<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(x) Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 1996
( ) Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
Commission file number: 0-18215
JOHN W. HENRY & CO./MILLBURN L.P.
---------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1287586
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
C/O MERRILL LYNCH INVESTMENT PARTNERS INC.
MERRILL LYNCH WORLD HEADQUARTERS
WORLD FINANCIAL CENTER
SOUTH TOWER, 6TH FLOOR, NEW YORK, NY 10080-6106
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(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 236-4161
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Limited Partnership
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Units
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) 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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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates: the
registrant is a limited partnership and, accordingly, has no voting stock held
by non-affiliates or otherwise.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's "1996 Annual Report and Independent Auditors' Report," the
annual report to security holders for the fiscal year ended December 31, 1996,
is incorporated by reference into Part II, Item 8, and Part IV hereof and filed
as an Exhibit herewith.
<PAGE>
ANNUAL REPORT FOR 1996 ON FORM 10-K
Table of Contents
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PART IPAGE
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Item 1. Business........................................... 1
Item 2. Properties......................................... 7
Item 3. Legal Proceedings.................................. 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
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Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................ 8
Item 6. Selected Financial Data............................ 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 13
Item 8. Financial Statements and Supplementary Data........ 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 15
PART III
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Item 10. Directors and Executive Officers of the Registrant.. 16
Item 11. Executive Compensation.............................. 17
Item 12. Security Ownership of Certain Beneficial Owners and
Management.......................................... 18
Item 13. Certain Relationships and Related Transactions...... 18
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.......................................... 19
i
<PAGE>
PART I
ITEM 1: BUSINESS
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(a) General Development of Business:
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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. The original public offering of units of limited partnership
interest (the "Series A Units") commenced on September 29, 1989, and the
Partnership commenced trading with respect to the Series A Units on January 5,
1990. A reopening of the Partnership through the public offering of Series B
Limited Partnership Units (the "Series B Units") commenced on December 14, 1990.
The Partnership began trading with respect to the Series B Units on January 28,
1991. A reopening of the Partnership through the public offering of Series C
Limited Partnership Units (the "Series C Units") commenced on September 13,
1991. The Partnership began trading with respect to the Series C Units on
January 2, 1992.
The proceeds of each of the three series of Units were each initially
allocated equally among the Partnership's two trading advisors -- Millburn
Ridgefield Corporation ("Millburn") and John W. Henry & Company, Inc. ("JWH")
(collectively, the "Trading Advisors" or the "Advisors"). As of December 31,
1996; 50% and 50% of the Series A Units capital was allocated to Millburn and
JWH, respectively; 50% and 50% of the Series B Units capital; and 50% and 50% of
the Series C Units capital.
Merrill Lynch Investment Partners Inc. (the "General Partner" or
"MLIP") acts as the general partner of the Partnership. Merrill Lynch Futures
Inc. (the "Commodity Broker" or "MLF") is the Partnership's commodity broker.
The General Partner is a wholly-owned subsidiary of Merrill Lynch Group Inc.,
which in turn is a wholly-owned subsidiary of Merrill Lynch & Co., Inc. The
Commodity Broker is an indirect wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. (Merrill Lynch & Co., Inc. and its affiliates are hereinafter sometimes
referred to do "Merrill Lynch").
When the Fund began trading on January 5, 1990, it had an initial
capitalization of $18,182,000. A total of an additional $50,636,000 was invested
in the Fund on January 28, 1991 (when the Series B Units were sold) and an
additional $40,000,000 on January 2, 1992 (when the Series C Units were sold).
Through December 31, 1996, Units with an aggregate Net Asset Value of
$96,968,699 (not including a dividend distribution of $2,345,180 for Series A
Unitholders on November 30, 1990) had been redeemed (including December 31,
1996 redemptions which were not actually paid out until January 1997). As of
December 31, 1996, the aggregate capitalization of the Fund was $60,834,088, the
total capitalization of the Series A, Series B and Series C Units was
$14,237,462, $30,488,078 and $16,108,548, respectively, and the Net Asset Value
per Series A, Series B and Series C Units, originally $100 as of January 5,
1990, January 28, 1991 and January 2, 1992, respectively, had risen to $252.54
(excluding a $20 per Series A Unit distribution paid as of November 30, 1990),
$205.27 and $159.97, respectively. As of December 31, 1996, the Fund had 489
Series A, 1,539 Series B and 791 Series C Limited Partners.
The highest month-end Net Asset Value per Series A Unit through
December 31, 1996 was $255.50 (November, 1996) and the lowest $100.31 (May,
1990); the highest month-end Net Asset Value per Series B Unit through December
31, 1996 was $207.63 (November, 1996) and the lowest $91.20 (May, 1992); the
highest month-end Net Asset Value per Series C Unit through December 31, 1996
was $161.74 (November, 1996) and the lowest $75.87 (May, 1992).
(b) Financial Information about Industry Segments:
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The Partnership's business constitutes only one segment for financial
reporting purposes, i.e., a speculative "commodity pool."
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<PAGE>
(c) Narrative Description of Business:
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GENERAL
The Fund trades in the international futures, options on futures and
forward markets with the objective of achieving significant profits over time.
The Partnership has entered into advisory agreements with each Trading
Advisor (the "Advisory Agreement") with respect to each of the Series A Units,
Series B Units and Series C units and allocated 50% of the initial capital of
each Series to each Trading Advisor. JWH is retained to trade the
Partnership's assets allocated to it in four market sectors -- interest rates,
stock indices, currencies and metals -- pursuant to its Financial and Metals
Program. Millburn is retained to trade the Partnership's assets allocated to it
pursuant to its currency program, which concentrates exclusively on currency
trading, primarily in the interbank market.
One of the objectives of the Fund is to provide diversification to a
limited portion of the risk segment of the Limited Partners' portfolios into an
investment field that has historically often demonstrated a low degree of
performance correlation with traditional stock and bond holdings. Since it
began trading, the Fund's returns have, in fact, frequently been significantly
non-correlated (not, however, negatively correlated) with the United States
stock and bond markets.
The Fund accesses the Trading Advisors not by opening individual
managed accounts with them, but rather through investing in private funds
sponsored by MLIP through which the trading accounts of different MLIP-sponsored
funds managed by the same Advisor and pursuant to the same strategy are
consolidated.
USE OF PROCEEDS AND INTEREST INCOME
General. The Fund's assets are not used to purchase or acquire any
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physical commodity but rather held as security for and to pay the Partnership's
speculative trading losses as well as any expenses and redemptions. The primary
use of the Fund's capital is to permit the Advisors to trade on a speculative
basis in a wide range of different futures, forwards and options on futures
markets on behalf of the Partnership. While being used for this purpose, the
Partnership's assets are also generally available to earn interest, as more
fully described below under "-- Available Assets."
Market Sectors. The Partnership trades in a diversified group of
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markets under the direction of its two independent Advisors. These Advisors
can, and do, from time to time materially alter the allocation of their overall
trading commitments among different market sectors. Except in the case of
certain trading programs which are purposefully limited in the markets which
they trade, there is essentially no restriction on the commodity interests which
may be traded by any Advisor or the rapidity with which an Advisor may alter its
market sector allocations.
The Fund's financial statements contain information relating to the
market sectors traded by the Fund. There can, however, be no assurance as to
which markets may be included in the Fund's portfolio or as to in which market
sectors the Fund's trading may be concentrated at any one time or over time.
Market Types. The Fund trades on a variety of United States and
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foreign futures exchanges. Applicable exchange rules differ significantly among
different countries and exchanges. Substantially all of the Fund's off-exchange
trading takes place in the highly liquid, institutionally based currency forward
markets. The forward markets are generally unregulated, and in its forward
trading the Fund does not deposit margin with respect to its positions. The
Partnership's forward currency trading is executed exclusively through the
Foreign Exchange Service Desk (the "F/X Desk") operated by MLIP and certain of
its affiliates, with MLF as the back-to-back intermediary to the ultimate
counterparties, which include Merrill Lynch Investment Bank ("MLIB") with which
the Advisors trade on behalf of the Fund.
As in the case of its market sector allocations, the Fund's
commitments to different types of markets -- U.S. and non-U.S., regulated and
unregulated -- differ substantially from time to time as well as over time. The
Fund has no policy restricting its relative commitment to any of these different
types of markets.
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<PAGE>
The Fund's financial statements contain information relating to the
types of markets traded by the Fund. There can, however, be no assurance as to
in which markets the Fund may trade or the Fund's trading may be concentrated at
any one time or over time.
Custody of Assets. All of the Fund's assets are currently held in
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customer accounts at Merrill Lynch.
Available Assets. The Fund earns interest, as described below, on its
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"Available Assets," which can be generally described as the cash actually held
by the Fund or invested in short-term Treasury bills. Available Assets are held
primarily in U.S. dollars, and to a lesser extent in foreign currencies, and are
comprised of the following: (a) the Fund's cash balance in the offset accounts
(as described below) -- which includes "open trade equity" (unrealized gains and
losses on open positions) on United States futures contracts, which is paid into
or out of the Fund's account on a daily basis; (b) short-term Treasury bills
purchased by the Fund; and (c) the Fund's cash balance in foreign currencies
derived from its trading in non-U.S. dollar denominated futures and options
contracts, which includes open trade equity on those exchanges which settle
gains and losses on open positions in such contracts prior to the closing out of
such positions. Available Assets do not include, and the Fund does not earn
interest on, the Fund's gains or losses on its open forward, commodity option
and certain foreign futures positions since such gains or losses are not
collected or paid until such positions are closed out.
The Partnership's Available Assets may be greater than, less than or
equal to the Fund's Net Asset Value (on which the redemption value of the Units
is based) primarily because Net Asset Value reflects all gains and losses on
open positions as well as accrued but unpaid expenses.
The interest income arrangements for the Partnership's U.S. dollar
Available Assets differ from those applicable to its non-U.S. dollar Available
Assets. Interest income, once accrued by the Fund, is subject to the risk of
trading losses.
Interest Earned on the Fund's U.S. Dollar Available Assets. The
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Fund's U.S. dollar Available Assets are held in cash in offset accounts and in
short-term Treasury bills purchased from dealers unaffiliated with Merrill
Lynch. Offset accounts are non-interest bearing demand deposit accounts
maintained with banks unaffiliated with Merrill Lynch. An integral feature of
the offset arrangements is that the participating banks specifically acknowledge
that the offset accounts are MLF customer accounts, not subject to any Merrill
Lynch liability.
MLF credits the Partnership, as of the end of each month, with
interest at the effective daily 91-day Treasury bill rate on the average daily
U.S. dollar Available Assets held in the offset accounts during such month. The
Fund receives all the interest paid on the short-term Treasury bills in which it
invests.
The use of the offset account arrangements for the Partnership's U.S.
dollar Available Assets may be discontinued by Merrill Lynch whether or not
Merrill Lynch otherwise continues to maintain its offset arrangements. The
offset arrangements are dependent on the banks' continued willingness to make
overnight credits available to Merrill Lynch, which, in turn, is dependent on
the credit standing of ML&Co. If Merrill Lynch were to determine that the
offset arrangements had ceased to be practicable (either because ML&Co. credit
lines at participating banks were exhausted or for any other reason), Merrill
Lynch would thereafter attempt to invest all of the Fund's U.S. dollar Available
Assets to the maximum practicable extent in short-term Treasury bills. All
interest earned on the U.S. dollar Available Assets so invested would be paid to
the Fund, but MLIP would expect the amount of such interest to be less than that
available to the Fund under the offset account arrangements. The remaining U.S.
dollar Available Assets of the Fund would be kept in cash to meet variation
margin payments and pay expenses, but would not earn interest for the Fund.
The banks at which the offset accounts are maintained make available
to Merrill Lynch interest-free overnight credits, loans or overdrafts in the
amount of the Fund's U.S. dollar Available Assets held in the offset accounts,
charging Merrill Lynch a small fee for this service. The economic benefits
derived by Merrill Lynch -- net of the interest credits paid to the Fund and the
fee paid to the offset banks -- from the offset accounts have not exceeded 3/4
of 1% per annum of the Fund's average daily U.S. dollar Available Assets held in
the offset accounts. These revenues to Merrill Lynch are in addition to the
Brokerage Commissions and Administrative Fees paid by the Fund to MLF and MLIP,
respectively.
