EXHIBIT 13.01
JOHN W. HENRY & CO./MILLBURN L.P.
(A DELAWARE LIMITED PARTNERSHIP)
Financial Statements for the years ended
December 31, 1996, 1995 and 1994
and Independent Auditors' Report
To: The Limited Partners of
JOHN W. HENRY & CO./MILLBURN L.P. -
SERIES A
John W. Henry & Co./Millburn L.P. - Series A (the "Fund" or the "Partnership")
ended its seventh fiscal year of trading on December 31, 1996 with a Net Asset
Value ("NAV") per Unit of $252.54, representing an increase of 20.09% from the
December 31, 1995 NAV per Unit of $210.29. During the fiscal year, profits
generated in interest rate, currency and metals trading exceeded losses in stock
index trading.
In 1996, strong price trends prevailed in several key markets enabling the
Fund's Trading Advisors to trade profitably for the Fund. Although trading in
stock index markets may have been lackluster, the global bond and currency
markets offered substantial trading opportunities. Interest rate and currency
price trends resulted in profitable trading opportunities in these markets
throughout the year.
As the new year began, the U.S. dollar rallied throughout most of January, after
being locked in a tight trading range for the two prior months. However, the
dollar weakened against major currencies in February, and returned to a
relatively narrow trading range.
Difficult trading conditions in many markets prevailed and a lack of clear price
trends in key markets negatively impacted the Fund's performance in May and
June. For example, U.S. bond markets remained trendless as continued
volatility, reflected investor confusion over conflicting reports on the
direction of the economy.
As the third quarter of 1996 began, it was the U.S. stock market that
experienced increased volatility coupled with sharp declines in July. In the
currency markets, the U.S. dollar posted its biggest one-day gain against the
Deutsche mark in almost four months on August 14, after comments from the
Bundesbank's chief economist encouraged expectations for lower German interest
rates.
Despite continued price volatility during the final quarter of 1996, the Fund's
Trading Advisors were able to single out trends in key markets, such as the
world's major bond markets which rallied into October and November.
Additionally, price trends prevailed in several major foreign currency markets,
for instance, the British pound extended its rally into November, as it soared
to a 4-year high against the U.S. dollar and a 29-month high against the
Deutsche mark on November 20. In December, however, the world's major bond
market rallies came to an abrupt halt early in the month. Specifically, U.S.
Treasury prices dropped on reports of strength in the economy, as well as a
weaker dollar which further encouraged investor selling of treasury securities.
1996 proved to be a profitable year for the Fund. We continue to work
diligently with the Trading Advisors to meet the Fund's objective of achieving,
through speculative trading, substantial capital appreciation over time. We
look forward to 1997 and the trading opportunities it may bring.
Sincerely,
John R. Frawley, Jr.
President and Chief Executive Officer
MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
FUTURES TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
To: The Limited Partners of
JOHN W. HENRY & CO./MILLBURN L.P. -
SERIES B
John W. Henry & Co./Millburn L.P. - Series B (the "Fund" or the "Partnership")
ended its sixth fiscal year of trading on December 31, 1996 with a Net Asset
Value ("NAV") per Unit of $205.27, representing an increase of 20.03% from the
December 31, 1995 NAV per Unit of $171.02. During the fiscal year, profits
generated in interest rate, currency and metals trading exceeded losses in stock
index trading.
In 1996, strong price trends prevailed in several key markets enabling the
Fund's Trading Advisors to trade profitably for the Fund. Although trading in
stock index markets may have been lackluster, the global bond and currency
markets offered substantial trading opportunities. Interest rate and currency
price trends resulted in profitable trading opportunities in these markets
throughout the year.
As the new year began, the U.S. dollar rallied throughout most of January, after
being locked in a tight trading range for the two prior months. However, the
dollar weakened against major currencies in February, and returned to a
relatively narrow trading range.
Difficult trading conditions in many markets prevailed and a lack of clear price
trends in key markets negatively impacted the Fund's performance in May and
June. For example, U.S. bond markets remained trendless as continued
volatility, reflected investor confusion over conflicting reports on the
direction of the economy.
