Exhibit 13.01
JOHN W. HENRY & CO./
MILLBURN L.P .
(A Delaware Limited Partnership)
Financial Statements for the years ended
December 31, 2006, 2005 and 2004
and Report of Independent Registered
Public Accounting Firm
JOHN W. HENRY & CO./MILLBURN L. P.
(A Delaware Limited Partnership)
TABLE OF CONTENTS
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
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FINANCIAL STATEMENTS: |
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Statements of Financial Condition as of December 31, 2006 and 2005 |
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Statements of Operations for the years ended December 31, 2006, 2005, and 2004 |
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Statements of Changes in Partners’ Capital for the years ended December 31, 2006, 2005 and 2004 |
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Financial Data Highlights for the year ended December 31, 2006 |
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Notes to Financial Statements |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2006 and 2005, and the related statements of operations and of changes in partners’ capital for each of the three years in the period ended December 31, 2006 and the financial data highlights for the year ended December 31, 2006. 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 the standards of the Public Company Accounting Oversight Board (United States). 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. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, the financial statements and financial data highlights referred to above present fairly, in all material respects, the financial position of John W. Henry & Co./Millburn L.P. as of December 31, 2006 and 2005, the results of its operations and of changes in its partners’ capital for each of the three years in the period ended December 31, 2006, and the financial data highlights for the year ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP |
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New York, New York
March 27, 2007
JOHN W. HENRY & CO./MILLBURN L.P.
(A Delaware Limited Partnership)
STATEMENTS OF FINANCIAL CONDITION
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| December 31, |
| December 31, |
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| 2006 |
| 2005 |
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ASSETS: |
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Investments in Trading LLCs |
| $ | 20,078,409 |
| $ | 22,731,551 |
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Receivable from Trading LLCs |
| 384,920 |
| 282,573 |
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TOTAL ASSETS |
| $ | 20,463,329 |
| $ | 23,014,124 |
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LIABILITIES AND PARTNERS’ CAPITAL |
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LIABILITIES: |
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Filing fees payable |
| $ | 11,250 |
| $ | 12,250 |
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Redemptions payable |
| 373,670 |
| 270,323 |
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Total liabilities |
| 384,920 |
| 282,573 |
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PARTNERS’ CAPITAL: |
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General Partner: |
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(159 and 189 Series A Units outstanding) |
| 55,828 |
| 67,612 |
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(346 and 425 Series B Units outstanding) |
| 98,575 |
| 123,385 |
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(248 and 296 Series C Units outstanding) |
| 55,081 |
| 66,981 |
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Limited Partners: |
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(15,308 and 16,224 Series A Units outstanding) |
| 5,374,754 |
| 5,803,895 |
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(32,396 and 36,815 Series B Units outstanding) |
| 9,229,259 |
| 10,688,039 |
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(23,705 and 26,433 Series C Units outstanding) |
| 5,264,912 |
| 5,981,639 |
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Total partners’ capital |
| 20,078,409 |
| 22,731,551 |
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TOTAL LIABILITIES AND PARTNERS’ CAPITAL |
| $ | 20,463,329 |
| $ | 23,014,124 |
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NET ASSET VALUE PER UNIT: |
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Series A |
| $ | 351.11 |
| $ | 357.74 |
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Series B |
| $ | 284.89 |
| $ | 290.32 |
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Series C |
| $ | 222.10 |
| $ | 226.29 |
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See notes to financial statements.
2
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
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| 2005 |
| 2004 |
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TRADING PROFIT (LOSS): |
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Trading profit (loss): |
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Realized |
| $ | 586,600 |
| $ | 496,604 |
| $ | 1,696,804 |
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Change in unrealized |
| 227,608 |
| (1,111,030 | ) | (281,869 | ) | |||
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Total trading profit (loss) |
| 814,208 |
| (614,426 | ) | 1,414,935 |
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INVESTMENT INCOME: |
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Interest |
| 1,066,585 |
| 738,940 |
| 367,819 |
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EXPENSES: |
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Brokerage commissions |
| 1,905,622 |
| 2,019,957 |
| 2,309,432 |
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Profit Shares |
| 148,563 |
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| 131,611 |
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Administrative and Filing fees |
| 191,046 |
| 206,410 |
| 537,182 |
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Total expenses |
| 2,245,231 |
| 2,226,367 |
| 2,978,225 |
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NET INVESTMENT LOSS |
| (1,178,646 | ) | (1,487,427 | ) | (2,610,406 | ) | |||
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NET LOSS |
| $ | (364,438 | ) | $ | (2,101,853 | ) | $ | (1,195,471 | ) |
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NET LOSS PER UNIT: |
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Weighted average number of General Partner and Limited Partner Units outstanding |
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Series A |
| 15,928 |
| 17,825 |
| 19,410 |
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Series B |
| 35,673 |
| 40,315 |
| 43,912 |
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Series C |
| 25,838 |
| 27,966 |
| 32,213 |
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Net loss per weighted average General Partner and Limited Partner Unit by series |
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Series A |
| $ | (5.93 | ) | $ | (30.00 | ) | $ | (14.81 | ) |
Series B |
| $ | (4.76 | ) | $ | (24.96 | ) | $ | (12.93 | ) |
Series C |
| $ | (3.87 | ) | $ | (20.06 | ) | $ | (10.56 | ) |
Substantially all items of income and expense are derived from the investments in Trading LLCs.
