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JOHN W. HENRY & CO./
MILLBURN L.P .
(A DELAWARE LIMITED PARTNERSHIP)
Financial Statements for the years ended
December 31, 2002, 2001 and 2000
and Independent Auditors' Report
[MERRILL LYNCH LOGO]
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JOHN W. HENRY & CO./MILLBURN L. P.
(A DELAWARE LIMITED PARTNERSHIP)
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAGE
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INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Statements of Financial Condition as of December 31, 2002 and 2001 2
Statements of Operations for the years ended December 31, 2002, 2001, and 2000 3
Statements of Changes in Partners' Capital for the years ended December 31, 2002, 4
2001 and 2000
Financial Data Highlights for the year ended December 31, 2002 5
Notes to Financial Statements 6-9
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INDEPENDENT AUDITORS' REPORT
To the Partners of
John W. Henry & Co./Millburn L.P.:
We have audited the accompanying statements of financial condition of John W.
Henry & Co./Millburn L.P. (the "Partnership") as of December 31, 2002 and 2001,
and the related statements of operations and of changes in partners' capital for
each of the three years in the period ended December 31, 2002, and the financial
data highlights for the year ended December 31, 2002. These financial statements
and financial data highlights are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and financial data highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial data highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial data highlights present
fairly, in all material respects, the financial position of John W. Henry &
Co./Millburn L.P. as of December 31, 2002 and 2001, and the results of its
operations and changes in its partners' capital and the financial data
highlights for each of the periods presented in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
New York, New York
March 3, 2003
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JOHN W. HENRY & CO./MILLBURN L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2002 AND 2001
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<Table>
<Caption>
2002 2001
------------ ------------
ASSETS
Investments (Note 2) $ 30,928,775 $ 26,155,682
Receivable from investments (Note 2) 45,049 220,310
------------ ------------
TOTAL $ 30,973,824 $ 26,375,992
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Redemptions payable $ 45,049 $ 220,310
------------ ------------
Total liabilities 45,049 220,310
------------ ------------
PARTNERS' CAPITAL:
General Partner:
(231 and 284 Series A Units outstanding) 82,826 76,061
(511 and 613 Series B Units outstanding) 148,873 133,398
(378 and 450 Series C Units outstanding) 85,813 76,317
Limited Partners:
(22,376 and 25,601 Series A Units outstanding) 8,023,008 6,856,493
(49,186 and 55,127 Series B Units outstanding) 14,329,638 11,996,457
(36,378 and 41,374 Series C Units outstanding) 8,258,617 7,016,956
------------ ------------
Total partners' capital 30,928,775 26,155,682
------------ ------------
TOTAL $ 30,973,824 $ 26,375,992
============ ============
NET ASSET VALUE PER UNIT
Series A $ 358.55 $ 267.82
============ ============
Series B $ 291.34 $ 217.61
============ ============
Series C $ 227.02 $ 169.60
============ ============
</Table>
See notes to financial statements.
2
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JOHN W. HENRY & CO./MILLBURN L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
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<Table>
<Caption>
2002 2001 2000
------------- ------------- -------------
REVENUES:
Trading profit (loss):
Realized $ 10,429,479 $ 6,379,319 $ (4,853,386)
Change in unrealized 1,084,889 (3,588,388) 3,558,787
------------- ------------- -------------
Total trading results 11,514,368 2,790,931 (1,294,599)
Interest income (Note 3) 452,175 1,003,296 1,851,934
------------- ------------- -------------
Total revenues 11,966,543 3,794,227 557,335
------------- ------------- -------------
EXPENSES:
Brokerage commissions (Note 3) 2,442,927 2,456,699 2,905,596
Profit Shares (Note 4) 1,149,373 - -
Administrative fees (Note 3) 71,850 72,253 78,254
------------- ------------- -------------
Total expenses 3,664,150 2,528,952 2,983,850
------------- ------------- -------------
NET INCOME (LOSS) $ 8,302,393 $ 1,265,275 $ (2,426,515)
============= ============= =============
NET INCOME (LOSS) PER UNIT:
Weighted average number of General Partner
and Limited Partner Units outstanding (Note 5) 116,271 132,824 177,217
============= ============= =============
Net income (loss) per weighted average $ 71.41 $ 9.53 $ (13.69)
General Partner and Limited Partner Unit ============= ============= =============
Net income (loss) per weighted average General Partner
and Limited Partner Unit by series
Series A $ 90.31 $ 11.32 $ (14.05)
============= ============= =============
Series B $ 73.48 $ 10.13 $ (16.73)
============= ============= =============
Series C $ 57.07 $ 7.59 $ (8.95)
============= ============= =============
</Table>
All items of income and expense are from investments in Trading LLC's. See notes
to financial statements.
