-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EfuAjunposdJE60us1t4Cm2NDd8+3SSJ+4wtlsbhIdIRmic2M+xWPl5ucfCU+WoA NlXNgTfM7AFNR2cnW6CT4Q== 0001047469-03-010883.txt : 20030328 0001047469-03-010883.hdr.sgml : 20030328 20030328160049 ACCESSION NUMBER: 0001047469-03-010883 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HENRY JOHN W & CO/MILLBURN L P CENTRAL INDEX KEY: 0000853456 STANDARD INDUSTRIAL CLASSIFICATION: [6221] IRS NUMBER: 061287586 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-18215 FILM NUMBER: 03625352 BUSINESS ADDRESS: STREET 1: WORLD FINANCIAL CTR SOUTH TWR-6TH FLR STREET 2: C/O ML FUTURE INVESTMENT PARTNERS INCAGE CITY: MERRILL LYNCH WORLD STATE: NY ZIP: 10080 BUSINESS PHONE: 2122364161 MAIL ADDRESS: STREET 1: MERRILL LYNCH & CO STREET 2: WORLD FINANCIAL CTR, SOUTH TOWER, 6TH FL CITY: NEW YORK STATE: NY ZIP: 10080-6106 10-K 1 a2105278z10-k.txt 10-K 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, 2002 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 MERRILL LYNCH ALTERNATIVE INVESTMENTS 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, 2003, limited partnership units with an aggregate value of $33,076,338 were outstanding and held by non-affiliates. DOCUMENTS INCORPORATED BY REFERENCE The registrant's "2002 Annual Report and Independent Auditors' Report," the annual report to security holders for the fiscal year ended December 31, 2002, 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 2002 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........................................... 5 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................... 5 Item 6. Selected Financial Data....................................................................... 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 11 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................... 15 Item 8. Financial Statements and Supplementary Data................................................... 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 21 PART III Item 10. Directors and Executive Officers of the Registrant............................................ 21 Item 11. Executive Compensation........................................................................ 22 Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 23 Item 13. Certain Relationships and Related Transactions................................................ 23 Item 14. Controls and Procedures....................................................................... 24 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 25
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"). Merrill Lynch Alternative Investments LLC ("MLAI LLC"), a 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") is the Partnership's commodity broker. Merrill Lynch Alternative Investments LLC was formerly known as MLIM Alternative Strategies LLC ("MLIM AS LLC"). As of February 28, 2003, MLIM Alternative Strategies changed its name to Merrill Lynch Alternative Investments LLC, as part of an internal Merrill Lynch reorganization. This change did not affect the personnel involved in the management of the Partnership. As used herein, the capitalized term "MLAI LLC" also refers to the general partner at times when its name was MLIM Alternative Strategies LLC, as applicable. 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, 2002, 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 MLAI LLC, each one of which was 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 MLAI LLC. Throughout this document, references to the Partnership refer to the Partnership's investment in the Trading LLC's. As of December 31, 2002, the aggregate capitalization of the Partnership was $30,928,775, the total capitalization of the Series A, Series B and Series C Units was $8,105,834, $14,478,511 and $8,344,430, 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 $358.55 (excluding a $20 per Series A Unit distribution paid as of November 30, 1990), $291.34 and $227.02, respectively. The highest month-end Net Asset Value per Series A Unit through December 31, 2002 was $378.00 (excluding the distributions paid in 1990) (September 30, 2002) and the lowest $100.31 (May 31, 1990); the highest month-end Net Asset Value per Series B Unit through December 31, 2002 was $307.14 (September 30, 2002) and the -1- lowest $91.20 (May 31, 1992); the highest month-end Net Asset Value per Series C Unit through December 31, 2002 was $239.33 (September 30, 2002) 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 MLAI LLC through which the trading accounts of different MLAI 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. 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. -2- 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 2002 and 2001, 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 2002, 2001 and 2000 equaled $27,713,533, $28,586,131, and $30,694,862, respectively. The Partnership pays brokerage commissions to MLPF&S at a flat monthly rate of 0.708 of 1% (a 8.50% annual rate) of the Partnership's month-end assets. The Partnership pays MLAI LLC a monthly administrative fee of 0.021 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). MLAI LLC estimates that the round-turn equivalent rates charged to ML Millburn Global L.L.C. ("Millburn") during the years ended 2002, 2001 and 2000 were approximately $309, $242, and $324, respectively. MLAI LLC estimates that the round-turn equivalent rates charged to ML JWH Financial and Metals Portfolio L.L.C. ("JWH") during the years ended 2002, 2001 and 2000 were approximately $236, $155, and $146, 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. MLAI LLC Administrative Fees The Partnership pays MLAI LLC a monthly Administrative Fee equal to 0.021 of 1% (0.25% annually) of the Partnership's month-end assets. MLAI LLC pays all of the Partnership's routine administrative costs. Other Bid-ask spreads Bid-ask spreads on forward and Counterparties related trades. 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 trading 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 Others paid to date. REGULATION MLAI LLC, the Advisors and MLPF&S are each subject to regulation by the Commodity Futures Trading Commission (the "CFTC") and the National Futures Association ("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. However, MLAI LLC itself is registered as an "investment adviser" under the Investment Advisers Act of 1940. (i) through (xii) -- not applicable. (xiii) The Partnership has no employees. -4- (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 administrative offices are the administrative offices of MLAI LLC (Merrill Lynch Alternative Investments LLC, Princeton Corporate Campus, 800 Scudders Mill Road - Section 2G, Plainsboro, New Jersey 08536). MLAI LLC performs all administrative services for the Partnership from MLAI LLC's offices. ITEM 3: LEGAL PROCEEDINGS Merrill Lynch, a partner of MLIM which is the sole member of MLAI 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 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 MLAI LLC or the Partnership. MLAI 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, 2002, there were 212, 606 and 308 holders of the Series A, B and C Units, respectively, including MLAI LLC. (c) DIVIDENDS: The Partnership has made only one distribution ($20 per Series A Unit payable as of November 30, 1990) since trading commenced. MLAI LLC does not presently intend to make any further distributions. (d) SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS: -5- Not applicable. 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.[OBJECT OMITTED] 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 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ Revenues: Income (Loss) from Investments $ 8,302,393 $ 1,265,275 $ (2,426,515) $ (6,145,111) $ 1,867,451 ---------------------------------------------------------------------------------- Net Income (Loss) $ 8,302,393 $ 1,265,275 $ (2,426,515) $ (6,145,111) $ 1,867,451 ==================================================================================
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, Balance Sheet Data 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ Partnership Net Asset Value $30,928,775 $26,155,682 $29,423,145 $42,876,172 $56,163,313 Net Asset Value per Series A Unit $358.55 $267.82 $258.05 $260.14 $296.13 Net Asset Value per Series B Unit $291.34 $217.61 $209.67 $211.47 $240.61 Net Asset Value per Series C Unit $227.02 $169.60 $163.40 $164.80 $187.52
All income is from investing in the Trading LLC's.