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Interest Paid by Merrill Lynch on the Fund's Non-U.S. Dollar Available
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Assets. Under the single currency margining system implemented for the
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Partnership, the Partnership itself does not deposit foreign currencies to
margin trading in non-U.S. dollar denominated futures contracts and options. MLF
provides the necessary margin, permitting the Fund to retain the monies which
would otherwise be required for such margin as part of the Fund's U.S. dollar
Available Assets. Consequently, the Fund does not earn interest on foreign
margin deposits. The Fund does, however, earn interest on its non-U.S. dollar
Available Assets. Specifically, the Fund is credited by Merrill Lynch with
interest at the local short-term rate on realized and unrealized gains on non-
U.S. dollar denominated positions for such gains actually held in cash by the
Fund. Merrill Lynch charges the Fund Merrill Lynch's cost of financing realized
and unrealized losses on such positions.
In order to avoid the expense of daily currency conversions, the Fund
holds foreign currency gains and finances foreign currency losses on an interim
basis until converted into U.S. dollars and either paid into or out of the
Fund's U.S. dollar Available Assets. Foreign currency gains or losses on open
positions are not converted into U.S. dollars until the positions are closed.
Assets of the Fund while held in foreign currencies are subject to exchange rate
risk.
Forward Transactions. Spot and forward currency contracts are the
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only non-exchange traded instruments held by the Fund.
To date, approximately 20% to 30% of the Fund's trades by volume have
been in forward currency contracts, but from time to time the percentage of the
Fund's trading represented by forward currency trades may fall substantially
outside this range. In using the F/X Desk, the Fund trades through MLF.
Because the Fund need not deposit any margin with MLF in respect of the Fund's
forward trading, the Fund's additional risk in trading in such unregulated
markets should be limited to a possible loss of unrealized profits on open
forward positions which a counterparty accessed through MLF would not, in the
event of its bankruptcy, be able to pay to MLF for the account of the Fund.
(MLF would not itself be required to pay such unrealized profits to the Fund if
MLF did not receive such profits from such counterparties.)
Having the Fund (and the other MLF clients using the F/X Desk) trade
through the F/X Desk on the basis of MLF's credit lines permits the F/X Desk to
access a wide range of counterparties without the need of such counterparties
evaluating the individual credit of the Fund (or any other MLF client).
CHARGES
Each of the Series of Units is subject to the same charges. However,
these charges are calculated separately with respect to each Series, each of
which maintains its own Net Asset Value.
PERFORMANCE SUMMARY
Series A Units. During 1994, the Series A Units' average month-end
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Net Asset equaled $12,383,435, and the Series recognized gross trading gains of
$130,786 or 1.06% of such average month-end Net Assets. Brokerage Commissions
of $1,572,088 or 12.70% and Profit Shares of $103,313 or 0.83% of average month-
end Net Assets were paid. Interest income of $414,937 or 3.35% of average month-
end Net Assets resulted in a net loss of $1,129,678 or 9.12% of average month-
end Net Assets, which resulted in a 8.64% decrease in the Net Asset Value per
Unit.
During 1995, the Series A Units' average month-end Net Assets equalled
$13,360,144, and the Series recognized gross trading gains of $5,089,863 or
38.10% of such average month-end Net Assets. Brokerage Commissions of
$1,654,078 or 12.38% and Profit Shares of $168,968 or 1.26% of average month-end
Net Assets were paid. Interest income of $636,781 or 4.77% of average month-end
Net Assets resulted in net income of $3,903,598 or 29.22% of average month-end
Net Assets which resulted in a 34.89% increase in the Net Asset Value per Unit.
During 1996, the Series A Units' average month-end Net Assets equalled
$12,941,058, and the Series recognized gross trading gains of $1,647,329 or
12.73% of such average month-end Net Assets. Brokerage Commissions of
$1,239,114 or 9.58%, Administrative Fees of $26,364 or 0.20% and Profit Shares
of $26,690 or 0.21% of average month-end Net Assets were paid. Interest income
etc. resulted in net income of $2,519,013 or 19.47% of average month-end Net
Assets, which resulted in a 20.09% increase in the Net Asset Value per Unit.
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<PAGE>
Series B Units. During 1994, the Series B Units' average month-end
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Net Assets equalled $24,388,421, and the Series recognized gross trading gains
of $368,693 or 1.51% of such average month-end Net Assets. Brokerage
Commissions of $3,760,979 or 15.42% and Profit Shares of $247,361 or 1.01% of
average month-end Net Assets were paid. Interest income of $987,769 or 4.05% of
average month-end Net Assets resulted in a net loss of $2,651,878 or 10.87% of
average month-end Net Assets, which resulted in a 8.43% decrease in the Net
Asset Value per Unit.
During 1995, the Series B Units' average month-end Net Assets equalled
$24,425,858, and the Series recognized gross trading gains of $11,540,056 or
47.25% of such average month-end Net Assets. Brokerage Commissions of
$3,698,343 or 15.14% and Profit Shares of $362,058 or 1.48% of average month-end
Net Assets were paid. Interest income of $1,431,186 or 5.86% of average month-
end Net Assets resulted in net income of $8,910,841 or 36.48% of average month-
end Net Assets, which resulted in a 34.49% increase in the Net Asset Value per
Unit.
During 1996, the Series B Units' average month-end Net Assets equalled
$27,873,607, and the Series recognized gross trading gains of $3,471,941 or
12.46% of such average month-end Net Assets. Brokerage Commissions of
$2,695,105 or 9.67%, Administrative Fees of $57,343 or 0.21% and Profit Shares
of $44,910 or 0.16% of average month-end Net Assets are paid. Interest income
of $920,755 or 3.30% of average month-end Net Assets resulted in net income of
$5,157,739 or 18.50% of average month-end Net Assets, which resulted in a 20.03%
increase in the Net Asset Value per Unit.
Series C Units. During 1994, the Series C Units' average month-end
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Net Assets equalled $18,436,262, and the Series recognized gross trading gains
of $419,381 or 2.27% of such average month-end Net Assets. Brokerage
Commissions of $2,384,202 or 12.93% and Profit Shares of $157,828 or 0.86% of
average month-end Net Assets were paid. Interest income of $596,124 or 3.23% of
average month-end Net Assets resulted in a net loss of $1,526,525 or 8.28% of
average month-end Net Assets, which resulted in a 7.88% decrease in the Net
Asset Value per Unit.
During 1995, the Series C Units' average month-end Net Asset equalled
$16,554,503, and the Series recognized gross trading gains of $6,571,541 or
39.70% of such average month-end Net Assets. Brokerage Commissions of
$2,060,368 or 12.45% and Profit Shares of $198,112 or 1.20% of average month-end
Net Assets were paid. Interest income of $795,417 or 4.80% of average month-end
Net Assets resulted in net income of $5,108,478 or 30.86% of average month-end
Net Assets, which resulted in a 35.08% increase in the Net Asset Value per Unit.
During 1996, the Series C Units' average month-end Net Assets equalled
$15,096,182 and the Series recognized gross trading gains of $1,869,922 or
12.39% of such average month-end Net Assets. Brokerage Commissions of
$1,472,632 or 9.75%, Administrative Fees of $31,332 or 0.21%, and Profit Shares
of $25,868 or 0.17% of average month-end Net Assets were paid. Interest income
of $504,393 or 3.34% of average month-end Net Assets resulted in net income of
$2,707,578 or 17.94% of average month-end Net Assets, which resulted in a 19.54%
increase in the Net Asset Value per Unit.
______________________________
DESCRIPTION OF CURRENT CHARGES
<TABLE>
<CAPTION>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
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<S> <C> <C>
MLF Brokerage Commissions A flat-rate monthly commission of 0.9792 of 1% of the
Fund's month-end assets (a 11.75% annual rate).
During 1994, 1995 and 1996, the round-turn (each
purchase and sale or sale and purchase of a single futures
contract) equivalent rate of the Fund's flat-rate Brokerage
Commissions was approximately $56, $207 and $143,
respectively. The round-turn rates reflect Brokerage
Commissions at the rate of 11.75% per annum. As of
February 1, 1997, this rate was reduced to 9.50%.
</TABLE>
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<PAGE>
DESCRIPTION OF CURRENT CHARGES (CONT'D)
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<TABLE>
<CAPTION>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
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<S> <C> <C>
MLF Use of Fund assets Merrill Lynch may derive an economic benefit from the
deposit of certain of the Fund's U.S. dollar Available
Assets in offset accounts; such benefit to date has not
exceeded 3/4 of 1% of such average daily U.S. dollar
Available Assets.
MLIP Administrative Fees As of January 1, 1996, the Brokerage Commissions
payable by the Fund were reduced from 12% to 11.75%
annually, and the Fund began to pay MLIP a monthly
Administrative Fee equal to 0.020833 of 1% of the
Fund's month-end assets (0.25% annually). This change
had no economic effect on the Fund. MLIP pays all of the
Fund's routine administrative costs.
MLIB Bid-ask spreads Under MLIP's F/X Desk arrangements, MLIB receives
bid-ask spreads on the forward trades it executes with the
Fund.
Other Bid-ask spreads The counterparties other than MLIB with which the F/X
Counterparties Desk deals also each receive bid-ask spreads on the
forward trades executed with the Fund.
MLIP F/X Desk service fees Under the F/X Desk arrangements, MLIP or another
Merrill Lynch entity receives a service fee equal, at
current exchange rates, to approximately $5.00 to $12.50
on each purchase or sale of each futures contract-
equivalent forward contract executed with counterparties
other than MLIB.
MLIB EFP differentials MLIB or an affiliate receives a differential spread for
exchanging the Fund's spot currency positions (which are
acquired through the F/X Desk, as described above) for
equivalent futures positions.
Trading Advisors Profit Shares Prior to January 1, 1997, quarterly profit shares of 15%
and 20% of any New Trading Profit generated by each
advisor, individually, were paid to JWH and Millburn,
respectively, beginning January 1, 1997, a quarterly
Profit Share of 15% continues to be payable to JWH and
an annual Profit Share of 20% is payable to Millburn, in
each case as of the end of each calendar quarter or year
(as the case may be) and upon redemption of Units. New
Trading Profit is calculated separately in respect of each
Advisor, irrespective of the overall performance of the
Fund. Units may generate New Trading Profit and be
subject to paying Profit Shares even though the Net
Asset Value per Unit has declined below the purchase
price of such Units.
</TABLE>
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<PAGE>
DESCRIPTION OF CURRENT CHARGES (CONT'D)
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<TABLE>
<CAPTION>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
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<S> <C> <C>
MLF; Extraordinary expenses Actual costs incurred; none paid to date, and expected to
Others be negligible.
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</TABLE>
REGULATION
The General Partner, the Trading Advisors and the Commodity Broker are
each subject to regulation by the Commodity Futures Trading Commission and the
National Futures Association. Other than in respect of its periodic reporting
requirements, the Partnership itself is generally not subject to regulation by
the Securities and Exchange Commission. However, MLIP itself is registered as
an "investment adviser" under the Investment Advisers Act of 1940.
(i) through (xii) -- not applicable.
(xiii) The Partnership has no employees.
(d) Financial Information about Foreign and Domestic Operations and Export
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Sales:
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The Partnership does not engage in material operations in foreign
countries, nor is a material portion of the Partnership's revenues derived from
customers in foreign countries. The Partnership does, however, trade, from the
United States, on a number of foreign commodity exchanges.
ITEM 2: PROPERTIES
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The Partnership does not use any physical properties in the conduct of its
business.
The Partnership's only place of business is the place of business of the
General Partner (see Item 10 herein). The General Partner performs all
administrative services for the Partnership from the General Partner's offices.
ITEM 3: LEGAL PROCEEDINGS
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There are no pending legal proceedings to which the Partnership or the
General Partner is a party.
In September 1996, JWH was named as a co-defendant in class action lawsuits
brought in the California Superior Court, Los Angeles County and in the New York
Supreme Court, New York County. In November, JWH was named as a co-defendant in
a class action complaint filed in Superior Court of the State of Delaware for
Newcastle County that contained the same allegations as the New York and
California complaints. The actions, which seek unspecified damages, purport to
be brought on behalf of investors in certain Dean Witter, Discover & Co. ("Dean
Witter") commodity pools, some of which are advised by JWH, and are primarily
directed at Dean Witter's alleged fraudulent selling practices in connection
with the marketing of those pools. JWH is essentially alleged to have aided and
abetted or directly participated with Dean Witter in those practices. JWH
believes the allegations against it are without merit; it intends to contest
these allegations vigorously, and is convinced that it will be shown to have
acted properly and in the best interest of the investors.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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The Partnership has never submitted any matters to a vote of its Limited
Partners.
