10-Q 1 a2157668z10-q.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File Number 0-18215 JOHN W. HENRY & CO./MILLBURN L.P. --------------------------------- (Exact Name of Registrant as specified in its charter) Delaware 06-1287586 ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) c/o Merrill Lynch Alternative Investments LLC Princeton Corporate Campus 800 Scudders Mill Road - Section 2G Plainsboro, New Jersey 08536 ---------------------------------------- (Address of principal executive offices) (Zip Code) 609-282-6996 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / PART I - FINANCIAL INFORMATION Item 1. Financial Statements JOHN W. HENRY & CO./MILLBURN L.P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 2005 DECEMBER 31, (UNAUDITED) 2004 ------------- ------------- ASSETS Investments in Trading LLCs $ 23,271,791 $ 27,635,033 Receivable from Trading LLCs 201,960 601,536 ------------- ------------- TOTAL $ 23,473,751 $ 28,236,569 ============= ============= LIABILITIES AND PARTNERS' CAPITAL Administrative fees payable $ 12,250 $ 50,000 Redemptions payable 189,710 551,536 ------------- ------------- Total liabilities 201,960 601,536 ------------- ------------- PARTNERS' CAPITAL: General Partner: (189 and 209 Series A Units) 62,680 80,720 (425 and 478 Series B Units) 114,385 149,823 (296 and 339 Series C Units) 62,097 82,822 Limited Partners: (18,323 and 18,554 Series A Units) 6,076,673 7,165,985 (41,139 and 41,696 Series B Units) 11,072,227 13,069,071 (28,046 and 29,006 Series C Units) 5,883,729 7,086,612 ------------- ------------- Total partners' capital 23,271,791 27,635,033 ------------- ------------- TOTAL $ 23,473,751 $ 28,236,569 ============= ============= NET ASSET VALUE PER UNIT: Series A (Based on 18,512 and 18,763 Units outstanding) $ 331.64 $ 386.22 ============= ============= Series B (Based on 41,564 and 42,174 Units outstanding) $ 269.14 $ 313.44 ============= ============= Series C (Based on 28,342 and 29,345 Units outstanding) $ 209.79 $ 244.32 ============= =============
See notes to financial statements. 2 JOHN W. HENRY & CO./MILLBURN L.P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE FOR THE THREE MONTHS ENDED MONTHS ENDED MARCH 31, 2005 MARCH 31, 2004 -------------- --------------- TRADING REVENUES (LOSS): Trading profit (loss): Realized $ (1,403,378) $ 3,017,656 Change in unrealized (2,063,951) (1,810,382) -------------- --------------- Total trading revenues (loss) (3,467,329) 1,207,274 -------------- --------------- INVESTMENT INCOME: Interest 159,806 74,574 -------------- --------------- EXPENSES: Brokerage commissions 527,161 695,016 Profit Shares - 113,145 Administrative fees 52,255 39,699 -------------- --------------- Total expenses 579,416 847,860 -------------- --------------- NET INVESTMENT LOSS (419,610) (773,286) -------------- --------------- NET INCOME (LOSS) $ (3,886,939) $ 433,988 ============== =============== NET INCOME (LOSS) PER UNIT: Weighted average number of General Partner and Limited Partner Units outstanding 89,729 99,235 ============== =============== Net income (loss) per weighted average General Partner and Limited Partner Unit $ (43.32) $ 4.37 ============== =============== Net income (loss) per weighted average General Partner and Limited Partner Unit by series Series A $ (54.65) $ 5.22 ============== =============== Series B $ (44.36) $ 4.87 ============== =============== Series C $ (34.58) $ 3.17 ============== ===============
The majority of income and expenses are derived from investments in Trading LLCs (Note 2). 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 THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (unaudited)
UNITS GENERAL PARTNER ----- --------------- SERIES A SERIES B SERIES C SERIES A SERIES B SERIES C -------- -------- -------- ---------- ---------- ---------- PARTNERS' CAPITAL, December 31, 2003 20,448 47,044 33,466 $ 83,679 $ 155,512 $ 85,946 Net income - - - 1,038 1,933 1,066 Redemptions (970) (2,760) (793) - - - -------- -------- -------- ---------- ---------- ---------- PARTNERS' CAPITAL, March 31, 2004 19,478 44,284 32,673 $ 84,717 $ 157,445 $ 87,012 ======== ======== ======== ========== ========== ========== PARTNERS' CAPITAL, December 31, 2004 18,763 42,174 29,345 $ 80,720 $ 149,823 $ 82,822 Net loss - - - (11,078) (20,465) (11,257) Redemptions (251) (610) (1,003) (6,962) (14,973) (9,468) -------- -------- -------- ---------- ---------- ---------- PARTNERS' CAPITAL, March 31, 2005 18,512 41,564 28,342 $ 62,680 $ 114,385 $ 62,097 ======== ======== ======== ========== ========== ========== LIMITED PARTNERS ---------------- SERIES A SERIES B SERIES C TOTAL ----------- ------------ ----------- ------------ PARTNERS' CAPITAL, December 31, 2003 $ 8,103,322 $ 15,149,651 $ 8,398,728 $ 31,976,838 Net income 102,731 222,916 104,304 433,988 Redemptions (395,350) (943,648) (203,675) (1,542,673) ----------- ------------ ----------- ------------ PARTNERS' CAPITAL, March 31, 2004 $ 7,810,703 $ 14,428,919 $ 8,299,357 $ 30,868,153 =========== ============ =========== ============ PARTNERS' CAPITAL, December 31, 2004 $ 7,165,985 $ 13,069,071 $ 7,086,612 $ 27,635,033 Net loss (1,008,662) (1,838,393) (997,084) (3,886,939) Redemptions (80,650) (158,451) (205,799) (476,303) ----------- ------------ ----------- ------------ PARTNERS' CAPITAL, March 31, 2005 $ 6,076,673 $ 11,072,227 $ 5,883,729 $ 23,271,791 =========== ============ =========== ============
