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