<PAGE>
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, 1996
--------------
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 Investment Partners Inc.
(formerly ML Futures Investment Partners Inc.)
Merrill Lynch World Headquarters - South Tower, 6th Fl.
World Financial Center New York, New York 10080-6106
-----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
212-236-4161
--------------------------------------------------------------
(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_____
-----
This document contains 14 pages.
There are no exhibits and no exhibit index filed with this document.
<PAGE>
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, December 31,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
- ------
Accrued interest (Note 2) $ 198,213 $ 236,588
Equity in commodity futures trading
accounts:
Cash and option premiums 54,600,951 57,465,987
Net unrealized gain on open 1,047,191 1,760,218
contracts
----------- -----------
TOTAL $55,846,355 $59,462,793
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $ 304,969 $ 946,331
Brokerage commissions payable (Note 546,740 594,628
2)
Profit shares payable 9,079 -
Administrative expense payable 11,633 -
----------- -----------
Total liabilities 872,421 1,540,959
----------- -----------
PARTNERS' CAPITAL:
General Partner:
780 and 780 Series A units $ 160,172 $ 164,028
outstanding
1,976 and 1,976 Series B units 330,915 337,920
outstanding
1,439 and 1,439 Series C units 188,333 192,564
outstanding
Limited Partners:
59,996 and 62,793 Series A 12,320,245 13,205,024
units outstanding
161,974 and 166,361 Series B units 27,126,429 28,450,897
outstanding
113,444 and 116,358 Series C units 14,847,840 15,571,401
outstanding
----------- -----------
Total partners' capital 54,973,934 57,921,834
----------- -----------
TOTAL $55,846,355 $59,462,793
=========== ===========
NET ASSET VALUE PER UNIT:
Series A (Based on 60,776 and $205.35 $210.29
63,573 Units outstanding) ======= =======
Series B (Based on 163,950 and $167.47 $171.02
168,337 Units outstanding) ======= =======
Series C (Based on 114,883 and $130.88 $133.82
117,797 Units outstanding) ======= =======
</TABLE>
See notes to financial statements.
2
<PAGE>
JOHN W. HENRY & CO./MILLBURN L.P.
---------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
For the three For the three
Months ended Months ended
March 31, March 31,
1996 1995
-------------- -------------
<S> <C> <C>
REVENUES:
Trading profit (loss):
Realized $ 764,441 $ 7,270,888
Change in unrealized (713,027) 10,371,644
----------- -----------
Total trading results 51,414 17,642,532
Interest income (Note 2) 601,115 670,308
----------- -----------
Total revenues 652,529 18,312,840
----------- -----------
EXPENSES:
Profit shares 9,079 426,469
Brokerage commissions (Note 2) 1,750,687 1,774,163
Administrative expense 37,249 -
----------- -----------
Total expenses 1,797,015 2,200,632
----------- -----------
NET (LOSS) INCOME $(1,144,486) $16,112,208
=========== ===========
NET (LOSS) INCOME PER UNIT:
Weighted average number of units 345,500 432,045
outstanding (Note 5) ======= =======
Weighted average net (loss) income $(3.31) $37.29
per unit ====== ======
See notes to financial statements.
</TABLE>
3
<PAGE>
JOHN W. HENRY & CO./MILLBURN L.P.