- ------------------------------------------------------------------------------------------------------------------------------- MONTH-END NET ASSET VALUE PER SERIES A UNIT - ------------------------------------------------------------------------------------------------------------------------------- JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. - ------------------------------------------------------------------------------------------------------------------------------- 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 $273.76 $283.68 $296.39 $254.29 $267.82 - ------------------------------------------------------------------------------------------------------------------------------- 2002 $269.22 $255.81 $242.23 $237.12 $258.85 $317.98 $345.63 $355.58 $378.00 $350.39 $333.11 $358.55 - -------------------------------------------------------------------------------------------------------------------------------
-6-
- ------------------------------------------------------------------------------------------------------------------------------- MONTH-END NET ASSET VALUE PER SERIES B UNIT - ------------------------------------------------------------------------------------------------------------------------------- JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. - ------------------------------------------------------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------------------------------------------------------- 2002 $218.75 $207.86 $196.82 $192.67 $210.33 $258.37 $280.70 $288.92 $307.14 $284.70 $270.66 $291.34 - -------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------- MONTH-END NET ASSET VALUE PER SERIES C UNIT - ------------------------------------------------------------------------------------------------------------------------------- JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. - ------------------------------------------------------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------------------------------------------------------- 2002 $170.48 $161.99 $153.39 $150.15 $163.92 $201.36 $218.76 $225.14 $239.33 $221.85 $210.91 $227.02 - -------------------------------------------------------------------------------------------------------------------------------
Pursuant to CFTC policy, monthly performance is presented from January 1, 1998 even though all Series were outstanding prior to such date. -7- JOHN W. HENRY & CO./MILLBURN L.P. (SERIES A UNITS) DECEMBER 31, 2002 TYPE OF POOL: Selected-Advisor/Publicly-Offered/Non-"Principal Protected"(1) INCEPTION OF TRADING: January 5, 1990 AGGREGATE SUBSCRIPTIONS: $18,182,000 CURRENT CAPITALIZATION: $8,105,834 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, 2002: $358.55
- -------------------------------------------------------------------------------- MONTHLY RATES OF RETURN(4) - -------------------------------------------------------------------------------- MONTH 2002 2001 2000 1999 1998 - -------------------------------------------------------------------------------- January 0.52% 2.36% (1.70)% (2.79)% (1.09)% - -------------------------------------------------------------------------------- February (4.98) 0.34 (6.78) 1.17 (4.32) - -------------------------------------------------------------------------------- March (5.31) 12.20 (3.33) (1.06) 0.48 - -------------------------------------------------------------------------------- April (2.11) (7.71) 0.03 3.09 (7.97) - -------------------------------------------------------------------------------- May 9.17 1.97 (4.07) 2.05 3.38 - -------------------------------------------------------------------------------- June 22.84 (5.07) (8.87) 5.38 (2.86) - -------------------------------------------------------------------------------- July 8.70 (4.47) (1.10) (2.93) (4.58) - -------------------------------------------------------------------------------- August 2.88 7.82 (1.07) (2.53) 13.34 - -------------------------------------------------------------------------------- September 6.31 3.69 (3.74) (4.25) 13.30 - -------------------------------------------------------------------------------- October (7.30) 4.48 7.21 (8.83) (2.39) - -------------------------------------------------------------------------------- November (4.93) (14.20) 8.40 (0.80) (6.05) - -------------------------------------------------------------------------------- December 7.64 5.32 16.99 (0.61) 5.56 - -------------------------------------------------------------------------------- Compound Annual Rate of Return 33.90% 3.79% (0.81)% (12.15)% 4.24% - --------------------------------------------------------------------------------
(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 MLAI 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, 1998 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, 1998 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. -8- JOHN W. HENRY & CO./MILLBURN L.P. (SERIES B UNITS) DECEMBER 31, 2002 TYPE OF POOL: Selected-Advisor/Publicly-Offered/Non-"Principal Protected"(1) INCEPTION OF TRADING: January 28, 1991 AGGREGATE SUBSCRIPTIONS: $50,636,000 CURRENT CAPITALIZATION: $14,478,511 WORST MONTHLY DRAWDOWN(2): (14.91)% (11/01) WORST PEAK-TO-VALLEY DRAWDOWN(3):(40.57)% (7/99-9/00) ------------- NET ASSET VALUE PER SERIES B UNIT, DECEMBER 31, 2002: $291.34
- -------------------------------------------------------------------------------- MONTHLY RATES OF RETURN(4) - -------------------------------------------------------------------------------- MONTH 2002 2001 2000 1999 1998 - -------------------------------------------------------------------------------- January 0.52% 2.36% (1.69)% (2.78)% (1.09)% - -------------------------------------------------------------------------------- February (4.98) 0.33 (6.78) 1.17 (4.33) - -------------------------------------------------------------------------------- March (5.31) 12.20 (3.34) (1.06) 0.49 - -------------------------------------------------------------------------------- April (2.11) (7.71) 0.02 3.10 (7.96) - -------------------------------------------------------------------------------- May 9.17 1.97 (4.08) 2.04 3.38 - -------------------------------------------------------------------------------- June 22.84 (5.07) (8.87) 5.38 (2.86) - -------------------------------------------------------------------------------- July 8.64 (4.47) (1.10) (2.93) (4.60) - -------------------------------------------------------------------------------- August 2.92 7.81 (1.07) (2.52) 13.33 - -------------------------------------------------------------------------------- September 6.30 3.68 (3.73) (4.24) 13.30 - -------------------------------------------------------------------------------- October (7.30) 4.48 7.20 (8.83) (2.39) - -------------------------------------------------------------------------------- November (4.93) (14.19) 8.38 (0.79) (6.05) - -------------------------------------------------------------------------------- December 7.64 5.31 16.97 (0.60) 5.54 - -------------------------------------------------------------------------------- Compound Annual Rate of Return 33.88% 3.78% (0.86)% (12.11)% 4.20% - --------------------------------------------------------------------------------
(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 MLAI 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, 1998 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, 1998 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 C UNITS) DECEMBER 31, 2002 TYPE OF POOL: Selected-Advisor/Publicly-Offered/Non-"Principal Protected"(1) INCEPTION OF TRADING: January 2, 1992 AGGREGATE SUBSCRIPTIONS: $40,000,000 CURRENT CAPITALIZATION: $8,344,430 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, 2002: $227.02
- -------------------------------------------------------------------------------- MONTHLY RATES OF RETURN(4) - -------------------------------------------------------------------------------- MONTH 2002 2001 2000 1999 1998 - -------------------------------------------------------------------------------- January 0.52% 2.36% (1.69)% (2.78)% (1.08)% - -------------------------------------------------------------------------------- February (4.98) 0.33 (6.78) 1.17 (4.33) - -------------------------------------------------------------------------------- March (5.31) 12.20 (3.34) (1.06) 0.49 - -------------------------------------------------------------------------------- April (2.11) (7.71) 0.02 3.10 (7.97) - -------------------------------------------------------------------------------- May 9.17 1.97 (4.08) 2.04 3.38 - -------------------------------------------------------------------------------- June 22.84 (5.07) (8.87) 5.38 (2.86) - -------------------------------------------------------------------------------- July 8.64 (4.47) (1.10) (2.93) (4.60) - -------------------------------------------------------------------------------- August 2.92 7.81 (1.07) (2.52) 13.33 - -------------------------------------------------------------------------------- September 6.30 3.68 (3.73) (4.24) 13.29 - -------------------------------------------------------------------------------- October (7.30) 4.48 7.20 (8.83) (2.38) - -------------------------------------------------------------------------------- November (4.93) (14.19) 8.38 (0.79) (6.05) - -------------------------------------------------------------------------------- December 7.64 5.31 16.97 (0.60) 5.54 - -------------------------------------------------------------------------------- Compound Annual Rate of Return 33.86% 3.79% (0.86)% (12.11)% 4.20% - --------------------------------------------------------------------------------
(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 MLAI 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, 1998 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, 1998 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- 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, MLAI 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 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. -11- 2002 The Partnership's overall trading was very profitable for the year, bringing in an over 33% compounded annual rate of return for 2002. The major contributors were the financial futures and forward sectors. The metals sector produced moderate losses for the year. The interest rate sector was profitable for the Partnership despite its slow start. The year began with a loss as interest rates were particularly sensitive to economic data that was released, and more so to its varied interpretations. By June, the Partnership profited from a strong bond market, which benefited from the weakness in the stock market and unchanged interest rates. Economic numbers in the United States suggested that the economy was stabilizing, however, consumer confidence continued to deteriorate fueling the bond rallies in the third quarter. Economists continued to revise their world growth estimates for 2003 downward under 4%. The currency sector also brought in significant profits for the year. Strong trends developed from a weakening U.S. dollar during the second quarter, where most of the profits were incurred. Most of the major currencies made new highs versus the U.S. dollar in June. Currencies produced losses for the remainder of the year until December, citing currencies being repatriated to their home country and high global cash balances creating a difficult market for the Partnership in major currencies. In December, the U.S. dollar's weakness globally due to the threat of a possible war with Iraqi and tensions with North Korea created a trend that the Partnership was able to use profitably. The stock index sector produced profits for the year as equity markets were under heavy pressure from poor corporate earnings, accounting irregularities and a general global economic slowdown. Volatility in the equity markets was at a high level, keeping bargain hunters from re-entering the markets, keeping up a trend the Partnership was able to capitalize on through the third quarter. The sector returned some of its profits in the fourth quarter as frequent worldwide economic news releases alternated from positive to negative Metals trading brought in losses for the year. A choppy market for industrial metals prevented profits. Precious metals experienced similar choppy conditions. Gold appears to be the most popular investment metal, but producers are hesitant to hedge at current levels and limit their upside potential. Gold ended the year on the upside due the uncertain global economic climate. Specific trading results are not included for 2002 because the Partnership traded exclusively through investing in Trading LLC's. 