See notes to financial statements.
3
STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
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| Limited Partners |
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| Total |
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PARTNERS’ CAPITAL, DECEMBER 31, 2003 |
| 20,448 |
| 47,044 |
| 33,466 |
| $ | 83,679 |
| $ | 155,512 |
| $ | 85,946 |
| $ | 8,103,322 |
| $ | 15,149,651 |
| $ | 8,398,728 |
| $ | 31,976,838 |
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Net loss |
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| (2,959 | ) | (5,689 | ) | (3,124 | ) | (284,577 | ) | (561,943 | ) | (337,179 | ) | (1,195,471 | ) | |||||||
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Redemptions |
| (1,685 | ) | (4,870 | ) | (4,121 | ) | — |
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| (652,760 | ) | (1,518,637 | ) | (974,937 | ) | (3,146,334 | ) | |||||||
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PARTNERS’ CAPITAL, DECEMBER 31, 2004 |
| 18,763 |
| 42,174 |
| 29,345 |
| 80,720 |
| 149,823 |
| 82,822 |
| 7,165,985 |
| 13,069,071 |
| 7,086,612 |
| 27,635,033 |
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Net loss |
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| (6,146 | ) | (11,466 | ) | (6,372 | ) | (528,534 | ) | (994,691 | ) | (554,644 | ) | (2,101,853 | ) | |||||||
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Redemptions |
| (2,350 | ) | (4,934 | ) | (2,616 | ) | (6,962 | ) | (14,972 | ) | (9,469 | ) | (833,556 | ) | (1,386,341 | ) | (550,329 | ) | (2,801,629 | ) | |||||||
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PARTNERS’ CAPITAL, DECEMBER 31, 2005 |
| 16,413 |
| 37,240 |
| 26,729 |
| 67,612 |
| 123,385 |
| 66,981 |
| 5,803,895 |
| 10,688,039 |
| 5,981,639 |
| 22,731,551 |
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Net loss |
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| (1,043 | ) | (1,618 | ) | (975 | ) | (93,436 | ) | (168,277 | ) | (99,089 | ) | (364,438 | ) | |||||||
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Redemptions |
| (946 | ) | (4,498 | ) | (2,776 | ) | (10,741 | ) | (23,192 | ) | (10,925 | ) | (335,705 | ) | (1,290,503 | ) | (617,638 | ) | (2,288,704 | ) | |||||||
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PARTNERS’ CAPITAL, DECEMBER 31, 2006 |
| 15,467 |
| 32,742 |
| 23,953 |
| $ | 55,828 |
| $ | 98,575 |
| $ | 55,081 |
| $ | 5,374,754 |
| $ | 9,229,259 |
| $ | 5,264,912 |
| $ | 20,078,409 |
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See notes to financial statements.
4
FINANCIAL DATA HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, 2006
The following per Unit data and ratios have been derived from information provided in the financial statements.
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| Series C |
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Per Unit Operating Performance: |
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Net asset value, beginning of year |
| $ | 357.74 |
| $ | 290.32 |
| $ | 226.29 |
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Realized trading profit |
| 9.29 |
| 7.54 |
| 5.88 |
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Change in unrealized |
| 3.29 |
| 2.67 |
| 2.08 |
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Interest income |
| 17.44 |
| 14.15 |
| 11.03 |
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Expenses |
| (36.65 | ) | (29.79 | ) | (23.18 | ) | |||
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Net asset value, end of year |
| $ | 351.11 |
| $ | 284.89 |
| $ | 222.10 |
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Total Return: |
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Total return before Profit Shares |
| -1.19 | % | -1.19 | % | -1.19 | % | |||
Profit Shares |
| -0.77 | % | -0.79 | % | -0.77 | % | |||
Total return after Profit Shares |
| -1.85 | % | -1.87 | % | -1.85 | % | |||
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Ratios to Average Net Assets: |
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Expenses (excluding Profit Shares) |
| 9.49 | % | 9.52 | % | 9.52 | % | |||
Profit Shares |
| 0.67 | % | 0.69 | % | 0.65 | % | |||
Expenses (including Profit Shares) |
| 10.16 | % | 10.21 | % | 10.17 | % | |||
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Net investment loss |
| -5.33 | % | -5.37 | % | -5.33 | % |
See notes to financial statements.
