEPTION OF TRADING: January 28, 1991 AGGREGATE SUBSCRIPTIONS: $50,636,000 CURRENT CAPITALIZATION: $12,129,855 WORST MONTHLY DRAWDOWN(2): (14.19)% (11/01) WORST PEAK-TO-VALLEY DRAWDOWN(3):(40.57)% (7/99-9/00) ------------- NET ASSET VALUE PER SERIES B UNIT, DECEMBER 31, 2001: $217.61
----------------------------------------------------------------------------------- MONTHLY RATES OF RETURN(4) ----------------------------------------------------------------------------------- MONTH 2001 2000 1999 1998 1997 ----------------------------------------------------------------------------------- | | | | January 2.36% (1.69)%| (2.78)%| (1.09)%| 8.31% | ------------------------------------------------|-----------|----------|-----------| February 0.33 (6.78) | 1.17 | (4.33) | (1.08) | ------------------------------------------------|-----------|----------|-----------| March 12.20 (3.34) | (1.06) | 0.49 | (0.98) | ------------------------------------------------|-----------|----------|-----------| April (7.71) 0.02 | 3.10 | (7.96) | (2.58) | ------------------------------------------------|-----------|----------|-----------| May 1.97 (4.08) | 2.04 | 3.38 | (3.81) | ------------------------------------------------|-----------|----------|-----------| June (5.07) (8.87) | 5.38 | (2.86) | 2.46 | ------------------------------------------------|-----------|----------|-----------| July (4.47) (1.10) | (2.93) | (4.60) | 10.36 | ------------------------------------------------|-----------|----------|-----------| August 7.81 (1.07) | (2.52) | 13.33 | (4.90) | ------------------------------------------------|-----------|----------|-----------| September 3.68 (3.73) | (4.24) | 13.30 | 1.66 | ------------------------------------------------|-----------|----------|-----------| October 4.48 7.20 | (8.83) | (2.39) | (0.26) | ------------------------------------------------|-----------|----------|-----------| November (14.19) 8.38 | (0.79) | (6.05) | 1.26 | ------------------------------------------------|-----------|----------|-----------| December 5.31 16.97 | (0.60) | 5.54 | 2.46 | ------------------------------------------------|-----------|----------|-----------| Compound Annual 3.78% (0.86)%| (12.11)%| 4.20% | 12.46% | Rate of Return -----------------------------------------------------------------------------------
(1) Pursuant to applicable CFTC regulations, a "Multi-Advisor" fund is defined as one that allocates no more than 25% of its trading assets to any single manager. As the Partnership allocates over 25% of its assets to each of JWH and Millburn, it is referred to as a "Selected-Advisor" fund. Certain funds, including funds sponsored by MLIM AS LLC, are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment. The CFTC refers to such funds as "Principal Protected." The Partnership has no such feature. (2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since January 1, 1997 by the Series; a Drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures. (3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since January 1, 1997 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end. For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level. (4) Monthly Rate of Return is the net performance of the Series during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total equity of the Series as of the beginning of such month. 10 JOHN W. HENRY & CO./MILLBURN L.P. (SERIES C UNITS) DECEMBER 31, 2001 TYPE OF POOL: Selected-Advisor/Publicly-Offered/Non-"Principal Protected"(1) INCEPTION OF TRADING: January 2, 1992 AGGREGATE SUBSCRIPTIONS: $40,000,000 CURRENT CAPITALIZATION: $7,093,273 WORST MONTHLY DRAWDOWN(2): (14.19)% (11/01) WORST PEAK-TO-VALLEY DRAWDOWN(3): (40.57)% (7/99-9/00) ------------- NET ASSET VALUE PER SERIES C UNIT, DECEMBER 31, 2001: $169.60
----------------------------------------------------------------------------------- MONTHLY RATES OF RETURN(4) ----------------------------------------------------------------------------------- MONTH 2001 2000 1999 1998 1997 ----------------------------------------------------------------------------------- | | | | January 2.36% (1.69)%| (2.78)%| (1.08)%| 8.31% | ------------------------------------------------|-----------|----------|-----------| February 0.33 (6.78) | 1.17 | (4.33) | (1.07) | ------------------------------------------------|-----------|----------|-----------| March 12.20 (3.34) | (1.06) | 0.49 | (0.97) | ------------------------------------------------|-----------|----------|-----------| April (7.71) 0.02 | 3.10 | (7.97) | (2.58) | ------------------------------------------------|-----------|----------|-----------| May 1.97 (4.08) | 2.04 | 3.38 | (3.82) | ------------------------------------------------|-----------|----------|-----------| June (5.07) (8.87) | 5.38 | (2.86) | 2.46 | ------------------------------------------------|-----------|----------|-----------| July (4.47) (1.10) | (2.93) | (4.60) | 10.36 | ------------------------------------------------|-----------|----------|-----------| August 7.81 (1.07) | (2.52) | 13.33 | (4.90) | ------------------------------------------------|-----------|----------|-----------| September 3.68 (3.73) | (4.24) | 13.29 | 1.67 | ------------------------------------------------|-----------|----------|-----------| October 4.48 7.20 | (8.83) | (2.38) | (0.26) | ------------------------------------------------|-----------|----------|-----------| November (14.19) 8.38 | (0.79) | (6.05) | 1.26 | ------------------------------------------------|-----------|----------|-----------| December 5.31 16.97 | (0.60) | 5.54 | 2.45 | ------------------------------------------------|-----------|----------|-----------| Compound Annual 3.79% (0.86)%| (12.11)%| 4.20% | 12.47% | Rate of Return -----------------------------------------------------------------------------------
(1) Pursuant to applicable CFTC regulations, a "Multi-Advisor" fund is defined as one that allocates no more than 25% of its trading assets to any single manager. As the Partnership allocates approximately 50% of its assets to each of JWH and Millburn, it is referred to as a "Selected-Advisor" fund. Certain funds, including funds sponsored by MLIM AS LLC, are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment. The CFTC refers to such funds as "Principal Protected." The Partnership has no such feature. (2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since January 1, 1997 by the Series; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures. (3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since January 1, 1997 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end. For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level. 11 (4) Monthly Rate of Return is the net performance of the Series during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total equity of the Series as of the beginning of such month. ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS GENERAL JWH and Millburn have been the Partnership's two Advisors since inception. Although from time to time one of the Advisors is allocated a greater percentage of the Partnership's assets than the other as a result of differential performance, MLIM AS LLC periodically rebalances the Partnership's asset allocation to approximately 50%/50%. The Advisors are both trend-following traders, whose programs do not attempt to predict price movements. No fundamental economic supply or demand analyses are used by either JWH or Millburn, and no macroeconomic assessments of the relative strengths of different national economies or economic sectors. Instead, their programs apply proprietary computer models to analyzing past market data, and from this data alone attempt to determine whether market prices are trending. As technical traders, JWH and Millburn base their strategies on the theory that market prices reflect the collective judgment of numerous market participants and are, accordingly, the best and most efficient indication of market movements. However, there are frequent periods during which fundamental factors external to the market dominate prices. If an Advisor's models identify a trend, they signal positions which follow it. When these models identify the trend as having ended or reversed, these positions are either closed out or reversed. Due to their trend-following character, the Advisors' programs do not predict either the commencement or the end of a price movement. Rather, their objective is to identify a trend early enough to profit from it and detect its end or reversal in time to close out the Partnership's positions while retaining most of the profits made from following the trend. In analyzing the performance of trend-following programs such as those implemented by JWH and Millburn, economic conditions, political events, weather factors, etc., are not directly relevant because only market data has any input into trading results. Furthermore, there is no direct connection between particular market conditions and price trends. There are so many influences on the markets that the same general type of economic event may lead to a price trend in some cases but not in others. The analysis is further complicated by the fact that the programs are designed to recognize only certain types of trends and to apply only certain criteria of when a trend has begun. Consequently, even though significant price trends may occur, if these trends are not comprised of the type of intra-period price movements which their programs are designed to identify, either or both Advisors may miss the trend altogether. Performance Summary This performance summary is an outline description of how the Partnership performed in the past, not necessarily any indication of how it will perform in the future. In addition, the general causes to which certain price movements are attributed may or may not in fact have caused such movements, but simply occurred at or about the same time. Both Advisors are unlikely to be profitable in markets in which such trends do not occur. Static or erratic prices are likely to result in losses. Similarly, unexpected events (for example, a political upheaval, natural 12 disaster or governmental intervention) can lead to major short-term losses, as well as gains. While there can be no assurance that either Advisor will be profitable, under any given market condition, markets in which substantial and sustained price movements occur typically offer the best profit potential for the Partnership. 13 2001 The Partnership's overall trading strategy was profitable for 2001. Trading in the interest rate and stock index sectors accounted for most of the gains. Trading in the interest rate markets was the most successful strategy. Eurodollar trading was profitable in January as the weakening U.S. economy and the Federal Reserve's move to cut interest rates caused Eurodollar futures contracts to rise dramatically from December 2000 lows. The global fixed income markets rallied strongly after the September 11 events but the rally subsided by year-end as stronger than expected retail sales figures in the U.S. prompted a sharp decline in global bond prices. Despite volatile conditions, stock index trading was successful. Global equity markets remained caught between negative news about earnings and the potential positive effects of monetary easings. Short positions fueled the sector as indices fell on poor corporate earnings and investors anxiety that the terrorist attacks would cause the global economic slump to worsen. Positive reports on the U.S. economy and growing optimism for a brighter 2002 caused stock markets to rally at year-end. Currency trading was also profitable. The Euro fell from a near high 96 cents back to the 90 cent level, resulting in losses in long Euro positions. Losses were sustained in Japanese yen positions as the further weakening of the Japanese yen displayed how the global economy is not immune to the slowdown of the U.S. economy. By year end, the U.S. dollar continued to appreciate versus the Euro and the Japanese yen as the European Central Bank maintained its cautious monetary easing stance and the Japanese economy deteriorated. Trading in the metals sector was the only unprofitable strategy. Weakness in the Euro, a decline in the Australian dollar to all time lows and producer and European Central Bank selling sent gold prices lower. Copper trading sustained losses despite a number of bullish developments to existing demand constraints. Long gold positions were profitable in September as investors flocked to gold as a safe haven in the aftermath of the attacks. 2000 Trading in the currency and interest rate sectors was profitable for the Partnership in 2000. However, losses sustained in stock market index and metals sectors more than offset those gains as the Partnership's overall trading strategy was unprofitable. Currency trading alternated throughout the year until December, when most of the gains were realized. The year began with the decline in the Euro as officials from the Group of Seven met and failed to express concern about the low levels of the European currency. The Euro's 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 investments outside of Europe. In April, long Swiss franc positions proved profitable despite interest rate hikes by the Swiss National Bank. Losses in Japanese yen occurred as the yen finished weaker against the U.S. dollar in anticipation that the U.S. Federal Reserve would continue to increase interest rates. The Euro hit all time lows against the U.S. dollar and the Japanese yen in early September despite European Central Bank intervention, benefiting the Partnership's short Euro positions. December was quite profitable on the resurgence of the Euro versus both the U.S. dollar and the Japanese yen and the weakness of the Japanese yen versus the U.S. dollar. Although profitable at year end, trading in the interest rate markets was volatile. Losses were realized in the Japanese 10-year bond, 10-year U.S. Treasury note positions and long U.S. Treasury positions as the yield curve fluctuated widely during the first quarter. U.S. Treasury yields continued to fall mid year as investors shifted to U.S. Treasuries due to increased volatility in the NASDAQ and other equity markets. Short Euro positions resulted in losses as the Euro improved after the European Central Bank's 50 basis point repo rate hike. Japanese government bonds were slightly profitable in the third quarter. In November and December, gains were realized from the Japanese 10-year bond and U.S. 10-year note trading as uncertainty surrounding the U.S. Presidential election resulted in investors favoring bond markets over equities. Stock Index markets trading was unprofitable. Early on, positions in the FTSE Financial Times Stock Index resulted in profits as the United Kingdom economy grew at a robust rate and was accompanied by low inflation. Losses were sustained in Nikkei 225 and S&P 500 positions in the second quarter as signs of rising inflation fueled fears that the U.S. Federal Reserve would continue to raise interest rates to slow the robust economy. As the Federal Reserve raised rates throughout the year, investors shifted to the safehaven of Treasuries, away from an increasingly volatile NASDAQ. Trading in the metals markets was also unprofitable. Concerns about higher U.S. interest rates and sharp declines in global equity prices during January created a somewhat nervous and defensive tone in base metals trading. Trading in long Copper positions resulted in losses as a Freeport, Indonesia mine announced output cuts would not be as large as the Indonesian government forecast. Gold prices dropped in July as a result of the Bank of England's bullion auction. Nickel prices declined as demand slowed for stainless steel in Europe