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<PAGE>
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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(a) Market Information:
------------------
There is no established public trading market for the Units, nor will
one develop. Rather, Limited Partners may redeem Units as of the end of each
month at Net Asset Value.
(b) Holders:
-------
As of December 31, 1996, there were 490, 1,540 and 774 holders of the
Series A, B and C Units, respectively, including the General Partner and the
Trading Advisors.
(c) Dividends:
---------
The Partnership has made only one distribution ($20 per Series A Unit
payable as of November 30, 1990) since trading commenced. The General Partner
does not presently intend to make any distributions, but may do so if a series
of Units recognizes substantial profits.
ITEM 6: SELECTED FINANCIAL DATA
-----------------------
The following selected financial data has been derived from the audited
financial statements of the Partnership.
<TABLE>
<CAPTION>
INCOME STATEMENT DATA 1996 1995 1994 1993 1992
- ----------------------------------- ------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Trading Profits (Loss):
Realized Gain $ 8,749,410 $23,852,578 $ 3,650,307 $17,886,014 $ 18,957,117
Change in Unrealized Gain (1,760,218) (651,118) (2,731,447) 4,187,590 (23,653,935)
----------- ----------- ----------- ----------- ------------
Total Trading Results 6,989,192 23,201,460 918,860 22,073,604 (4,696,818)
Interest Income 1,842,887 2,863,384 1,998,830 1,847,581 2,317,491
----------- ----------- ----------- ----------- ------------
Total Revenues 8,832,079 26,064,844 2,917,690 23,921,185 (2,379,327)
----------- ----------- ----------- ----------- ------------
Expenses:
Brokerage Commissions 5,406,851 7,412,789 7,717,269 9,559,369 10,532,323
Administrative Fees 115,039 0 0 0 0
Profit Shares 97,468 729,138 508,502 551,684 523,840
----------- ----------- ----------- ----------- ------------
Total Expenses 5,619,358 8,141,927 8,225,771 10,111,053 (11,056,163)
----------- ----------- ----------- ----------- ------------
Income from Investments 7,171,609 0 0 0 0
----------- ----------- ----------- ----------- ------------
Net Income (Loss) $10,384,330 $17,922,917 $(5,308,081) $13,810,132 $(13,435,490)
=========== =========== =========== =========== ============
BALANCE SHEET DATA 1996 1995 1994 1993 1992
- ----------------------------------- ----------- ----------- ----------- ----------- ------------
Fund Net Asset Value $60,834,088 $57,921,834 $53,987,444 $71,749,780 $ 82,863,393
Net Asset Value per Series A Unit $ 252.54 $ 210.29 $ 155.90 $ 170.64 $ 141.44
Net Asset Value per Series B Unit $ 205.27 $ 171.02 $ 127.16 $ 138.87 $ 115.98
Net Asset Value per Series C Unit $ 159.97 $ 133.82 $ 99.07 $ 107.55 $ 92.87*
</TABLE>
* The December 31, 1992 Net Asset Value per Series C Unit was $0.83 per Unit
higher than the GAAP Net Asset Value due to the amortization of organization
and offering cost reimbursements.
-8-
<PAGE>
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER SERIES A UNIT
- ------------------------------------------------------------------------------------------------------------------
JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC.
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $142.57 $128.54 $130.12 $117.75 $111.34 $125.75 $143.95 $158.02 $151.50 $143.69 $144.39 $141.44
- ------------------------------------------------------------------------------------------------------------------
1993 $141.54 $154.24 $151.42 $163.78 $166.43 $162.20 $174.85 $162.78 $165.32 $164.26 $164.70 $170.64
- ------------------------------------------------------------------------------------------------------------------
1994 $157.40 $157.52 $171.35 $170.73 $170.55 $182.02 $169.39 $159.71 $163.83 $165.97 $159.74 $155.90
- ------------------------------------------------------------------------------------------------------------------
1995 $146.85 $167.54 $204.80 $214.46 $216.21 $212.68 $207.03 $212.10 $207.87 $208.79 $209.51 $210.29
- ------------------------------------------------------------------------------------------------------------------
1996 $231.67 $209.48 $205.35 $213.42 $204.22 $207.21 $206.87 $201.95 $208.39 $237.92 $255.50 $252.54
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER SERIES B UNIT
- ------------------------------------------------------------------------------------------------------------------
JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC.
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $114.45 $104.79 $106.01 $ 96.15 $ 91.20 $103.23 $118.11 $129.56 $124.39 $117.89 $118.48 $115.98
- ------------------------------------------------------------------------------------------------------------------
1993 $116.02 $126.15 $124.04 $134.19 $136.26 $132.74 $142.71 $132.47 $134.45 $133.44 $133.97 $138.87
- ------------------------------------------------------------------------------------------------------------------
1994 $127.89 $128.01 $139.63 $139.06 $138.76 $148.27 $138.03 $130.06 $133.43 $135.47 $130.31 $127.16
- ------------------------------------------------------------------------------------------------------------------
1995 $119.62 $136.63 $166.77 $174.39 $175.54 $172.89 $168.13 $172.70 $169.17 $169.98 $170.50 $171.02
- ------------------------------------------------------------------------------------------------------------------
1996 $188.93 $171.14 $167.47 $173.94 $166.31 $168.64 $168.41 $164.21 $169.49 $193.51 $207.63 $205.27
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER SERIES C UNIT
- -------------------------------------------------------------------------------------------------------------------
JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC.
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $ 92.41 $ 85.30 $ 86.02 $ 79.31 $ 75.87 $ 85.03 $ 95.51 $103.93 $100.18 $ 94.88 $ 95.63 $93.70**
- -------------------------------------------------------------------------------------------------------------------
1993 $ 94.01 $101.04 $ 99.03 $106.07 $106.98 $104.11 $110.95 $102.99 $104.71 $103.70 $103.95 $ 107.55
- -------------------------------------------------------------------------------------------------------------------
1994 $ 98.97 $ 99.10 $108.21 $107.82 $107.43 $115.26 $107.13 $100.81 $103.66 $105.30 $101.41 $ 99.07
- -------------------------------------------------------------------------------------------------------------------
1995 $ 93.13 $106.27 $129.98 $135.87 $136.83 $134.85 $131.16 $134.97 $132.39 $133.17 $133.60 $ 133.82
- -------------------------------------------------------------------------------------------------------------------
1996 $147.90 $133.80 $130.88 $135.93 $129.91 $131.79 $131.69 $128.12 $132.22 $150.96 $161.74 $ 159.97
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
** The December 31, 1992 Net Asset Value per Series C Unit was $0.83 per Unit
higher than the GAAP Net Asset Value due to the amortization of organization
and offering cost reimbursements.
Pursuant to CFTC policy, monthly performance is presented from January 1, 1992
even though the Series A and B Units were outstanding prior to such date.
-9-
<PAGE>
JOHN W. HENRY & CO./MILLBURN L.P.
(SERIES A UNITS)
DECEMBER 31, 1996
Type of Pool: Selected-Advisor/Publicly-Offered/Non-"Principal Protected"/(1)/
Inception of Trading: January 5, 1990
Aggregate Subscriptions: $18,182,000
Current Capitalization: $14,237,462
Worst Monthly Drawdown/(2)/: (15.99)% (1/92)
Worst Peak-to-Valley Drawdown/(3)/: (34.40)% (1/92 - 5/92)
_____________
Net Asset Value per Series A Unit, December 31, 1996: $252.54
<TABLE>
<CAPTION>
MONTHLY RATES OF RETURN/(4)/
- ------------------------------------------------------------
MONTH 1996 1995 1994 1993 1992
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January 10.17% (5.81)% (7.76)% 0.07% (15.99)%
- ------------------------------------------------------------
February (9.58) 14.09 0.08 8.97 (9.84)
- ------------------------------------------------------------
March (1.97) 22.24 8.78 (1.82) 1.22
- ------------------------------------------------------------
April 3.93 4.72 (0.36) 8.16 (9.51)
- ------------------------------------------------------------
May (4.31) 0.81 (0.11) 1.62 (5.44)
- ------------------------------------------------------------
June 1.46 (1.63) 6.73 (2.54) 12.95
- ------------------------------------------------------------
July (0.17) (2.66) (6.94) 7.79 14.47
- ------------------------------------------------------------
August (2.38) 2.45 (5.72) (6.90) 9.78
- ------------------------------------------------------------
September 3.19 (1.99) 2.58 1.56 (4.13)
- ------------------------------------------------------------
October 14.17 0.45 1.31 (0.64) (5.15)
- ------------------------------------------------------------
November 7.39 0.34 (3.75) 0.26 0.49
- ------------------------------------------------------------
December (1.16) 0.38 (2.41) 3.61 (2.04)
- ------------------------------------------------------------
Compound Annual 20.09% 34.89% (8.64)% 20.64% (16.65)%
Rate of Return
- ------------------------------------------------------------
</TABLE>
(1) Pursuant to applicable CFTC regulations, a "Multi-Advisor" fund
is defined as one that allocates no more than 25% of its trading assets to any
single manager. As the Fund allocates over 25% of its assets to each of JWH and
Millburn, it is referred to as a "Selected-Advisor" fund. Certain funds,
including funds sponsored by MLIP, are structured so as to guarantee to
investors that their investment will be worth no less than a specified amount
(typically, the initial purchase price) as of a date certain after the date of
investment. The CFTC refers to such funds as "principal protected." The
Partnership has no such feature.
(2) Worst Monthly Drawdown represents the largest negative Monthly
Rate of Return experienced since January 1, 1992 by the Series; a drawdown is
measured on the basis of month-end Net Asset Value only, and does not reflect
intra-month figures.
(3) Worst Peak-to-Valley Drawdown represents the greatest percentage
decline since January 1, 1992 from a month-end cumulative Monthly Rate of Return
without such cumulative Monthly Rate of Return being equaled or exceeded as of a
subsequent month-end. For example, if the Monthly Rate of Return was (1)% in
each of January and February, 1% in March and (2)% in April, the Peak-to-Valley
Drawdown would still be continuing at the end of April in the amount of
approximately (3)%, whereas if the Monthly Rate of Return had been approximately
3% in March, the Peak-to-Valley Drawdown would have ended as of the end of
February at approximately the (2)% level.
(4) Monthly Rate of Return is the net performance of the Series
during the month of determination (including interest income and after all
expenses have been accrued or paid) divided by the total equity of the Series as
of the beginning of such month.
-10-
<PAGE>
JOHN W. HENRY & CO./MILLBURN L.P.
(SERIES B UNITS)
DECEMBER 31, 1996
Type of Pool: Selected-Advisor/Publicly-Offered/Non-"Principal Protected"/(1)/
Inception of Trading: January 28, 1991
Aggregate Subscriptions: $50,636,000
Current Capitalization: $30,488,078
Worst Monthly Drawdown/(2)/: (15.01)% (1/92)
Worst Peak-to-Valley Drawdown/(3)/: (32.28)% (1/92 - 5/92)
_____________
Net Asset Value per Series B Unit, December 31, 1996: $205.27
<TABLE>
<CAPTION>
MONTHLY RATES OF RETURN/(4)/
- ------------------------------------------------------------
MONTH 1996 1995 1994 1993 1992
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January 10.47% (5.93)% (7.91)% 0.04% (15.01)%
- ------------------------------------------------------------
February (9.41) 14.22 0.09 8.73 (8.44)
- ------------------------------------------------------------
March (2.14) 22.06 9.08 (1.68) 1.16
- ------------------------------------------------------------
April 3.86 4.57 (0.41) 8.18 (9.30)
- ------------------------------------------------------------
May (4.38) 0.66 (0.22) 1.54 (5.15)
- ------------------------------------------------------------
June 1.40 (1.52) 6.85 (2.58) 13.19
- ------------------------------------------------------------
July (0.14) (2.75) (6.90) 7.51 14.42
- ------------------------------------------------------------
August (2.49) 2.71 (5.77) (7.17) 9.69
- ------------------------------------------------------------
September 3.22 (2.04) 2.59 1.49 (3.99)
- ------------------------------------------------------------
October 14.17 0.48 1.53 (0.75) (5.23)
- ------------------------------------------------------------
November 7.30 0.31 (3.81) 0.40 0.50
- ------------------------------------------------------------
December (1.14) 0.31 (2.42) 3.65 (2.11)
- ------------------------------------------------------------
Compound Annual 20.03% 34.49% (8.43)% 19.74% (13.88)%
Rate of Return
- ------------------------------------------------------------
</TABLE>
(1) Pursuant to applicable CFTC regulations, a "Multi-Advisor" fund
is defined as one that allocates no more than 25% of its trading assets to any
single manager. As the Fund allocates over 25% of its assets to each of JWH and
Millburn, it is referred to as a "Selected-Advisor" fund. Certain funds,
including funds sponsored by MLIP, are structured so as to guarantee to
investors that their investment will be worth no less than a specified amount
(typically, the initial purchase price) as of a date certain after the date of
investment. The CFTC refers to such funds as "principal protected." The
Partnership has no such feature.