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. -12- 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. Specific trading results are not included for 2001 because the Partnership traded exclusively through investing in Trading LLC's. 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 Japanese 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 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 ten-year bond, ten-year U.S. Treasury note positions and long U.S. Treasury positions as the yield curve fluctuated widely during the first quarter. U.S. 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 Japanese ten-year bond and U.S. ten-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 U.S. 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. Specific trading results are not included for 2000 because the Partnership traded exclusively through investing in Trading LLC's. -13- 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 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 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 at the Trading LLC's 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. Except in very unusual circumstances, the Trading LLC's 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. -14- 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 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 Trading LLC'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. -15- 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 2002. During the fiscal year 2002, the Partnership's average capitalization was approximately $27,713,533. As of December 31, 2001, the average capitalization was approximately $28,586,131. The Partnership does not trade commodities or energy futures. Fiscal Year 2002
AVERAGE VALUE % OF AVERAGE HIGHEST VALUE LOWEST VALUE MARKET SECTOR AT RISK CAPITALIZATION AT RISK AT RISK ----------------- ------------------- ----------------- ---------------- Interest Rates $ 1,263,853 4.09% 2,080,767 437,570 Currencies 1,415,410 4.58% 2,279,690 72,314 Stock Indices 251,584 0.81% 378,750 57,264 Metals 588,987 1.90% 959,429 56,496 ----------------- ------------------- ----------------- ---------------- TOTAL $ 3,519,834 11.38% 5,698,636 623,644 ================= =================== ================= ================
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 2002. -16- 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. 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 MLAI 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 -17- 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, 2002, by market sector. INTEREST RATES. 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. MLAI 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. MLAI 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, 2002, the Partnership's primary exposures were in the S&P 500, Financial Times (England), Nikkei (Japan) and DAX (Germany) stock indices. MLAI 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 and silver. 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 (and, to a much lesser extent, platinum). 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. MLAI LLC anticipates that gold and silver 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, 2002. 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. U.S. DOLLAR CASH BALANCE. The Partnership holds U.S. dollars only in cash at MLPF&S. The Partnership has immaterial cash -18- 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 MLAI 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 MLAI LLC does not itself intervene in the markets to hedge or diversify the Partnership's market exposure, MLAI 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 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. -19- 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 analyzes 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. NON-TRADING RISK The Partnership controls the non-trading exchange rate risk by regularly converting foreign balances back into U.S. dollars on a weekly basis. 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. MLAI LLC does not take any steps to limit the cash flow risk on its cash held on deposit at MLPF&S. -20- 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, 2002
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER 2002 2002 2002 2002 2001 2001 2001 2001 ---- ---- ---- ---- ---- ---- ---- ---- Total Income $(1,202,552) $7,314,072 $7,762,043 $(1,907,019) $ (933,951) $2,448,970 $(2,741,806) $5,021,015 Total Expenses 535,689 1,892,668 691,868 543,926 599,781 612,160 639,689 677,323 ----------------------------------------------------------------------------------------------------------- Net Income $(1,738,241) $5,421,404 $7,070,175 $(2,450,945) $(1,533,732) $1,836,810 $(3,381,495) $4,343,692 =========================================================================================================== Net Income per Unit $ (15.77) $ 47.56 $ 59.49 $ (20.09) $ (12.18) $ 14.16 $ (25.19) $ 30.73
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. MLAI 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 MLAI LLC. Trading decisions are made by the Advisors on behalf of the Partnership. The managers and executive officers of MLAI LLC and their business backgrounds are as follows. ROBERT M. ALDERMAN Chairman, Chief Executive Officer and Manager STEVEN B. OLGIN Vice President, Chief Administrative Officer and Manager MICHAEL L. PUNGELLO Vice President, Chief Financial Officer and Treasurer Mr. Alderman was born in 1960. Mr. Robert M. Alderman is Chairman, Chief Executive Officer and a manager of MLAI LLC. 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, -21- 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. Steven B. Olgin was born in 1960. Mr. Olgin is a Vice President, Chief Adminstrative Officer and a Manager of MLAI LLC. He joined MLAI 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 a Vice President, Chief Financial Officer and Treasurer of MLAI 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, 2002, the principals of MLAI LLC had no investment in the Partnership, and MLAI LLC's general partnership interest was valued at $317,512. As of February 28, 2003, MLAI LLC acts as general partner to three public futures funds whose units of limited partnership interest are registered under the Securities Exchange Act of 1934: The Futures Expansion Fund Limited Partnership, and ML JWH Strategic Allocation Fund L.P. and the Partnership. Because MLAI LLC serves as the sole general partner of each of these funds, the officers and managers of MLAI LLC effectively manage them as officers and directors of such funds. Prior to February 28, 2003, MLAI LLC (while still known as MLIM AS LLC) acted as general partner of six futures funds whose units of limited partnership interest are registered under the Securities Exchange Act of 1934. (c) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES: None. (d) FAMILY RELATIONSHIPS: None. (e) BUSINESS EXPERIENCE: See Item 10(a) and (b) above. (f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS: None. (g) PROMOTERS AND CONTROL PERSONS: Not applicable. ITEM 11: EXECUTIVE COMPENSATION The officers of MLAI LLC are remunerated by MLAI LLC in their respective positions. The Partnership does not itself have any officers, directors or employees. The Partnership pays Brokerage Commissions to -22- an affiliate of MLAI LLC and Administrative Fees to MLAI LLC. MLAI 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 directors of MLAI LLC. There are no compensation plans or arrangements relating to a change in control of either the Partnership or MLAI LLC. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS: As of December 31, 2002, 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 MLAI LLC. (b) SECURITY OWNERSHIP OF MANAGEMENT: As of December 31, 2002, the Advisors owned 515 Series A Units, 500 Series B Units and 1,000 Series C Units and MLAI LLC owned 231 Series A Units, 511 Series B Units and 378 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 indirectly pays Merrill Lynch through MLPF&S and MLAI LLC substantial Brokerage Commissions and Administrative Fees, respectively, 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. Within the Merrill Lynch organization, MLAI LLC is the direct beneficiary of the revenues received by different Merrill Lynch entities from the Partnership. MLAI LLC controls the management of the Partnership and serves as its promoter. Although MLAI LLC has not sold any assets, directly or indirectly, to the Partnership, MLAI LLC makes substantial profits from the Partnership due to the foregoing revenues. No loans have been, are or will be outstanding between MLAI LLC or any of its principals and the Partnership. MLAI LLC pays substantial selling commissions and trailing commissions to MLPF&S for distributing the Units. MLAI LLC is ultimately paid back for these expenditures from the revenues it receives from the Partnership. (b) CERTAIN BUSINESS RELATIONSHIPS: -23- MLPF&S, an affiliate of MLAI LLC, acts as the principal commodity broker for the Partnership. In 2002, the Partnership expensed through its investment in the Trading LLCs: (i) Brokerage Commissions of $2,442,927 to MLPF&S, which included $578,381 in consulting fees earned by the Advisors; and (ii) Administrative Fees of $71,850 to MLAI LLC. In addition, MLAI 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. ITEM 14: CONTROLS AND PROCEDURES Merrill Lynch Alternative Investments LLC, the General Partner of John W. Henry & Co./Millburn L.P., with the participation of the General Partner's Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Partnership within 90 days of the filing date of this annual report, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective. Additionally, there were no significant changes in the Partnership's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. -24- PART IV ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE (a)1. FINANCIAL STATEMENTS: Independent Auditors' Report 1 Statements of Financial Condition as of December 31, 2002 and 2001 2 For the years ended December 31, 2002, 2001 and 2000: Statements of Operations 3 Statements of Changes in Partners' Capital 4 Financial Data Highlights for the year ended December 31, 2002 5 Notes to Financial Statements 6-9
(a)2 8(d). 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. 10.02(a) Form of Consulting Agreement between each trading advisor, the Partnership and MLPF&S.
-25- 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 2002 Annual Report and Independent Auditors' Report. EXHIBIT 13.01: Is filed herewith. 13.01(a) 2002 Annual Report and Independent Auditors' Report for the following Trading Limited Liability Companies sponsored by MLIM AS LLC: ML Millburn Global L.L.C. ML JWH Financial and Metals Portfolio L.L.C. EXHIBIT 13.01(a): Is filed herewith. 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. 28.02 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.
-26- (b) Report on Form 8-K: No reports on Form 8-K were filed during the fourth quarter of 2002. -27- 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: MERRIL LYNCH ALTERNATIVE INVESTMENTS LLC General Partner By: /s/Robert M. Alderman --------------------- Robert M. Alderman Chairman, Chief Executive Officer and Manager (Principal Executive Officer) Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed on March 31, 2003 by the following persons on behalf of the Registrant and in the capacities indicated.