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JOHN W. HENRY & CO./MILLBURN L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
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<Table>
<Caption>
GENERAL PARTNER
SERIES SERIES SERIES --------------------------------------------
A B C SERIES SERIES SERIES
UNITS UNITS UNITS A B C
------------ ------------ ------------ ------------ ------------ ------------
PARTNERS' CAPITAL,
DECEMBER 31, 1999 39,839 101,789 66,670 $ 131,110 $ 282,923 $ 152,600
Net loss - - - (1,761) (16,755) (8,371)
Redemptions (10,775) (34,736) (18,540) (44,970) (113,547) (57,308)
------------ ------------ ------------ ------------ ------------ ------------
PARTNERS' CAPITAL,
DECEMBER 31, 2000 29,064 67,053 48,130 84,379 152,621 86,921
Net income - - - 4,427 8,469 4,786
Redemptions (3,179) (11,313) (6,306) (12,745) (27,692) (15,390)
------------ ------------ ------------ ------------ ------------ ------------
PARTNERS' CAPITAL,
DECEMBER 31, 2001 25,885 55,740 41,824 76,061 133,398 76,317
Net income - - - 25,336 44,514 25,469
Redemptions (3,278) (6,043) (5,068) (18,571) (29,039) (15,973)
------------ ------------ ------------ ------------ ------------ ------------
PARTNERS' CAPITAL,
DECEMBER 31, 2002 22,607 49,697 36,756 $ 82,826 $ 148,873 $ 85,813
============ ============ ============ ============ ============ ============
<Caption>
LIMITED PARTNERS
--------------------------------------------
SERIES SERIES SERIES
A B C TOTAL
------------ ------------ ------------ ------------
PARTNERS' CAPITAL,
DECEMBER 31, 1999 $ 10,232,683 $ 21,241,923 $ 10,834,933 $ 42,876,172
Net loss (490,322) (1,406,738) (502,568) (2,426,515)
Redemptions (2,326,886) (5,929,091) (2,554,710) (11,026,512)
------------ ------------ ------------ ------------
PARTNERS' CAPITAL,
DECEMBER 31, 2000 7,415,475 13,906,094 7,777,655 29,423,145
Net income 305,079 610,135 332,379 1,265,275
Redemptions (864,061) (2,519,772) (1,093,078) (4,532,738)
------------ ------------ ------------ ------------
PARTNERS' CAPITAL,
DECEMBER 31, 2001 6,856,493 11,996,457 7,016,956 26,155,682
Net income 2,149,615 3,834,085 2,223,374 8,302,393
Redemptions (983,100) (1,500,904) (981,713) (3,529,300)
------------ ------------ ------------ ------------
PARTNERS' CAPITAL,
DECEMBER 31, 2002 $ 8,023,008 $ 14,329,638 $ 8,258,617 $ 30,928,775
============ ============ ============ ============
</Table>
See notes to financial statements.
4
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JOHN W. HENRY & CO./MILLBURN L.P.
(A DELAWARE LIMITED PARTNERSHIP)
FINANCIAL DATA HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, 2002
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The following per Unit data and ratios have been derived from information
provided in the financial statements.