---------------------------------
(a Delaware Limited Partnership)
------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
For the three months ended March 31, 1996 and 1995
--------------------------------------------------
<TABLE>
<CAPTION>
Limited Partners
Series Series Series --------------------------------------
A B C Series Series Series
Units Units Units A B C
----- ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
PARTNERS' CAPITAL,
DECEMBER 31, 1994 74,610 213,110 153,995 $11,495,848 $26,740,233 $15,045,473
Redemptions (4,450) (18,901) (14,783) (769,303) (2,763,697) (1,714,081)
Net income - - - 3,464,224 7,940,583 4,487,107
----------- ----------- ----------- ----------- ----------- -----------
PARTNERS' CAPITAL,
MARCH 31, 1995 70,160 194,209 139,212 $14,190,769 $31,917,119 $17,818,499
=========== =========== =========== =========== =========== ===========
PARTNERS' CAPITAL,
DECEMBER 31, 1995 63,573 168,337 117,797 $13,205,024 $28,450,897 $15,571,401
Redemptions (2,797) (4,387) (2,914) (637,613) (756,610) (409,191)
Net loss - - - (247,166) (567,858) (314,370)
----------- ----------- ----------- ----------- ----------- -----------
PARTNERS' CAPITAL,
MARCH 31, 1996 60,776 163,950 114,883 $12,320,245 $27,126,429 $14,847,840
=========== =========== =========== =========== =========== ===========
General Partner
---------------------------
Series Series Series
A B C Total
------ ------ ------ -----
<C> <C> <C> <C>
PARTNERS' CAPITAL,
DECEMBER 31, 1994 $135,628 $359,351 $210,911 $53,987,444
Redemptions - - - (5,247,081)
Net income 42,548 111,933 65,813 16,112,208
-------- -------- -------- -----------
PARTNERS' CAPITAL,
MARCH 31, 1995 $178,176 $471,284 $276,724 $64,852,571
======== ======== ======== ===========
PARTNERS' CAPITAL,
DECEMBER 31, 1995 $164,028 $337,920 $192,564 $57,921,834
Redemptions - - - (1,803,414)
Net loss (3,856) (7,005) (4,231) (1,144,486)
-------- -------- -------- -----------
PARTNERS' CAPITAL,
MARCH 31, 1996 $160,172 $330,915 $188,333 $54,973,934
======== ======== ======== ===========
</TABLE>
See notes to financial statements.
4
<PAGE>
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" or the "Fund") was
organized under the Delaware Revised Uniform Limited Partnership Act on August
29, 1989 and engages in the speculative trading of futures, options and
forward contracts on a wide range of commodities. The Partnership raised
$18,182,000 for its initial capitalization ("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.
Merrill Lynch Investment Partners Inc. (formerly, Merrill Lynch Futures
Investment Partners Inc.) ("MLIP" or the "General Partner"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc. ("Merrill Lynch"), which in turn is a
wholly-owned subsidiary of Merrill Lynch & Co., Inc., 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 the total capital in the
Partnership. MLIP and each Limited Partner share in the profits and losses of
the Partnership in proportion to their respective interests in it.
The financial information included herein has been prepared by management
without audit by independent certified public accountants who do not express
an opinion thereon. The statement of financial condition as of December 31,
1995 has been derived from but does not include all the disclosures contained
in the audited financial statements for the year ended December 31, 1995. The
information furnished includes all adjustments which are, in the opinion of
management, necessary for a fair statement of results for the interim period.
The results of operations as presented, however, should not be considered
indicative of the results to be expected for the entire year.
John W. Henry & Co., Inc. and Millburn Ridgefield Corporation are the funds
only trading Advisors. Each had been allocated 50% of the total traded assets
at the initial capitalization for each Series; however MLIP may in its
discretion, reallocate the 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 and
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 the financial statements at
their fair value on the last business day of the reporting period. The
difference between the original contract amount and fair value is reflected in
income as an unrealized gain or loss. Fair value is based on quoted market
prices. All commodity futures, options and forward contracts are reflected at
fair value in the financial statements.
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 costs to the extent they exceeded 1.5% of the Series C
capitalization. The General Partner pays for all routine operating expenses,
including legal, accounting, printing, postage and similar administrative
expenses. The General Partner receives a portion of the brokerage commissions
paid to MLF by the Partnership as reimbursement for the foregoing expenses.
5
<PAGE>
Income Taxes
------------
No provision for income taxes has been made in these financial statements as
each partner is individually responsible for reporting income or loss based on
such partner's respective share of the Partnership's income and expenses as
reported for income tax purposes.