(2) Worst Monthly Drawdown represents the largest negative Monthly
Rate of Return experienced since January 1, 1992 by the Series; a drawdown is
measured on the basis of month-end Net Asset Value only, and does not reflect
intra-month figures.
(3) Worst Peak-to-Valley Drawdown represents the greatest percentage
decline since January 1, 1992 from a month-end cumulative Monthly Rate of
Return without such cumulative Monthly Rate of Return being equaled or exceeded
as of a subsequent month-end. For example, if the Monthly Rate of Return was
(1)% in each of January and February, 1% in March and (2)% in April, the
Peak-to-Valley Drawdown would still be continuing at the end of April in the
amount of approximately (3)%, whereas if the Monthly Rate of Return had been
approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of
the end of February at approximately the (2)% level.
(4) Monthly Rate of Return is the net performance of the Series
during the month of determination (including interest income and after all
expenses have been accrued or paid) divided by the total equity of the Series as
of the beginning of such month.
-11-
<PAGE>
JOHN W. HENRY & CO./MILLBURN L.P.
(SERIES C UNITS)
DECEMBER 31, 1996
Type of Pool: Selected-Advisor/Publicly-Offered/Non-"Principal Protected"/(1)/
Inception of Trading: January 2, 1992
Aggregate Subscriptions: $40,000,000
Current Capitalization: $16,108,548
Worst Monthly Drawdown/(2)/: (9.54)% (2/96)
Worst Peak-to-Valley Drawdown/(3)/: (24.13)% (1/92-5/92)
_____________
Net Asset Value per Series C Unit, December 31, 1996: $159.97
<TABLE>
<CAPTION>
MONTHLY RATES OF RETURN/(4)/
- -----------------------------------------------------------
MONTH 1996 1995 1994 1993 1992
- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January 10.52% (6.00)% (7.97)% 0.33% (7.59)%
- -----------------------------------------------------------
February (9.54) 14.12 0.13 7.47 (7.69)
- -----------------------------------------------------------
March (2.18) 22.31 9.19 (1.99) 0.84
- -----------------------------------------------------------
April 3.86 4.53 (0.36) 7.11 (7.79)
- -----------------------------------------------------------
May (4.43) 0.70 (0.36) 0.85 (4.35)
- -----------------------------------------------------------
June 1.45 (1.44) 7.28 (2.68) 12.08
- -----------------------------------------------------------
July (0.08) (2.74) (7.05) 6.57 12.33
- -----------------------------------------------------------
August (2.71) 2.90 (5.90) (7.17) 8.82
- -----------------------------------------------------------
September 3.21 (1.91) 2.83 1.66 (3.61)
- -----------------------------------------------------------
October 14.17 0.59 1.58 (0.97) (5.92)
- -----------------------------------------------------------
November 7.14 0.32 (3.69) 0.24 0.79
- -----------------------------------------------------------
December (1.09) 0.17 (2.31) 3.46 (2.02)
- -----------------------------------------------------------
Compound Annual 19.54% 35.08% (7.88)% 14.78% (6.30)%
Rate of Return
- -----------------------------------------------------------
</TABLE>
(1) Pursuant to applicable CFTC regulations, a "Multi-Advisor" fund is
defined as one that allocates no more than 25% of its trading assets to any
single manager. As the Fund allocates approximately 50% of its assets to each of
JWH and Millburn, it is referred to as a "Selected-Advisor" fund. Certain funds,
including funds sponsored by MLIP, are structured so as to guarantee to
investors that their investment will be worth no less than a specified amount
(typically, the initial purchase price) as of a date certain after the date of
investment. The CFTC refers to such funds as "principal protected." The
Partnership has no such feature.
(2) Worst Monthly Drawdown represents the largest negative Monthly
Rate of Return experienced since January 1, 1992 by the Series; a drawdown is
measured on the basis of month-end Net Asset Value only, and does not reflect
intra-month figures.
(3) Worst Peak-to-Valley Drawdown represents the greatest percentage
decline since January 1, 1992 from a month-end cumulative Monthly Rate of
Return without such cumulative Monthly Rate of Return being equaled or exceeded
as of a subsequent month-end. For example, if the Monthly Rate of Return was
(1)% in each of January and February, 1% in March and (2)% in April, the Peak-
to-Valley Drawdown would still be continuing at the end of April in the amount
of approximately (3)%, whereas if the Monthly Rate of Return had been
approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of
the end of February at approximately the (2)% level.
(4) Monthly Rate of Return is the net performance of the Series
during the month of determination (including interest income and after all
expenses have been accrued or paid) divided by the total equity of the Series as
of the beginning of such month.
-12-
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
OPERATIONAL OVERVIEW
The Fund's results of operations depend on the Advisors' ability to
trade profitably. The Advisors' trading methods, are confidential, so that
substantially the only available information relevant to the Fund's results of
operations is its actual performance record to date. However, because of the
speculative nature of its trading, the Fund's past performance is not
necessarily indicative of its future results.
RESULTS OF OPERATIONS
General. MLIP believes that managed futures funds should be
-------
regarded as medium- to long-term (i.e., three to five year) investments, but
it is difficult to identify trends in the Fund's operations and virtually
impossible to make any predictions regarding future results based on the results
to date. An investment in the Fund may be less successful over a longer than a
shorter period.
Markets with sustained price trends 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 price trends will occur
and (iii) JWH and Millburn are affected differently by trending markets as
well as by particular types of trends.
MLIP attempts to control credit risk in the Fund's futures, forward
and options trading (the Fund does not trade derivatives other than futures
and forward contracts and options thereon) by trading only through MLF. MLF
acts solely as a broker or counterparty to the Fund's trades; it does not
advise with respect to, or direct, any such trading.
MLIP relies principally on JWH's and Millburn's respective risk
management policies and strategies to control the market risk inherent in the
Fund's trading. MLIP reviews the positions acquired by each of the Advisors on
a daily basis in an effort to determine whether such policies and strategies
are being followed and whether the overall positions of the Fund may have
become what MLIP analyzes as being excessively concentrated in a limited number
of markets -- in which case MLIP may discuss the possibility of rebalancing or
deleveraging the Fund's portfolio with JWH, Millburn or both. To date,
however, MLIP has only intervened once to request any rebalancing or
deleveraging of either Advisor's trading (JWH deleveraged its trading at the
request of MLIP from May 1992 through August 1992).
MLIP may consider making distributions to investors under certain
circumstances (for example, if substantial profits are recognized). MLIP
caused the Fund to make a $20 distribution on each Series A Unit as of November
30, 1990. This is the only distribution made to date.
PERFORMANCE SUMMARY
1994
1994 was characterized by relatively quiet markets without many major
price trends. United States interest rates generally declined during the period,
and as they did, so did the U.S. dollar as compared to the Deutschemark and
certain other major currencies.
1995
In 1995, prevailing price trends in several key markets enabled the
Advisors to trade profitably for the Fund. Although trading in many of the
traditional commodity markets may have been lackluster, the currency and
financial markets offered exceptional trading conditions. After months
characterized by very difficult trading environments, solid price trends across
many markets (including U.S. Treasury and non-dollar bond markets) began to
emerge during the first quarter of 1995. In the second quarter, market
volatility once again began to affect trading, as many previously strong price
trends began to weaken and, in some cases, reverse. The U.S. dollar hit new lows
versus the Japanese yen and Deutschemark before rebounding sharply. In addition,
there were strong indications that the U.S. economy was slowing which, when
coupled with a failure of the German Central Bank to lower interest rates,
stalled a rally in the German bond market. During
-13-
<PAGE>
the third quarter, there was a correction in U.S. bond prices after several
months of a strong uptrend. Despite exposure to the global interest-rate
markets, the Fund's long positions in Treasury bonds had a negative impact on
the Fund. Throughout August and into September, the U.S. dollar rallied sharply
against the Japanese yen and the Deutschemark as a result of the coordinated
intervention by major central banks and widespread recognition of the growing
banking crisis in Japan. Despite continued price volatility during the final
quarter of 1995, the Trading Advisors were able to identify several trends in
key markets. U.S. Treasury bond prices continued their strong move upward
throughout November, due both to weak economic data and optimism on federal
budget talks. As the year ended, the yield on the 30-year Treasury bond was
pushed to its lowest level in more than two years.
1996
1996 began with the East Coast blizzard, continuing difficulties in federal
budget talks and an economic slowdown having a negative impact on many markets.
The Fund was profitable in January due to strong profits in currency trading as
the U.S. dollar reached a 23-month high against the Japanese yen. In February,
however, the Fund incurred a significant loss due to the sudden reversals in
several strong price trends and considerable volatility in the currency and
financial markets. During March, large profits were taken in the crude oil and
gasoline markets as strong demand continued and talks between the United Nations
and Iraq were suspended. This trend continued into the second quarter, during
which strong gains were also recognized in the agricultural markets as a
combination of drought and excessive rain drove wheat and grain prices to
historic highs. In the late summer and early fall months, the Fund continued to
trade profitably as trending prices in a number of key markets favorably
impacted the Fund's performance. In September heating oil hit a five-year high
on soaring prices in Europe, and the Fund was also able to capitalize on
downward trends in the metals markets. Strong trends in the currency and global
bond markets produced significant gains in October and November, but the year
ended with declining performance as December witnessed the reversal of several
strong upward trends and increased volatility in key markets.
PERFORMANCE OVERVIEW
The principal variables which determine the net performance of the
Partnership are profitability and interest income. During all periods set forth
under "Selected Financial Data," the interest rates in many countries were at
unusually low levels. This negatively impacted revenues because interest income
is typically a major component of commodity pool profitability. In addition,
low interest rates are frequently associated with reduced fixed-income market
volatility, and in static markets the Fund's profit potential generally tends to
be diminished. On the other hand, during periods of higher interest rates, the
relative attractiveness of a high risk investment such as the Partnership may be
reduced as compared to high yielding and much lower risk fixed-income
investments.
The Partnership's Brokerage Commissions and Administrative Fees are a
constant percentage of assets charge. The only Fund costs (other than the
insignificant F/X Desk service fees and EFP differentials as well as bid-ask
spreads on forward contracts) which are not based on a percentage of the Fund's
assets are the Profit Shares payable to each of JWH and Millburn based on their
individual performance. During periods when Profit Shares are a high percentage
of net trading gains, it is likely that there has been substantial performance
non-correlation between the Advisors (so that the total Profit Shares paid to
the Advisor which has traded profitably are a high percentage, or perhaps even
in excess, of the total profits recognized, as the other Advisor has incurred
offsetting losses, reducing overall trading gains but not the Profit Shares paid
to the successful Advisor).
The events that primarily determine the Fund's profitability are those that
produce sustained and major price movements. The Advisors are generally more
likely to be able to profit from sustained trends, irrespective of their
direction, than from static markets. During the course of the Partnership's
performance to date, such events have ranged from Federal Reserve Board
reductions in interest rates, the apparent refusal of Iraq to arrive at a
settlement which would permit it to sell oil internationally, the inability of
the U.S. government to agree upon a federal budget and a combination of drought
and excessive rain negatively impacting U.S. agricultural harvesting as well as
planting. While these events are representative of the type of circumstances
which materially affect the Fund, the specific events which will do so in the
future cannot be predicted or identified.
-14-
<PAGE>
Unlike many investment fields, there is no meaningful distinction in the
operation of the Fund between realized and unrealized profits. Most of the
contracts traded by the Fund are highly liquid and can be closed out at any
time. Furthermore, the profits on many open positions are effectively realized
on a daily basis through the payment of variation margin.