<Table>
<Caption>
SERIES A SERIES B SERIES C
---------- ---------- ----------
Increase (Decrease) in Net Asset Value
PER UNIT OPERATING PERFORMANCE:
Net asset value, beginning of year $ 267.82 $ 217.61 $ 169.60
Realized trading profit 115.95 94.38 73.51
Change in unrealized 9.91 8.07 6.29
Interest income 4.94 4.01 3.13
Expenses (40.07) (32.73) (25.51)
---------- ---------- ----------
Net asset value, end of year $ 358.55 $ 291.34 $ 227.02
========== ========== ==========
Total investment return, compounded monthly 33.88% 33.88% 33.86%
========== ========== ==========
RATIOS TO AVERAGE NET ASSETS:
Expenses 13.25% 13.35% 13.32%
========== ========== ==========
Net income 30.18% 30.19% 30.14%
========== ========== ==========
</Table>
See notes to financial statements.
5
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JOHN W. HENRY & CO./MILLBURN L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
John W. Henry & Co./Millburn L.P. (the "Partnership") was organized under
the Delaware Revised Uniform Limited Partnership Act on August 29, 1989.
The Partnership's initial offering of Units of limited partnership interest
("Series A Units") commenced trading activities on January 5, 1990. A
second offering of Units of limited partnership interest ("Series B Units")
commenced trading activities with respect to the Series B Units on January
28, 1991. A third offering of Units of limited partnership interest
("Series C Units") commenced trading activities with respect to the Series
C Units on January 2, 1992. (Series A, B and C units are, hereinafter,
collectively referred to as "Units.") The Partnership engages through
investments in limited liability companies (see below) in the speculative
trading of futures, options on futures and forward contracts on a wide
range of commodities. MLIM Alternative Strategies LLC ("MLIM AS LLC"), a
wholly-owned subsidiary of Merrill Lynch Investment Managers, LP ("MLIM"),
which, in turn, is an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("Merrill Lynch"), is the general partner of the Partnership.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") is the
Partnership's commodity broker. MLIM AS LLC has agreed to maintain a
general partner's interest of at least 1% of total capital of each Series
of Units. MLIM AS LLC and each Limited Partner share in the profits and
losses of such Series in proportion to their respective interests in it.
John W. Henry & Company, Inc. and Millburn Ridgefield Corporation (each an
"Advisor", together, "Advisors") have been the Partnership's only trading
advisors since inception. Each Advisor was allocated 50% of the total
assets of each Series as of the date such Series began trading.
Subsequently, these allocations have varied over time. MLIM AS LLC may, in
its discretion, reallocate assets between the advisors as of any month-end.
The Partnership has placed all of its assets under the management of the
Advisors through investing in private limited liability companies, ML JWH
Financials and Metals Portfolio LLC ("JWH LLC") and ML Millburn Global LLC
("Millburn LLC"), ("Trading LLCs"), as described in Note 2. Certain of the
following notes to financial statements are directly related to Partnership
assets managed by the Advisors in the Trading LLCs.
ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
REVENUE RECOGNITION
See Note 2 for discussion of revenue recognition for the Partnership's
investments in Trading LLCs.
OPERATING EXPENSES
MLIM AS LLC pays all routine operating expenses, including legal,
accounting, printing, postage and similar administrative expenses. MLIM AS
LLC receives an administrative fee as well as a portion of the brokerage
commissions paid to MLPF&S by the Partnership (see Note 3).
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INCOME TAXES
No provision for income taxes has been made in the accompanying financial
statements as each Partner is individually responsible for such Partner's
respective share of the income and expenses of the series in which such
partner is invested as reported for income tax purposes.
REDEMPTIONS
A Limited Partner may redeem some or all of such Partner's Units at Net
Asset Value as of the close of business on the last business day of any
month upon ten calendar days' notice.
DISSOLUTION OF THE PARTNERSHIP
The Partnership will terminate on December 31, 2016 or at an earlier date
if certain conditions occur, as well as under certain other circumstances
as set forth in the Limited Partnership Agreement.
2. INVESTMENTS IN TRADING LLCS
The Partnership places all of its assets in the Trading LLCs. The financial
statements of the Trading LLCs are bound together with this report and
should be read in conjunction with the Partnership's financial statements.
The investments in the Trading LLCs are reflected in the financial
statements at fair value and reflected on the Statements of Financial
Condition. Fair value is equal to the market value of the net assets of the
Trading LLCs. The resulting difference between cost and fair value is
reflected on the Statements of Operations as Income (loss) from
investments.
