JOHN W. HENRY & CO./
MILLBURN L.P .
(A DELAWARE LIMITED PARTNERSHIP)
Financial Statements for the years ended December 31,
2000, 1999 and 1998 and Independent Auditors' Report
[MERRILL LYNCH COMPANY LOGO]
JOHN W.HENRY & CO./MILLBURN L. P.
(A DELAWARE LIMITED PARTNERSHIP)
TABLE OF CONTENTS
- -----------------------------------------------------------------------------------------------
Page
-----
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998:
Statements of Financial Condition 2
Statements of Operations 3
Statements of Changes in Partners' Capital 4
Notes to Financial Statements 5-14
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, 2000 and 1999,
and the related statements of operations and of changes in partners' capital for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Partnership'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 John W. Henry & Co./Millburn L.P. as of
December 31, 2000 and 1999, and the results of its operations and changes in its
partners' capital for each of the three years in the period ended December 31,
2000 in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
New York, New York
February 5, 2001
JOHN W. HENRY & CO./MILLBURN L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2000 AND 1999
- -----------------------------------------------------------------------------------------------------------
2000 1999
------------------ ------------------
ASSETS
Investments (Note 6) $ 29,423,145 $ 42,876,172
Receivable from investments (Note 6) 414,650 1,007,250
------------------ ------------------
TOTAL $ 29,837,795 $ 43,883,422
================== ==================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Redemptions payable $ 414,650 $ 1,007,250
------------------ ------------------
Total liabilities 414,650 1,007,250
------------------ ------------------
PARTNERS' CAPITAL:
General Partner:
(327 and 504 Series A Units outstanding) 84,379 131,110
(728 and 1,338 Series B Units outstanding) 152,621 282,923
(532 and 926 Series C Units outstanding) 86,921 152,600
Limited Partners:
(28,737 and 39,335 Series A Units outstanding) 7,415,475 10,232,683
(66,325 and 100,451 Series B Units outstanding) 13,906,094 21,241,923
(47,598 and 65,744 Series C Units outstanding) 7,777,655 10,834,933
------------------ ------------------
Total partners' capital 29,423,145 42,876,172
------------------ ------------------
TOTAL $ 29,837,795 $ 43,883,422
================== ==================
NET ASSET VALUE PER UNIT
Series A $ 258.05 $ 260.14
================== ==================
Series B $ 209.67 $ 211.47
================== ==================
Series C $ 163.40 $ 164.80
================== ==================
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, 2000, 1999 AND 1998
- -------------------------------------------------------------------------------------------------------------------
2000 1999 1998
---------------- ----------------- -----------------
INCOME (LOSS) FROM INVESTMENTS (Note 6) $ (2,426,515) $ (6,145,111) $ 1,867,451
---------------- ----------------- -----------------
NET INCOME (LOSS) $ (2,426,515) $ (6,145,111) $ 1,867,451
================ ================= =================
NET INCOME (LOSS) PER UNIT:
Weighted average number of General Partner
and Limited Partner Units outstanding (Note 5) 177,217 226,394 264,787
================ ================= =================
Net income (loss) per weighted average
General Partner and Limited
Partner Unit $ (13.69) $ (27.14) $ 7.05
================ ================= =================
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, 2000, 1999 AND 1998
- ----------------------------------------------------------------------------------------------------------------
General Partner
Series Series Series -----------------------------------------
A B C Series Series Series
Units Units Units A B C
------------ ------------- ------------ ------------ ------------- -------------
PARTNERS' CAPITAL,
DECEMBER 31, 1997 51,772 137,220 92,459 $ 221,605 $456,174 $ 258,899
Redemptions (6,590) (20,461) (14,122) (70,937) (133,279) (82,775)
Net income (loss) - - - (1,422) (974) (2,489)
------------ ------------- ------------ ------------ ------------- -------------
PARTNERS' CAPITAL,
DECEMBER 31, 1998 45,182 116,759 78,337 149,246 321,921 173,635
Redemptions (5,343) (14,970) (11,667) - - -
Net loss - - - (18,136) (38,998) (21,035)
------------ ------------- ------------ ------------ ------------- -------------
PARTNERS' CAPITAL,
DECEMBER 31, 1999 39,839 101,789 66,670 131,110 282,923 152,600