Except in unusual circumstances, factors such as regulatory approvals, cost
of goods sold, employee relations and the like which often materially affect an
operating business have virtually no impact on the Fund.
LIQUIDITY AND CAPITAL RESOURCES
The Fund's costs are generally proportional to its asset base, and, within
broad ranges of capitalization, the Advisors' trading positions (and the
resulting gains and losses) should increase or decrease in approximate
proportion to the size of the Fund account managed by each of them,
respectively.
Inflation per se is not a significant factor in the Fund's profitability,
although inflationary cycles can give rise to the type of major price movements
that can have a materially favorable or adverse impact on the Fund's
performance.
In its trading to date, the Fund has from time to time had substantial
unrealized gains and losses on its open positions. These gains or losses are
received or paid on a periodic basis as part of the routine clearing cycle on
exchanges or in the over-the-counter markets (the only over-the-counter market
in which the Fund trades is the inter-bank forward market in currencies). In
highly unusual circumstances, market illiquidity could make it difficult for
certain Advisors to close out open positions, and any such illiquidity could
expose the Fund to significant losses, or cause it to be unable to recognize
unrealized gains. However, in general, there is no meaningful difference
between the Fund's realized and unrealized gains.
In terms of cash flow, it makes little difference whether a market position
remains open (so that the profit or loss on such positions remains unrealized),
as cash settlement of unrealized gains and losses occurs periodically whether
or not positions are closed out. The only meaningful difference between
realized and unrealized gains or losses in the case of the Fund is that
unrealized items reflect gains or losses on positions which the Advisors have
determined not to close out (presumably, in the hope of future profits), whereas
realized gains or losses reflect amounts received or paid in respect of
positions no longer being maintained.
The significant variations in the balance sheet line items is primarily due
to the Partnership placing its 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. On
October 1, 1996 the assets managed by John W. Henry & Co., Inc. were invested in
the ML JWH Financials & Metals Portfolio L.L.C. On December 2, 1996, the assets
managed by the Millburn Ridgefield Corporation were invested in the ML Millburn
Global Diversified L.L.C. As of December 31, 1996, all of the Partnership's
assets formerly held in commodity futures trading accounts were invested in
these two Trading LLCs. 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).
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The financial statements required by this Item are included in Exhibit
13.01.
The supplementary financial information ("selected quarterly financial
data" and "information about oil and gas producing activities") specified by
Item 302 of Regulation S-K is not applicable.
-15-
<PAGE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
There were no changes in or disagreements with accountants on accounting
and financial disclosure.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
(a,b) Identification of Directors and Executive Officers:
--------------------------------------------------
As a limited partnership, the Partnership itself has no officers or
directors and is managed by the General Partner. Trading decisions are made by
the Trading Advisors on behalf of the Partnership.
The principal officers of MLIP and their business backgrounds are as
follows.
John R. Frawley, Jr. Chief Executive Officer, President
and Director
James M. Bernard Chief Financial Officer,
Senior Vice President and Treasurer
(through April 14, 1997)
Michael A. Karmelin Chief Financial Officer,
Vice President and Treasurer
(as of April 14, 1997)
Jeffrey F. Chandor Senior Vice President, Director of
Sales, Marketing and Research and
Director
Allen N. Jones Chairman and Director
Steven B. Olgin Vice President, Secretary and Director
of Administration
John R. Frawley, Jr. was born in 1943. Mr. Frawley is Chief Executive
Officer, President and a Director of MLIP as well as Co-Chairman of MLF. He
joined Merrill Lynch, Pierce, Fenner & Smith ("MLPF&S") in 1966 and has served
in various positions, including Retail and Institutional Sales, Manager of New
York Institutional Sales, Director of Institutional Marketing, Senior Vice
President of Merrill Lynch Capital Markets, and Director of International
Institutional Sales. Mr. Frawley holds a Bachelor of Science degree from
Canisius College. Mr. Frawley served on the CFTC's Regulatory Coordination
Advisory Committee from its inception in 1990 through its dissolution in 1994.
Mr. Frawley is currently a member of the CFTC's Financial Products Advisory
Committee. In January 1996, he was re-elected to a one-year term as Chairman of
the Managed Futures Association, the national trade association of the United
States managed futures industry. Mr. Frawley is also a Director of that
organization, and a Director of the Futures Industry Institute. Mr. Frawley
also currently serves on a panel created by the Chicago Mercantile Exchange and
The Board of Trade of the City of Chicago to study cooperative efforts related
to electronic trading, common clearing and the issues regarding a potential
merger.
James M. Bernard was born in 1950. Mr. Bernard was Chief Financial
Officer, Senior Vice President and Treasurer of MLIP. He joined MLF in 1983.
Before that he was the Commodity Controller for Nabisco Brands Inc. from
November 1976 to 1982 and a Supervisor at Ernst & Whinney from 1972 to November
1976. Mr. Bernard is a member of the American Institute of Certified Public
Accountants and holds a Bachelor of Science degree from St. John's University
and a Master of Business Administration degree from Fordham University. Mr.
Bernard left the firm in 1997.
Michael A. Karmelin has been appointed Chief Financial Officer, Vice
President and Treasurer of MLIP. Mr. Karmelin assumed these positions on April
14, 1997, when he completed his tenure as Chief Financial Officer of Merrill
Lynch, Hubbard Inc. ("ML Hubbard"), a sponsor of real estate limited
partnerships. Mr. Karmelin was born in 1947. Mr. Karmelin joined ML Hubbard in
January 1994 as a Vice President. From May 1994 until he joined MLIP, Mr.
Karmelin was the Chief Financial Officer of ML Hubbard, responsible for its
accounting, treasury and tax functions. Prior to joining ML Hubbard, Mr.
Karmelin held several senior financial positions with Merrill Lynch & Co., Inc.
("ML&Co.") and Merrill Lynch, Pierce, Fenner & Smith Incorporated from December
1985 to December 1993, including Vice President/Senior Financial Officer
Corporate Real Estate and Purchasing, Manager Commitment Control/Capital
Budgeting, and Senior Project Manager/Project Analysis. Prior to joining ML&Co.,
Mr. Karmelin was employed at Avco Corporation for 17 years, where he held a
variety of financial positions. Mr. Karmelin holds a B.B.A. degree in Accounting
from Baruch College, C.U.N.Y. and a Master of Business Administration degree in
Corporate Strategy and Finance from New York University. Mr. Karmelin passed the
Certified Public Accountant examination in 1974 and is a member of the Treasury
Management Association, the Institute of Management Accountants and The
Strategic Leadership Forum.
Jeffrey F. Chandor was born in 1942. Mr. Chandor is Senior Vice
President, the Director of Sales, Marketing and Research and a Director of MLIP.
He joined MLPF&S in 1971 and has served as the Product Manager of Equity,
Derivative Products and Mortgage-Backed Securities as well as Managing Director
of International Sales in the United States, and Managing Director of Sales in
Europe. Mr. Chandor holds a Bachelor of Arts degree from Trinity College,
Hartford, Connecticut.
-16-
<PAGE>
Allen N. Jones was born in 1942. Mr. Jones is Chairman and a Director
of MLIP. Mr. Jones graduated from the University of Arkansas with a Bachelor of
Science, Business Administration degree in 1964. Since June 1992, Mr. Jones has
held the position of Senior Vice President of MLPF&S. From June 1992 through
February 1994, Mr. Jones was the President and Chief Executive Officer of
Merrill Lynch Insurance Group, Inc. ("MLIG") and remains on the Board of
Directors of MLIG and its subsidiary companies. In February 1994, Mr. Jones
became the Director of Individual Financial Services of the Merrill Lynch
Private Client Group. From January 1992 to June 1992, he held the position of
First Vice President of MLPF&S. From January 1990 to June 1992, he held the
position of District Director of MLPF&S. Before January 1990, he held the
position of Senior Regional Vice President of MLPF&S.
Steven B. Olgin was born in 1960. Mr. Olgin is Vice President,
Secretary and the Director of Administration of MLIP. He joined MLIP in July
1994 and became a Vice President in July 1995. From 1986 until July 1994, Mr.
Olgin was an associate of the law firm of Sidley & Austin. In 1982, Mr. Olgin
graduated from The American University with a Bachelor of Science degree in
Business Administration and a Bachelor of Arts degree in Economics. In 1986, he
received his Juris Doctor degree from The John Marshall Law School. Mr. Olgin
is a member of the Managed Futures Association's Government Relations Committee
and has served as an arbitrator for the NFA.
At its December 1996 Board of Directors meeting, MLIP formed a Finance
Committee composed of representatives of several different operating and
administrative units at Merrill Lynch to oversee the financial controls and
accounting procedures implemented by MLIP. The Finance Committee will meet
periodically to review MLIP's financial reporting, monitoring and record
keeping, as well as all proposed changes -- other than the selection of Advisors
- -- affecting the operations of the Fund.
As of December 31, 1996, the principals of MLIP had no investment in
the Fund, and MLIP's general partnership interest was valued at $832,769.
MLIP acts as general partner to thirteen public futures funds whose
units of limited partnership interest are registered under the Securities
Exchange Act of 1934: The Futures Expansion Fund Limited Partnership, The
Growth and Guarantee Fund L.P., ML Futures Investments L.P., ML Futures
Investments II L.P. , The S.E.C.T.O.R. Strategy Fund L.P., The SECTOR Strategy
Fund II L.P., The SECTOR Strategy Fund IV L.P., The SECTOR Strategy Fund V
L.P., The SECTOR Strategy Fund VI L.P., ML Global Horizons L.P., ML Principal
Protection L.P. (formerly, ML Principal Protection Plus L.P.), ML JWH Strategic
Allocation Fund L.P. and the Fund. Because MLIP serves as the sole general
partner of each of these funds, the officers and directors of MLIP effectively
manage them as officers and directors of such funds.
(c) Identification of Certain Significant Employees:
-----------------------------------------------
None.
(d) Family Relationships:
--------------------
None.
(e) Business Experience:
-------------------
See Item 10(a)(b) above.
(f) Involvement in Certain Legal Proceedings:
----------------------------------------
None.
(g) Promoters and Control Persons:
-----------------------------
The General Partner is the sole promoter and controlling
person of the Partnership.
-17-
<PAGE>
ITEM 11: EXECUTIVE COMPENSATION
----------------------
The officers of the General Partner are remunerated in their
respective positions. The Partnership does not itself have any officers,
directors or employees. The Partnership pays Brokerage Commissions to an
affiliate of the General Partner and Administrative Fees to the General Partner.
The General Partner or its affiliates also may receive certain economic benefits
from holding the Fund's dollar Available Assets in offset accounts, as described
in Item 1(c) above. The directors and officers receive no "other compensation"
from the Partnership, and the directors receive no compensation for serving as
directors of the General Partner. There are no compensation plans or
arrangements relating to a change in control of either the Partnership or the
General Partner.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners:
-----------------------------------------------
As of December 31, 1996, no person or "group" is known to be or have
been the beneficial owner of more than five percent of the Units. All of the
Partnership's units of general partnership interest are owned by the General
Partner.
(b) Security Ownership of Management:
--------------------------------
As of December 31, 1996, each Trading Advisor owned 515 Series A
Units, 500 Series B Units and 1,439 Series C Units and the General Partner owned
780 Series A Units, 1,976 Series B Units and 1,439 Series C Units (unit-
equivalent general partnership interests) which was less than 3%, 2% and 3% of
the total Units outstanding, respectively.
(c) Changes in Control:
------------------
None.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
(a) Transactions with Management and Others:
---------------------------------------
The General Partner acts as administrative and trading manager of the
Fund. The General Partner provides all normal ongoing administrative functions
of the Partnership, such as accounting, legal and printing services. The
General Partner, which receives the Administrative Fees, pays all expenses
relating to such services.
(b) Certain Business Relationships:
------------------------------
MLF, an affiliate of the General Partner, acts as the
principal commodity broker for the Partnership.
In 1996 the Partnership paid: (i) Brokerage Commissions of $5,406,851
to the Commodity Broker, which included $1,828,360 in consulting fees paid by
the Commodity Broker to the Trading Advisors; and (ii) Administrative Fees of
$115,039 to MLIP. In addition, MLIP and its affiliates may have derived certain
economic benefits from maintaining a portion of the Fund's assets in "offset
accounts," as described under Item 1(c), "Narrative Description of Business --
Use of Proceeds and Interest Income -- Interest Earned on the Fund's U.S. Dollar
Available Assets" and Item 11, "Executive Compensation" herein.