and Asia. Gold prices were impacted during December by adverse currency movements. Trading results are not included for 2000 because the Partnership traded exclusively through investing in Trading LLC's. 1999 The Partnership finished 1999 with gains in currencies and stock index trading and losses in metals 14 and interest rate trading. Currency trading produced gains throughout the year. The Bank of Japan lowered rates to keep their economy sufficiently liquid to allow fiscal spending to restore some growth to the economy and to drive down the surging Japanese yen. The Japanese yen continued to grow and reached a two-year high in the third quarter. The European Central Bank raised the repo rate in November due to inflation pressures. On a trade-weighted basis, the Swiss franc ended the first quarter to close at a seven-month low, mostly as a result of the stronger U.S. dollar, yet regained strength in November. The Canadian dollar also underwent similar fluctuations throughout the year. Stock index trading was profitable for 1999. The Dow Jones Industrial Average closed above the 10,000 mark for the first time in March, setting a record for the index. Equity markets rallied worldwide in April and June. In the second half of the year, the Partnership suffered losses in stock index positions as trading was mixed due to significant volatility globally. However, there was profitable trading in the Hang Seng and Nikkei 225 positions resulting in gains during November and December. This activity depicted evidence of Japan's stronger than expected recovery coupled with a sudden decline in the unemployment rate. Metals trading was mixed for the year as gold played a major part in the volatility of the metals market. Gold had failed to maintain its status as a safety vehicle and a monetary asset during the first half of 1999. In early June, gold had reached its lowest level in over 20 years. A major statement from the president of the European Central Bank stated that the member banks had agreed not to expand their gold lending. This sent gold prices sharply higher in late September. Unfortunately, the Partnership held short positions in gold futures at that time. Gold prices had stabilized in the fourth quarter following the price surge. Early in the year, burdensome warehouse stocks and questionable demand prospects weighed on base metals as aluminum fell to a five-year low and copper fell to nearly an 11-year low. The economic scenario for Asia, Brazil, Europe and emerging market nations helped to keep copper and other base metals on the defensive as demand receded with virtually no supply side response in the second quarter. A substantial increase in Chinese imports combined with recovery in the rest of Asia and Europe had significantly improved demand for aluminum pushing prices higher during December. Interest rate trading was also volatile as the flight to quality in the bond market reversed during the first half of 1999 and the Federal Reserve raised interest rates three times during the year. Early in the year, interest rate trading proved unprofitable for the Partnership, which was triggered by the Japanese Trust Fund Bureau's decision to absorb a smaller share of futures issues, leaving the burden of financing future budget deficits to the private sector. Interest rate trading did gain strength at mid-year as the flight to quality in the bond market reversed and concerns about higher interest rates in the U.S. continued to rattle the financial markets. During the third quarter, Eurodollar trading generated losses amidst speculation of the probability of a tightening by the U.S. Federal Reserve, which became evident with the higher interest rates in their November 16 meeting due to concerns of inflation. In December, the yield on the 30-year Treasury bond recently surpassed its October high propelled by inflation worries and fears the Federal Reserve might tighten further in 2000. Trading results are not included for 1999 because the Partnership traded exclusively through investing in Trading LLC's. VARIABLES AFFECTING PERFORMANCE The principal variables which determine the net performance of the Partnership are gross profitability and interest income. During all periods set forth under "Selected Financial Data," the interest rates in many countries were 15 at unusually low levels. The low interest rates in the United States (although higher than in many other countries) negatively impacted revenues because interest income is typically a major component of the Partnership's profitability. In addition, low interest rates are frequently associated with reduced fixed income market volatility, and in static markets the Partnership's profit potential generally tends to be diminished. On the other hand, during periods of higher interest rates, the relative attractiveness of a high risk investment such as the Partnership may be reduced as compared to high yielding and much lower risk fixed-income investments. The Partnership's Brokerage Commissions and Administrative Fees are a constant percentage of the Partnership's assets allocated to trading. The only Partnership costs (other than the insignificant currency trading costs) which are not based on a percentage of the Partnership's assets (allocated to trading or total) are the Profit Shares payable to each of JWH and Millburn separately on their individual performance, irrespective of the overall performance of the Partnership. During periods when Profit Shares are a high percentage of net trading gains, it is likely that there has been substantial performance non-correlation between JWH and Millburn (so that the total Profit Shares paid to the Advisor which has traded profitably are a high percentage, or perhaps even in excess, of the total profits recognized, as the other Advisor incurred offsetting losses, reducing overall trading gains but not the Profit Shares paid to the successful Advisor) -- suggesting the likelihood of generally trendless, non-consensus markets. Unlike many investment fields, there is no meaningful distinction in the operation of the Partnership between realized and unrealized profits. Most of the contracts traded by the Partnership are highly liquid and can be closed out at any time. Except in unusual circumstances, factors -- regulatory approvals, cost of goods sold, employee relations and the like -- which often materially affect an operating business have virtually no impact on the Partnership. LIQUIDITY; CAPITAL RESOURCES The Partnership borrows only to a limited extent and only on a strictly short-term basis in order to finance losses on non-U.S. dollar denominated trading positions pending the conversion of the Partnership's U.S. dollar deposits. These borrowings are at a prevailing short-term rate in the relevant currency. Substantially all of the Partnership's assets are held in cash. The Net Asset Value of the Partnership's cash is not affected by inflation. However, changes in interest rates could cause periods of strong up or down price trends, during which the Partnership's profit potential generally increases. Inflation in commodity prices could also generate price movements which the strategies might successfully follow. Substantially all of the Partnership's assets are held in cash. Accordingly, except in very unusual circumstances, the Partnership should be able to close out any or all of its open trading positions and liquidate any or all of its securities holdings quickly and at market prices. This permits an Advisor to limit losses as well as reduce market exposure on short notice should its strategies indicate doing so. In addition, because there is a readily available market value for the Partnership's positions and assets, the Partnership's monthly Net Asset Value calculations are precise, and investors need only wait ten business days to receive the full redemption proceeds of their Units. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS. INTRODUCTION PAST RESULTS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE The Partnership is a speculative commodity pool. Unlike an operating company, the risk of market 16 sensitive instruments is integral, not incidental, to the Partnership's main line of business. Market movements result in frequent changes in the fair market value of the Partnership's open positions and, consequently, in its earnings and cash flow. The Partnership's market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Partnership's open positions and the liquidity of the markets in which it trades. The Partnership, under the direction of the two Advisors which it has retained since inception, rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Partnership's past performance is not necessarily indicative of its future results. Value at Risk is a measure of the maximum amount which the Partnership could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Partnership's speculative trading and the recurrence in the markets traded by the Partnership of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Partnership's experience to date (i.e., "risk of ruin"). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the quantifications included in this section should not be considered to constitute any assurance or representation that the Partnership's losses in any market sector will be limited to Value at Risk or by the Partnership's attempts to manage its market risk. QUANTIFYING THE PARTNERSHIP'S TRADING VALUE AT RISK QUANTITATIVE FORWARD-LOOKING STATEMENTS The following quantitative disclosures regarding the Partnership's market risk exposures contain "forward-looking statements" within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact. The Partnership's risk exposure in the various market sectors traded by the Advisors is quantified below in terms of Value at Risk. Due to the Partnership's mark-to-market accounting, any loss in the fair value of the Partnership's open positions is directly reflected in the Partnership's earnings (realized or unrealized) and cash flow (at least in the case of exchange-traded contracts in which profits and losses on open positions are settled daily through variation margin). Exchange maintenance margin requirements have been used by the Partnership as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum loss in the fair value of any given contract incurred in 95%-99% of the one-day time periods included in the historical sample (generally approximately one year) researched for purposes of establishing margin levels. The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation. In the case of market sensitive instruments which are not exchange-traded (almost exclusively currencies in the case of the Partnership), the margin requirements for the equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, dealers' margins have been used. 17 The fair value of the Partnership's futures and forward positions does not have any optionality component. However, both JWH and Millburn trade options on futures to a limited extent. The Value at Risk associated with options is reflected in the following table as the margin requirement attributable to the instrument underlying each option. 100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have been aggregated to determine each trading category's aggregate Value at Risk. The diversification effects resulting from the fact that the Partnership's positions are rarely, if ever, 100% positively correlated have not been reflected. THE PARTNERSHIP'S TRADING VALUE AT RISK IN DIFFERENT MARKET SECTORS The following table indicates the average, highest and lowest trading Value at Risk associated with the Partnership's open positions by market category for the fiscal year 2001. During the fiscal year 2001, the Partnership's average capitalization was approximately $28,586,131. As of December 31, 2000, the average capitalization was approximately $30,694,862. The Partnership does not trade commodities or energy futures.
Fiscal Year 2001 AVERAGE VALUE % OF AVERAGE HIGHEST VALUE LOWEST VALUE MARKET SECTOR AT RISK CAPITALIZATION AT RISK AT RISK ------------- ---------------- ------------------- ----------------- ---------------- Interest Rates $ 1,323,842 4.63% 1,685,684 1,120,678 Currencies 1,331,945 4.66% 1,452,519 1,194,436 Stock Indices 390,151 1.36% 597,693 269,104 Metals 258,383 0.90% 305,800 201,216 ---------------- ------------------- ----------------- ---------------- TOTAL $ 3,304,321 11.56% 4,041,696 2,785,434 ================ =================== ================= ================
Average, highest and lowest value at Risk amounts relate to quarter-end amounts for each calendar quarter-end during the fiscal year. Average Capitalization is the average or the Partnership's capitalization at the end of each quarter of fiscal year 2001.
Fiscal Year 2000 AVERAGE VALUE % OF AVERAGE HIGHEST VALUE LOWEST VALUE MARKET SECTOR AT RISK CAPITALIZATION AT RISK AT RISK ------------- ---------------- ------------------- ----------------- ---------------- | | | | Interest Rates $ 1,613,452 | 5.26% | 1,946,896 | 1,251,901 | Currencies 1,368,913 | 4.46% | 1,799,436 | 1,410,850 | Stock Indices 509,390 | 1.66% | 597,509 | 411,258 | Metals 441,829 | 1.44% | 723,667 | 252,200 | ----------------| -------------------| -----------------| ----------------| TOTAL $ 3,933,584 | 12.82% | 5,067,508 | 3,326,209 | ================ =================== ================= ================
Average, highest and lowest value at Risk amounts relate to quarter-end amounts for each 18 calendar quarter-end during the fiscal year. Average Capitalization is the average or the Partnership's capitalization at the end of each quarter of fiscal year 2000. MATERIAL LIMITATIONS ON VALUE AT RISK AS AN ASSESSMENT OF MARKET RISK The face value of the market sector instruments held by the Partnership is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally ranging between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Partnership. The magnitude of the Partnership's open positions creates a "risk of ruin" not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions -- unusual, but historically recurring from time to time -- could cause the Partnership to incur severe losses over a short period of time. The foregoing Value at Risk table -- as well as the past performance of the Partnership -- give no indication of this "risk of ruin." NON-TRADING RISK FOREIGN CURRENCY BALANCES; CASH ON DEPOSIT WITH MLPF&S The Partnership has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as the market risk they represent) are immaterial. The Partnership also has non-trading market risk on the approximately 90%-95% of its assets which are held in cash at MLPF&S. The value of this cash is not interest rate sensitive, but there is cash flow risk in that if interest rates decline so will the cash flow generated on these monies. This cash flow risk is immaterial. QUALITATIVE DISCLOSURES REGARDING PRIMARY TRADING RISK EXPOSURES The following qualitative disclosures regarding the Partnership's market risk exposures -- except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Partnership manages its primary market risk exposures -- constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The Partnership's primary market risk exposures as well as the strategies used and to be used by MLIM AS LLC and the Partnership's two Advisors for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Partnership's risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Partnership. There can be no assurance that the Partnership's current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of the time value of their investment in the Partnership. The following were the primary trading risk exposures of the Partnership as of December 31, 2001, by market sector. INTEREST RATES. 