Redemptions
-----------
A Limited Partner may require the Partnership to redeem some or all of such
Limited 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. Limited
Partners who redeemed Units on or prior to the end of the sixth, twelfth,
eighteenth and twenty-fourth full month after purchasing such Units were
assessed redemption charges of 4%, 3%, 2% and 1%, respectively, of their
unit's Net Asset Value as of the date of redemption; however, the General
Partner has agreed to waive all redemption charges from March 31, 1993
forward.
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
All of the Partnership's assets are deposited with MLF. As a means of
approximating the interest rate which would be earned by the Partnership had
100% of its Net Assets on deposit with MLF been invested in 91-day Treasury
bills, MLF pays the Partnership interest on its account equity on deposit with
MLF at a rate of 0.5 of 1% per annum below the prevailing 91-day Treasury bill
rate. In the case of its trading in certain foreign futures contracts, the
Partnership deposits margin in foreign currency denominated instruments or
cash and earns interest generally at a rate of 0.5 of 1% per annum below the
prevailing short-term government interest rate in the country in question. Any
additional economic benefit derived from possession of the Partnership's
assets accrues to MLF or its affiliates.
The Partnership pays 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 brokerage commission the Partnership pays to the Commodity Broker
was reduced to .9792% (a 11.75% annual rate), and the Partnership began to pay
an administrative fee to the General Partnership of .020833% (a .25% annual
rate). Month-end assets are not reduced for purposes of calculating brokerage
commissions by any accrued but unpaid brokerage commissions, Profit shares or
other fees or charges. MLIP estimates that the round-turn equivalent
commission rate charged to the Partnership during the quarters ended March 31,
1996 and 1995, was approximately $174 and $56, respectively (not including, in
calculating round-turn equivalents, forward contracts on a futures-equivalent
basis).
MLF pays the Advisors annual Consulting Fees equal to 4% of the average month-
end net assets managed by each of them.
The Partnership trades forward contracts through a Foreign Exchange 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. No service fees are charged on any 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 using 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.
6
<PAGE>
The Partnership's F/X Desk service fee and EFP differential costs have, to
date, totaled no more than 0.25 of 1% per annum 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.
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. John W. Henry & Co., Inc. owns 500 Series
A Units, 500 Series B Units and 500 Series C Units of the Partnership. The
Millburn Ridgefield Corporation owns 515 Series A Units, 500 Series B Units
and 1,000 Series C Units of the Partnership.
4. INCOME/(LOSS) PER SERIES
The profit and loss of the Series A, Series B and Series C Units for the
quarters ended March 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------------- ----------------------------------
Series A Series B Series C Series A Series B Series C
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Trading profit (loss):
Realized $ 187,904 $ 374,498 $ 202,039 $1,580,198 $3,646,816 $2,043,874
Change in unrealized (162,297) (354,813) (195,917) 2,264,892 5,173,470 2,933,282
--------- --------- --------- ---------- ---------- ----------
Total trading results 25,607 19,685 6,122 3,845,090 8,820,286 4,977,156
Interest income 135,303 300,294 165,518 145,045 336,188 189,075
--------- --------- --------- ---------- ---------- ----------
Total revenues 160,910 319,979 171,640 3,990,135 9,156,474 5,166,231
--------- --------- --------- ---------- ---------- ----------
EXPENSES:
Brokerage commissions 397,907 875,156 477,624 383,791 889,546 500,826
Profit shares 5,558 1,066 2,455 99,572 214,412 112,485
Administrative expense 8,467 18,620 10,162 - - -
--------- --------- --------- ---------- ---------- ----------
Total expenses 411,932 894,842 490,241 483,363 1,103,958 613,311
--------- --------- --------- ---------- ---------- ----------
NET INCOME $(251,222) $(574,863) $(318,601) $3,506,772 $8,052,516 $4,552,920
========= ========= ========= ========== ========== ==========
NET INCOME PER
UNIT OF PARTNERSHIP
INTEREST:
Weighted average number
of units outstanding 61,938 167,038 116,524 73,173 208,297 150,575
--------- --------- --------- ---------- ---------- ----------
Weighted average net
income per unit $(4.05) $(3.44) $(2.73) $47.92 $38.66 $30.24
========= ========= ========= ========== ========== ==========
</TABLE>
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 March 31, 1996 and 1995 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.