See Item 1(c), "Narrative Description of Business -- Charges" and "--
Description of Current Changes" for a discussion of other business dealings
between MLIP affiliates and the Partnership.
(c) Indebtedness of Management:
--------------------------
The Partnership is prohibited from making any loans, to
management or otherwise.
-18-
<PAGE>
(d) Transactions with Promoters:
---------------------------
Not applicable.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a)1. Financial Statements: Page
--------------------- ----
Independent Auditors' Report 1
Statements of Financial Condition as of December 31,
1996 and 1995 2
For the years ended December 31, 1996, 1995 and 1994:
Statements of Operations 3
Statements of Changes in Partners' Capital 4
Notes to Financial Statements 5-14
(a)2. Financial Statement Schedules:
-----------------------------
Financial statement schedules not included in this Form 10-K have been
omitted for the reason that they are not required or are not applicable or that
equivalent information has been included in the financial statements or notes
thereto.
(a)3. Exhibits:
--------
The following exhibits are incorporated by reference or are filed
herewith to this Annual Report on Form 10-K:
Designation Description
- ----------- -----------
3.01(ii) Amended and Restated Limited Partnership Agreement of the
Partnership.
Exhibit 3.01(ii): Is incorporated herein by reference from Exhibit 3.01(ii)
- ---------------- contained in Amendment No. 1 (as Exhibit A) to the
Registration Statement (File No. 33-41373) filed on August
20, 1991, on Form S-1 under the Securities Act of 1933 (the
"Registrant's Registration Statement").
3.02(c) Amended and Restated Certificate of Limited Partnership of
the Partnership, dated July 27, 1995.
Exhibit 3.02(c): Is incorporated by reference from Exhibit 3.02(c) contained
- --------------- in the Registrant's report on Form 10-Q for the Quarter
Ended June 30, 1995.
10.01(o) Form of Advisory Agreement between the Partnership, Merrill
Lynch Investment Partners Inc., Merrill Lynch Futures Inc.
and each of John W. Henry & Company, Inc. and Millburn
Ridgefield Corporation.
Exhibit 10.01(o): Is incorporated by reference from Exhibit 10.01(o)
- ---------------- contained in the Registrant's report on Form 10-Q for the
Quarter Ended June 30, 1995.
-19-
<PAGE>
10.02(a) Form of Consulting Agreement between each trading
advisor, the Partnership and Merrill Lynch Futures Inc.
Exhibit 10.02(a): Is incorporated herein by reference from Exhibit 10.02(a)
- ---------------- contained in Amendment No. 1 to the Registration Statement
(File No. 33-30096) dated as of September 21, 1989, on Form
S-1 under the Securities Act of 1933.
10.03 Form of Customer Agreement between the Partnership and
Merrill Lynch Futures Inc.
Exhibit 10.03: Is incorporated herein by reference from Exhibit 10.03
- ------------- contained in the Registrant's Registration Statement.
10.06 Foreign Exchange Desk Service Agreement, dated July 1, 1993
among Merrill Lynch Investment Bank, Merrill Lynch
Investment Partners Inc., Merrill Lynch Futures Inc. and
the Fund.
Exhibit 10.06: Is filed herewith.
- -------------
10.07(a) Form of Advisor y and Consulti ng Agreem ent Amend ment
among Merrill Lynch Investm ent Partners Inc., each
Advisor, the Fund and Merrill Lynch Futures.
Exhibit 10.07(a): Is filed herewith.
- ----------------
10.07(b) Form of Amendment to the Customer Agreement among the
Partnership and MLF.
Exhibit 10.07(b) Is filed herewith.
- ----------------
13.01 1996 Annual Report and Independent Auditors' Report.
Exhibit 13.01: Is filed herewith.
- -------------
28.01 Prospectus of the Partnership dated September 29, 1989.
Exhibit 28.01: Is incorporated by reference as filed with the Securities
- ------------- and Exchange Commission pursuant to Rule 424 under the
Securities Act of 1933, as amended, on October 10, 1989.
28.02 Prospectus of the Partnership dated December 14, 1990.
Exhibit 28.02: Is incorporated by reference as filed with the Securities
and Exchange Commission pursuant to Rule 424 under the
Securities Act of 1933, as amended, on December 20, 1990.
28.03 Prospectus of the Partnership dated September 13, 1991.
Exhibit 28.03: Is incorporated by reference as filed with the Securities
- ------------- and Exchange Commission pursuant to Rule 424 under the
Securities Act of 1933, Registration Statement on
September 23, 1991.
(b) Report on Form 8-K:
------------------
No reports on Form 8-K were filed during the fourth quarter of 1996.
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/John R. Frawley, Jr.
-----------------------
John R. Frawley, Jr.
President, Chief Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed on October 20,1997 by the
following persons on behalf of the Registrant and in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- -------------------------------------------------- ----------------
<S> <C> <C>
/s/John R. Frawley, Jr. President and Chief Executive Officer and Director October 20, 1997
- -------------------------
John R. Frawley, Jr.
/s/Michael A. Karmelin Chief Financial Officer, Vice President October 20, 1997
- -------------------------
Michael A. Karmelin and Treasurer
/s/Jeffrey F. Chandor Senior Vice President and Director of Sales, October 20, 1997
- -------------------------
Jeffrey F. Chandor Marketing and Research, and Director
/s/Allen N. Jones Director October 20, 1997
- -------------------------
Allen N. Jones
</TABLE>
(Being the principal executive officer, the principal financial and accounting
officer and a majority of the directors of Merrill Lynch Investment Partners
Inc.)
MERRILL LYNCH INVESTMENT General Partner of Registrant October 20, 1997
PARTNERS INC.
By: /s/John R. Frawley, Jr.
-----------------------
John R. Frawley, Jr.
-21-
<PAGE>
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.
<PAGE>
JOHN W. HENRY & CO./MILLBURN L.P.
1996 FORM 10-K/A
INDEX TO EXHIBITS
-----------------
Exhibit
-------
Exhibit 10.06 Foreign Exchange Desk Service Agreement, dated July 1, 1993
among Merrill Lynch Investment Bank, Merrill Lynch Investment
Partners Inc., Merrill Lynch Futures Inc. and the Fund
Exhibit 10.07(a) Form of Advisory and Consulting Agreement Amendment by and
among Merrill Lynch Investment Partners Inc., each Advisor,
the Fund and Merrill Lynch Futures Inc.
Exhibit 10.07(b) Form of Amendment to the Customer Agreement among the
Partnership and MLF
Exhibit 13.01 1996 Annual Report and Independent Auditors' Report
Exhibit 13.01(a) 1996 ML JWH Financial and Metals Portfolio L.L.C. Annual
Report and Independent Auditors' Report
Exhibit 13.01(b) 1996 ML Millburn Global L.L.C. Annual Report and Independent
Auditors' Report
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
JOHN W. HENRY & CO./MILLBURN L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
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
================ ================
</TABLE>
See notes to financial statements.
- 2 -
<PAGE>
JOHN W. HENRY & CO./MILLBURN L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
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)
================ ================ ================
</TABLE>
See notes to financial statements.
- 3 -
<PAGE>
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
- --------------------------------------------------------------------------------
<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, 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
====== ======= ======= =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
General Partner
--------------------------------------
Series Series Series
A B C Total
-------- --------- --------- ------------
<S> <C> <C> <C> <C>
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
======== ========= ========= ============
</TABLE>
See notes to financial statements.
- 4 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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:
<TABLE>
<CAPTION>
Series A Series B
------------------------------------- --------------------------------------
1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
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)
========== ========== =========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Series C
------------------------------------------
1996 1995 1994
---------- --------- -----------
<S> <C> <C> <C>
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)
========== ========= ===========
</TABLE>
- 8 -
<PAGE>
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").
- 9 -
<PAGE>
Total revenues and fees with respect to such investments are set forth as
follows:
<TABLE>
<CAPTION>
Admin- Income
Total Brokerage istrative Profit from
Revenues Commissions Fees Shares Investment
--------------- --------------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
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
========== ========== ======= ========== ==========
</TABLE>
- 10 -
<PAGE>
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:
<TABLE>
<CAPTION>
Total Trading Results
---------------------------------------
1996 1995
----------------- -----------------
<S> <C> <C>
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
================== ==================
</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 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.
- 11 -
<PAGE>
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):
<TABLE>
<CAPTION>
1995
------------------------------------------------
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------- -------------------
<S> <C> <C>
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
================== ==================
</TABLE>
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):
<TABLE>
<CAPTION>
1995
------------------------------------------------
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------- ------------------
<S> <C> <C>
Exchange
Traded $317,647,209 $ 94,328,735
Non-Exchange
Traded 118,988,772 203,580,606
------------------ ------------------
$436,635,981 $297,909,341
================== ==================
</TABLE>
- 12 -
<PAGE>
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:
<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 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
================== ================== ================== ==================
</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 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 -
<PAGE>
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):
<TABLE>
<CAPTION>
1995
----------------------------------------
Gross Unrealized Net Unrealized
Profit Profit (Loss)
---------------- ----------------
<S> <C> <C>
Exchange Traded $3,112,617 $ 2,803,973
Non-Exchange Traded 1,175,189 (1,043,755)
---------------- ----------------
$4,287,806 $ 1,760,218
================ ================
</TABLE>
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.
- 14 -
<PAGE>
EXHIBIT 13.01(a)
ML JWH FINANCIAL AND
METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)
Financial Statements for the Period from
October 1, 1996 (Commencement of Operations)
to December 31, 1996 and Independent Auditors' Report
<PAGE>
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)
TABLE OF CONTENTS
- ------------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE PERIOD FROM
OCTOBER 1, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996:
Statement of Financial Condition 2
Statement of Income 3
Statement of Changes in Members' Capital 4
Notes to Financial Statements 5-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Members of
ML JWH Financial and Metals Portfolio L.L.C.:
We have audited the accompanying statement of financial condition of ML JWH
Financial and Metals Portfolio L.L.C. (a Delaware limited liability company; the
"Company") as of December 31, 1996, and the related statements of income and of
changes in members' capital for the period from October 1, 1996 (commencement of
operations) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of ML JWH Financial and Metals Portfolio L.L.C.
as of December 31, 1996, and the results of its operations for the period from
October 1, 1996 (commencement of operations) to December 31, 1996 in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
February 3, 1997
<PAGE>
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
ASSETS
- ------
Accrued interest (Note 2) $ 306,073
Equity in commodity futures trading accounts:
Cash and option premiums 79,820,720
Net unrealized gain on open contracts 698,571
----------
TOTAL $80,825,364
===========
LIABILITIES AND MEMBERS' CAPITAL
- --------------------------------
LIABILITIES:
Withdrawals payable $16,819,986
Profit shares payable (Note 3) 2,313,537
Brokerage commissions payable (Note 2) 697,868
Administrative fees payable (Note 2) 16,819
----------
Total liabilities 19,848,210
----------
MEMBERS' CAPITAL:
Voting Members 53,977,573
Non-voting Members 6,999,581
----------
Total Members' capital 60,977,154
----------
TOTAL $80,825,364
===========
See notes to financial statements.
-2-
<PAGE>
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)
STATEMENT OF INCOME
FOR THE PERIOD FROM OCTOBER 1, 1996
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
REVENUES:
Trading profit (loss):
Realized $17,860,411
Change in unrealized 698,571
-----------
Total trading results 18,558,982
Interest income (Note 2) 806,967
-----------
Total revenues 19,365,949
-----------
EXPENSES:
Profit shares (Note 3) 2,313,537
Brokerage commissions (Note 2) 2,063,021
Administrative fees (Note 2) 49,703
----------
Total expenses 4,426,261
----------
NET INCOME $14,939,688
============
See notes to financial statements.
-3-
<PAGE>
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FOR THE PERIOD FROM OCTOBER 1, 1996
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Voting Non-Voting
Members Members Total
Initial Contributions $ 56,790,791 $ 7,080,836 $ 63,871,627
Contributions 1,212,016 2,017 1,214,033
Withdrawals (17,295,297) (1,752,897) (19,048,194)
Net Income 13,270,063 1,669,625 14,939,688
------------ ----------- ------------
MEMBERS' CAPITAL,
DECEMBER 31, 1996 $ 53,977,573 $ 6,999,581 $ 60,977,154
============ =========== ============
See notes to financial statements.