As the third quarter of 1996 began, it was the U.S. stock market that
experienced increased volatility coupled with sharp declines in July. In the
currency markets, the U.S. dollar posted its biggest one-day gain against the
Deutsche mark in almost four months on August 14, after comments from the
Bundesbank's chief economist encouraged expectations for lower German interest
rates.
Despite continued price volatility during the final quarter of 1996, the Fund's
Trading Advisors were able to single out trends in key markets, such as the
world's major bond markets which rallied into October and November.
Additionally, price trends prevailed in several major foreign currency markets,
for instance, the British pound extended its rally into November, as it soared
to a 4-year high against the U.S. dollar and a 29-month high against the
Deutsche mark on November 20. In December, however, the world's major bond
market rallies came to an abrupt halt early in the month. Specifically, U.S.
Treasury prices dropped on reports of strength in the economy, as well as a
weaker dollar which further encouraged investor selling of treasury securities.
1996 proved to be a profitable year for the Fund. We continue to work
diligently with the Trading Advisors to meet the Fund's objective of achieving,
through speculative trading, substantial capital appreciation over time. We
look forward to 1997 and the trading opportunities it may bring.
Sincerely,
John R. Frawley, Jr.
President and Chief Executive Officer
MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
FUTURES TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
To: The Limited Partners of
JOHN W. HENRY & CO./MILLBURN L.P. -
SERIES C
John W. Henry & Co./Millburn L.P. - Series C (the "Fund" or the "Partnership")
ended its fifth fiscal year of trading on December 31, 1996 with a Net Asset
Value ("NAV") per Unit of $159.97, representing an increase of 19.54% from the
December 31, 1995 NAV per Unit of $133.82. During the fiscal year, profits
generated in interest rate, currency and metals trading exceeded losses in stock
index trading.
In 1996, strong price trends prevailed in several key markets enabling the
Fund's Trading Advisors to trade profitably for the Fund. Although trading in
stock index markets may have been lackluster, the global bond and currency
markets offered substantial trading opportunities. Interest rate and currency
price trends resulted in profitable trading opportunities in these markets
throughout the year.
As the new year began, the U.S. dollar rallied throughout most of January, after
being locked in a tight trading range for the two prior months. However, the
dollar weakened against major currencies in February, and returned to a
relatively narrow trading range.
Difficult trading conditions in many markets prevailed and a lack of clear price
trends in key markets negatively impacted the Fund's performance in May and
June. For example, U.S. bond markets remained trendless as continued
volatility, reflected investor confusion over conflicting reports on the
direction of the economy.
As the third quarter of 1996 began, it was the U.S. stock market that
experienced increased volatility coupled with sharp declines in July. In the
currency markets, the U.S. dollar posted its biggest one-day gain against the
Deutsche mark in almost four months on August 14, after comments from the
Bundesbank's chief economist encouraged expectations for lower German interest
rates.
Despite continued price volatility during the final quarter of 1996, the Fund's
Trading Advisors were able to single out trends in key markets, such as the
world's major bond markets which rallied into October and November.
Additionally, price trends prevailed in several major foreign currency markets,
for instance, the British pound extended its rally into November, as it soared
to a 4-year high against the U.S. dollar and a 29-month high against the
Deutsche mark on November 20. In December, however, the world's major bond
market rallies came to an abrupt halt early in the month. Specifically, U.S.
Treasury prices dropped on reports of strength in the economy, as well as a
weaker dollar which further encouraged investor selling of treasury securities.
1996 proved to be a profitable year for the Fund. We continue to work
diligently with the Trading Advisors to meet the Fund's objective of achieving,
through speculative trading, substantial capital appreciation over time. We
look forward to 1997 and the trading opportunities it may bring.
Sincerely,
John R. Frawley, Jr.