7
<PAGE>
6. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership trades futures, options and forward contracts in interest
rates, stock indices, commodities, currencies, metals and energy. The
Partnership's revenues by reporting category for the quarter ended March 31,
1996 was as follows:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Interest rate and Stock indices $ (144,977)
Currencies 1,257,371
Metals (1,060,980)
-----------
$ 51,414
===========
</TABLE>
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 financial instruments or
commodities underlying such derivative instruments frequently result in
changes in the Partnership's unrealized gain or 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. These procedures focus primarily on monitoring the trading of the two
Advisors of the Partnership, 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-concentration. 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 the Advisors to
reallocate positions, or itself reallocate Partnership assets among Advisors
(although 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.
Fair Value
----------
The derivative instruments used in the Partnership's trading activities are
marked to market daily with the resulting unrealized gains or losses recorded
in the Statements of Financial Condition and the related profit or loss
reflected in trading revenues in the Statements of Operations The
contract/notional values of the Partnership's open derivative instrument
positions as of March 31, 1996 and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
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)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Interest rate
and Stock
indices $102,011,441 378,511,996 $316,321,139 $ 81,485,562
Currencies 137,972,655 236,111,730 115,918,767 196,448,531
Metals 19,309,630 15,080,438 4,396,075 19,975,248
------------ ------------ ------------ ------------
$259,293,726 $629,704,164 $436,635,981 $297,909,341
============ ============ ============ ============
</TABLE>
Substantially all of the Partnership's derivative instruments outstanding as
of March 31, 1996 expire within one year.
8
<PAGE>
The contract/notional value of the Trading Partnership's exchange-traded and
non-exchange-traded derivative instrument positions as of March 31, 1996 and
December 31, 1995 was as follows:
<TABLE>
<CAPTION>
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)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Exchange
traded $111,841,927 $385,444,156 $317,647,209 $ 94,328,735
Non-Exchanged
traded 147,451,799 244,260,008 118,988,772 203,580,606
------------ ------------ ------------ ------------
$259,293,726 $629,704,164 $436,635,981 $297,909,341
============ ============ ============ ============
</TABLE>
The average fair value of the Partnership's derivative instrument positions
which were open as of the end of each calendar month during the quarter ended
March 31, 1996 and the year ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
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)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Interest rate
and Stock
indices $178,238,605 $356,129,449 $295,297,616 $ 44,755,764
Currencies 227,861,974 144,972,483 252,057,126 240,468,554
Metals 29,111,079 15,587,557 10,695,784 24,230,482
------------ ------------ ------------ ------------
$435,211,658 $516,689,489 $558,050,526 $309,454,800
============ ============ ============ ============
</TABLE>
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 gain, if any, included in 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 March 31,1996 and December 31, 1995, $24,377,776 and $19,033,635 of the
Partnership's assets, respectively, were held in segregated accounts at MLF in
accordance with Commodity Futures Trading Commission regulations.