SIGNATURE TITLE DATE - --------- ----- ---- /s/Robert M. Alderman Chairman, Chief Executive Officer and Manager March 31, 2003 - --------------------- (Principal executive officer) Robert M. Alderman /s/Steven B. Olgin Vice President, Chief Administrative Officer and Manager March 31, 2003 - ------------------ Steven B. Olgin /s/Michael L. Pungello Vice President, Chief Financial Officer and Treasurer March 31, 2003 - ---------------------- (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 Merrill Lynch Alternative Investments LLC) MERRILL LYNCH ALTERNATIVE General Partner of Registrant March 31, 2003 INVESTMENTS LLC
By: /s/Robert M. Alderman --------------------- Robert M. Alderman -28- EXHIBIT 99 FORM OF CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 180 OF THE UNITED STATES CODE I, Robert M. Alderman, certify that: 1. I have reviewed this annual report on Form 10-K of John W. Henry & Co./Millburn L.P.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 - ----------------------- By /s/ Robert M. Alderman ---------------------- Robert M. Alderman Chairman, Chief Executive Officer and Manager (Principal Executive Officer) -29- EXHIBIT 99 (a) AS ADOPTED TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with this annual report of John W. Henry & Co./Millburn L.P.. on Form 10-K for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof, I, Robert M. Alderman, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant of the Sarbanes-Oxley Act of 2002, that: 1. This annual report fully complies with the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934; and 2. The information contained in this annual report fairly presents, in all material respects, the financial condition and results of operations of John W. Henry & Co./Millburn L.P. Date: March 31, 2003 - ----------------------- By /s/ Robert M. Alderman ---------------------- Robert M. Alderman Chairman, Chief Executive Officer and Manager (Principal Executive Officer) -30- EXHIBIT 99 FORM OF CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 180 OF THE UNITED STATES CODE I, Michael L. Pungello, certify that: 1. I have reviewed this annual report on Form 10-K of John W. Henry & Co./Millburn L.P.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 - ----------------------- By /s/ Michael L. Pungello ----------------------- Michael L. Pungello Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) -31- EXHIBIT 99 (a) AS ADOPTED TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with this annual report of John W. Henry & Co./Millburn L.P.. on Form 10-K for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof, I, Michael L. Pungello, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant of the Sarbanes-Oxley Act of 2002, that: 1. This annual report fully complies with the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934; and 2. The information contained in this annual report fairly presents, in all material respects, the financial condition and results of operations of John W. Henry & Co./Millburn L.P. Date: March 31, 2003 - ----------------------- By /s/ Michael L. Pungello ----------------------- Michael L. Pungello Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) -32- JOHN W. HENRY & CO./MILLBURN L.P. 2002 FORM 10-K INDEX TO EXHIBITS EXHIBIT ------- Exhibit 13.01 2002 Annual Report and Independent Auditors' Report Exhibit 13.01(a) 2002 Annual Report and Independent Auditors' Report ML Millburn Global, LLC ML JWH Financials & Metals Portfolio, LLC -33- EX-99.13-01 3 a2105278zex-99_1301.txt EXHIBIT 99.13-01 JOHN W. HENRY & CO./ MILLBURN L.P . (A DELAWARE LIMITED PARTNERSHIP) Financial Statements for the years ended December 31, 2002, 2001 and 2000 and Independent Auditors' Report [MERRILL LYNCH LOGO] JOHN W. HENRY & CO./MILLBURN L. P. (A DELAWARE LIMITED PARTNERSHIP) TABLE OF CONTENTS - --------------------------------------------------------------------------------
PAGE ---- INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS: Statements of Financial Condition as of December 31, 2002 and 2001 2 Statements of Operations for the years ended December 31, 2002, 2001, and 2000 3 Statements of Changes in Partners' Capital for the years ended December 31, 2002, 4 2001 and 2000 Financial Data Highlights for the year ended December 31, 2002 5 Notes to Financial Statements 6-9
INDEPENDENT AUDITORS' REPORT To the Partners of John W. Henry & Co./Millburn L.P.: We have audited the accompanying statements of financial condition of John W. Henry & Co./Millburn L.P. (the "Partnership") as of December 31, 2002 and 2001, and the related statements of operations and of changes in partners' capital for each of the three years in the period ended December 31, 2002, and the financial data highlights for the year ended December 31, 2002. These financial statements and financial data highlights are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial data highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial data highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial data highlights present fairly, in all material respects, the financial position of John W. Henry & Co./Millburn L.P. as of December 31, 2002 and 2001, and the results of its operations and changes in its partners' capital and the financial data highlights for each of the periods presented in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New York, New York March 3, 2003 JOHN W. HENRY & CO./MILLBURN L.P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 2002 AND 2001 - --------------------------------------------------------------------------------
2002 2001 ------------ ------------ ASSETS Investments (Note 2) $ 30,928,775 $ 26,155,682 Receivable from investments (Note 2) 45,049 220,310 ------------ ------------ TOTAL $ 30,973,824 $ 26,375,992 ============ ============ LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Redemptions payable $ 45,049 $ 220,310 ------------ ------------ Total liabilities 45,049 220,310 ------------ ------------ PARTNERS' CAPITAL: General Partner: (231 and 284 Series A Units outstanding) 82,826 76,061 (511 and 613 Series B Units outstanding) 148,873 133,398 (378 and 450 Series C Units outstanding) 85,813 76,317 Limited Partners: (22,376 and 25,601 Series A Units outstanding) 8,023,008 6,856,493 (49,186 and 55,127 Series B Units outstanding) 14,329,638 11,996,457 (36,378 and 41,374 Series C Units outstanding) 8,258,617 7,016,956 ------------ ------------ Total partners' capital 30,928,775 26,155,682 ------------ ------------ TOTAL $ 30,973,824 $ 26,375,992 ============ ============ NET ASSET VALUE PER UNIT Series A $ 358.55 $ 267.82 ============ ============ Series B $ 291.34 $ 217.61 ============ ============ Series C $ 227.02 $ 169.60 ============ ============
See notes to financial statements. 2 JOHN W. HENRY & CO./MILLBURN L.P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 - --------------------------------------------------------------------------------
2002 2001 2000 ------------- ------------- ------------- REVENUES: Trading profit (loss): Realized $ 10,429,479 $ 6,379,319 $ (4,853,386) Change in unrealized 1,084,889 (3,588,388) 3,558,787 ------------- ------------- ------------- Total trading results 11,514,368 2,790,931 (1,294,599) Interest income (Note 3) 452,175 1,003,296 1,851,934 ------------- ------------- ------------- Total revenues 11,966,543 3,794,227 557,335 ------------- ------------- ------------- EXPENSES: Brokerage commissions (Note 3) 2,442,927 2,456,699 2,905,596 Profit Shares (Note 4) 1,149,373 - - Administrative fees (Note 3) 71,850 72,253 78,254 ------------- ------------- ------------- Total expenses 3,664,150 2,528,952 2,983,850 ------------- ------------- ------------- NET INCOME (LOSS) $ 8,302,393 $ 1,265,275 $ (2,426,515) ============= ============= ============= NET INCOME (LOSS) PER UNIT: Weighted average number of General Partner and Limited Partner Units outstanding (Note 5) 116,271 132,824 177,217 ============= ============= ============= Net income (loss) per weighted average $ 71.41 $ 9.53 $ (13.69) General Partner and Limited Partner Unit ============= ============= ============= Net income (loss) per weighted average General Partner and Limited Partner Unit by series Series A $ 90.31 $ 11.32 $ (14.05) ============= ============= ============= Series B $ 73.48 $ 10.13 $ (16.73) ============= ============= ============= Series C $ 57.07 $ 7.59 $ (8.95) ============= ============= =============
All items of income and expense are from investments in Trading LLC's. See notes to financial statements. 3 JOHN W. HENRY & CO./MILLBURN L.P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 - --------------------------------------------------------------------------------
GENERAL PARTNER SERIES SERIES SERIES -------------------------------------------- A B C SERIES SERIES SERIES UNITS UNITS UNITS A B C ------------ ------------ ------------ ------------ ------------ ------------ PARTNERS' CAPITAL, DECEMBER 31, 1999 39,839 101,789 66,670 $ 131,110 $ 282,923 $ 152,600 Net loss - - - (1,761) (16,755) (8,371) Redemptions (10,775) (34,736) (18,540) (44,970) (113,547) (57,308) ------------ ------------ ------------ ------------ ------------ ------------ PARTNERS' CAPITAL, DECEMBER 31, 2000 29,064 67,053 48,130 84,379 152,621 86,921 Net income - - - 4,427 8,469 4,786 Redemptions (3,179) (11,313) (6,306) (12,745) (27,692) (15,390) ------------ ------------ ------------ ------------ ------------ ------------ PARTNERS' CAPITAL, DECEMBER 31, 2001 25,885 55,740 41,824 76,061 133,398 76,317 Net income - - - 25,336 44,514 25,469 Redemptions (3,278) (6,043) (5,068) (18,571) (29,039) (15,973) ------------ ------------ ------------ ------------ ------------ ------------ PARTNERS' CAPITAL, DECEMBER 31, 2002 22,607 49,697 36,756 $ 82,826 $ 148,873 $ 85,813 ============ ============ ============ ============ ============ ============ LIMITED PARTNERS -------------------------------------------- SERIES SERIES SERIES A B C TOTAL ------------ ------------ ------------ ------------ PARTNERS' CAPITAL, DECEMBER 31, 1999 $ 10,232,683 $ 21,241,923 $ 10,834,933 $ 42,876,172 Net loss (490,322) (1,406,738) (502,568) (2,426,515) Redemptions (2,326,886) (5,929,091) (2,554,710) (11,026,512) ------------ ------------ ------------ ------------ PARTNERS' CAPITAL, DECEMBER 31, 2000 7,415,475 13,906,094 7,777,655 29,423,145 Net income 305,079 610,135 332,379 1,265,275 Redemptions (864,061) (2,519,772) (1,093,078) (4,532,738) ------------ ------------ ------------ ------------ PARTNERS' CAPITAL, DECEMBER 31, 2001 6,856,493 11,996,457 7,016,956 26,155,682 Net income 2,149,615 3,834,085 2,223,374 8,302,393 Redemptions (983,100) (1,500,904) (981,713) (3,529,300) ------------ ------------ ------------ ------------ PARTNERS' CAPITAL, DECEMBER 31, 2002 $ 8,023,008 $ 14,329,638 $ 8,258,617 $ 30,928,775 ============ ============ ============ ============
See notes to financial statements. 4 JOHN W. HENRY & CO./MILLBURN L.P. (A DELAWARE LIMITED PARTNERSHIP) FINANCIAL DATA HIGHLIGHTS FOR THE YEAR ENDED DECEMBER 31, 2002 - -------------------------------------------------------------------------------- The following per Unit data and ratios have been derived from information provided in the financial statements.