President and Chief Executive Officer
MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
FUTURES TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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, 1996, 1995 AND 1994:
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. (a Delaware limited partnership; the "Partnership") as
of December 31, 1996 and 1995, and the related statements of operations and
changes in partners' capital for each of the three years in the period ended
December 31, 1996. 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 generally accepted auditing
standards. 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, 1996 and 1995, and the results of its operations for the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
New York, New York
February 3, 1997
JOHN W. HENRY & CO./MILLBURN L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
1996 1995
-------------- --------------
ASSETS
- ------
Investments (Note 6) $60,834,087 $ -
Accrued interest (Note 2) - 236,588
Equity in commodity futures trading accounts:
Cash and option premiums - 57,465,987
Net unrealized profit on open contracts - 1,760,218
Receivable from investments (Note 6) 779,075 -
---------------- ----------------
TOTAL $61,613,162 $59,462,793
================ ================
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $ 778,385 $ 946,331
Brokerage commissions payable (Note 2) - 594,628
Profit shares 689 -
---------------- ----------------
Total liabilities 779,074 1,540,959
---------------- ----------------
PARTNERS' CAPITAL:
General Partner:
(780 and 780 Series A Units outstanding) 196,983 164,028
(1,976 and 1,976 Series B Units outstanding) 405,594 337,920
(1,439 and 1,439 Series C Units outstanding) 230,192 192,564
Limited Partners:
(55,596 and 62,793 Series A Units outstanding) 14,040,479 13,205,024
(146,552 and 166,361 Series B Units outstanding) 30,082,484 28,450,897
(99,256 and 116,358 Series C Units outstanding) 15,878,356 15,571,401
---------------- ----------------
Total partners' capital 60,834,088 57,921,834
---------------- ----------------
TOTAL $61,613,162 $59,462,793
================ ================
NET ASSET VALUE PER UNIT
Series A $ 252.54 $ 210.29
================ ================
Series B $ 205.27 $ 171.02
================ ================
Series C $ 159.97 $ 133.82
================ ================
See notes to financial statements.
- 2 -
JOHN W. HENRY & CO./MILLBURN L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
REVENUES:
Trading profit (loss):
Realized $ 8,749,410 $23,852,578 $ 3,650,307
Change in unrealized (1,760,218) (651,118) (2,731,447)
---------------- ---------------- ----------------
Total trading results 6,989,192 23,201,460 918,860
Interest income (Note 2) 1,842,887 2,863,384 1,998,830
---------------- ---------------- ----------------
Total revenues 8,832,079 26,064,844 2,917,690
---------------- ---------------- ----------------
EXPENSES:
Profit shares (Note 3) 97,468 729,138 508,502
Brokerage commissions (Note 2) 5,406,851 7,412,789 7,717,269
Administrative fees (Note 2) 115,039 - -
---------------- ---------------- ----------------
Total expenses 5,619,358 8,141,927 8,225,771
---------------- ---------------- ----------------
INCOME FROM INVESTMENTS (Note 6) 7,171,609 - -
---------------- ---------------- ----------------
NET INCOME (LOSS) $10,384,330 $17,922,917 $(5,308,081)
================ ================ ================
NET INCOME (LOSS) PER UNIT:
Weighted average number of Units
outstanding (Note 5) 327,875 387,956 496,530
================ ================ ================
Net income (loss) per weighted average
General Partner and Limited
Partner Unit $31.67 $46.20 $(10.69)
================ ================ ================
See notes to financial statements.
- 3 -
JOHN W. HENRY & CO./MILLBURN L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
Limited Partners
Series Series Series ----------------------------------------------
A B C Series Series Series
Units Units Units A B C
------- ------- ------- ----------- ----------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1993 81,194 245,779 220,952 $13,706,790 $33,739,138 $23,429,671
Redemptions (6,584) (32,669) (66,957) (1,094,094) (4,380,116) (6,879,495)
Net loss - - - (1,116,848) (2,618,789) (1,504,703)
------ ------- ------- ----------- ----------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1994 74,610 213,110 153,995 11,495,848 26,740,233 15,045,473
Redemptions (11,037) (44,773) (36,198) (2,147,231) (7,077,021) (4,508,984)
Net income 3,856,407 8,787,685 5,034,912
------ ------- ------- ----------- ----------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1995 63,573 168,337 117,797 13,205,024 28,450,897 15,571,401
Redemptions (7,197) (19,809) (17,102) (1,650,602) (3,458,479) (2,362,995)
Net income - - - 2,486,057 5,090,066 2,669,950
------ ------- ------- ----------- ----------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1996 56,376 148,528 100,695 $14,040,479 $30,082,484 $15,878,356
====== ======= ======= =========== =========== ===========
General Partner
--------------------------------------
Series Series Series
A B C Total
-------- --------- --------- ------------
PARTNERS' CAPITAL,
DECEMBER 31, 1993 $148,458 $ 392,440 $ 333,283 $ 71,749,780
Redemptions - - (100,550) (12,454,255)
Net loss (12,830) (33,089) (21,822) (5,308,081)
-------- --------- --------- ------------
PARTNERS' CAPITAL,
DECEMBER 31, 1994 135,628 359,351 210,911 53,987,444
Redemptions (18,791) (144,587) (91,913) (13,988,527)
Net income 47,191 123,156 73,566 17,922,917
-------- --------- --------- ------------
PARTNERS' CAPITAL,
DECEMBER 31, 1995 164,028 337,920 192,564 57,921,834
Redemptions - - - (7,472,076)
Net income 32,955 67,674 37,628 10,384,330
-------- --------- --------- ------------
PARTNERS' CAPITAL,
DECEMBER 31, 1996 $196,983 $ 405,594 $ 230,192 $ 60,834,088
======== ========= ========= ============
See notes to financial statements.