The gross unrealized gain and the net unrealized gain on the Partnership's
open derivative instrument positions as of March 31, 1996 and December 31,
1995 were as follows:
9
<PAGE>
<TABLE>
<CAPTION>
1996 1995
----------------------- ------------------------
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Gain Gain (Loss) Gain Gain (Loss)
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Exchange
traded $1,994,776 $1,442,511 $3,112,617 $ 2,803,973
Non-Exchanged
traded 1,359,474 (395,320) 1,175,189 (1,043,755)
---------- ---------- ---------- -----------
$3,354,250 $1,047,191 $4,287,806 $ 1,760,218
========== ========== ========== ===========
</TABLE>
The partnership controls credit risk by dealing almost exclusively with Merrill
Lynch entities as brokers and counterparties.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operational Overview: Advisor Selections
Due to the nature of the Fund's business, its results of operations
depend on MLIP's ability to determine the appropriate percentage of each series'
assets to allocate to them for trading, as well as the Advisors' ability to
recognize and capitalize on trends and other profit opportunities in different
sectors of the world commodity markets. MLIP's Advisor selection procedure and
leveraging analysis, as well as the Advisors' trading methods, are confidential,
so that substantially the only information that can be furnished regarding the
Fund's results of operations is contained in the performance record of its
trading. Unlike operating businesses, general economic or seasonal conditions
do not directly affect the profit potential of the Fund, and its past
performance is not necessarily indicative of future results. Because of the
speculative nature of its trading, operational or economic trends have little
relevance to the Fund's results. MLIP believes, however, that there are certain
market conditions, for example, markets with strong price trends, in which the
Fund has a better likelihood of being profitable than in others.
Results of Operations - General
- -------------------------------
MLIP believes that multi-Advisor futures funds should be regarded as
medium- to long-term investments but, unlike an operating business, it is
difficult to identify "trends" in the Fund's operations and virtually impossible
to make any predictions regarding future results based on results to date.
Markets in which sustained price trends occur with some frequency tend
to be more favorable to managed futures investments than "whipsaw," "choppy"
markets, but (i) this is not always the case, (ii) it is impossible to predict
when trending markets will occur and (iii) different Advisors are affected
differently by trends in general as well as by particular types of trends.
The Fund controls credit risk in its trading in the derivatives markets
by trading only through Merrill Lynch entities which MLIP believes to be
creditworthy. The Fund attempts to control the market risk inherent in its
derivatives trading by utilizing a multi-advisor, multi-strategy structure.
This structure purposefully attempts to diversify the Fund's Advisor group among
different strategy types and market sectors in an effort to reduce risk
(although the Fund's portfolio currently emphasizes technical and trend-
following approaches).
Performance Summary
- -------------------
SERIES A UNITS:
During the first quarter of 1995, the Fund's average month-end Net
Assets equalled $11,919,220, and the Fund recognized gross trading gains of
$3,845,090 or 32.26% of such average month-end Net Assets. Brokerage
commissions of $383,791 or 3.22% and Profit Shares of $99,572 or 1.0% of average
month-end Net Assets were paid. Interest income of $145,045 or 1.22% of average
month-end Net Assets resulted in a net gain of $3,506,772 or 29.42% of average
month-end Net Assets, which resulted in a 31.37% increase in the Net Asset Value
per Unit since December 31, 1994.
During the first quarter of 1996, the Fund's average month-end Net
Assets equalled $13,296,436, and the Fund recognized gross trading gains of
$25,607 or 1.19% of such average month-end Net Assets. Brokerage commissions of
$397,907 or 2.99%, Administrative expense of $8,467 or .06% and Profit Shares of
$5,558 or .04% of average month-end Net Assets were paid. Interest income of
$135,303 or 1.02% of average month-end Net Assets resulted in a net loss of
$251,022 or (1.89)% of average month-end Net Assets which resulted in a 2.35%
decrease in the Net Asset Value per Unit since December 31, 1995 of the Fund.
10
<PAGE>
During the first quarter of 1996 and 1995, the Fund experienced 3
profitable months and 3 unprofitable months.
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER SERIES A UNIT
Jan. Feb. Mar.