SERIES A SERIES B SERIES C ---------- ---------- ---------- Increase (Decrease) in Net Asset Value PER UNIT OPERATING PERFORMANCE: Net asset value, beginning of year $ 267.82 $ 217.61 $ 169.60 Realized trading profit 115.95 94.38 73.51 Change in unrealized 9.91 8.07 6.29 Interest income 4.94 4.01 3.13 Expenses (40.07) (32.73) (25.51) ---------- ---------- ---------- Net asset value, end of year $ 358.55 $ 291.34 $ 227.02 ========== ========== ========== Total investment return, compounded monthly 33.88% 33.88% 33.86% ========== ========== ========== RATIOS TO AVERAGE NET ASSETS: Expenses 13.25% 13.35% 13.32% ========== ========== ========== Net income 30.18% 30.19% 30.14% ========== ========== ==========
See notes to financial statements. 5 JOHN W. HENRY & CO./MILLBURN L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES John W. Henry & Co./Millburn L.P. (the "Partnership") was organized under the Delaware Revised Uniform Limited Partnership Act on August 29, 1989. The Partnership's initial offering of Units of limited partnership interest ("Series A Units") commenced trading activities on January 5, 1990. A second offering of Units of limited partnership interest ("Series B Units") commenced trading activities with respect to the Series B Units on January 28, 1991. A third offering of Units of limited partnership interest ("Series C Units") commenced trading activities with respect to the Series C Units on January 2, 1992. (Series A, B and C units are, hereinafter, collectively referred to as "Units.") The Partnership engages through investments in limited liability companies (see below) in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. MLIM Alternative Strategies LLC ("MLIM AS LLC"), a 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") is the Partnership's commodity broker. MLIM AS LLC has agreed to maintain a general partner's interest of at least 1% of total capital of each Series of Units. MLIM AS LLC and each Limited Partner share in the profits and losses of such Series in proportion to their respective interests in it. John W. Henry & Company, Inc. and Millburn Ridgefield Corporation (each an "Advisor", together, "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. MLIM AS LLC may, in its discretion, reallocate assets between the advisors as of any month-end. The Partnership has placed all of its assets under the management of the Advisors through investing in private limited liability companies, ML JWH Financials and Metals Portfolio LLC ("JWH LLC") and ML Millburn Global LLC ("Millburn LLC"), ("Trading LLCs"), as described in Note 2. Certain of the following notes to financial statements are directly related to Partnership assets managed by the Advisors in the Trading LLCs. ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION See Note 2 for discussion of revenue recognition for the Partnership's investments in Trading LLCs. OPERATING EXPENSES MLIM AS LLC pays all routine operating expenses, including legal, accounting, printing, postage and similar administrative expenses. MLIM AS LLC receives an administrative fee as well as a portion of the brokerage commissions paid to MLPF&S by the Partnership (see Note 3). 6 INCOME TAXES No provision for income taxes has been made in the accompanying financial statements as each Partner is individually responsible for such Partner's respective share of the income and expenses of the series in which such partner is invested as reported for income tax purposes. REDEMPTIONS A Limited Partner may redeem some or all of such Partner's Units at Net Asset Value as of the close of business on the last business day of any month upon ten calendar days' notice. DISSOLUTION OF THE PARTNERSHIP The Partnership will terminate on December 31, 2016 or at an earlier date if certain conditions occur, as well as under certain other circumstances as set forth in the Limited Partnership Agreement. 2. INVESTMENTS IN TRADING LLCS The Partnership places all of its assets in the Trading LLCs. The financial statements of the Trading LLCs are bound together with this report and should be read in conjunction with the Partnership's financial statements. The investments in the Trading LLCs are reflected in the financial statements at fair value and reflected on the Statements of Financial Condition. Fair value is equal to the market value of the net assets of the Trading LLCs. The resulting difference between cost and fair value is reflected on the Statements of Operations as Income (loss) from investments. At December 31, 2002 and 2001, the Partnership had investments in JWH LLC and Millburn LLC as follows:
2002 2001 ------------ ------------ JWH LLC $ 15,464,387 $ 13,077,841 Millburn LLC 15,464,387 13,077,841 ------------ ------------ Total $ 30,928,775 $ 26,155,682 ============ ============
3. RELATED PARTY TRANSACTIONS The Partnership's U.S. dollar assets invested in Trading LLCs are maintained at MLPF&S. On assets held in U.S. dollars, Merrill Lynch credits the Trading LLCs with interest at the prevailing 91-day U.S. Treasury bill rate. The Trading LLCs are credited with interest on any of its assets and 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 Trading LLCs, from possession of such assets. Merrill Lynch charges the Trading LLCs Merrill Lynch's cost of financing realized and unrealized losses on the Trading LLCs non-U.S. dollar-denominated positions. The Partnership pays brokerage commissions to MLPF&S through the Trading LLCs at a flat monthly rate of 0.708 of 1% (a 8.50% annual rate) of the Partnership's month-end assets. The Partnership also pays MLIM AS LLC a monthly administrative fee through the Trading LLCs of 0.21 of 1% (an 0.25% annual rate) of the Partnership's month-end assets. Month-end assets are not reduced for purposes of calculating brokerage commissions and administrative fees by any accrued brokerage commissions, administrative fees, Profit Shares or other fees or charges. 7 MLPF&S pays the Advisors annual consulting fees of 2% of the average month-end assets allocated to them for management after a reduction for a portion of brokerage commissions. 4. ADVISORY AGREEMENTS The Trading LLCs entered into the Advisory Agreements with the Advisors (see Note 2). Profit Shares of 20%, of any New Trading Profit, as defined, either as of the end of each calendar quarter or year, were paid to each Advisor based on the performance of the Partnership account managed by such Advisor, irrespective of the overall performance of the Partnership. Profit Shares are also paid out in respect of Units redeemed as of the end of interim months, to the extent the applicable percentage of any New Trading Profits attributable to such Units. 5. WEIGHTED AVERAGE UNITS The weighted average number of Units of each series outstanding was computed for purposes of disclosing net income per weighted average Unit. The weighted average number of Units of each series outstanding for the years ended December 31, 2002, 2001 and 2000 equals the Units of such series outstanding as of such date, adjusted proportionately for Units redeemed based on the respective length of time each was outstanding during the year. 6. FAIR VALUE AND OFF-BALANCE SHEET RISK The Partnership invests indirectly in derivative instruments by investing in the Trading LLCs, but does not itself hold any derivative instrument positions. The nature of this Partnership has certain risks, which can not be presented on the financial statements. MARKET RISK Derivative instruments involve varying degrees of off-balance sheet market risk. Changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the financial instruments or commodities underlying such derivative instruments frequently resulted in changes in the net unrealized profit (loss) as reflected in the respective Statements of Financial Condition of the Trading LLCs. The Partnership's exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Partnership, through the Trading LLCs, as well as the volatility and liquidity of such markets in which such derivative instruments are traded. 7. SUBSEQUENT EVENT As of February 28, 2003, the general partner of the Partnership changed its name from MLIM Alternative Strategies LLC to Merrill Lynch Alternative Investments LLC as part of an internal Merrill Lynch reorganization. This change did not affect the personnel involved in the management of the Partnership. The change will have no impact on the Partnership's investors. 8 * * * * * * * * * * To the best of the knowledge and belief of the undersigned, the information contained in this report is accurate and complete. Michael L. Pungello Chief Financial Officer MLIM Alternative Strategies LLC General Partner of John W. Henry & Co./Millburn L.P. 9 EX-99.13-01(A) 4 a2105278zex-99_1301a.txt EXHIBIT 99.13-01(A) ML MILLBURN GLOBAL L.L.C. (A DELAWARE LIMITED LIABILITY COMPANY) Financial Statements for the years ended December 31, 2002 and 2001 and Independent Auditors' Report [MERRILL LYNCH LOGO] ML MILLBURN GLOBAL L.L.C. (A Delaware Limited Liability Company) TABLE OF CONTENTS - --------------------------------------------------------------------------------
Page ---- INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001: Statements of Financial Condition 2 Statements of Income 3 Statements of Changes in Member's Capital 4 Notes to Financial Statements 5-10
INDEPENDENT AUDITORS' REPORT To the Member of ML Millburn Global L.L.C.: We have audited the accompanying statements of financial condition of ML Millburn Global L.L.C. (the "Company") as of December 31, 2002 and 2001, and the related statements of income and of changes in member's capital for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of ML Millburn Global L.L.C. as of December 31, 2002 and 2001, and the results of its operations and changes in its member's capital for the years then ended in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New York, New York March 3, 2003 ML MILLBURN GLOBAL L.L.C. (A Delaware Limited Liability Company) STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 2002 AND 2001 - --------------------------------------------------------------------------------