- 4 -
JOHN W. HENRY & CO./MILLBURN L.P.
(A Delaware Limited Partnership)
------------------------------
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
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 raised $18,182,000 in its initial offering of Units of limited
partnership interest ("Series A Units") and commenced trading activities on
January 5, 1990. The Partnership raised an additional $50,636,000 in a second
offering of Units of limited partnership interest ("Series B Units") and
commenced trading activities of the Series B Units on January 28, 1991. The
Partnership raised an additional $40,000,000 in a third offering of Units of
limited partnership interest ("Series C Units") and commenced trading
activities of the Series C Units on January 2, 1992. (Series A, B and C units
are hereinafter collectively referred to as "Units.") The Partnership engages
in the speculative trading of futures, options on futures and forward
contracts on a wide range of commodities. Merrill Lynch Investment Partners
Inc. (formerly, ML Futures Investment Partners Inc.) ("MLIP" or the "General
Partner"), 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, and Merrill Lynch Futures
Inc. ("MLF"), also an affiliate of Merrill Lynch, is its 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 each Series in proportion to their respective
interests in it.
John W. Henry & Company, Inc. and Millburn Ridgefield Corporation 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 among the Advisors as of any month-
end.
Estimates
---------
The preparation of financial statements in conformity with generally accepted
accounting principles 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, and forward contract transactions are recorded on
the trade date and open contracts are reflected in net unrealized profit
(loss) on open contracts in the Statements of Financial Condition at the
difference between the original contract amount and the fair value. The
change in net unrealized profit (loss) on open contracts from one period to
the next is reflected in change in unrealized in the Statements of
Operations. Fair value is based on quoted market prices on the exchange or
market on which the contract is traded.
- 5 -
Organization Costs and Operating Expenses
-----------------------------------------
The General Partner paid all organization and offering costs in connection
with the offering of the Partnership's Series A and Series B Units and the
General Partner advanced the offering expenses in connection with the
offering of the Series C Units for which it was reimbursed from the proceeds
of Series C subscriptions in 24 equal monthly installments; provided, that
the General Partner absorbed any such costs to the extent they exceeded 1.5%
of the Series C capitalization. The General Partner pays all routine
operating expenses, including legal, accounting, printing, postage and
similar administrative expenses.
The General Partner receives an administrative fee as well as a portion of
the brokerage commissions paid to MLF by the Partnership as reimbursement for
the foregoing expenses.
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 each Series' income and expenses as reported for income
tax purposes.
Redemptions
-----------
A Limited Partner may require the Partnership to 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-denominated assets are held at MLF in cash or
short-term Treasury bills. The Partnership receives all interest paid on
such Treasury bills. On the cash held at MLF, the Partnership receives
interest from Merrill Lynch at rates ranging from .50 of 1% per annum below
the prevailing 91-day Treasury bill rate up to the full prevailing 91-day
Treasury bill rate. Merrill Lynch may derive certain economic benefits, in
excess of the interest which Merrill Lynch pays to the Partnership, from
possession of such cash.