---- ---- ----
<S> <C> <C> <C>
1995 $146.85 $167.54 $204.80
1996 $231.67 $209.48 $205.35
</TABLE>
SERIES B UNITS:
During the first quarter of 1995, the Fund's average month-end Net
Assets equalled $27,480,858, and the Fund recognized gross trading gains of
$8,820,286 or 32.03% of such average month-end Net Assets. Brokerage
commissions of $889,546 or 3.2% and Profit Shares of $214,412 or .78% of average
month-end Net Assets were paid. Interest income of $336,188 or 1.22% of average
month-end Net Assets resulted in a net gain of $8,052,516 or 29.50% of average
month-end Net Assets, which resulted in a 31.15% increase in the Net Asset Value
per Unit since December 31, 1994.
During the first quarter of 1996, the Fund's average month-end Net
Assets equalled $29,353,567, and the Fund recognized gross trading gains of
$19,685 or .07% of such average month-end Net Assets. Brokerage commissions of
$875,156 or 2.98%, Administrative expense of $18,620 or .06% and Profit Shares
of $1,066 or .00% of average month-end Net Assets were paid. Interest income of
$300,294 or 1.02% of average month-end Net Assets resulted in net loss of
$574,863 or (1.96)% of average month-end Net Assets which resulted in a 2.08%
decrease in the Net Asset Value per Unit since December 31, 1995.
During the first quarter of 1996 and 1995, the Fund experienced 3
profitable months and 3 unprofitable months.
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER SERIES B UNIT
Jan. Feb. Mar.
---- ---- ----
<S> <C> <C> <C>
1995 $119.62 $136.63 $166.77
1996 $188.93 $171.14 $167.47
</TABLE>
SERIES C UNITS:
During the first quarter of 1995, the Fund's average month-end Net
Assets equalled $17,551,021, and the Fund recognized gross trading gains of
$4,977,156 or 32.22% of such average month-end Net Assets. Brokerage
commissions of $500,826 or 3.24% and Profit Shares of $112,485 or .73% of
average month-end Net Assets were paid. Interest income of $189,075 or 1.22% of
average month-end Net Assets resulted in a net loss of $4,552,921 or 29.48% of
average month-end Net Assets, which resulted in a 31.20% increase in the Net
Asset Value per Unit since December 31, 1994.
During the first quarter of 1996, the Fund's average month-end Net
Assets equalled $18,026,635, and the Fund recognized gross trading gains of
$6,122 or .03% of such average month-end Net Assets. Brokerage commissions of
$477,624 or 2.65%, Administrative expense of $10,162
or .06% and Profit Shares of $2,455 or .01% of average month-end Net Assets were
paid. Interest income of $165,518 or .92% of average month-end Net Assets
resulted in net loss of $318,601 or (2.47)% of average month-end Net Assets
which resulted in a 2.20% decrease in the Net Asset Value since December 31,
1995.
During the first quarter of 1996 and 1995, the Fund experienced 3
profitable months and 3 unprofitable months.
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER SERIES C UNIT
Jan. Feb. Mar.
---- ---- ----
<S> <C> <C> <C>
1995 $ 93.13 $106.27 $129.98
1996 $147.90 $133.80 $130.88
</TABLE>
Importance of Market Factors
- ----------------------------
Comparisons between the Fund's performance in a given period in one
fiscal year to the same period in a prior year are unlikely to be meaningful,
given the uncertainty of price movements in the markets traded by the Fund. In
general, MLIP expects that the Fund is most likely to trade successfully in
markets which exhibit strong and sustained price trends. The current Advisor
group emphasizes technical and trend-following methods. Consequently, one would
expect that in trendless, "choppy" markets the Fund would likely be
unprofitable, while in markets in which major price movements occur, the Fund
would have its best profit potential (although there could be no assurance that
the Fund would, in fact, trade profitably). However, trend-followers not
infrequently will miss major price movements, and market corrections can result
in rapid and material losses (sometimes as much as 5% in a single day).