Redemptions (10,775) (34,736) (18,540) (44,970) (113,547) (57,308)
Net loss - - - (1,761) (16,755) (8,371)
------------ ------------- ------------ ------------ ------------- -------------
PARTNERS' CAPITAL,
DECEMBER 31, 2000 29,064 67,053 48,130 $84,379 $ 152,621 $ 86,921
============ ============= ============ ============ ============= =============
Limited Partners
---------------------------------------------------
Series Series Series
A B C Total
---------------- ---------------- ---------------- ----------------
PARTNERS' CAPITAL,
DECEMBER 31, 1997 $14,487,473 $ 31,223,304 $16,376,709 $63,024,164
Redemptions (1,665,001) (4,413,933) (2,362,377) (8,728,302)
Net income (loss) 407,813 962,588 501,935 1,867,451
---------------- ---------------- ---------------- ----------------
PARTNERS' CAPITAL,
DECEMBER 31, 1998 13,230,285 27,771,959 14,516,267 56,163,313
Redemptions (1,552,673) (3,480,805) (2,108,552) (7,142,030)
Net loss (1,444,929) (3,049,231) (1,572,782) (6,145,111)
---------------- ---------------- ---------------- ----------------
PARTNERS' CAPITAL,
DECEMBER 31, 1999 10,232,683 21,241,923 10,834,933 42,876,172
Redemptions (2,326,886) (5,929,091) (2,554,710) (11,026,512)
Net loss (490,322) (1,406,738) (502,568) (2,426,515)
---------------- ---------------- ---------------- ----------------
PARTNERS' CAPITAL,
DECEMBER 31, 2000 $ 7,415,475 $ 13,906,094 $ 7,777,655 $29,423,145
================ ================ ================ ================
See notes to financial statements.
4
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 (currently,
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 Investment Partners Inc.
("MLIP"), a wholly-owned subsidiary of Merrill Lynch Group, Inc., which, in
turn, is a wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch"), is the general partner of the Partnership. Merrill Lynch Futures
Inc. ("MLF"), an affiliate of Merrill Lynch, is the Partnership's commodity
broker. MLIP has agreed to maintain a general partner's interest of at
least 1% of total capital of each Series of Units. MLIP and each Limited
Partner share in the profits and losses of such Series in proportion to
their respective interests in it.
MLIP, an indirect subsidiary of Merrill Lynch, became a member of Merrill
Lynch Investment Managers ("MLIM") - Alternative Investments Group during
October 2000. MLIM's Alternative Investments Group creates and manages a
variety of alternative investment products, including managed futures
funds, hedge funds, funds of funds, exchange funds and private equity
funds. MLIP, organized in 1986, is the hedge fund, fund of funds and
managed futures sponsor within MLIM's Alternative Investments Group.
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. MLIP may, in its
discretion, reallocate assets 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 ("Trading LLCs"), as
described in Note 6. 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.
5
REVENUE RECOGNITION
See Note 6 for discussion of revenue recognition for the Partnership's
investment in Trading LLCs.
OPERATING EXPENSES
MLIP pays all routine operating expenses, including legal, accounting,
printing, postage and similar administrative expenses. MLIP receives an
administrative fee as well as a portion of the brokerage commissions paid
to MLF by the Partnership (see Note 2).
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. RELATED PARTY TRANSACTIONS
The Partnership's U.S. dollar assets invested in Trading LLCs are
maintained at MLF. 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 MLF through the Trading LLCs
at a flat monthly rate of .708 of 1% (a 8.50% annual rate) of the
Partnership's month-end assets. Prior to October 1, 2000, the rate was .792
of 1% (a 9.50% annual rate). The Partnership also pays MLIP a monthly
administrative fee through the Trading LLCs of .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.
MLIP estimates that the round-turn equivalent rates charged to ML
Millburn Global L.L.C. (Millburn LLC) during the years ended 2000, 1999
and 1998 were approximately $324, $461 and $151, respectively. MLIP
estimates that the round-turn equivalent rates charged to ML JWH Financial
and Metals Portfolio L.L.C. ("JWH LLC") during the years ended 2000, 1999
and 1998 were approximately $146, $316 and $133, respectively.
MLF pays the Advisors annual consulting fees of 2% of the average month-end
assets allocated to them for management. One Advisor reduced its fee from
4% to 2% as of October 1, 2000.