5
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 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. Merrill Lynch Alternative Investments LLC (“MLAI”) 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”), a wholly-owned subsidiary of Merrill Lynch, is the Partnership’s commodity broker. MLAI has agreed to maintain a general partner’s interest of at least 1% of total capital of each Series of Units. MLAI 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. MLAI may, in its discretion, reallocate assets between the Advisors as of any quarter-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”), (together, “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. The Advisors also hold investments in the Partnership as limited partners with combined ownership of 4.8% of the Partnership as of December 31, 2006.
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
The revenues of the trading LLCs are directly allocated to the Partnership.
Operating Expenses
MLAI pays all routine operating expenses excluding the State of New Jersey filing fee (which is borne by the Partnership and is allocated based on relative net assets of each series) but including legal, accounting, printing, postage and similar expenses. MLAI 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.
Indemnifications
In the normal course of business, the Partnership enters into contracts and agreements that contain a variety of representations and warranties and which provide general indemnifications. The Partnership’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Partnership that have not yet occurred. The Partnership expects the risk of any future obligation under these indemnifications to be remote.
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 based upon the Partnership’s interest in the Trading LLCs. Fair value of the investments in the Trading LLCs is equal to the market value of the net assets of the Trading LLCs allocable to the Partnership as an investor.
At December 31, 2006 and 2005, the Partnership had investments in JWH LLC and Millburn LLC as follows:
| 2006 |
| 2005 |
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JWH LLC |
| $ | 10,039,205 |
| $ | 11,365,776 |
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Millburn LLC |
| 10,039,204 |
| 11,365,775 |
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Total |
| $ | 20,078,409 |
| $ | 22,731,551 |
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3. RELATED PARTY TRANSACTIONS
The Partnership’s U.S. dollar assets invested through the 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 MLPF&S in non-U.S. dollar currencies at a prevailing local interest 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.
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Merrill Lynch charges the Trading LLCs Merrill Lynch’s cost of financing realized and unrealized losses on the Trading LLC’s non-U.S. dollar-denominated positions. Such amounts are netted against interest income due to the insignificance of such amounts.
The Partnership pays brokerage commissions to MLPF&S through the Trading LLCs at a flat monthly rate of .708 of 1% (an 8.50% annual rate) of the Trading LLCs’ month-end trading assets. The Partnership also pays MLAI a monthly administrative fee through the Trading LLCs of .021 of 1% (a 0.25% annual rate) of the Trading LLCs’ month-end trading assets. Month-end trading 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 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 Advisory Agreements with the Advisors, which are in effect for successive one year terms.
Profit Shares of 20% of any New Trading Profit, as defined, either as of the end of each calendar quarter or year, are 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 is computed for purposes of computing net loss per weighted average Unit. The weighted average number of Units of each Series outstanding for the years ended December 31, 2006, 2005 and 2004 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. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109. FIN 48 prescribes the minimum recognition threshold a tax position must meet in connection with accounting for uncertainties in income tax positions taken or expected to be taken by an entity before being measured and recognized in the financial statements. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006. The impact on the Partnership’s financial statements, if any, is currently being assessed.
In September 2006, the Securities Exchange Commission (“SEC”) staff also issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). While not an official rule or interpretation of the SEC, SAB 108 was issued to address the diversity in practice in quantifying misstatements from prior years and assessing their effect on current year financial statements. SAB 108 is effective for the first annual period ending after November 15, 2006, with early application encouraged. The Partnership has assessed the impact of SAB 108 on its financial statements and does not expect the impact of adoption to be material to its financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157 establishes a common definition for fair value under accounting principles generally accepted in the United States of America, establishes a framework for measuring fair value and expands disclosure requirements about such fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. The Partnership is currently evaluating the impact of adopting FAS 157 on its financial statements.
8
7. MARKET 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 all be presented on the financial statements.
Market Risk
Derivative instruments involve varying degrees of 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. Investments in foreign markets may also entail legal and political risks.
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 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 credit risk associated with these instruments from counterparty nonperformance is the Net unrealized gains on open contracts, if any, included in the Statements of Financial Condition of the Trading LLCs. The Trading LLCs attempt to mitigate this risk by dealing exclusively with Merrill Lynch entities as clearing brokers.
The Trading LLCs, in their normal course of business, enter into various contracts, with MLPF&S acting as their commodity broker. Pursuant to the brokerage arrangement 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 Equity in commodity futures trading accounts in the respective Statements of Financial Condition of the Trading LLCs.
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To the best of the knowledge and belief of the
undersigned, the information contained in this
report is accurate and complete.
/s/ Barbra E. Kocsis |
|
Barbra E. Kocsis
Chief Financial Officer
Merrill Lynch Alternative Investments LLC
General Partner of
John W. Henry & Co./Millburn L.P.
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