19 Interest rate risk is the principal market exposure of the Partnership. Interest rate movements directly affect the price of derivative sovereign bond positions held by the Partnership and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries materially impact the Partnership's profitability. The Partnership's primary interest rate exposure is to interest rate fluctuations in the United States and the other G-7 countries. However, the Partnership also takes positions in the government debt of smaller nations -- e.g., New Zealand and Australia. MLIM AS LLC anticipates that G-7 interest rates will remain the primary market exposure of the Partnership for the foreseeable future. CURRENCIES. The Partnership trades in a large number of currencies, including cross-rates -- i.e., positions between two currencies other than the U.S. dollar. However, the Partnership's major exposures have typically been in the U.S. dollar/Japanese yen and U.S. dollar/Euro positions. MLIM AS LLC does not anticipate that the risk profile of the Partnership's currency sector will change significantly in the future. The currency trading Value at Risk figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the U.S. dollar-based Partnership in expressing Value at Risk in a functional currency other than U.S. dollars. STOCK INDICES. The Partnership's primary equity exposure is to equity index price movements. The stock index futures traded by the Partnership are by law limited to futures on broadly based indices. As of December 31, 2001, the Partnership's primary exposures were in the S&P 500, Financial Times (England), Nikkei (Japan) and DAX (Germany) stock indices. MLIM AS LLC anticipates little, if any, trading in non-G-7 stock indices. The Partnership is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Japanese indices. METALS. The Partnership's primary metals market exposure is to fluctuations in the price of gold. Although certain of the Advisors will from time to time trade base metals such as aluminum, copper and tin, the principal market exposures of the Partnership have consistently been in the precious metals, gold and silver. However, gold prices have remained volatile over this period, and the Advisors have from time to time taken substantial positions as they have perceived market opportunities to develop. MLIM AS LLC anticipates that gold will remain the primary metals market exposure for the Partnership. QUALITATIVE DISCLOSURES REGARDING NON-TRADING RISK EXPOSURE The following were the only non-trading risk exposures of the Partnership as of December 31, 2001. FOREIGN CURRENCY BALANCES. The Partnership's primary foreign currency balances are in Japanese yen, British pounds and Euros. The Partnership has de minimis exchange rate exposure on these balances. 20 U.S. DOLLAR CASH BALANCE. The Partnership holds U.S. dollars only in cash at MLPF&S. The Partnership has immaterial cash flow interest rate risk on its cash on deposit with MLPF&S in that declining interest rates would cause the income from such cash to decline. QUALITATIVE DISCLOSURES REGARDING MEANS OF MANAGING RISK EXPOSURE TRADING RISK MLIM AS LLC has procedures in place intended to control market risk, although there can be no assurance that they will, in fact, succeed in doing so. These procedures focus primarily on monitoring the trading of JWH and Millburn, calculating the Net Asset Value of the Partnership accounts managed by the two Advisors as of the close of business on each day and reviewing outstanding positions for over-concentrations. While MLIM AS LLC does not itself intervene in the markets to hedge or diversify the Partnership's market exposure, MLIM AS LLC may urge either or both of JWH and Millburn to reallocate positions managed by the two Advisors, in an attempt to avoid over-concentrations. However, such interventions are unusual. Each of JWH and Millburn applies its own risk management policies to its trading. JWH RISK MANAGEMENT JWH attempts to control risk in all aspects of the investment process -- from confirmation of a trend to determining the optimal exposure in a given market, and to money management issues such as the startup or upgrade of investor accounts. JWH double checks the accuracy of market data, and will not trade a market without multiple price sources for analytical input. In constructing a portfolio, JWH seeks to control overall risk as well as the risk of any one position, and JWH trades only markets that have been identified as having positive performance characteristics. Trading discipline requires plans for the exit of a market as well as for entry. JWH factors the point of exit into the decision to enter (stop loss). The size of JWH's positions in a particular market is not a matter of how large a return can be generated but of how much risk it is willing to take relative to that expected return. To attempt to reduce the risk of volatility while maintaining the potential for excellent performance, proprietary research is conducted on an ongoing basis to refine the JWH investment strategies. Research may suggest substitution of alternative investment methodologies with respect to particular contracts; this may occur, for example, when the testing of a new methodology has indicated that its use might have resulted in different historical performance. In addition, risk management research and analysis may suggest modifications regarding the relative weighting among various contracts, the addition or deletion of particular contracts from a program, or a change in position size in relation to account equity. The weighting of capital committed to various markets in the investment programs is dynamic, and JWH may vary the weighting at its discretion as market conditions, liquidity, position limit considerations and other factors warrant. JWH may determine that risks arise when markets are illiquid or erratic, such as may occur cyclically during holiday seasons, or on the basis of irregularly occurring market events. In such cases, JWH at its sole discretion may override computer-generated signals and may at times use discretion in the application of its quantitative models, which may affect performance positively or negatively. Adjustments in position size in relation to account equity have been and continue to be an integral part of JWH's investment strategy. At its discretion, JWH may adjust the size of a position in relation to equity in certain markets or entire programs. Such adjustments may be made at certain times for some programs but not for 21 others. Factors which may affect the decision to adjust the size of a position in relation to account equity include ongoing research, program volatility, assessments of current market volatility and risk exposure, subjective judgment, and evaluation of these and other general market conditions. MILLBURN RISK MANAGEMENT Millburn attempts to control risk through the systematic application of its trading method, which includes a multi-system approach to price trend recognition, an analysis of market volatility, the application of certain money management principles, which may be revised from time to time, and adjusting leverage or portfolio size. In addition, Millburn limits its trading to markets which it believes are sufficiently liquid in respect of the amount of trading it contemplates conducting. Millburn develops trading systems using various classes of quantitative models and data such as price, volume and interest rates, and tests those systems in numerous markets against historical data to simulate trading results. Millburn then analyses the profitability of the systems looking at such features as the percentage of profitable trades, the worst losses experienced, the average giveback of maximum profits on profitable trades and risk adjusted returns. The performance of all systems in the market are then ranked, and three or four systems are