6
3. STATEMENTS OF OPERATIONS BY SERIES
The profit and loss of the Series A, Series B and Series C units for the
years ended December 31, 2000, 1999 and 1998 is as follows:
Series A
-----------------------------------------------
2000 1999 1998
--------------- --------------- -------------
INCOME (LOSS) FROM INVESTMENTS (Note 6) $ (492,083) $ (1,463,065) $ 406,391
--------------- --------------- -------------
NET INCOME (LOSS) $ (492,083) $ (1,463,065) $ 406,391
=============== =============== =============
NET INCOME (LOSS) PER UNIT OF
PARTNERSHIP INTEREST:
Weighted average number
of units outstanding (Note 5) 35,027 42,998 48,581
--------------- --------------- -------------
Net income (loss) per weighted average
General Partner and Limited Partner Unit $ (14.05) $ (34.03) $ 8.37
=============== =============== =============
Series B
-----------------------------------------------
2000 1999 1998
--------------- --------------- -------------
INCOME (LOSS) FROM INVESTMENTS (Note 6) $ (1,423,493) $ (3,088,229) $ 961,614
--------------- --------------- -------------
NET INCOME (LOSS) $ (1,423,493) $ (3,088,229) $ 961,614
=============== =============== =============
NET INCOME (LOSS) PER UNIT OF
PARTNERSHIP INTEREST:
Weighted average number
of units outstanding (Note 5) 85,100 108,954 129,195
--------------- --------------- -------------
Net income (loss) per weighted average
General Partner and Limited Partner Unit $ (16.73) $ (28.34) $ 7.44
=============== =============== =============
Series C
-----------------------------------------------
2000 1999 1998
--------------- --------------- -------------
INCOME (LOSS) FROM INVESTMENTS (Note 6) $ (510,939) $ (1,593,817) $ 499,446
--------------- --------------- -------------
NET INCOME (LOSS) $ (510,939) $ (1,593,817) $ 499,446
=============== =============== =============
NET INCOME (LOSS) PER UNIT OF
PARTNERSHIP INTEREST:
Weighted average number
of units outstanding (Note 5) 57,090 74,442 87,011
--------------- --------------- -------------
Net income (loss) per weighted average
General Partner and Limited Partner Unit $ (8.95) $ (21.41) $ 5.74
=============== =============== =============
7
4. ADVISORY AGREEMENTS
The Trading LLCs entered into the Advisory Agreements with the Advisors
(see Note 6).
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. One Advisor's Profit Share rate increased from
15% to 20% as of October 1, 2000.
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.
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, 2000, 1999 and 1998 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. INVESTMENTS
The investments in the Trading LLCs are reflected in the financial
statements at fair value based upon the interest of each series of Units
in each Trading LLC. 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, 2000 and 1999, the Partnership had investments in the ML
JWH Financial and Metals Portfolio LLC ("JWH LLC") and ML Millburn Global
LLC ("Millburn LLC") as follows:
2000 1999
------------------ ------------------
JWH LLC $ 15,281,744 $ 19,843,543
Millburn LLC 14,141,401 23,032,629
------------------ ------------------
Total $ 29,423,145 $ 42,876,172
================== ==================
8
Total revenues and fees with respect to such investments are set forth as
follows:
For the year ended Total Brokerage Administrative Profit Income (loss) from
December 31, 2000 Revenues Commissions Fees Shares Investments
------------------ ----------------- ------------------- -------------- -------------------
Series A Units
- ----------------------------
JWH LLC $ 580,611 $ 345,158 $ 9,317 $ - $ 226,136
Millburn LLC (329,611) 378,419 10,189 - (718,219)
------------------ ----------------- ------------------- -------------- -------------------
Total $ 251,000 $ 723,577 $ 19,506 $ - $ (492,083)
================== ================= =================== ============== ===================
Series B Units
- ----------------------------
JWH LLC $ 884,837 $ 680,162 $ 18,319 $ - $ 186,356
Millburn LLC (836,135) 753,461 20,253 - (1,609,849)
------------------ ----------------- ------------------- -------------- -------------------
Total $ 48,702 $ 1,433,623 $ 38,572 $ - $ (1,423,493)
================== ================= =================== ============== ===================
Series C Units
- ----------------------------
JWH LLC $ 602,500 $ 355,362 $ 9,591 $ - $ 237,547
Millburn LLC (344,867) 393,034 10,585 - (748,486)
------------------ ----------------- ------------------- -------------- -------------------
Total $ 257,633 $ 748,396 $ 20,176 $ - $ (510,939)
================== ================= =================== ============== ===================
Total - All Series
- ----------------------------
JWH LLC $ 2,067,948 $ 1,380,682 $ 37,227 $ - $ 650,039
Millburn LLC (1,510,613) 1,524,914 41,027 - (3,076,554)
------------------ ----------------- ------------------- -------------- -------------------
Total $ 557,335 $ 2,905,596 $ 78,254 $ - $ (2,426,515)
================== ================= =================== ============== ===================
9