Although MLIP monitors market conditions and Advisor performance on an ongoing
basis in overseeing the Fund's trading, MLIP does not attempt to "market
forecast" or
11
<PAGE>
to "match" trading styles with predicted market conditions. Rather, MLIP
concentrates on quantitative and qualitative analysis of prospective Advisors,
as well as on statistical studies of the historical performance parameters of
different Advisor combinations in selecting Advisors and allocating and
reallocating Fund assets among them.
Because managed futures advisors' strategies are proprietary and
confidential and market movements unpredictable, selecting advisors to implement
speculative trading strategies involves considerable uncertainty. Furthermore,
the concentration of the Fund's current Advisor portfolio, both in terms of the
number of managers retained and the common emphasis of their strategies on
technical and trend-following methods, increases the risk that unexpectedly bad
performance, turbulent market conditions or a combination of the two will result
in significant losses.
MLIP's Advisor Selections
- -------------------------
MLIP has no timetable or schedule for making Advisor changes or
reallocations, and generally intends to make a medium- to long-term commitment
to all Advisors selected. However, there can be no assurance as to the
frequency or number of the Advisor changes which may take place in the future,
or as to how long any of the current Advisors will continue to manage assets for
the Fund.
Liquidity
- ---------
Most of the Partnership's assets are held as cash which, in turn, is
used to margin its futures positions and earn interest income and is withdrawn,
as necessary, to pay redemptions and fees.
The futures contracts in which the Partnership trades may become illiquid
under certain market conditions. Commodity exchanges limit fluctuations in
futures prices during a single day by regulations referred to as "daily limits."
During a single day no trades may be executed at prices beyond the daily limit.
Once the price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
generally neither be taken nor liquidated unless traders are willing to effect
trades at or within the limit. Futures contracts have occasionally moved to the
daily limit for several consecutive days with little or no trading. Such market
conditions could prevent the Partnership from promptly liquidating its futures
(including its options) positions. There are no limitations on the daily price
moves in trading foreign currency forward contracts through banks, although
illiquidity may develop in the forward markets due to large spreads between
"bid" and "ask" prices quoted. (Forward contracts are the bank version of
currency futures contracts and are not traded on exchanges.)
Capital Resources
- -----------------
The Partnership does not have, nor does it expect to have, any capital
assets and has no material commitments for capital expenditures. The
Partnership uses its assets to supply the necessary margin or premiums for, and
to pay any losses incurred in connection with, its trading activity and to pay
redemptions and fees.
Inflation is not a significant factor in the Fund's profitability,
although inflationary cycles can give rise to the type of major price movements
which can have a materially favorable or adverse impact on the Fund's
performance.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
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
--------
12
<PAGE>
There are no exhibits required to be filed as part of this document.
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed during the first quarter of fiscal
1996.
13
<PAGE>
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: MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
Date: May 13, 1996 By /s/JOHN R. FRAWLEY, JR.
-----------------------
John R. Frawley, Jr.
President, Chief Executive Officer
and Director
Date: May 13, 1996 By /s/JAMES M. BERNARD
-------------------
James M. Bernard
Chief Financial Officer,
Treasurer and Senior Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION, CONSOLIDATED STATEMENTS OF OPERATIONS,
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 MAR-31-1995
<CASH> 0 0
<RECEIVABLES> 55,846,355 68,590,280
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 55,846,355 68,590,280
<SHORT-TERM> 0 0
<PAYABLES> 872,421 3,737,709
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 0 0
<COMMON> 0 0
0 0
0 0
<OTHER-SE> 54,973,934 64,852,570
<TOTAL-LIABILITY-AND-EQUITY> 55,846,355 68,590,280
<TRADING-REVENUE> 51,414 17,642,532
<INTEREST-DIVIDENDS> 601,115 670,308
<COMMISSIONS> 1,797,015 2,200,632
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> (1,144,486) 16,112,208
<INCOME-PRE-EXTRAORDINARY> (1,144,486) 16,112,208
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,144,486) 16,112,208
<EPS-PRIMARY> (3.31) 37.29
<EPS-DILUTED> (3.31) 37.29
</TABLE>