At December 31, 2002 and 2001, the Partnership had investments in JWH LLC
and Millburn LLC as follows:
<Table>
<Caption>
2002 2001
------------ ------------
JWH LLC $ 15,464,387 $ 13,077,841
Millburn LLC 15,464,387 13,077,841
------------ ------------
Total $ 30,928,775 $ 26,155,682
============ ============
</Table>
3. RELATED PARTY TRANSACTIONS
The Partnership's U.S. dollar assets invested in Trading LLCs are
maintained at MLPF&S. On assets held in U.S. dollars, Merrill Lynch credits
the Trading LLCs with interest at the prevailing 91-day U.S. Treasury bill
rate. The Trading LLCs are credited with interest on any of its assets and
net gains actually held by Merrill Lynch in non-U.S. dollar currencies at a
prevailing local rate received by Merrill Lynch. Merrill Lynch may derive
certain economic benefit, in excess of the interest which Merrill Lynch
pays to the Trading LLCs, from possession of such assets.
Merrill Lynch charges the Trading LLCs Merrill Lynch's cost of financing
realized and unrealized losses on the Trading LLCs non-U.S.
dollar-denominated positions.
The Partnership pays brokerage commissions to MLPF&S through the Trading
LLCs at a flat monthly rate of 0.708 of 1% (a 8.50% annual rate) of the
Partnership's month-end assets. The Partnership also pays MLIM AS LLC a
monthly administrative fee through the Trading LLCs of 0.21 of 1% (an
0.25% annual rate) of the Partnership's month-end assets. Month-end assets
are not reduced for purposes of calculating brokerage commissions and
administrative fees by any accrued brokerage commissions, administrative
fees, Profit Shares or other fees or charges.
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MLPF&S pays the Advisors annual consulting fees of 2% of the average
month-end assets allocated to them for management after a reduction for a
portion of brokerage commissions.
4. ADVISORY AGREEMENTS
The Trading LLCs entered into the Advisory Agreements with the Advisors
(see Note 2).
Profit Shares of 20%, of any New Trading Profit, as defined, either as of
the end of each calendar quarter or year, were paid to each Advisor based
on the performance of the Partnership account managed by such Advisor,
irrespective of the overall performance of the Partnership. Profit Shares
are also paid out in respect of Units redeemed as of the end of interim
months, to the extent the applicable percentage of any New Trading Profits
attributable to such Units.
5. WEIGHTED AVERAGE UNITS
The weighted average number of Units of each series outstanding was
computed for purposes of disclosing net income per weighted average Unit.
The weighted average number of Units of each series outstanding for the
years ended December 31, 2002, 2001 and 2000 equals the Units of such
series outstanding as of such date, adjusted proportionately for Units
redeemed based on the respective length of time each was outstanding during
the year.
6. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership invests indirectly in derivative instruments by investing
in the Trading LLCs, but does not itself hold any derivative instrument
positions. The nature of this Partnership has certain risks, which can not
be presented on the financial statements.
MARKET RISK
Derivative instruments involve varying degrees of off-balance sheet market
risk. Changes in the level or volatility of interest rates, foreign
currency exchange rates or the market values of the financial instruments
or commodities underlying such derivative instruments frequently resulted
in changes in the net unrealized profit (loss) as reflected in the
respective Statements of Financial Condition of the Trading LLCs. The
Partnership's exposure to market risk is influenced by a number of factors,
including the relationships among the derivative instruments held by the
Partnership, through the Trading LLCs, as well as the volatility and
liquidity of such markets in which such derivative instruments are traded.
7. SUBSEQUENT EVENT
As of February 28, 2003, the general partner of the Partnership changed its
name from MLIM Alternative Strategies LLC to Merrill Lynch Alternative
Investments LLC as part of an internal Merrill Lynch reorganization. This
change did not affect the personnel involved in the management of the
Partnership. The change will have no impact on the Partnership's investors.
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* * * * * * * * * *
To the best of the knowledge and belief of the
undersigned, the information contained in this
report is accurate and complete.
Michael L. Pungello
Chief Financial Officer
MLIM Alternative Strategies LLC
General Partner of
John W. Henry & Co./Millburn L.P.
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