For the year ended Total Brokerage Administrative Profit Loss from
December 31, 1999 Revenues Commissions Fees Shares Investments
------------------ ----------------- ------------------ --------------- -------------------
Series A Units
- --------------------------
JWH LLC $ (710,851) $ 593,051 $ 15,604 $ - $ (1,319,506)
Millburn LLC 484,166 605,625 15,937 6,163 (143,559)
------------------ ----------------- ------------------- -------------- -------------------
Total $ (226,685) $ 1,198,676 $ 31,541 $ 6,163 $ (1,463,065)
================== ================= =================== ============== ===================
Series B Units
- --------------------------
JWH LLC $ (1,520,888) $ 1,214,897 $ 31,972 $ - $ (2,767,757)
Millburn LLC 973,195 1,251,363 32,930 9,374 (320,472)
------------------ ----------------- ------------------- -------------- -------------------
Total $ (547,693) $ 2,466,260 $ 64,902 $ 9,374 $ (3,088,229)
================== ================= =================== ============== ===================
Series C Units
- --------------------------
JWH LLC $ (775,390) $ 647,501 $ 17,040 $ - $ (1,439,931)
Millburn LLC 537,575 666,722 17,545 7,194 (153,886)
------------------ ----------------- ------------------- -------------- -------------------
Total $ (237,815) $ 1,314,223 $ 34,585 $ 7,194 $ (1,593,817)
================== ================= =================== ============== ===================
Total - All Series
- --------------------------
JWH LLC $ (3,007,129) $ 2,455,449 $ 64,616 $ - $ (5,527,194)
Millburn LLC 1,994,936 2,523,710 66,412 22,731 (617,917)
------------------ ----------------- ------------------- -------------- -------------------
Total $ (1,012,193) $ 4,979,159 $ 131,028 $ 22,731 $ (6,145,111)
================== ================= =================== ============== ===================
10
For the year ended Total Brokerage Administrative Profit Income from
December 31, 1998 Revenues Commissions Fees Shares Investments
------------------ ----------------- ------------------- -------------- -------------------
Series A Units
- --------------------------
JWH LLC $ 995,747 $ 630,513 $ 16,592 $ 76,657 $ 271,985
Millburn LLC 829,825 633,628 16,674 45,117 134,406
------------------ ----------------- ------------------- -------------- -------------------
Total $ 1,825,572 $ 1,264,141 $ 33,266 $ 121,774 $ 406,391
================== ================= =================== ============== ===================
Series B Units
- --------------------------
JWH LLC $ 2,200,199 $ 1,356,787 $ 35,705 $ 167,835 $ 639,872
Millburn LLC 1,832,991 1,374,689 36,176 100,384 321,742
------------------ ----------------- ------------------- -------------- -------------------
Total $ 4,033,190 $ 2,731,476 $ 71,881 $ 268,219 $ 961,614
================== ================= =================== ============== ===================
Series C Units
- --------------------------
JWH LLC $ 1,148,318 $ 712,552 $ 18,752 $ 88,069 $ 328,945
Millburn LLC 962,693 721,776 18,994 51,422 170,501
------------------ ----------------- ------------------- -------------- -------------------
Total $ 2,111,011 $ 1,434,328 $ 37,746 $ 139,491 $ 499,446
================== ================= =================== ============== ===================
Total - All Series
- --------------------------
JWH LLC $ 4,344,264 $ 2,699,852 $ 71,049 $ 332,561 $ 1,240,802
Millburn LLC 3,625,509 2,730,093 71,844 196,923 626,649
------------------ ----------------- ------------------- -------------- -------------------
Total $ 7,969,773 $ 5,429,945 $ 142,893 $ 529,484 $ 1,867,451
================== ================= =================== ============== ===================
11
Condensed statements of financial condition and statements of operations for JWH
LLC and Millburn LLC are set forth as follows:
JWH Millburn JWH Millburn
LLC LLC LLC LLC
December 31, 2000 December 31, 2000 December 31, 1999 December 31, 1999
---------------------- ---------------------- ---------------------- ----------------------
Assets $ 15,631,088 $ 14,448,475 $ 20,495,709 $ 23,769,789
====================== ====================== ====================== ======================
Liabilities $ 349,344 $ 307,074 $ 652,166 $ 737,160
Members' Capital 15,281,744 14,141,401 19,843,543 23,032,629
---------------------- ---------------------- ---------------------- ----------------------
Total $ 15,631,088 $ 14,448,475 $ 20,495,709 $ 23,769,789
====================== ====================== ====================== ======================
For the year ended For the year ended For the year ended For the year ended
December 31, 2000 December 31, 2000 December 31, 1999 December 31, 1999
---------------------- ---------------------- ---------------------- ----------------------
Revenues $ 2,067,948 $ (1,510,613) $ (3,007,129) $ 1,994,936
Expenses 1,417,909 1,565,941 2,520,065 2,612,853
---------------------- ---------------------- ---------------------- ----------------------
Net Income (Loss) $ 650,039 $ (3,076,554) $ (5,527,194) $ (617,917)
====================== ====================== ====================== ======================