-4-
<PAGE>
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 1, 1996
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
ML JWH Financial and Metals Portfolio L.L.C. (the "Company") was organized
under the Delaware Limited Liability Company Act on September 19, 1996 and
commenced trading activities on October 1, 1996. The Company engages in the
speculative trading of futures, options on futures and forward contracts on a
wide range of commodities. Merrill Lynch Investment Partners Inc. (formerly,
ML Futures Investment Partners Inc.) ("MLIP"), a wholly-owned subsidiary of
Merrill Lynch Group, Inc., which in turn is a wholly-owned subsidiary of
Merrill Lynch & Co., Inc. (one or more of Merrill Lynch & Co., Inc. and its
affiliates being hereinafter referred to as "Merrill Lynch"), has been
delegated administrative authority over the Company, and Merrill Lynch
Futures Inc. ("MLF"), also an affiliate of Merrill Lynch, is its commodity
broker. The Company has authorized two classes of Membership Interests:
Non-Voting Membership Capital Accounts and Voting Membership Capital Accounts
("Members"). These two classes of Membership Capital Accounts have common
economic interests in the Company, but the Non-Voting Membership Capital
Accounts, which are held by non-United States companies, shall not
participate in any respect in the management of the Company, or engage,
directly or indirectly, in the participation in or control of all or any
portion of the business activities or affairs of the Company, such management
being vested solely in the Voting Membership Capital Accounts, which are held
by United States limited partnerships. The Voting Members, acting as Members
without any "manager," mutually dominate and control all business activities
and affairs of the Company by agreement of the majority in interest of such
Members, subject to the trading authority vested in and delegated to JWH and
the administrative authority vested in and delegated to MLIP. The Members of
the Company, each of which is a "commodity pool" sponsored by MLIP, share in
the trading profit (loss) and interest income of the Company in proportion to
their respective capital accounts in it.
John W. Henry & Company, Inc. (the "Advisor" or "JWH") has been delegated
trading authority over the assets of the Company.
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 on futures, 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 Statement of Financial Condition at
the difference between the original contract amount and the fair value. The
-5-
<PAGE>
change in net unrealized profit (loss) on open contracts from one period to
the next is reflected in change in unrealized in the Statement of Income.
Fair value is based on quoted market prices on the exchange or market on
which the contract is traded.
Organization Costs
------------------
MLIP paid all organizational costs relating to the Company without direct
reimbursement from the Company or any Member. These organizational costs
should be indirectly reimbursed to Merrill Lynch as MLF's costs for executing
the Company's trades should, over time, be reduced by the Members
consolidating their respective JWH trading accounts in the Company.
Income Taxes
-------------
No provision for income taxes has been made in the accompanying financial
statements as each Member is individually responsible for reporting income or
loss based on such Member's respective share of the Company's income and
expenses as reported for income tax purposes.
Distributions
-------------
No distribution (except upon withdrawals) had been made by the Company to any
Member as of December 31, 1996.
Withdrawals
-----------
A Member may withdraw some or all of such Member's Capital at Net Asset Value
as of the close of business on any business day. There are no withdrawal
fees or charges.
Dissolution of the Company
--------------------------
The Company will terminate on September 30, 2046 or at an earlier date if
certain conditions occur, as well as under certain other circumstances as set
forth in the Organization Agreement. Were the Advisor to cease to manage the
Company's account, the Company would dissolve.
2. RELATED PARTY TRANSACTIONS
The Company's U.S. dollar-denominated assets are held at MLF in cash or
short-term Treasury bills. The Company receives all interest paid on such
Treasury bills. On the cash held at MLF, the Company receives interest from
Merrill Lynch at rates ranging from 0.50 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 Company, from possession of such
cash.
Merrill Lynch credits the Company with interest on the Company's non-U.S.
dollar-denominated available assets based on local short-term rates. Merrill
Lynch charges the Company Merrill Lynch's cost of financing realized and
unrealized losses on the Company's non-U.S. dollar-denominated positions.
Following the allocation of the Company's trading profit (loss) and interest
income among the Members' respective Capital Accounts, MLIP calculates the
brokerage commissions, profit shares, administrative fees and other expenses
due from the Company to third parties, in respect of the
Company's trading on behalf of the respective Members (the Company being
subject to different
-6-
<PAGE>
commissions, fees and expenses in respect of its trading as allocable to the
various different Members). Such commissions, fees and expenses are
specifically allocated as of the end of each accounting period (not pro rata
based on the Members' respective Capital Accounts) to, and deducted from, the
appropriate Members' Capital Accounts and paid out by the Company. The
Company pays brokerage commissions to MLF, at flat monthly rates reflecting
the fee arrangement between each Member and MLF. Such rates currently range
from .729 of 1% (an 8.75% annual rate) to .979 of 1% (an 11.75% annual rate)
of the Member's month-end assets. Month-end assets are not reduced for
purposes of calculating brokerage commissions and administrative fees by any
accrued brokerage commissions, administrative fees, profit shares or other
fees of charges.
The Company pays MLIP a monthly administrative fee of .021 of 1% (a .25%
annual rate) of each Member's month-end assets.
MLF pays the Advisor an annual consulting fee of 4% of the Company's average
month-end assets, after reduction for a portion of the brokerage commissions.
The Company 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 Company's currency transactions. 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 fee is 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 charge) 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 Company is not required to margin or otherwise guarantee its F/X
Desk trading.
Certain of the Company'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
("IMM"). In its EFP trading with Merrill Lynch, the Company acquires cash
currency positions through the F/X Desk in the same manner and on the same
terms as in the case of the Company's other F/X Desk trading. When the
Company 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 Company's F/X Desk service fee and EFP differential costs have, to date
totaled no more than .25 of 1% per annum of the Company's average month-end
Net Assets.
3. ADVISORY AGREEMENT
The Company and the Advisor have entered into an Advisory Agreement. This
Advisory Agreement terminates one year after it is entered into, subject to
certain renewal rights exercisable by the Company. The Advisor determines
the commodity futures and forward contact trades to be made on behalf of the
Company, subject to certain Company trading policies and to certain rights
reserved by MLIP.
-7-
<PAGE>
The Company pays to JWH a quarterly Profit Share equal to 15% of any New
Trading Profit, as defined, attributable to each Member's Capital Account in
the Company. Profit Shares, which are calculated separately in respect of
each Member's Capital Account, are determined as of the end of each calendar
quarter and shall also be paid to JWH upon the withdrawal of capital from the
Company by a Member for whatever purpose, other than to pay expenses.
4. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Company trades futures, options on futures and forward contracts on
interest rates, stock indices, commodities, currencies, and metals. The
Company's trading results by reporting category were as follows:
1996
Total Trading
Results
------------------
Interest Rates $10,439,465
Stock Indices (371,033)
Currencies 5,889,115
Metals 2,601,435
-----------------
$18,558,982
=================
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 underlying financial
instruments or commodities underlying such derivative instruments frequently
result in changes in the Company's unrealized profit (loss) on such
derivative instruments as reflected in the Statement of Financial Condition.
The Company's exposure to market risk is influenced by a number of factors,
including the relationships among the derivative instruments held by the
Company as well as the volatility and liquidity in the markets in which the
derivative instruments are traded.
MLIP, which monitors the trading of the Company in MLIP's capacity as the
General Partner of the Voting Members and Sponsor of the Non-Voting Members,
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 Advisor, calculating the Net
Asset Value of the Company and of the Members' respective Capital Accounts as
of the close of business on each day and reviewing outstanding positions for
over-concentrations. While MLIP will not itself intervene in the markets to
hedge or diversify the Company's market exposure, MLIP may consult with the
Advisor concerning the possibility of the Advisor reducing trading leverage
or market concentrations. However, such interventions are unusual. Except
in cases in which it appears that JWH has begun to deviate from past practice
and trading policies or to be trading erratically, MLIP's basic risk control
procedures consist simply of the ongoing process of monitoring JWH with the
market risk controls being applied by JWH.
Fair Value
The derivative instruments used in the Company's trading activities are
marked to market daily with the resulting unrealized profit (loss) recorded
in the Statement of Financial Condition and the related profit (loss)
reflected in trading revenues in the Statement of Income.
-8-
<PAGE>
The contract/notional values of open contracts as of December 31, 1996 were
as follows:
December 31, 1996
--------------------------------------
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------ ------------------
Interest Rates $171,304,600 $ 13,669,055
Currencies 119,088,247 96,734,685
Metals - 33,126,830
------------------- -------------------
$290,392,847 $143,530,570
=================== ===================
Substantially all of the Company's derivative instruments outstanding as of
December 31, 1996, expire within one year.
The contract/notional value of the Company's exchange-traded and non-exchange
traded open derivative instrument positions as of December 31, 1996 were as
follows:
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------ ------------------
Exchange Traded $171,304,600 $ 46,795,885
Non- Exchange Traded 119,088,247 96,734,685
------------------- -------------------
$290,392,847 $143,530,570
=================== ===================
The average fair value of the Company's derivative instruments positions
which were open as of the end of each calendar month during the period
October 1, 1996 through December 31, 1996 were as follows:
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------ ------------------
Interest Rates $591,299,377 $127,295,586
Currencies 297,652,663 275,733,802
Metals 14,845,327 75,877,301
----------------- -----------------
$903,797,367 $478,906,689
================= =================
A portion of the amounts indicated as off-balance sheet risk reflects
offsetting commitments to purchase and 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.
-9-
<PAGE>
Credit Risk
The risks associated with exchange-traded contracts are typically perceived
to be less than those associated with over-the-counter (non-exchange-traded)
transactions, because exchanges typically (but not universally) provide
clearinghouse arrangements in which the collective credit (in some cases
limited in amount, in some cases not) of the members of the exchange is
pledged to support the financial integrity of the exchange. In over-the-
counter transactions, on the other hand, traders must rely solely on the
credit of their respective individual counterparties. Margins, which may be
subject to loss in the event of a default, are generally required in exchange
trading, and counterparties may require margin in the over-the-counter
markets.
The fair value amounts in the above tables represent the extent of the
Company'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
Statement of Financial Condition. The Company also has credit risk because
the sole counterparty or broker with respect to most of the Company's assets
is MLF.
As of December 31, 1996 $42,525,678 of the Company's assets were held in
segregated accounts at MLF in accordance with Commodity Futures Trading
Commission regulations.
The gross unrealized profit and net unrealized profit on the
Company's open derivative instrument positions as of December 31, 1996 were
as follows:
Gross Unrealized Net Unrealized
Profit Profit
----------------- -------------------
Exchange Traded $ 873,657 $ 39,049
Non- Exchange Traded 1,962,810 659,522
----------------- -------------------
$2,836,467 $698,571
================= ===================
The Company controls credit risk by dealing almost exclusively with
Merrill Lynch entities as brokers and counterparties.
The Company, 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.
-10-
<PAGE>
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.
Commodity Pool Operator of
ML JWH Financial and Metals Portfolio L.L.C.
<PAGE>
EXHIBIT 13.01(b)
ML MILLBURN GLOBAL L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
Financial Statements for the Period from
December 2, 1996 (Commencement of Operations)
to December 31, 1996 and Independent Auditors' Report
<PAGE>
ML MILLBURN GLOBAL L.L.C..
(A Delaware Limited Liability Company)
TABLE OF CONTENTS
- --------------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE PERIOD FROM
DECEMBER 2, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996:
Statement of Financial Condition 2
Statement of Income 3
Statement of Changes in Members' Capital 4
Notes to Financial Statements 5-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Members of
ML Millburn Global L.L.C.:
We have audited the accompanying statement of financial condition of ML Millburn
Global L.L.C. (a Delaware limited liability company; the "Company") as of
December 31, 1996, and the related statements of income and of changes in
members' capital for the period from December 2, 1996 (commencement of
operations) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of ML Millburn Global L.L.C. as of December 31,
1996, and the results of its operations for the period from December 2, 1996
(commencement of operations) to December 31, 1996 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
New York, New York
February 3, 1997
<PAGE>
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Accrued interest (Note 2) $ 82,673
Equity in commodity futures trading accounts:
Cash and option premiums 27,521,635
Net unrealized profit on open contracts 916,519
--------------------
TOTAL $28,520,827
====================
LIABILITIES AND MEMBERS' CAPITAL
- --------------------------------
LIABILITIES:
Withdrawals payable $ 383,590
Brokerage commissions payable (Note 2) 270,878
Profit shares payable (Note 3) 135,593
Administrative fees payable (Note 2) 5,940
--------------------
Total liabilities 796,001
--------------------
MEMBERS' CAPITAL:
Voting Members 33,592,186
Receivable from member (5,867,360)
--------------------
Total Members' capital 27,724,826
--------------------
TOTAL $28,520,827
====================
See notes to financial statements.