See notes to financial statements. 4 JOHN W. HENRY & CO./MILLBURN L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES In the opinion of management, the financial statements contain all adjustments necessary to present fairly the financial position of John W. Henry & Co./Millburn L.P. (the "Partnership") as of March 31, 2005, and the results of its operations for the three months ended March 31, 2005 and 2004. The operating results for the interim periods may not be indicative of the results for the full year. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2004. 2. INVESTMENTS As of March 31, 2005, the Partnership had investments in ML JWH Financials and Metals Portfolio LLC ("JWH LLC") and Millburn Global LLC ("Millburn LLC") ("Trading LLCs", collectively) of $11,635,896 and $11,635,896, respectively. For the year ending December 31, 2004, the Partnership had investments in JWH LLC and Millburn LLC of $13,817,517 and $13,817,516, respectively. The majority of revenue and expenses of the Partnership have been derived from its investments in the Trading LLCs. Condensed statements of financial condition and statements of operations for JWH LLC and Millburn LLC are set forth as follows:
MARCH 31, 2005 (UNAUDITED) DECEMBER 31, 2004 ------------------------------ ------------------------------ JWH MILLBURN JWH MILLBURN LLC LLC LLC LLC -------------- ------------- ------------- -------------- Assets $ 11,704,926 $ 12,762,933 $ 15,414,858 $ 13,923,728 ============== ============== ============= ============== Liabilities $ 69,030 $ 1,127,037 $ 1,597,341 $ 106,212 Members' Capital 11,635,896 11,635,896 13,817,517 13,817,516 -------------- -------------- ------------- -------------- Total $ 11,704,926 $ 12,762,933 $ 15,414,858 $ 13,923,728 ============== ============== ============= ==============
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JWH MILLBURN JWH MILLBURN LLC LLC LLC LLC ----------------- ---------------- ----------------- ---------------- FOR THE THREE FOR THE THREE FOR THE THREE FOR THE THREE MONTHS MONTHS MONTHS MONTHS ENDED MARCH 31, ENDED MARCH 31, ENDED MARCH 31, ENDED MARCH 31, 2005 2005 2004 2004 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) ----------------- ---------------- ----------------- ---------------- Revenue (Loss) $ (2,595,535) $ (711,988) $ 619,220 $ 662,627 Expenses (255,788) (286,878) (389,340) (439,262) ----------------- ----------------- ----------------- ---------------- Net income (loss) $ (2,851,323) $ (998,866) $ 229,880 $ 223,365 ================= ================ ================= ================
3. 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 cannot be presented on the financial statements. The following summarizes some of those risks. MARKET RISK Derivative instruments involve varying degrees of off-balance sheet market risk. Changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the financial instruments or commodities underlying such derivative instruments frequently result in changes in the 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. Merrill Lynch Alternative Investments LLC ("MLAI"), the General Partner, has procedures in place intended to control market risk exposure, although there can be no assurance that they will, in fact, succeed in doing so. These procedures focus primarily on monitoring the trading of the Advisors selected from time to time for the Partnership, calculating the Net Asset Value of the Advisors' respective Trading LLC accounts as of the close of business on each day and reviewing outstanding positions for over-concentrations both on an Advisor-by-Advisor and on an overall Partnership basis. While MLAI does not itself intervene in the markets to hedge or diversify the Partnership's market exposure, MLAI may urge Advisors to reallocate positions or itself reallocate Partnership assets among Advisors (although typically only as of the end of a month) in an attempt to avoid over-concentration. However, such interventions are unusual. Except in cases in which it appears that an Advisor has begun to deviate from past practice and trading policies or to be trading erratically, MLAI's basic risk control procedures consist simply of the ongoing process of advisor monitoring and selection, with the market risk controls being applied by the Advisors themselves. 