For the year ended For the year ended
December 31, 1998 December 31, 1998
---------------------- ----------------------
Revenues $ 1,391,001 $ 3,593,650
Expenses 4,069,362 3,108,411
---------------------- ----------------------
Net Income (Loss) $ (2,678,361) $ 485,239
====================== ======================
12
7. FAIR VALUE AND OFF-BALANCE SHEET RISK
For the year ended December 31, 2000, the Partnership invested all of
its assets in Trading LLCs. Accordingly, the Partnership is invested
indirectly in derivative instruments, but does not itself hold any
derivative instrument positions. The application of the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 133, as amended
by SFAS No. 137 and SFAS No. 138, did not have a significant effect on the
financial statements of the Partnership.
MARKET RISK
Derivative 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 Partnership's net unrealized profit (loss) on such
derivative instruments as reflected in the Statements of Financial
Condition or, with respect to Partnership assets invested in Trading LLCs,
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.
MLIP 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 Partnership accounts and
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 MLIP does not itself intervene
in the markets to hedge or diversify the Partnership's market exposure,
MLIP 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, MLIP's basic risk control procedures consist simply
of the ongoing process of advisor monitoring and selection, with the market
risk controls being applied by the Advisors themselves.
CREDIT RISK
The risks associated with exchange-traded contracts are typically perceived
to be less than those associated with over-the-counter
(non-exchange-traded) transactions, because exchanges typically (but not
universally) provide clearinghouse arrangements in which the collective
credit (in some cases limited in amount, in some cases not) of the members
of the exchange is pledged to support the financial integrity of the
exchange. In over-the-counter transactions, on the other hand, traders must
rely solely on the credit of their respective individual counterparties.
Margins, which may be subject to loss in the event of a default, are
generally required in exchange trading, and counterparties may also require
margin in the over-the-counter markets.
13
The Partnership, through the Trading LLC's, has credit risk in respect of
its counterparties and brokers, but attempts to mitigate this risk by
dealing almost exclusively with Merrill Lynch entities as clearing brokers.
The Partnership, through the Trading LLCs, in its normal course of
business, enters into various contracts, with MLF acting as its commodity
broker. Pursuant to the brokerage agreement with MLF (which includes a
netting arrangement), to the extent that such trading results in
receivables from and payables to MLF, these receivables and payables are
offset and reported as a net receivable or payable and included in the
Statements of Financial Condition under Equity in commodity futures trading
accounts.
* * * * * * * * * *
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
Merrill Lynch Investment Partners Inc.
General Partner of
John W. Henry & Co./Millburn L.P.
14
ML MILLBURN GLOBAL L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
Financial Statements for the years ended
December 31, 2000 and 1999 and Independent
Auditors' Report
[MERRILL LYNCH COMPANY 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, 2000 AND 1999:
Statements of Financial Condition 2
Statements of Operations 3
Statements of Changes in Member's Capital 4
Notes to Financial Statements 5-8
INDEPENDENT AUDITORS' REPORT
To the Members 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, 2000 and 1999, and the
related statements of operations 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,
2000 and 1999, 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
February 5, 2001
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2000 AND 1999
- ---------------------------------------------------------------------------------------------------------
ASSETS 2000 1999
------------------- ------------------
Equity in commodity futures trading accounts:
Cash and option premiums $ 12,338,439 $ 22,574,430
Net unrealized profit on open contracts 2,042,770 1,088,672
Accrued interest (Note 2) 67,266 106,687
------------------- ------------------
TOTAL $ 14,448,475 $ 23,769,789
=================== ==================
LIABILITIES AND MEMBER'S CAPITAL
LIABILITIES:
Brokerage commissions payable (Note 2) $ 102,325 $ 188,158
Administrative fees payable (Note 2) 3,010 4,952
Withdrawals payable 201,739 544,050
------------------- ------------------
Total liabilities 307,074 737,160
------------------- ------------------
MEMBER'S CAPITAL:
Voting Member 14,141,401 23,032,629
------------------- ------------------
Total Member's capital 14,141,401 23,032,629
------------------- ------------------
TOTAL $ 14,448,475 $ 23,769,789
=================== ==================
See notes to financial statements.