selected which make decisions in different ways at different times. This multi-system approach ensures that the total risk intended to be taken in a market is spread over several different strategies. Millburn also attempts to assess market volatility as a means of monitoring and evaluating risk. In doing so, Millburn uses a volatility overlay system which measures the risk in a portfolio's position in a market and signals a decrease in position size when risk increases and an increase in position size when risk decreases. Millburn's volatility overlay maintains overall portfolio risk and distribution of risk across markets within designated ranges. Millburn's risk management also focuses on money management principles applicable to a portfolio as a whole rather than to individual markets. The first principle is reducing overall portfolio volatility through diversification among markets. Millburn seeks a portfolio in which returns from trading in different markets are not highly correlated, that is, in which returns are not all positive or negative at the same time. Additional money management principles include limiting the assets committed as margin or collateral, generally within a range of 15% to 30% of an account's net assets; avoiding the use of unrealized profits in a particular market as margin for additional positions in the same market; and changing the equity used for trading an account solely on a controlled periodic basis, not automatically due to an increase in equity from trading profits. Another important risk management function is the careful control of leverage or portfolio size. Leverage levels are determined by simulating the entire portfolio over the past five or ten years to determine the worst case experienced by the portfolio in the simulation period. The worst case or peak-to-trough drawdown, is measured from a daily high in portfolio assets to the subsequent daily low whether that occurs days, weeks or months after the daily high. If Millburn considers the drawdown too severe, it reduces the leverage or portfolio size. Millburn determines asset allocation among markets and position size on the basis of the money management principles and trading data research discussed above and the market experience of Millburn's principles. From time to time Millburn may adjust the size of a position, long or short, in any given market. Decisions to make such adjustments require the exercise of judgment and may include consideration of the volatility of the particular market; the pattern of price movements, both inter-day and intra-day; open interest; volume of trading; changes in spread relationships between various forward contracts; and overall portfolio balance and risk exposure. 22 NON-TRADING RISK The Partnership controls the non-trading exchange rate risk by regularly converting foreign balances back into U.S. dollars (no less frequently than twice a month, and more frequently if a particular foreign currency balance becomes unusually high). The Partnership has cash flow interest rate risk on its cash on deposit with MLPF&S in that declining interest rates would cause the income from such cash to decline. However, a certain amount of cash or cash equivalents must be held by the Partnership in order to facilitate margin payments and pay expenses and redemptions. MLIM AS LLC does not take any steps to limit the cash flow risk on its cash held on deposit at MLPF&S. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA SELECTED QUARTERLY FINANCIAL DATA JOHN W. HENRY & CO. / MILLBURN L.P. Net Income by Quarter Eight Quarters through December 31, 2001
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER 2001 2001 2001 2001 2000 2000 2000 2000 ---- ---- ---- ---- ---- ---- ---- ---- Total Income $ (933,951) $2,448,970 $(2,741,806) $5,021,015 $8,638,624 $ (920,982) $(3,342,173) $(3,818,135) Total Expenses 599,781 612,160 639,689 677,323 595,710 652,496 779,296 956,347 -------------------------------------------------------------------------------------------------------- Net Income $(1,533,732) $1,836,810 $(3,381,495) $4,343,692 $8,042,914 $(1,573,478) $(4,121,469) $(4,774,482) Net Income per Unit $ (12.18) $ 14.16 $ (25.19) $ 30.73 $ 53.39 $ (9.19) $ (22.45) $ (23.47)
The financial statements required by this Item are included in Exhibit 13.01. The supplementary financial information ("information about oil and gas producing activities") specified by Item 302 of Regulation S-K is not applicable. MLIM AS LLC promoted the Partnership and is its controlling person. ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in or disagreements with independent auditors on accounting or financial disclosure. PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 10(a) & 10(b) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS: As a limited partnership, the Partnership itself has no officers or directors and is managed by MLIM AS LLC. Trading decisions are made by the Advisors on behalf of the Partnership. The managers and executive officers of MLIM AS LLC and their business backgrounds are as follows. FABIO P. SAVOLDELLI Chairman, Chief Executive Officer and Manager ROBERT M. ALDERMAN Manager FRANK M. MACIOCE Vice President and Manager STEVEN B. OLGIN Vice President, Chief Administrative Officer and Manager MICHAEL L. PUNGELLO Vice President, Chief Financial Officer and Treasurer
Fabio P. Savoldelli was born in 1961. Mr. Savoldelli is Chairman, Chief Executive Officer and a Manager of MLIM AS LLC. He oversees the Partnership's investments. Most recently, Mr. Savoldelli was Chief Investment Officer for the Americas at the Chase Manhattan Private Bank, responsible for managers investing assets in international and domestic institutional, private client and ERISA funds. Previously, he was Deputy Chief Investment Officer 23 and Head of Fixed Income and Foreign Exchange at Swiss Bank Corp. London Portfolio Management International. Mr. Savoldelli was educated at the University of Windsor, Canada, and the London School of Economics. Effective March 1, 2002, Mr. Robert M. Alderman was elected a manager of MLIM AS LLC. Mr. Alderman was born in 1960. Mr. Alderman is a Managing Director of MLIM and global head of Retail Sales and Business Management for Alternative Investments. Prior to re-joining Merrill Lynch and the International Private Client Group in 1999, he was a partner in the Nashville, Tennessee based firm of J.C. Bradford & Co. where he was the Director of Marketing, and a National Sales Manager for Prudential Investments. Mr. Alderman first joined Merrill Lynch in 1987 where he worked until 1997. During his tenure at Merrill Lynch, Mr. Alderman has held positions in Financial Planning, Asset Management and High Net Worth Services. He received his Master's of Business Administration from the Carroll School of Management Boston College and a Bachelor of Arts from Clark University. Mr. Alderman was elected as a Manager effective March 1, 2002. Frank M. Macioce was born in 1945. Mr. Macioce is a Vice President and a Manager of MLIM AS LLC and the senior legal counsel responsible for Alternative Investments. He joined MLIM in February 2000. From 1995 to 2000, Mr. Macioce was General Counsel of Operations, Services and Technology for Merrill Lynch, and from 1993 to 1995 served as Merrill Lynch Investment Banking General Counsel. From 1980 to 1993 he served as Assistant General Counsel of Merrill Lynch responsible for Corporate Law. During his 28 years with Merrill Lynch, he has served as a director and officer of a number of its affiliates. Mr. Macioce graduated from Purdue University with a Bachelor of Science in Economics and Psychology in 1967 and from Vanderbilt Law School with a Juris Doctor in 1972. Mr. Macioce is a member of the New York Bar. Steven B. Olgin was born in 1960. Mr. Olgin is Vice President, Chief Adminstrative Officer and a Manager of MLIM AS LLC. He joined MLIM AS LLC