6 CREDIT RISK The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) transactions, because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange is pledged to support the financial integrity of the exchange. In over-the-counter transactions, on the other hand, traders must rely solely on the credit of their respective individual counterparties. Margins, which may be subject to loss in the event of a default, are generally required in exchange trading, and counterparties may also require margin in the over-the-counter markets. The Partnership, through the Trading LLCs, has credit risk with respect to non-performance of its counterparties and brokers, but attempts to mitigate this risk by dealing almost exclusively with Merrill Lynch entities as clearing brokers. The Partnership, through the Trading LLCs, in its normal course of business, enters into various contracts, with Merrill Lynch Pierce Fenner & Smith Inc. ("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 Trading LLC's Statements of Financial Condition under Equity in commodity futures trading accounts. Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations MONTH-END NET ASSET VALUE PER SERIES A UNIT
JAN. FEB. MAR. ---------------------------- 2004 $ 405.87 $ 422.69 $ 405.35 2005 $ 358.46 $ 348.10 $ 331.64
MONTH-END NET ASSET VALUE PER SERIES B UNIT
JAN. FEB. MAR. ---------------------------- 2004 $ 329.80 $ 343.47 $ 329.38 2005 $ 290.90 $ 282.50 $ 269.14
MONTH-END NET ASSET VALUE PER SERIES C UNIT
JAN. FEB. MAR. ---------------------------- 2004 $ 257.00 $ 267.65 $ 256.68 2005 $ 226.75 $ 220.20 $ 209.79
7 Performance Summary All of the Partnership's assets are invested in Trading LLCs. The Partnership receives trading profits as an investor in the Trading LLCs . The following commentary describes the trading results of the Trading LLCs. January 1, 2005 to March 31, 2005 The Partnership was unprofitable for the first quarter of 2005. In the beginning of the quarter, many trend-following programs experienced difficulty, as larger trends which started in the fourth quarter reversed during the quarter. Global equity markets sold-off after rallying in December, the U.S. dollar began strengthening and metal markets also sold-off. Throughout the remainder of the quarter, many longer-term trend-following programs experienced difficulty, as markets remained quite range bound and choppy. The currency sector began the first quarter with a loss, as the U.S. dollar strengthened against various other currencies. Gains achieved in exposure to the Japanese yen were outweighed by losses in the Euro, Canadian dollar and Australian dollar. At mid-quarter, gains generated in exposure to the Australian dollar and Polish zloty were outweighed by losses in the Euro, Japanese yen and Swiss franc. At the end of the quarter, gains generated in exposure to the Japanese yen and Swiss franc were outweighed by losses in the Polish zloty, Brazilian real, and Australian dollar. The metals sector also posted losses, as markets sold off on slower growth estimates in 2005. Both exposure to industrial and precious metals detracted from performance. The sector gained during the quarter as markets rallied in both the precious and industrial sub-sectors, particularly gold, copper and aluminum. However, the sector ended the quarter with a loss as gains in non-precious metals such as aluminum and copper were offset by losses in silver and gold contracts. A loss was posted for the stock indices sector, as markets reversed and sold off. Major losses were from exposure to the United States and Asia. During the quarter, a gain was posted, as exposure to Asian equities and selected U.S. equities posted gains. A loss was realized at the end of the quarter as exposure to U.S. equities and Asian equities contributed to the bulk of losses. The interest rate sector was the poorest performing sector for the first quarter. The beginning of the quarter had gains generated in exposure to Japanese, U.S. and European fixed income. Toward the end of the quarter, gains were generated at the front end of the U.S. curve, while losses were experienced in exposure to European and Japanese fixed income. Losses were mainly from exposure to German and Japanese fixed income instruments. Profits were made from short exposure to Eurodollar and U.S. Treasury note contracts. January 1, 2004 to March 31, 2004 Gains were experienced in the interest rate, metals and stock indices and losses in the currency sector. Overall, the Partnership experienced a positive rate of return for the quarter. The interest rate sector posted the largest gains. In January, the