Merrill Lynch credits the Partnership with interest on the Partnership's non-
U.S. dollar-denominated available assets based on local short-term rates.
Merrill Lynch charges the Partnership Merrill Lynch's cost of financing
realized and unrealized losses on the Partnership's non-U.S. dollar-
denominated positions.
The Partnership paid brokerage commissions to MLF at a flat monthly rate of
1% (a 12% annual rate) of the Partnership's month-end assets. Effective
January 1, 1996, the percentage was reduced to .979 of 1% (an 11.75% annual
rate) of the Partnership's month-end assets and the Partnership began to pay
MLIP a monthly administrative fee of .021 of 1% (a .25% annual rate) of the
Partnership's month-end assets (this recharacterization had no economic
effect on the Partnership). 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.
- 6 -
MLIP estimates that the round-turn equivalent commission rate charged to the
Partnership during the years ended December 31, 1996, 1995 and 1994, was
approximately $143, $207 and $56, respectively (not including, in calculating
round-turn equivalents, forward contracts on a future-equivalent basis).
MLF pays the Advisors annual consulting fees equal to 4% of the average
month-end net assets.
The Partnership trades forward contracts through a Foreign Exchange Service
Desk (the "F/X Desk") established by MLIP, that contacts at least two
counterparties, along with Merrill Lynch International Bank ("MLIB"), for all
of the Partnership's currency trades. All counterparties other than MLIB are
unaffiliated with any Merrill Lynch entity. The F/X Desk charges a service
fee equal (at current exchange rates) to approximately $5.00 to $12.50 on
each purchase or sale of a futures contract- equivalent face amount of a
foreign currency on each transaction. No service fees are charged on trades
awarded to MLIB (which receives a "bid-ask" spread on such trades). MLIB is
awarded trades only if its price (which includes no service fee) is equal to
or better than the best price (including the service fee) offered by any of
the other counterparties contacted.
The F/X Desk trades on the basis of credit lines provided by a Merrill Lynch
entity. The Partnership is not required to margin or otherwise guarantee its
F/X Desk trading.
Certain of the Partnership's currency trades are executed in the form of
"exchange of futures for physical" ("EFP") transactions involving MLIB and
MLF. In these transactions, a spot or forward (collectively referred to as
"cash") currency position is acquired and exchanged for an equivalent futures
position on the Chicago Mercantile Exchange's International Monetary Market.
In its EFP trading, the Partnership acquires cash currency positions through
the F/X Desk in the same manner and on the same terms as in the case of the
Partnership's other F/X Desk trading. When the Partnership exchanges these
positions for futures, there is a "differential" between the prices of these
two positions. This "differential" reflects, in part, the different
settlement dates of the cash and the futures contracts as well as prevailing
interest rates, but also includes a pricing spread in favor of MLIB or
another Merrill Lynch entity.
The Partnership's F/X Desk service fee and EFP differential costs have, to
date, totaled no more than 0.25 of 1% of the Partnership's average month-end
Net Assets.
3. AGREEMENTS
The Partnership and the Advisors have each entered into Advisory Agreements.
The Advisory Agreements with each Trading Advisor for each series of Units
are largely identical. The Advisory Agreements for Series A Units, Series B
Units and Series C Units have been renewed and will terminate on January 31,
1997 with the option to renew for up to an additional one-year period.
In the case of Trading LLCs, as defined in Note 6, the Trading LLCs entered
the Advisory Agreements with the Advisors.
Fifteen percent of any New Trading Profit (as defined in the Limited
Partnership Agreement) as of the end of each calendar quarter is 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 during a calendar quarter, to the extent of 15% of any New
Trading Profits attributable to such Units.