in July 1994 and became a Vice President in July 1995. From 1986 until July 1994, Mr. Olgin was an associate of the law firm of Sidley & Austin. In 1982, Mr. Olgin graduated from The American University with a Bachelor of Science in Business Administration and a Bachelor of Arts in Economics. In 1986, he received his Juris Doctor from The John Marshall Law School. Mr. Olgin is a member of the Managed Funds Association's Government Relations Committee and has served as an arbitrator for the National Futures Association. Mr. Olgin is a member of the Illinois Bar. Michael L. Pungello was born in 1957. Mr. Pungello is Vice President, Chief Financial Officer and Treasurer of MLIM AS LLC. He was First Vice President and Senior Director of Finance for Merrill Lynch's Operations, Services and Technology Group from January 1998 to March 1999. Prior to that, Mr. Pungello spent over 18 years with Deloitte & Touche LLP, and was a partner in their financial services practice from June 1990 to December 1997. He graduated from Fordham University in 1979 with a Bachelor of Science in Accounting and received his Master's of Business Administration in Finance from New York University in 1987. As of December 31, 2001, the principals of MLIM AS LLC had no investment in the Partnership, and MLIM AS LLC's general partnership interest was valued at $285,778. MLIM AS LLC acts as general partner to eleven public futures funds whose units of limited partnership interest are registered under the Securities Exchange Act of 1934: The Futures Expansion Fund Limited Partnership, ML Futures Investments L.P., ML Futures Investments II L.P. , The S.E.C.T.O.R. Strategy Fund (SM) L.P., The SECTOR Strategy Fund (SM) II L.P., The SECTOR Strategy Fund (SM) V L.P., The SECTOR Strategy Fund (SM) VI L.P., ML Global Horizons L.P., ML Principal Protection L.P., ML JWH Strategic Allocation Fund L.P. and the Partnership. Because MLIM AS LLC serves as the sole general partner of each of these funds, the officers and managers of MLIM AS LLC effectively manage them as officers and directors of such funds. (c) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES: None. (d) FAMILY RELATIONSHIPS: None. (e) BUSINESS EXPERIENCE: See Items 10(a) and (b) above. 24 (f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS: None. (g) PROMOTERS AND CONTROL PERSONS: Not applicable. ITEM 11: EXECUTIVE COMPENSATION The officers of MLIM AS LLC are remunerated by MLIM AS LLC in their respective positions. The Partnership does not itself have any officers, directors or employees. The Partnership pays Brokerage Commissions to an affiliate of MLIM AS LLC and Administrative Fees to MLIM AS LLC. MLIM AS LLC or its affiliates also may receive certain economic benefits from holding the Partnership's dollar assets in offset accounts, as described in Item 1(c) above. The managers and officers receive no "other compensation" from the Partnership, and the managers receive no compensation for serving as managers of MLIM AS LLC. There are no compensation plans or arrangements relating to a change in control of either the Partnership or MLIM AS LLC. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS: As of December 31, 2001, no person or "group" is known to be or have been the beneficial owner of more than 5% of the Units. All of the Partnership's units of general partnership interest are owned by MLIM AS LLC. (b) SECURITY OWNERSHIP OF MANAGEMENT: As of December 31, 2001, the Advisors owned 515 Series A Units, 500 Series B Units and 1,000 Series C Units and MLIM AS LLC owned 284 Series A Units, 613 Series B Units and 450 Series C Units (unit-equivalent general partnership interests) which was, in each case, less than 3% of each series of the total Units outstanding, respectively. (c) CHANGES IN CONTROL: None. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) TRANSACTIONS BETWEEN MERRILL LYNCH AND THE PARTNERSHIP All of the service providers to the Partnership, other than the Advisors, are affiliates of Merrill Lynch. Merrill Lynch negotiated with the Advisors over the level of their advisory fees and Profit Shares. However, none of the fees paid by the Partnership to any Merrill Lynch party were negotiated, and they are higher than would have been obtained in arm's-length bargaining. The Partnership pays Merrill Lynch substantial Brokerage Commissions and Administrative Fees as well as bid-ask spreads on forward currency trades. The Partnership also pays MLPF&S interest on short-term loans extended by MLPF&S to cover losses on foreign currency positions. 25 Within the Merrill Lynch organization, MLIM AS LLC is the direct beneficiary of the revenues received by different Merrill Lynch entities from the Partnership. MLIM AS LLC controls the management of the Partnership and serves as its promoter. Although MLIM AS LLC has not sold any assets, directly or indirectly, to the Partnership, MLIM AS LLC makes substantial profits from the Partnership due to the foregoing revenues. No loans have been, are or will be outstanding between MLIM AS LLC or any of its principals and the Partnership. MLIM AS LLC pays substantial selling commissions and trailing commissions to MLPF&S for distributing the Units. MLIM AS LLC is ultimately paid back for these expenditures from the revenues it receives from the Partnership. (b) CERTAIN BUSINESS RELATIONSHIPS: MLPF&S, an affiliate of MLIM AS LLC, acts as the principal commodity broker for the Partnership. In 2001, the Partnership expensed through its investment in the Trading LLCs: (i) Brokerage Commissions of $2,456,699 to MLPF&S, which included $574,795 in consulting fees earned by the Advisors; and (ii) Administrative Fees of $72,253 to MLIM AS LLC. In addition, MLIM AS LLC and its affiliates may have derived certain economic benefits from possession of the Partnership's assets, as well as from foreign exchange and EFP trading. (c) INDEBTEDNESS OF MANAGEMENT: The Partnership is prohibited from making any loans, to management or otherwise. (d) TRANSACTIONS WITH PROMOTERS: Not applicable. 26 PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. FINANCIAL STATEMENTS: PAGE -------------------- ---- Independent Auditors' Report 1 Financial Statements: Statements of Financial Condition as of December 31, 2001 and 2000 2 Statements of Operations For the years ended December 31, 2001, 2000 and 1999 3 Statements of Changes in Partners' Capital For the years ended December 31, 2001, 2000 and 1999 4 Financial Data Highlights for the year ended December 31, 2001 5 Notes to Financial Statements 6-15
(a)2. FINANCIAL STATEMENT SCHEDULES: Financial statement schedules not included in this Form 10-K have been omitted for the reason that they are not required or are not applicable or that equivalent information has been included in the financial statements or notes thereto. (a)3. EXHIBITS: The following exhibits are incorporated by reference or are filed herewith to this Annual Report on Form 10-K:
DESIGNATION DESCRIPTION 3.01(ii) Amended and Restated Limited Partnership Agreement of the Partnership. EXHIBIT 3.01(ii): Is incorporated herein by reference from Exhibit 3.01(ii) contained in Amendment No. 1 (as Exhibit A) to the Registration Statement (File No. 33-41373) filed on August 20, 1991, on Form S-1 under the Securities Act of 1933 (the "Registrant's Registration Statement"). 3.02(c) Amended and Restated Certificate of Limited Partnership of the Partnership, dated July 27, 1995. EXHIBIT 3.02(c): Is incorporated by reference from Exhibit 3.02(c) contained in the Registrant's report on Form 10-Q for the Quarter Ended June 30, 1995. 10.01(o) Form of Advisory Agreement between the Partnership, MLIM AS LLC, MLPF&S and each of John W. Henry & Company, Inc. and Millburn Ridgefield Corporation. EXHIBIT 10.01(o): Is incorporated by reference from Exhibit 10.01(o) contained in the Registrant's report on Form 10-Q for the Quarter Ended June 30, 1995.