ASSETS 2002 2001 ------------ ------------ Equity in commodity futures trading accounts: Cash and option premiums $ 15,235,341 $ 12,228,687 Net unrealized profit on open contracts (Note 2) 1,048,817 651,741 Subscriptions receivable - 271,575 Accrued interest (Note 4) 16,558 19,884 ------------ ------------ TOTAL $ 16,300,716 $ 13,171,887 ============ ============ LIABILITIES AND MEMBER'S CAPITAL LIABILITIES: Brokerage commissions payable (Note 4) $ 114,267 $ 91,359 Profit Shares payable (Note 5) 484,266 - Administrative fees payable (Note 4) 3,361 2,687 Due to Invested funds 234,434 - ------------ ------------ Total liabilities 836,328 94,046 ------------ ------------ MEMBER'S CAPITAL: Voting Member 15,464,388 13,077,841 ------------ ------------ Total Member's capital 15,464,388 13,077,841 ------------ ------------ TOTAL $ 16,300,716 $ 13,171,887 ============ ============
See notes to financial statements. 2 ML MILLBURN GLOBAL L.L.C. (A Delaware Limited Liability Company) STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 - --------------------------------------------------------------------------------
2002 2001 ------------ ------------ REVENUES Trading profit (loss): Realized (Note 6) $ 4,214,773 $ 2,825,475 Change in unrealized 397,076 (1,391,025) ------------ ------------ Total trading results 4,611,849 1,434,450 Interest income (Note 4) 225,650 470,619 ------------ ------------ Total revenues 4,837,499 1,905,069 ------------ ------------ EXPENSES Brokerage commissions (Note 4) 1,216,466 1,167,933 Profit Shares (Note 5) 510,681 - Administrative fees (Note 4) 35,778 34,351 ------------ ------------ Total expenses 1,762,925 1,202,284 ------------ ------------ NET INCOME $ 3,074,574 $ 702,785 ============ ============
See notes to financial statements. 3 ML MILLBURN GLOBAL L.L.C. (A Delaware Limited Liability Company) STATEMENTS OF CHANGES IN MEMBER'S CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 - -------------------------------------------------------------------------------- MEMBER'S CAPITAL, DECEMBER 31, 2000 $ 14,141,401 Net income 702,785 Withdrawals (2,147,420) Subscriptions 381,075 ------------ MEMBER'S CAPITAL, DECEMBER 31, 2001 13,077,841 Net income 3,074,574 Withdrawals (1,742,545) Subscriptions 1,054,518 ------------ MEMBER'S CAPITAL, DECEMBER 31, 2002 $ 15,464,388 ============
See notes to financial statements. 4 ML MILLBURN GLOBAL L.L.C. (A Delaware Limited Liability Company) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION ML Millburn Global L.L.C. (the "Company") was organized under the Delaware Limited Liability Company Act on November 22, 1996 and commenced trading activities on December 2, 1996. The Company engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Millburn Ridgefield Corporation ("Millburn") is the trading advisor to the Company. MLIM Alternative Strategies LLC ("MLIM AS LLC"), a 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"), has been delegated administrative authority over the Company. Merrill Lynch, Pierce Fenner & Smith Incorporated ("MLPF&S"), is the Company's commodity broker. The Company has authorized two classes of Membership Interests: Non-Voting Interests and Voting Interests (collectively, "Interests"). These two classes of Interests have common economic interests in the Company. The Non-Voting Interests, which can be held by non-United States investment funds sponsored by MLIM AS LLC, would not participate in the management of the Company, or engage, directly or indirectly in, participate in or control any portion of the business activities or affairs of the Company. Currently, there are no Non-Voting Members. Management of the Company is vested solely in the Voting Interests, which can be held by United States limited partnerships. Currently, there is only one Voting Member of the Company. The Voting Member controls all business activities and affairs of the Company, subject to the trading authority vested in and delegated to Millburn and the administrative authority vested in and delegated to MLIM AS LLC. The Voting Member is a "commodity pool" sponsored and managed by MLIM AS LLC. ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION Commodity futures, options on futures and forward contract transactions are recorded on the trade date, and open contracts are reflected in Net unrealized profit on open contracts in the Statements of Financial Condition at the difference between the original contract value and the market value (for those commodity interests for which market quotations are readily available) or at fair value. The change in net unrealized profit (loss) on open contracts from one period to the next is reflected in Change in unrealized under Trading profit (loss) in the Statements of Income. 5 FOREIGN CURRENCY TRANSACTIONS The Company's functional currency is the U.S. dollar; however, it transacts business in currencies other than the U.S. dollar. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the dates of the Statements of Financial Condition. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S. dollars are reported in total trading results currently. OPERATING EXPENSES MLIM AS LLC pays for all operating costs (including all legal, accounting, printing, postage and similar administrative expenses) of the Company. INCOME TAXES No provision for income taxes has been made in the accompanying financial statements as the Member is individually responsible for reporting income or loss based on such Member's respective share of the Company's income and expenses as reported for income tax purposes. DISTRIBUTIONS No distributions have been made by the Company for the years ended December 31, 2002 or 2001. WITHDRAWALS The Member may withdraw some or all of such Member's capital at Net Asset Value as of the close of business on any business day. There are no withdrawal fees or charges. DISSOLUTION The Company will terminate on December 31, 2046 or at an earlier date if certain conditions occur, as well as under certain other circumstances as set forth in the Organization Agreement. 6 2. CONDENSED SCHEDULE OF INVESTMENTS The Company's investments, defined as Net unrealized profit on open contracts on the Statements of Financial Condition, as of December 31, 2002 and 2001 are as follows:
2002 LONG POSITIONS SHORT POSITIONS - ---- -------------- --------------- NET UNREALIZED COMMODITY NUMBER OF UNREALIZED PERCENT OF NUMBER OF UNREALIZED PERCENT OF PROFIT(LOSS) ON PERCENT OF INDUSTRY SECTOR CONTRACTS PROFIT (LOSS) NET ASSETS CONTRACTS PROFIT (LOSS) NET ASSETS OPEN POSITIONS NET ASSETS - --------------- --------- ------------- ---------- ---------- ------------ ---------- --------------- ----------- Currencies 4,646,031 $ 2,685,808 17.37% (3,246,832) $ (2,308,673) -14.93% $ 377,135 2.44% Interest rates 617 524,018 3.39% - - 0.00% 524,018 3.39% Metals 147 31,399 0.20% (86) 33,111 0.21% 64,510 0.41% Stock indices - - 0.00% (61) 83,154 0.54% 83,154 0.54% ------------- ------------ --------------- Total $ 3,241,225 20.96% $ (2,192,408) -14.18% $ 1,048,817 6.78% ============= ============ ===============
2001 LONG POSITIONS SHORT POSITIONS - ---- -------------- --------------- NET UNREALIZED UNREALIZED PERCENT OF UNREALIZED PERCENT OF PROFIT (LOSS) ON PERCENT OF COMMODITY INDUSTRY SECTOR PROFIT (LOSS) NET ASSETS PROFIT (LOSS) NET ASSETS OPEN POSITIONS NET ASSETS - ------------------------- ------------- ---------- ------------- ---------- ---------------- ---------- Currencies $ (36,338) -0.28% $ 784,652 6.00% $ 748,314 5.72% Interest rates (16,594) -0.13% 61,143 0.47% 44,549 0.34% Metals (27,919) -0.21% (120,300) -0.92% (148,219) -1.13% Stock indices 2,651 0.02% 4,446 0.03% 7,097 0.05% -------------- ------------- ---------------- Total $ (78,200) -0.60% $ 729,941 5.58% $ 651,741 4.98% ============== ============= ================
No individual contract comprised greater than 5% of the Partnership's net assets during 2002 or 2001. 7 3. FINANCIAL DATA HIGHLIGHTS The following ratios have been derived from information provided in the financial statements for the year ended December 31, 2002. Total investment return, compounded monthly 25.74% =========== RATIOS TO AVERAGE NET ASSETS: Expenses 12.84% =========== Net income 22.40% ===========
4. RELATED PARTY TRANSACTIONS The Company's U.S. dollar assets are maintained at MLPF&S. On assets held in U.S. dollars, Merrill Lynch credits the Company with interest at the prevailing 91-day U.S. Treasury bill rate. The Company is credited with interest on any of its assets and 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 Company, from possession of such assets. Merrill Lynch charges the Company Merrill Lynch's cost of financing realized and unrealized losses on the Company's non-U.S. dollar-denominated positions. Following the allocation of the Company's trading profit (loss) and interest income to the Member's capital account, MLIM AS LLC calculates the brokerage commissions, administrative fees, Profit Shares and other expenses due from the Company to third parties. Such commissions, fees and expenses are specifically calculated for the Member as of the end of each accounting period and deducted from the Member's capital account and paid out by the Company. The Company currently pays brokerage commissions to MLPF&S at flat monthly rate of 0.708 of 1% (a 8.50% annual rate), reflecting the fee arrangement between the Member and MLPF&S. The Company pays MLPF&S a monthly administrative fee of 0.021 of 1% (a 0.25% annual rate) of the Member's month-end assets. Month-end assets are not reduced for purposes of calculating brokerage commissions and administrative fees by any accrued brokerage commissions, administrative fees, Profit Shares or other fees or charges. MLPF&S pays Millburn an annual consulting fee of 2% of the Company's average month-end assets, after reduction for a portion of brokerage commissions. 8 5. ADVISORY AGREEMENT The Advisory Agreement between the Company and Millburn has remained essentially unchanged since the inception of the Company. This Agreement is in effect for successive one-year terms, but, in fact, given the single advisor structure of the Company, the Company would terminate were Millburn to withdraw. Millburn determines the commodity futures, options on futures and forward contract trades to be made on behalf of the Company, subject to certain rights reserved by MLIM AS LLC. The Company pays to Millburn an annual Profit Share equal to 20% of any New Trading Profit, as defined, attributable to the Member's respective capital accounts. Profit Shares are calculated separately in respect of the Member's respective capital accounts. Profit Shares are also paid to Millburn upon the withdrawal of capital from the Company by the Member for whatever purpose, other than to pay expenses. 