</TABLE>
-2-
<PAGE>
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)
STATEMENT OF INCOME
FOR THE PERIOD FROM DECEMBER 2, 1996
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REVENUES:
Trading profit (loss):
<S> <C>
Realized $(548,574)
Change in unrealized 916,519
-----------------
Total trading results 367,945
Interest income (Note 2) 82,674
-----------------
Total revenues 450,619
-----------------
EXPENSES:
Brokerage commissions (Note 2) 270,878
Profit shares (Note 3) 14,552
Administrative fees (Note 2) 5,940
-----------------
Total expenses 291,370
-----------------
NET INCOME $ 159,249
=================
</TABLE>
See notes to financial statements.
-3-
<PAGE>
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)
STATEMENT OF CHANGES IN MEMBER'S CAPITAL
FOR THE PERIOD FROM DECEMBER 2, 1996
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Voting
Members
-----------------
<S> <C>
Initial Contributions $27,949,167
Contributions 5,867,360
Receivable from Member (5,867,360)
Withdrawals (383,590)
Net Income 159,249
-----------------
MEMBERS' CAPITAL,
DECEMBER 31, 1996 $27,724,826
=================
</TABLE>
See notes to financial statements.
-4-
<PAGE>
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM DECEMBER 2, 1996
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
ML Millburn Global L.L.C. (the "Company") was organized under the Delaware
Limited Liability Company Act on November 22, 1996 and commenced trading
activities on December 2, 1996. The Company engages in the speculative
trading of futures, options on futures and forward contracts on a wide range
of commodities. Merrill Lynch Investment Partners ("MLIP"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc., which in turn is a wholly-owned
subsidiary of Merrill Lynch & Co., Inc. (one or more of Merrill Lynch & Co.,
Inc. and its affiliates being hereinafter referred to as "Merrill Lynch"),
has been delegated administrative authority over the Company, and Merrill
Lynch Futures Inc. ("MLF"), also an affiliate of Merrill Lynch, is its
commodity broker. The Company has authorized two classes of Membership
Interests: Non-Voting Membership Capital Accounts and Voting Membership
Capital Accounts ("Members"). These two classes of Membership Capital
Accounts have common economic interests in the Company, but the Non-Voting
Membership Capital Accounts, which will be held by non-United States
companies, shall not participate in any respect in the management of the
Company, or engage, directly or indirectly, in the participation in or
control of all or any portion of the business activities or affairs of the
Company, such management being vested solely in the Voting Membership Capital
Accounts, which are held by United States limited partnerships. The Voting
Members, acting as Members without any "manager," mutually dominate and
control all business activities and affairs of the Company by agreement of
the majority in interest of such Members, subject to the trading authority
vested in and delegated to Millburn and the administrative authority vested
in and delegated to MLIP. The Members of the Company, each of which is a
"commodity pool" sponsored by MLIP, share in the trading profit (loss) and
interest income of the Company in proportion to their respective capital
accounts trading in it.
Millburn Ridgefield Corp. (the "Advisor" or "Millburn") has been delegated
trading authority over the assets of the Company.
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 on futures, 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 Statement of Financial Condition at
the difference between the original contract amount and the fair value. The
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change in net unrealized profit (loss) on open contracts from one period to
the next is reflected in change in unrealized in the Statement of Income.
Fair value is based on quoted market prices on the exchange or market on
which the contract is traded.
Organization Costs
------------------
MLIP paid all organizational costs relating to the Company without direct
reimbursement from the Company or any Member. These organizational costs
should be indirectly reimbursed to Merrill Lynch as MLF's costs for
executing the Company's trades should, over time, be reduced by the Members'
consolidating their respective Millburn trading accounts in the Company.
Income Taxes
------------
No provision for income taxes has been made in the accompanying financial
statements as each Member is individually responsible for reporting income or
loss based on such Member's respective share of the Company's income and
expenses as reported for income tax purposes.
Distributions
-------------
No Distribution (except upon withdrawals) had been made by the Company to any
Member as of December 31, 1996.
Withdrawals
-----------
A Member may withdraw some or all of such Member's capital at Net Asset Value
as of the close of business on any business day. There are no withdrawal
fees or charges.
Dissolution of the Company
--------------------------
The Company will terminate on December 31, 2046 or at an earlier date if
certain conditions occur, as well as under certain other circumstances as set
forth in the Organization Agreement. Were the Advisor to cease to manage the
Company's account, the Company would dissolve.
2. RELATED PARTY TRANSACTIONS
The Company's U.S. dollar-denominated assets are held at MLF in cash or
short-term Treasury bills. The Company receives all interest paid on such
Treasury bills. On the cash held at MLF, the Company receives interest from
Merrill Lynch at rates ranging from 0.50 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 Company, from possession of such
cash.
Merrill Lynch credits the Company with interest on the Company's non-U.S.
dollar-denominated available assets based on local short-term rates. Merrill
Lynch charges the Company Merrill Lynch's cost of financing realized and
unrealized losses on the Company's non-U.S. dollar-denominated positions.
Following the allocation of the Company's trading profit (loss) and interest
income among the Members' respective Capital Accounts, MLIP calculates the
brokerage commissions, profit shares, administrative fees and other expenses
due from the Company to third parties, in respect of the Company's trading on
behalf of the respective Members (the Company being subject to different
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commissions, fees and expenses in respect of its trading as allocable to the
various different Members). Such commissions, fees and expenses are
specifically allocated as of the end of each accounting period (not pro rata
based on the Members' respective Capital Accounts) to, and deducted from, the
appropriate Members' Capital Accounts and paid out by the Company. The
Company pays brokerage commissions to MLF, at flat monthly rates reflecting
the fee arrangement between each Member and MLF. Such rates currently range
from .729 of 1% (an 8.75% annual rate) to .979 of 1% (an 11.75% annual rate)
of the Member's month-end assets. Month-end assets are not reduced for
purposes of calculating brokerage commissions and administrative fees by any
accrued brokerage commissions, administrative fees, profit share or other
fees or charges.
The Company pays MLIP a monthly administrative fee of .021 of 1% (a .25%
annual rate) of each Member's month-end assets.
MLF pays the Advisor an annual consulting fee of 4% of the Company's average
month-end assets, after reduction for a portion of brokerage commission.
Beginning January 1, 1997 the consulting fee paid by MLF to the Advisor will
be reduced to 2% per annum.
The Company 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 Company's currency transactions. 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 fee is 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 charge) 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 Company is not required to margin or otherwise guarantee its F/X
Desk trading.
Certain of the Company'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
("IMM"). In its EFP trading with Merrill Lynch, the Company acquires cash
currency positions through the F/X Desk in the same manner and on the same
terms as in the case of the Company's other F/X Desk trading. When the
Company 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 Company's F/X Desk service fee and EFP differential costs have, to date
totaled no more than .25 of 1% per annum of the Company's average month-end
Net Assets.
3. ADVISORY AGREEMENT
The Company and the Advisor have entered into an Advisory Agreement. This
Advisory Agreement terminates one year after it is entered into, subject to
certain renewal rights exercisable by the Company. The Advisor determines
the commodity futures and forward contact trades to be made on behalf of the
Company, subject to certain Company trading policies and to certain rights
reserved by MLIP.
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The Company pays to Millburn a quarterly Profit Share equal to 20% of any New
Trading Profit, as defined, attributable to each Member's Capital Account in
the Company. Profit Shares, which are calculated separately in respect of
each Member's Capital Account, are determined as of the end of each calendar
quarter and shall also be paid to Millburn upon the withdrawal of capital
from the Company by a Member for whatever purpose, other than to pay
expenses.
4. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Company trades futures, options on futures and forward contracts on
interest rates, stock indices, currencies and metals. The Company's trading
results by reporting category were as follows:
1996
Total Trading Results
-------------------------
Interest Rates $ (968,118)
Stock Indices 265,546
Currencies 1,028,590
Metals 41,927
-------------------------
$ 367,945
=========================
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 underlying financial
instruments or commodities underlying such derivative instruments frequently
result in changes in the Company's unrealized profit (loss) on such
derivative instruments as reflected in the Statement of Financial Condition.
The Company's exposure to market risk is influenced by a number of factors,
including the relationships among the derivative instruments held by the
Company as well as the volatility and liquidity in the markets in which the
derivative instruments are traded.
MLIP, which monitors the trading of the Company in MLIP's capacity as the
General Partner of the Voting Members, 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 Advisor, calculating the Net Asset Value of the Company and of
the Members' respective Capital Accounts as of the close of business on each
day and reviewing outstanding positions for over-concentrations. While MLIP
will not itself intervene in the markets to hedge or diversify the Company's
market exposure, MLIP may consult with the Advisor concerning the possibility
of the Advisor reducing trading leverage or market concentrations. However,
such interventions are unusual. Except in cases in which it appears that the
Advisor has begun to deviate from past practice and trading policies or to be
trading erratically, MLIP's basic risk control procedures consist simply of
the ongoing process of monitoring the Millburn with the market risk controls
being applied by the Millburn.
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<PAGE>
Fair Value
The derivative instruments used in the Company's trading activities are
marked to market daily with the resulting unrealized profit (loss) recorded
in the Statement of Financial Condition and the related profit (loss)
reflected in trading revenues in the Statement of Income.
The contract/notional values of open contracts as of December 31, 1996 were
as follows:
December 31, 1996
-----------------------------------------------
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------ ------------------
Interest Rates $104,423,803 $ 26,267,954
Stock Indices 2,233,500 -
Currencies 140,452,466 244,633,536
Metals 6,379,654 12,694,954
------------------- -------------------
$253,489,423 $283,596,444
=================== ===================
A portion of the amounts indicated as off-balance sheet risk reflects
offsetting commitments to purchase and 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.
Substantially all of the Company's derivative instruments outstanding as of
December 31, 1996, expire within one year.
The contract/notional value of the Company's exchange-traded and non-exchange
traded open derivative instrument positions as of December 31, 1996 were as
follows:
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------ ------------------
Exchange Traded $111,666,188 $ 32,583,254
Non-Exchange Traded 141,823,235 251,013,190
------------------ --------------
$253,489,423 $283,596,444
=================== ===============
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The average fair value of the Company's derivative instruments positions
which were open as of the end of each calendar month during the period
December 2, 1996 through December 31, 1996 were as follows:
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------ ------------------
Interest Rates $104,423,803 $ 26,267,954
Stock Indices 2,233,500 -
Currencies 140,452,466 244,633,536
Metals 6,379,654 12,694,954
------------------- -------------------
$253,489,423 $283,596,444
=================== ===================
Credit Risk
The risks associated with exchange-traded contracts are typically perceived
to be less than those associated with over-the-counter (non-exchange-traded)
transactions, because exchanges typically (but not universally) provide
clearinghouse arrangements in which the collective credit (in some cases
limited in amount, in some cases not) of the members of the exchange is
pledged to support the financial integrity of the exchange. In over-the-
counter transactions, on the other hand, traders must rely solely on the
credit of their respective individual counterparties. Margins, which may be
subject to loss in the event of a default, are generally required in exchange
trading, and counterparties may require margin in the over-the-counter
markets.
The fair value amounts in the above tables represent the extent of the
Company'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
Statement of Financial Condition. The Company also has credit risk because
the sole counterparty or broker with respect to most of the Company's assets
is MLF.
As of December 31, 1996 $20,268,336 of the Company's assets were held in
segregated accounts at MLF in accordance with Commodity Futures Trading
Commission regulations.
The gross unrealized profit and net unrealized profit on the
Company's open derivative instrument positions as of December 31, 1996 were
as follows:
Gross Unrealized Net Unrealized
Profit Profit
------------------ --------------
Exchange Traded $ 507,869 $196,239
Non-Exchange Traded 2,584,134 720,280
----------------- -----------------
$3,092,003 $916,519
================= ==================
The Company controls credit risk by dealing almost exclusively with Merrill
Lynch entities as brokers and counterparties.
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The Company, 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.
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.
Commodity Pool Operator of
ML Millburn Global L.L.C.