27 10.02(a) Form of Consulting Agreement between each Adviser, the Partnership and MLPF&S. EXHIBIT 10.02(a): Is incorporated herein by reference from Exhibit 10.02(a) contained in Amendment No. 1 to the Registration Statement (File No. 33-30096) dated as of September 21, 1989, on Form S-1 under the Securities Act of 1933. 10.03 Form of Customer Agreement between the Partnership and MLPF&S. EXHIBIT 10.03: Is incorporated herein by reference from Exhibit 10.03 contained in the Registrant's Registration Statement. 10.06 Foreign Exchange Desk Service Agreement, dated July 1, 1993 among Merrill Lynch International Bank, MLIM AS LLC, MLPF&S and the Partnership. EXHIBIT 10.06: Is incorporated herein by reference from Exhibit 10.06 contained in the Registrant's report on Form 10-K for the year ended December 31, 1996. 10.07(a) Form of Advisory and Consulting Agreement Amendment among MLIM AS LLC, each Advisor, the Partnership and MLPF&S. EXHIBIT 10.07(a): Is incorporated herein by reference from Exhibit 10.07(a) contained in the Registrant's report on Form 10-K for the year ended December 31, 1996. 10.07(b) Form of Amendment to the Customer Agreement among the Partnership and MLPF&S. EXHIBIT 10.07(b) Is incorporated herein by reference from Exhibit 10.07(b) contained in the Registrant's report on Form 10-K for the year ended December 31, 1996. 13.01 2001 Annual Report and Independent Auditors' Report. EXHIBIT 13.01: Is filed herewith. 13.01(a) 2001 Annual Report and Independent Auditors' Report for the following Trading Limited Liability Companies sponsored by MLIM Alternative Strategies LLC: ML Millburn Global L.L.C. and ML JWH Financial and Metals Portfolio L.L.C. EXHIBIT 13.01(a): Is incorporated herein by reference from Form 10-K (fiscal year ended December 31, 2001) Commission File number 0-18702 for The S.E.C.T.O.R. Fund (SM) L.P. (Registration Statement File No. 33-34432 filed on May 25, 1990 under the Securities Act of 1933). 28.01 Prospectus of the Partnership dated September 29, 1989. EXHIBIT 28.01: Is incorporated by reference as filed with the Securities and Exchange Commission pursuant to Rule 424 under the Securities Act of 1933, as amended, on October 10, 1989.
28 28.02 Prospectus of the Partnership dated December 14, 1990. EXHIBIT 28.02: Is incorporated by reference as filed with the Securities and Exchange Commission pursuant to Rule 424 under the Securities Act of 1933, as amended, on December 20, 1990. 28.03 Prospectus of the Partnership dated September 13, 1991. EXHIBIT 28.03: Is incorporated by reference as filed with the Securities and Exchange Commission pursuant to Rule 424 under the Securities Act of 1933, Registration Statement on September 23, 1991.
(b) Report on Form 8-K: No reports on Form 8-K were filed during the fourth quarter of 2001. 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 By: /s/ Fabio P. Savoldelli Chairman, Chief Executive Officer and Manager Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed on March 29, 2002 by the following persons on behalf of the Registrant and in the capacities indicated.
Signature Title Date /s/Fabio P. Savoldelli Chairman, Chief Executive Officer and Manager March 29, 2002 ---------------------- (Principal executive officer) Fabio P. Savoldelli /s/Robert M. Alderman Manager March 29, 2002 ---------------------- Robert M. Alderman /s/Steven B. Olgin Vice President, Chief Administrative Officer and Manager March 29, 2002 ------------------ Steven B. Olgin /s/Michael L. Pungello Vice President, Chief Financial Officer and Treasurer March 29, 2002 ---------------------- (Principal financial and accounting officer) Michael L. Pungello (Being the principal executive officer, the principal financial and accounting officer and a majority of the managers of MLIM Alternative Strategies LLC) MLIM ALTERNATIVE STRATEGIES General Partner of Registrant March 29, 2002 LLC BY: /s/Fabio P. Savoldelli -------------------------- Fabio P. Savoldelli
30 JOHN W. HENRY & CO./MILLBURN L.P. 2001 FORM 10-K INDEX TO EXHIBITS
EXHIBIT ------- Exhibit 13.01 2001 Annual Report and Independent Auditors' Report Exhibit 13.01(a) 2001 Annual Report and Independent Auditors' Report ML Millburn Global, LLC ML JWH Financials & Metals Portfolio, LLC
31