6. COPPER SETTLEMENT The Company, as a member of a class of plaintiffs, received a settlement payment in August 2002 relating to certain copper trades made by a number of investors, including the Company, during a period in the mid-1990s. Members of the class were those who purchased or sold Comex copper fixtures or options contracts between June 24, 1993 and June 15, 1996. The amount of the settlement of the Company was $48,352, which is included in the realized profit of the Company. The effect of the settlement payment was included in the Company's performance in August 2002. 7. FAIR VALUE AND OFF-BALANCE SHEET RISK The nature of this Company has certain risks, which can not be presented on the financial statements. The following summarizes some of those risks. MARKET RISK Derivative instruments involve varying degrees of off-balance sheet market risk, and changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the underlying financial instruments or commodities underlying such derivative instruments frequently result in changes in the Company's net unrealized profit on such derivative instruments as reflected in the Statements of Financial Condition. The Company's exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Company as well as the volatility and liquidity in the markets in which such derivative instruments are traded. MLIM AS LLC has procedures in place intended to control market risk exposure, although there can be no assurance that they will, in fact, succeed in doing so. These procedures focus primarily on monitoring the trading of Millburn, calculating the Net Asset Value of the Company and of the Member's respective capital accounts 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 Company's market exposure, MLIM AS LLC may consult with Millburn concerning the possibility of Millburn reducing trading leverage or market concentrations. However, such interventions are unusual. Except in cases in which it appears that Millburn has begun to deviate from past practice and trading policies or to be trading erratically, MLIM AS LLC's basic risk control procedures consist simply of the ongoing process of advisor monitoring with the market risk controls being applied by Millburn. 9 CREDIT RISK The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) transactions, because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange is pledged to support the financial integrity of the exchange. In over-the-counter transactions, on the other hand, traders must rely solely on the credit of their respective individual counterparties. Margins, which may be subject to loss in the event of a default, are generally required in exchange trading, and counterparties may require margin in the over-the-counter markets for the years ended December 31, 2002 and 2001. The credit risk associated with these instruments from counterparty nonperformance is the net unrealized profit on open contracts, if any, included in the Statements of Financial Condition. The Company attempts to mitigate this risk by dealing exclusively with Merrill Lynch entities as clearing brokers. The Company, in its normal course of business, enters into various contracts, with MLPF&S acting as its commodity broker. Pursuant to the brokerage agreement with MLPF&S (which includes a netting arrangement), to the extent that such trading results in receivables from and payables to MLPF&S, these receivables and payables are offset and reported as a net receivable or payable and included in the Statements of Financial Condition under Equity in Commodity futures trading accounts. 8. SUBSEQUENT EVENT As of February 28, 2003, the general partner of the Partnership changed its name from MLIM Alternative Strategies LLC to Merrill Lynch Alternative Investments LLC as part of an internal Merrill Lynch reorganization. * * * * * * * * * * To the best of the knowledge and belief of the undersigned, the information contained in this report is accurate and complete. Michael L. Pungello Chief Financial Officer MLIM Alternative Strategies LLC Commodity Pool Operator of ML Millburn Global L.L.C. 10 ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C. (A DELAWARE LIMITED LIABILITY COMPANY) Financial Statements for the years ended December 31, 2002 and 2001 and Independent Auditors' Report [MERRILL LYNCH LOGO] ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C. (A Delaware Limited Liability Company) TABLE OF CONTENTS - --------------------------------------------------------------------------------
Page ---- INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001: Statements of Financial Condition 2 Statements of Income 3 Statements of Changes in Member's Capital 4 Notes to Financial Statements 5-10
INDEPENDENT AUDITORS' REPORT To the Members of ML JWH Financial and Metals Portfolio L.L.C.: We have audited the accompanying statements of financial condition of ML JWH Financial and Metals Portfolio L.L.C. (the "Company") as of December 31, 2002 and 2001, and the related statements of income and of changes in member's capital for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of ML JWH Financial and Metals Portfolio L.L.C. as of December 31, 2002 and 2001, and the results of its operations and changes in its member's capital for the years then ended in comformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New York, New York March 3, 2003 ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C. (A Delaware Limited Liability Company) STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 2002 AND 2001 - --------------------------------------------------------------------------------
2002 2001 ------------ ------------ ASSETS Equity in commodity futures trading accounts: Cash and option premiums $ 14,002,855 $ 12,966,697 Net unrealized profit on open contracts (Note 2) 1,392,986 705,173 Due from Invested Fund 166,783 - Accrued interest (Note 4) 15,204 20,150 ------------ ------------ TOTAL $ 15,577,828 $ 13,692,020 ============ ============ LIABILITIES AND MEMBER'S CAPITAL LIABILITIES: Brokerage commissions payable (Note 4) $ 110,199 $ 96,844 Administrative fees payable (Note 4) 3,241 2,848 Due to Invested Fund - 514,487 ------------ ------------ Total liabilities 113,440 614,179 ------------ ------------ MEMBER'S CAPITAL: Voting Member 15,464,388 13,077,841 ------------ ------------ Total Member's capital 15,464,388 13,077,841 ------------ ------------ TOTAL $ 15,577,828 $ 13,692,020 ============ ============
See notes to financial statements. - 2 - ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C. (A Delaware Limited Liability Company) STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 - --------------------------------------------------------------------------------
2002 2001 ------------ ------------ REVENUES Trading profit (loss): Realized (Note 6) $ 6,162,488 $ 3,553,847 Change in unrealized 740,032 (2,197,366) ------------ ------------ Total trading results 6,902,520 1,356,481 Interest income (Note 4) 226,525 532,677 ------------ ------------ Total revenues 7,129,045 1,889,158 ------------ ------------ EXPENSES Brokerage commissions (Note 4) 1,226,461 1,288,763 Profit Shares (Note 5) 638,692 - Administrative fees (Note 4) 36,072 37,905 ------------ ------------ Total expenses 1,901,225 1,326,668 ------------ ------------ NET INCOME $ 5,227,820 $ 562,490 ============ ============
See notes to financial statements. - 3 - ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C. (A Delaware Limited Liability Company) STATEMENTS OF CHANGES IN MEMBER'S CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 - --------------------------------------------------------------------------------
VOTING MEMBER ------------ MEMBER'S CAPITAL, DECEMBER 31, 2000 $ 15,281,744 Net income 562,490 Withdrawals (2,766,393) ------------ MEMBER'S CAPITAL, DECEMBER 31, 2001 13,077,841 Net income 5,227,820 Withdrawals (2,841,273) ------------ MEMBER'S CAPITAL, DECEMBER 31, 2002 $ 15,464,388 ============
See notes to financial statements. - 4 - ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C. (A Delaware Limited Liability Company) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION ML JWH Financial and Metals Portfolio L.L.C. (the "Company") was organized under the Delaware Limited Liability Company Act on September 19, 1996 and commenced trading activities on October 1, 1996. The Company engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. John W. Henry & Company, Inc. ("JWH(R)") is the trading advisor to the Company. MLIM Alternative Strategies LLC ("MLIM AS LLC"), a 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"), has been delegated administrative authority over the Company. Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") is the Company's commodity broker. The Company has authorized two classes of Membership Interests: Non-Voting Interests and Voting Interests (collectively, "Interests"). These two classes of Interests have common economic interests in the Company, but the Non-Voting Interests, which can be held by non-United States investment funds sponsored by MLIM AS LLC, would not participate in the management of the Company, or engage, directly or indirectly in, participate in or control any portion of the business activities or affairs of the Company. Currently, there are no Non-Voting Members. Management of the Company is vested solely in the Voting Interests, which are held by United States limited partnerships. Currently, there is only one Voting Member of the Company. The Voting Member controls all business activities and affairs of the Company subject to the trading authority vested in and delegated to JWH(R) and the administrative authority vested in and delegated to MLIM AS LLC. The Voting Member is a "commodity pool" sponsored and managed by MLIM AS LLC. ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION Commodity futures, options on futures and forward contract transactions are recorded on the trade date and open contracts are reflected in net unrealized profit on open contracts in the Statements of Financial Condition at the difference between the original contract value and the market value (for those commodity interests for which market quotations are readily available) or at fair value. The change in unrealized profit on open contracts from one period to the next is reflected in Change in unrealized under Trading profit (loss), in the Statements of Income. - 5 - FOREIGN CURRENCY TRANSACTIONS The Company's functional currency is the U.S. dollar; however, it transacts business in currencies other than the U.S. dollar. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the dates of the Statements of Financial Condition. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S. dollars are reported in total trading results currently. OPERATING EXPENSES MLIM AS LLC pays for all operating costs (including all legal, accounting, printing, postage and similar administrative expenses) of the Company. INCOME TAXES No provision for income taxes has been made in the accompanying financial statements as the Member is individually responsible for reporting income or loss based on such Member's respective share of the Company's income and expenses as reported for income tax purposes. DISTRIBUTIONS No distributions have been made by the Company for the years ended December 31, 2002 or 2001. WITHDRAWALS The Member may withdraw some or all of such Member's capital at the Net Asset Value as of the close of business on any business day. There are no withdrawal fees or charges. DISSOLUTION The Company will terminate on September 30, 2046 or at an earlier date if certain conditions occur, as well as under certain other circumstances as set forth in the Organization Agreement. - 6 - 2. CONDENSED SCHEDULE OF INVESTMENTS The Company's investments, defined as Net unrealized profit on open contracts on the Statements of Financial Condition, as of December 31, 2002 and 2001 are as follows:
2002 LONG POSITIONS SHORT POSITIONS - ---- -------------- --------------- NET UNREALIZED COMMODITY INDUSTRY NUMBER OF UNREALIZED PERCENT OF NUMBER OF UNREALIZED PERCENT OF PROFIT(LOSS) ON PERCENT OF SECTOR CONTRACTS PROFIT (LOSS) NET ASSETS CONTRACTS PROFIT (LOSS) NET ASSETS OPEN POSITIONS NET ASSETS - ------------------ --------- ------------- ---------- ---------- ------------ ---------- --------------- ----------- Currencies 55,468 $ 932,980 6.03% (1,164,884) $ (307,663) -1.99% $ 625,317 4.04% Interest rates 690 697,359 4.51% - - 0.00% 697,359 4.51% Metals 167 81,485 0.53% (67) (26,581) -0.17% 54,904 0.36% Stock indices 10 (5,600) -0.04% (7) 21,006 0.14% 15,406 0.10% ------------- ------------ --------------- Total $ 1,706,224 11.03% $ (313,238) -2.02% $ 1,392,986 9.01% ============= ============ ===============
2001 LONG POSITIONS SHORT POSITIONS - ---- -------------- --------------- NET UNREALIZED UNREALIZED PERCENT OF UNREALIZED PERCENT OF PROFIT (LOSS) ON PERCENT OF COMMODITY INDUSTRY SECTOR PROFIT (LOSS) NET ASSETS PROFIT (LOSS) NET ASSETS OPEN POSITIONS NET ASSETS - ------------------------- ------------- ---------- ------------- ---------- ---------------- ---------- Currencies $ (13,861) -0.11% $ 795,456 6.08% $ 781,595 5.98% Interest rates (5,638) -0.04% 149,812 1.15% 144,174 1.10% Metals (82,135) -0.63% (146,751) -1.12% (228,886) -1.75% Stock indices 8,290 0.06% - 0.00% 8,290 0.06% -------------- ------------- ---------------- Total $ (93,344) -0.71% $ 798,517 6.11% $ 705,173 5.39% ============== ============= ================
No individual contract comprised greater than 5% of the Partnership's net assets during 2002 or 2001. - 7 - 3. FINANCIAL DATA HIGHLIGHTS The following ratios have been derived from information provided in the financial statements for the year ended December 31, 2002. Total investment return, compounded monthly 41.40% =============== RATIOS TO AVERAGE NET ASSETS: Expenses 13.79% =============== Net income 37.92% ===============
4. RELATED PARTY TRANSACTIONS The Company's U.S. dollar assets are maintained at MLPF&S. On assets held in U.S. dollars, Merrill Lynch credits the Company with interest at the prevailing 91-day U.S. Treasury bill rate. The Company is credited with interest on any of its assets and 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 Company, from possession of such assets. Merrill Lynch charges the Company Merrill Lynch's cost of financing realized and unrealized losses on the Company's non-U.S. dollar-denominated positions. Following the allocation of the Company's trading profit (loss) and interest income among the Member's respective capital accounts, MLIM AS LLC calculates the brokerage commissions, Profit Shares, administrative fees and other expenses due from the Company to third parties. Such commissions, fees, Profit Shares and expenses are specifically calculated for the Member as of the end of each accounting period and deducted from Member's capital account and paid out by the Company. The Company currently pays brokerage commissions to MLPF&S at flat monthly rate of 0.708 of 1% (an 8.5% annual rate). The Company pays MLPF&S a monthly administrative fee of 0.021 of 1% (a 0.25% annual rate) of each Member's month-end assets. Month-end assets are not reduced for purposes of calculating brokerage commissions and administrative fees by any accrued brokerage commissions, administrative fees, Profit Shares or other fees or charges. MLPF&S pays the Advisor an annual consulting fee of 2% of the Company's average month-end assets, after reduction for a portion of the brokerage commissions. - 8 - 5. ADVISORY AGREEMENT The Advisory Agreement between the Company and JWH(R) is in effect for successive one-year terms, but, in fact, given the single advisor structure of the Company, the Company would terminate were JWH(R) to withdraw. JWH(R) determines the commodity futures, options on futures and forward contract trades to be made on behalf of the Company, subject to certain Company trading policies and to certain rights reserved by MLIM AS LLC. The Company pays to JWH(R) a quarterly Profit Share equal to 20%, of any New Trading Profit, as defined, attributable to the Member's respective capital accounts. Profit Shares are calculated separately in respect of the Member's respective capital accounts. Profit Shares are determined as of the end of each calendar quarter and are also paid to JWH(R) upon the withdrawal of capital from the Company by a Member for whatever purpose, other than to pay expenses. 6. COPPER SETTLEMENT The Company, as a member of a class of plaintiffs, received a settlement payment in August 2002 relating to certain copper trades made by a number of investors, including the Company, during a period in the mid-1990s. Members of the class were those who purchased or sold Comex copper fixtures or options contracts between June 24, 1993 and June 15, 1996. The amount of the settlement of the Company was $52,129, which is included in the realized profit of the Company. The effect of the settlement payment was included in the Company's performance in August 2002. 7. FAIR VALUE AND OFF-BALANCE SHEET RISK The nature of this Company has certain risks, which can not be presented on the financial statements. The following summarizes some of those risks. MARKET RISK Derivative instruments involve varying degrees of off-balance sheet market risk, and changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the underlying financial instruments or commodities underlying such derivative instruments frequently result in changes in the Company's net unrealized profit on such derivative instruments as reflected in the Statements of Financial Condition. The Company's exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Company as well as the volatility and liquidity in the markets in which such derivative instruments are traded. MLIM AS LLC has procedures in place intended to control market risk exposure, although there can be no assurance that they will, in fact, succeed in doing so. These procedures focus primarily on monitoring the trading of JWH(R), calculating the Net Asset Value of the Company and of the Member's respective capital accounts 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 Company's market exposure, MLIM AS LLC may consult with JWH(R) concerning the possibility of JWH(R) reducing trading leverage or market concentrations. However, such interventions are unusual. Except in cases in which it appears that JWH(R) has begun to deviate from past practice and trading policies or to be trading erratically, MLIM AS LLC's basic risk control procedures consist simply of the ongoing process of advisor monitoring with the market risk controls being applied by JWH(R). - 9 - CREDIT RISK The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) transactions, because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange is pledged to support the financial integrity of the exchange. In over-the-counter transactions, on the other hand, traders must rely solely on the credit of their respective individual counterparties. Margins, which may be subject to loss in the event of a default, are generally required in exchange trading, and counterparties may require margin in the over-the-counter markets for the years ended December 31, 2002 and 2001. The credit risk associated with these instruments from counterparty nonperformance is the net unrealized profit, if any, included in the Statements of Financial Condition. The Company attempts to mitigate this risk by dealing exclusively with Merrill Lynch entities as clearing brokers. The Company, in its normal course of business, enters into various contracts, with MLPF&S acting as its commodity broker. Pursuant to the brokerage agreement with MLPF&S (which includes a netting arrangement), to the extent that such trading results in receivables from and payables to MLPF&S, these receivables and payables are offset and reported as a net receivable or payable and included in the Statements of Financial Condition under Equity in commodity futures accounts. 8. SUBSEQUENT EVENT As of February 28, 2003, the general partner of the Partnership changed its name from MLIM Alternative Strategies LLC to Merrill Lynch Alternative Investments LLC as part of an internal Merrill Lynch reorganization. * * * * * * * * * To the best of the knowledge and belief of the undersigned, the information contained in this report is accurate and complete. Michael L. Pungello Chief Financial Officer MLIM Alternative Strategies LLC Commodity Pool Operator ML JWH Financial and Metals Portfolio L.L.C. - 10 - -----END PRIVACY-ENHANCED MESSAGE-----