-2-
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
- --------------------------------------------------------------------------------
2000 1999
-------------------- ----------------
REVENUES:
Trading profit (loss):
Realized $ (3,446,018) $ 936,083
Change in unrealized 953,999 (215,763)
-------------------- ----------------
Total trading results (2,492,019) 720,320
Interest income (Note 2) 981,406 1,274,615
-------------------- ----------------
Total revenues (1,510,613) 1,994,935
-------------------- ----------------
EXPENSES:
Brokerage commissions (Note 2) 1,524,912 2,523,710
Profit Shares (Note 3) - 22,730
Administrative fees (Note 2) 41,028 66,413
-------------------- ----------------
Total expenses 1,565,940 2,612,853
-------------------- ----------------
NET LOSS $ (3,076,553) $(617,918)
==================== ================
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, 2000 AND 1999
- --------------------------------------------------------------------------------
MEMBER'S CAPITAL,
DECEMBER 31, 1998 $ 27,277,114
Withdrawals (3,626,567)
Net loss (617,918)
------------------
MEMBER'S CAPITAL,
DECEMBER 31, 1999 23,032,629
Withdrawals (5,814,675)
Net loss (3,076,553)
------------------
MEMBER'S CAPITAL,
DECEMBER 31, 2000 $ 14,141,401
==================
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. Merrill Lynch Investment Partners
("MLIP"), a wholly-owned subsidiary of Merrill Lynch Group, Inc., which,
in turn, is a wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("Merrill Lynch"), has been delegated administrative authority over the
Company. Merrill Lynch Futures Inc. ("MLF"), an affiliate of Merrill
Lynch, 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 MLIP, 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 MLIP. The Voting
Member is a "commodity pool" sponsored and managed by MLIP.
MLIP, an indirect subsidiary of Merrill Lynch, became a member of
Merrill Lynch Investment Managers ("MLIM") - Alternative Investments Group
during October 2000. MLIM's Alternative Investments Group creates and
manages a variety of alternative investment products, including managed
futures funds, hedge funds, funds of funds, exchange funds and private
equity funds. MLIP, organized in 1986, is the hedge fund, funds of funds
and managed futures sponsor within MLIM's Alternative Investments Group.
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
Operations.
-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
MLIP 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, 2000 or 1999.
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.
2. RELATED PARTY TRANSACTIONS
The Company's U.S. dollar assets are maintained at MLF. 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.
-6-
Following the allocation of the Company's trading profit (loss) and
interest income among the Member's capital account, MLIP 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
MLF at flat monthly rate of .708 of 1% (a 8.50% annual rate), reflecting
the fee arrangement between the Member and MLF. Prior to October 1, 2000,
the Company's brokerage commission rate was .792 of 1% (a 9.50% annual
rate).
The Company pays MLIP a monthly administrative fee of .021 of 1% (a .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.
MLF pays Millburn an annual consulting fee of 2% of the Company's average
month-end assets, after reduction for a portion of brokerage commissions.
3. 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 MLIP.
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.
4. FAIR VALUE AND OFF-BALANCE SHEET RISK
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (the "Statement"), effective for
fiscal years beginning after June 15, 2000, as amended by SFAS No. 137.
SFAS No. 133 is further amended by SFAS No. 138, which clarifies issues
surrounding interest risk, foreign currency denominated items, normal
purchases and sales and net hedging. This Statement supercedes SFAS No.
119 ("Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments") and SFAS No. 105 ("Disclosure of Information about
Financial Instruments with Off-Balance Sheet Risk and Financial
Instruments with Concentrations of Credit Risk") whereby disclosure of
average aggregate fair values and contract/notional values, respectively,
of derivative financial instruments is no longer required for an entity
such as the Company which carries its assets at fair value. Such Statement
sets forth a much broader definition of a derivative instrument. The
application of the provisions of SFAS No. 133, as amended by SFAS No. 137
and SFAS No. 138, did not have a significant effect on the financial
statements.