- 7 -
4. INCOME/(LOSS) PER SERIES
The profit and loss of the Series A, Series B and Series C Units for the
years ended December 31, 1996, 1995 and 1994 is as follows:
Series A Series B
------------------------------------- --------------------------------------
1996 1995 1994 1996 1995 1994
REVENUES:
Trading profit (loss):
Realized $2,029,650 $5,237,341 $ 545,961 $4,349,607 $11,857,130 $ 1,596,784
Change in unrealized (382,321) (147,478) (415,175) (877,666) (317,074) (1,228,091)
---------- ---------- ----------- ---------- ----------- -----------
Total trading results 1,647,329 5,089,863 130,786 3,471,941 11,540,056 368,693
Interest income (Note 2) 417,739 636,781 414,937 920,755 1,431,186 987,769
---------- ---------- ----------- ---------- ----------- -----------
Total revenues 2,065,068 5,726,644 545,723 4,392,696 12,971,242 1,356,462
---------- ---------- ----------- ---------- ----------- -----------
EXPENSES:
Brokerage commissions (Note 2) 1,239,114 1,654,078 1,572,088 2,695,105 3,698,343 3,760,979
Allocation of new profit
share to trading advisors (Note 26,690 168,968 103,313 44,910 362,058 247,361
3)
Administrative fees (Note 2) 26,364 - - 57,343 - -
---------- ---------- ----------- ---------- ----------- -----------
Total expenses 1,292,168 1,823,046 1,675,401 2,797,358 4,060,401 4,008,340
---------- ---------- ----------- ---------- ----------- -----------
Income from investments (Note 6) 1,746,113 - - 3,562,401 - -
---------- ---------- ----------- ---------- ----------- -----------
NET INCOME (LOSS) $2,519,013 $3,903,598 $(1,129,678) $5,157,739 $ 8,910,841 $(2,651,878)
========== ========== =========== ========== =========== ===========
NET INCOME (LOSS) PER
UNIT OF PARTNERSHIP
INTEREST:
Weighted average number
of units outstanding (Note 5) 59,766 67,833 78,366 158,197 186,768 230,166
---------- ---------- ----------- ---------- ----------- -----------
Net income (loss) per weighted
Average General Partner and
Limited Partner Unit $41.15 $57.55 $(14.42) $32.60 $47.71 $(11.52)
========== ========== =========== ========== =========== ===========
Series C
------------------------------------------
1996 1995 1994
---------- --------- -----------
REVENUES:
Trading profit (loss):
Realized $2,339,762 6,758,107 $ 1,507,562
Change in unrealized (469,840) (186,566) (1,088,181)
---------- --------- -----------
Total trading results 1,869,922 6,571,541 419,381
Interest income (Note 2) 504,393 795,417 596,124
---------- --------- -----------
Total revenues 2,374,315 7,366,958 1,015,505
---------- --------- -----------
EXPENSES:
Brokerage commissions (Note 2) 1,472,632 2,060,368 2,384,202
Allocation of new profit
share to trading advisors (Note 25,868 198,112 157,828
3)
Administrative fees (Note 2) 31,332 - -
---------- --------- -----------
Total expenses 1,529,832 2,258,480 2,542,030
---------- --------- -----------
Income from investments (Note 6) 1,863,095 - -
---------- --------- -----------
NET INCOME (LOSS) $2,707,578 5,108,478 $(1,526,525)
========== ========= ===========
NET INCOME (LOSS) PER
UNIT OF PARTNERSHIP
INTEREST:
Weighted average number
of units outstanding (Note 5) 109,912 133,357 187,998
---------- --------- -----------
Net income (loss) per weighted
Average General Partner and
Limited Partner Unit $24.63 $38.31 $(8.12)
========== ========= ===========
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5. WEIGHTED AVERAGE UNITS
The weighted average number of Units outstanding was computed for purposes of
disclosing net income per weighted average Unit. The weighted average number
of Units outstanding at December 31, 1996, 1995 and 1994 equals the Units
outstanding as of such date, adjusted proportionately for Units redeemed
based on the respective length of time each was outstanding during the
preceding period.
6. INVESTMENTS
The Partnership places assets under the management of the Advisors not
through opening managed accounts with them but rather through investing in
private limited liability companies ("Trading LLCs") sponsored by MLIP. The
only members of the Trading LLCs are commodity pools sponsored by MLIP. Each
Trading LLC trades under the management of one of the Advisors pursuant to a
single strategy and at a uniform degree of leverage. Placing assets with an
Advisor through investing in a Trading LLC rather than a managed account has
no economic effect on the Partnership, except to the extent that the
Partnership benefits from the Advisor not having to allocate trades among a
number of different accounts (rather than acquiring a single position for the
Trading LLC as a whole).