fixed income market slowly drifted higher, but exhibited reversals, mainly due to foreign exchange moves. Profits were generated from various positions at the short end of the yield curve in the U.S. and Europe, while losses were posted at longer points in the yield curve in both the U.S. and Europe. In February, fixed income markets resumed their slow upward trend. The overall sector exposure had been limited compared to historical exposures but profits were generated from both U.S. and German yield curves. Gains were also posted in March. Long exposure to most of the major global yield curves generated positive results. German Bunds and the longer end of the U.S. yield curve posted gains, while Japanese exposure detracted from performance. 8 The metals sector posted gains for the quarter. In January, long positions in both precious and industrial metals generated positive returns. Copper continued to move higher and rose to its highest price in more than six years due to supply disruptions and heavy demand from new home construction. Gold also reached highs not seen since 1988. In February, industrial metals generated positive returns from the long side, while precious metals detracted from performance. Base metals continued their upward move as the sector experienced strong demand, shrinking supply and U.S. dollar weakness, helping to drive prices higher. Strong industrial demand for copper and continued speculative interest pushed the market to a seven year high. In March, industrial metals and precious metals, especially gold, contributed to profits. Stock indices also posted gains for the quarter. Stock indices posted a profit for January as long exposure to global equities from momentum based and fundamental models performed well. The main drivers to performance in this sector were the DAX and the NASDAQ Indices. In February, exposure to global equities produced negative performance. Asian equities produced positive performance while other markets, specifically the U.S., outweighed those gains. Stock indices posted a small gain for March. Asian equity exposure outperformed U.S. exposure during the month. The currency sector experienced losses despite gains early in the quarter. In January, the currency sector continued its long trend of a weakening U.S. dollar. Currency trading was very choppy, but gains were generated in the earlier part of the month. The currency sector posted losses for the month of February under highly volatile market conditions. The main event in the currency markets was the meeting of the G-7 Finance Ministers, hoping that some indication would be given as to the future directions of the U.S. dollar. The U.S. dollar continued to be range bound after the meeting. Gains in the British pound were not able to offset losses in other major or minor currency markets. Losses were also posted in March under difficult trading conditions. All of the political events during the month and rumors of the Bank of Japan's intervention policies caused for significant uncertainty in the markets. Early U.S. dollar strength turned around towards the end of the month and a large drop right at the month's close saw the U.S. dollar fall to four year lows against the Japanese yen. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable Item 4. 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 and Trading LLCs within 90 days of the filing date of this quarterly report, and, based on this evaluation, has concluded that these disclosure controls and procedures are effective. Additionally, there were no significant changes in the Partnership or Trading LLCs internal controls or in other factors that could significantly affect these controls subsequent to the date of this evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 9 PART II - OTHER INFORMATION Item 1. Legal Proceedings There are no pending legal proceedings to which the Partnership, Trading LLCs, or MLAI is a party. Item 2. Changes in Securities and Use of Proceeds (a) None. (b) None. (c) None. (d) None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other information None. Item 6. Exhibits and Reports on Form 8-K. (a) EXHIBITS There are no exhibits required to be filed as part of this report. (b) REPORTS ON FORM 8-K There were no reports on Form 8-K filed during the first three months of fiscal 2005. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JOHN W. HENRY & CO./MILLBURN L.P. By: MERRIL LYNCH ALTERNATIVE INVESTMENTS LLC General Partner Date: May 16, 2005 By /s/ ROBERT M. ALDERMAN ---------------------- Robert M. Alderman Chief Executive Officer, President and Manager (Principal Executive Officer) Date: May 16, 2005 By /s/ MICHAEL L. PUNGELLO ----------------------- Michael L. Pungello Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 11