SFAS No. 133 defines a derivative as a financial instrument or other
contract that has all three of the following characteristics: (1) one or
more underlyings and notional amounts or payment provisions; (2) requires
no initial net investment or a smaller initial net investment than would
be required for other types of contracts that would be expected to have a
similar response to changes in market factors; and,
-7-
(3) terms that require or permit net settlement. Generally, derivatives
include futures, forwards, swaps, options or other financial instruments
with similar characteristics such as caps, floors and collars.
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.
MLIP 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
MLIP does not itself intervene in the markets to hedge or diversify the
Company's market exposure, MLIP 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, MLIP's basic risk
control procedures consist simply of the ongoing process of advisor
monitoring with the market risk controls being applied by Millburn.
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.
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 MLF acting as its commodity broker. Pursuant to the
brokerage agreement with MLF (which includes a netting arrangement), to
the extent that such trading results in receivables from and payables to
MLF, these receivables and payables are offset and reported as a net
receivable or payable and included in the Statement of Financial Condition
under Equity in Commodity futures trading accounts.
-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
Merrill Lynch Investment Partners Inc.
Commodity Pool Operator of
ML Millburn Global L.L.C.
-9-
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
Financial Statements for the years ended
December 31, 2000 and 1999 and Independent
Auditors' Report
[MERRILL LYNCH COMPANY 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, 2000 AND 1999
Statements of Financial Condition 2
Statements of Operations 3
Statements of Changes in Member's Capital 4
Notes to Financial Statements 5-8
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, 2000
and 1999, and the related statements of operations 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, 2000 and 1999, and the results of its operations and changes
in its member's capital for the years then ended in comformity with generally
accepted accounting principles in the United States of America.
DELOITTE & TOUCHE LLP
New York, New York
February 5, 2001
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2000 AND 1999
- ------------------------------------------------------------------------------------------------
2000 1999
------------------ ------------------
ASSETS
Equity in commodity futures trading accounts:
Cash and option premiums $ 12,660,641 $ 20,105,266
Net unrealized profit on open contracts 2,902,538 297,749
Accrued interest (Note 2) 67,909 92,694
------------------ ------------------
TOTAL $ 15,631,088 $ 20,495,709
================== ==================
LIABILITIES AND MEMBER'S CAPITAL
LIABILITIES:
Brokerage commissions payable (Note 2) $ 110,579 $ 162,099
Administrative fees payable (Note 2) 3,252 4,266
Withdrawals payable 235,513 485,801
------------------ ------------------
Total liabilities 349,344 652,166
------------------ ------------------
MEMBER'S CAPITAL:
Voting Member 15,281,744 19,843,543
------------------ ------------------
Total Member's capital 15,281,744 19,843,543
------------------ ------------------
TOTAL $ 15,631,088 $ 20,495,709
================== ==================
See notes to financial statements.
-2-
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
- ------------------------------------------------------------------------------------
2000 1999
------------------- ------------------
REVENUES:
Trading (loss) profit:
Realized $ (1,407,367) $ (1,431,693)
Change in unrealized 2,604,788 (2,776,920)
------------------- ------------------
Total trading results 1,197,421 (4,208,613)
Interest income (Note 2) 870,526 1,201,484
------------------- ------------------
Total revenues 2,067,947 (3,007,129)
------------------- ------------------
EXPENSES:
Brokerage commissions (Note 2) 1,380,682 2,455,447
Administrative fees (Note 2) 37,227 64,617
------------------- ------------------
Total expenses 1,417,909 2,520,064
------------------- ------------------
NET INCOME (LOSS) $ 650,038 $ (5,527,193)
=================== ==================
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, 2000 AND 1999
- ---------------------------------------------------------------------------------------------
Voting Member
----------------
MEMBER'S CAPITAL,
DECEMBER 31, 1998 $ 28,886,199
Withdrawals (3,515,463)
Net Loss (5,527,193)
----------------
MEMBER'S CAPITAL,
DECEMBER 31, 1999 19,843,543
Withdrawals (5,211,837)
Net Income 650,038
----------------
MEMBER'S CAPITAL,
DECEMBER 31, 2000 $ 15,281,744
================
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-Registered
Trademark-") is the trading advisor to the Company. Merrill Lynch
Investment Partners Inc. ("MLIP"), a wholly-owned subsidiary of
Merrill Lynch Group, Inc., which, in turn, is a wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("Merrill Lynch"), has been
delegated administrative authority over the Company. Merrill Lynch
Futures Inc. ("MLF"), an affiliate of MLIP, 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 MLIP, 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 and the administrative authority vested in and
delegated to MLIP. The Voting Member is a "commodity pool" sponsored
and managed by MLIP.