The investments are reflected in the financial statements at fair value based
upon the Partnership's interest 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 Statement of
Operations as income or loss from investments.
At December 31, 1996, the Partnership had an investment in the ML JWH
Financial and Metals Portfolio L.L.C. ("JWH LLC") and ML Millburn Global
L.L.C. ("Millburn LLC").
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Total revenues and fees with respect to such investments are set forth as
follows:
Admin- Income
Total Brokerage istrative Profit from
Revenues Commissions Fees Shares Investment
--------------- --------------- ----------- --------------- -------------
Series A Units
-------------------------
JWH LLC $2,234,606 $ 269,408 $ 5,732 $ 244,358 $1,715,108
Millburn LLC 91,169 56,443 1,201 2,520 31,005
---------- ---------- ------- ---------- ----------
Total $2,325,775 $ 325,851 $ 6,933 $ 246,878 $1,746,113
========== ========== ======= ========== ==========
Series B Units
--------------
JWH LLC $4,566,555 $ 550,526 $11,714 $ 509,549 $3,494,766
Millburn LLC 198,835 123,083 2,619 5,498 67,635
---------- ---------- ------- ---------- ----------
Total $4,765,390 $ 673,609 $14,333 $ 515,047 $3,562,401
========== ========== ======= ========== ==========
Series C Units
--------------
JWH LLC $2,388,921 $ 286,556 $ 6,097 $ 270,114 $1,826,154
Millburn LLC 108,581 67,206 1,430 3,004 36,941
---------- ---------- ------- ---------- ----------
Total $2,497,502 $ 353,762 $ 7,527 $ 273,118 $1,863,095
========== ========== ======= ========== ==========
Total - All Series
------------------
JWH LLC $9,190,082 $1,106,490 $23,543 $1,024,021 $7,036,028
Millburn LLC 398,585 246,732 5,250 11,022 135,581
---------- ---------- ------- ---------- ----------
Total $9,588,667 $1,353,222 $28,793 $1,035,043 $7,171,609
========== ========== ======= ========== ==========
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7. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership trades futures, options on futures and forward contracts in
interest rates, stock indices, currencies and metals. The Partnership's
trading results by reporting category for the period January 1, 1996 to
November 30, 1996 and the year ended December 31, 1995 were as follows:
Total Trading Results
---------------------------------------
1996 1995
----------------- -----------------
Interest Rates $5,080,346 $11,532,511
Stock Indices (992,453) 1,146,428
Currencies 2,659,762 12,696,529
Metals 241,537 (2,174,008)
------------------ ------------------
$6,989,192 $23,201,460
================== ==================
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 market values of the financial instruments or
commodities underlying such derivative instruments frequently result in
changes in the Partnership's unrealized profit (loss) on such derivative
instruments as reflected in the Statements of Financial Condition. 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 as well as the volatility and liquidity of the markets in which
the derivative instruments are traded.
The General Partner has procedures in place intended to control market risk,
although there can be no assurance that they will, in fact, succeed in doing
so. The procedures focus primarily on monitoring the trading of the two
Advisors, calculating the Net Asset Value of the Advisors' respective
Partnership accounts as of the close of business on each day and reviewing
outstanding positions for over-concentrations. While the General Partner
will not itself intervene in the markets to hedge or diversify the
Partnership's market exposure, the General Partner may urge either or both of
the Advisors to reallocate positions, or itself reallocate Partnership assets
among the Advisors (although typically only as of the end of a month) in an
attempt to avoid over-concentrations. However, such interventions are
unusual. Except in cases in which it appears that an Advisor has begun to
deviate from past practice or trading policies or to be trading erratically,
the General Partner's basic risk control procedures consist simply of the
ongoing process of Advisor monitoring, with the market risk controls being
applied by the Advisors themselves.
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Fair Value
----------
The derivative instruments used in the Partnership's trading activities are
marked to market daily with the resulting unrealized profit (loss) recorded
in the Statements of Financial Condition and the related profit (loss)
reflected in trading revenues in the Statements of Operations. The
contract/notional values of open contracts as of December 31, 1995 were as
follows (there were no open contracts as of December 31, 1996):
1995
------------------------------------------------
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------- -------------------
Interest Rates $301,417,757 $ 81,485,562
Stock Indices 14,903,382 -
Currencies 115,918,767 196,448,531
Metals 4,396,075 19,975,248
------------------ ------------------
$436,635,981 $297,909,341
================== ==================
Substantially all of the Partnership's derivative instruments outstanding as
of December 31, 1995, expired within one year.