MLIP, an indirect subsidiary of Merrill Lynch, became a member of Merrill
Lynch Investment Managers ("MLIM") - Alternative Investments Group during
October 2000. MLIM's Alternative Investments Group creates and manages a
variety of alternative investment products, including managed futures
funds, hedge funds, funds of funds, exchange funds and private equity
funds. MLIP, organized in 1986, is the hedge fund, fund of funds and
managed futures sponsor within MLIM's Alternative Investments Group.
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
-5-
unrealized profit on open contracts from one period to the next is
reflected in Change in unrealized under Trading (loss) profit, in the
Statements of Operations.
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
MLIP 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 had been made by the Company for the years ended December
31, 2000 or 1999.
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.
2. RELATED PARTY TRANSACTIONS
The Company's U.S. dollar assets are maintained at MLF. 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.
-6-
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 (loss) profit and
interest income among the Member's respective capital accounts, MLIP
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 MLF at flat monthly rate of .708
of 1% (an 8.5% annual rate). Prior to October 1, 2000, the Company's
brokerage commission was .792 of 1% (a 9.5% annual rate).
The Company pays MLIP a monthly administrative fee of .021 of 1% (a .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.
MLF pays the Advisor an annual consulting fee of 2%, reduced from 4% on
October 1, 2000, of the Company's average month-end assets, after
reduction for a portion of the brokerage commissions.
3. ADVISORY AGREEMENT
The Advisory Agreement between the Company and JWH-Registered
Trademark- 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-Registered Trademark- to withdraw. JWH-Registered
Trademark- 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
MLIP.
The Company pays to JWH-Registered Trademark- a quarterly Profit Share
equal to 20%, increased from 15% on October 1, 2000, 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-Registered Trademark- upon the withdrawal of capital from the
Company by a Member for whatever purpose, other than to pay expenses.
4. FAIR VALUE AND OFF-BALANCE SHEET RISK
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (the "Statement"), effective for
fiscal years beginning after June 15, 2000, as amended by SFAS No. 137.
SFAS No. 133 is further amended by SFAS No. 138, which clarifies issues
surrounding interest risk, foreign currency denominated items, normal
purchases and sales and net hedging. This Statement supercedes SFAS No.
119 ("Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments") and SFAS No. 105 ("Disclosure of Information about
Financial Instruments with Off-Balance Sheet Risk and Financial
Instruments with Concentrations of Credit Risk") whereby disclosure of
average aggregate fair values and contract/notional values, respectively,
of derivative financial instruments is no longer required for an entity
such as the Company which carries its assets at fair value. Such Statement
sets forth a much broader definition of a derivative instrument. The
application of the provisions of SFAS No. 133, as amended by SFAS No. 137
and SFAS No. 138, did not have a significant effect on the financial
statements.
-7-
SFAS No. 133 defines a derivative as a financial instrument or other
contract that has all three of the following characteristics: (1) one or
more underlyings and notional amounts or payment provisions; (2) requires
no initial net investment or a smaller initial net investment than would
be required for other types of contracts that would be expected to have a
similar response to changes in market factors; and, (3) terms that require
or permit net settlement. Generally, derivatives include futures,
forwards, swaps, options, or other financial instruments with similar
characteristics such as caps, floors and collars.
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.
MLIP 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-Registered Trademark-, 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 MLIP does not itself intervene in the
markets to hedge or diversify the Company's market exposure, MLIP may
consult with JWH-Registered Trademark- concerning the possibility of
JWH-Registered Trademark- reducing trading leverage or market
concentrations. However, such interventions are unusual. Except in
cases in which it appears that JWH-Registered Trademark- has begun to
deviate from past practice and trading policies or to be trading
erratically, MLIP's basic risk control procedures consist simply of
the ongoing process of advisor monitoring with the market risk
controls being applied by JWH-Registered Trademark-.
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.
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 MLF acting as its commodity broker. Pursuant to the
brokerage agreement with MLF (which includes a netting arrangement), to
the extent that such trading results in receivables from and payables to
MLF, these receivables and payables are offset and reported as a net
receivable or payable and included in the Statements of Financial
Condition under Equity in commodity futures accounts.
-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
Merrill Lynch Investment Partners Inc.
Commodity Pool Operator
ML JWH Financial and Metals Portfolio L.L.C.
-9-