The contract/notional value of the Partnership's open exchange-traded and non-
exchange-traded open derivative instrument positions as of December 31, 1995
were as follows (there were no open contracts as of December 31, 1996):
1995
------------------------------------------------
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------- ------------------
Exchange
Traded $317,647,209 $ 94,328,735
Non-Exchange
Traded 118,988,772 203,580,606
------------------ ------------------
$436,635,981 $297,909,341
================== ==================
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The average fair value of derivative instrument positions which were open as
of the end of each calendar month during the period from January 1, 1996 to
November 30, 1996 and the year ended December 31, 1995 were as follows:
1996 1995
--------------------------------------------- ----------------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
------------------ ------------------- ------------------ ------------------
Interest Rates $237,102,957 $183,615,337 $283,747,133 $ 38,356,816
Stock Indices 13,728,737 6,759,498 11,550,483 6,398,948
Currencies 296,018,497 334,030,991 252,057,126 240,468,554
Metals 18,491,709 29,682,273 10,695,784 24,230,482
------------------ ------------------ ------------------ ------------------
$565,341,900 $554,088,099 $558,050,526 $309,454,800
================== ================== ================== ==================
A portion of the amounts indicated as off-balance sheet risk reflects
offsetting commitments to purchase and to sell the same derivative instrument
on the same date in the future. These commitments are economically offsetting
but are not, as a technical matter, offset in the forward market until the
settlement date.
Credit Risk
-----------
The risks associated with exchange-traded contracts are typically perceived to
be less than those associated with over-the-counter (non-exchange-traded)
transactions, because exchanges typically (but not universally) provide
clearinghouse arrangements in which the collective credit (in some cases
limited in amount, in some cases not) of the members of the exchange is
pledged to support the financial integrity of the exchange. In over-the-
counter transactions, on the other hand, traders must rely solely on the
credit of their respective individual counterparties. Margins, which may be
subject to loss in the event of a default, are generally required in exchange
trading, and counterparties may also require margin in the over-the-counter
markets.
The fair value amounts in the above tables represent the extent of the
Partnership's market exposure in the particular class of derivative instrument
listed, but not the credit risk associated with counterparty nonperformance.
The credit risk associated with these instruments from counterparty
nonperformance is the net unrealized profit, if any, included on the
Statements of Financial Condition. The Partnership also has credit risk
because the sole counterparty or broker with respect to most of the
Partnership's assets is MLF.
As of December 31, 1995, $19,033,635 of the Partnership's assets, were held
in segregated accounts at MLF in accordance with Commodity Futures Trading
Commission regulations.
- 13 -
The gross unrealized profit and net unrealized profit (loss) on the
Partnership's open derivative instrument positions as of December 31, 1995
were as follows (there were no open contracts as of December 31, 1996):
1995
----------------------------------------
Gross Unrealized Net Unrealized
Profit Profit (Loss)
---------------- ----------------
Exchange Traded $3,112,617 $ 2,803,973
Non-Exchange Traded 1,175,189 (1,043,755)
---------------- ----------------
$4,287,806 $ 1,760,218
================ ================
The Partnership controls credit risk by dealing almost exclusively with
Merrill Lynch entities as brokers and counterparties.
The Partnership, through its normal course of business, enters into various
contracts with MLF acting as its commodity broker. Pursuant to the brokerage
arrangement with MLF, 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.
8. SUBSEQUENT EVENT
Effective February 1, 1997, the Partnership's brokerage commission percentage
was reduced to .792 of 1% (a 9.50% annual rate) of the Partnership's month-
end assets.
To the best of the knowledge and belief of the
undersigned, the information contained in this
report is accurate and complete.
James M. Bernard
Chief Financial Officer
Merrill Lynch Investment Partners Inc.
General Partner of
John W. Henry & Co./Millburn L.P.
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