<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 0-18215
JOHN W. HENRY & CO./MILLBURN L.P.
---------------------------------
(Exact Name of Registrant as
specified in its charter)
Delaware 06-1287586
- ----------------------------------- -------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
c/o Merrill Lynch Investment Partners Inc.
Princeton Corporate Campus
800 Scudders Mill Road - Section 2G
Plainsboro, New Jersey 08536
----------------------------
(Address of principal executive offices)
(Zip Code)
609-282-6996
------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No_____
-----
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JOHN W. HENRY & CO./MILLBURN L.P.
(a Delaware limited partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
- ------
Investments $ 49,715,941 $ 56,163,313
Receivable from investments 659,700 259,704
------------- ------------
TOTAL $ 50,375,641 $ 56,423,017
============= ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Liability - Redemptions payable $ 659,700 $ 259,704
PARTNERS' CAPITAL:
General Partner:
(504 and 504 Series A Units) 145,854 149,246
(1,338 and 1,338 Series B Units) 314,671 321,921
(926 and 926 Series C Units) 169,725 173,635
Limited Partners:
(40,409 and 44,678 Series A Units) 11,694,200 13,230,285
(104,642 and 115,421 Series B Units) 24,611,330 27,771,959
(69,723 and 77,411 Series C Units) 12,780,161 14,516,267
------------- ------------
Total partners' capital 49,715,941 56,163,313
------------- ------------
Total $ 50,375,641 $ 56,423,017
============= ============
NET ASSET VALUE PER UNIT
Series A (Based on 40,913 and 45,182 Units outstanding) $ 289.40 $ 296.13
============= ============
Series B (Based on 105,980 and 116,759 Units outstanding) $ 235.20 $ 240.61
============= ============
Series C (Based on 70,649 and 78,337 Units outstanding) $ 183.30 $ 187.52
============= ============
</TABLE>
See notes to financial statements.
2
<PAGE>
JOHN W. HENRY & CO./MILLBURN L.P.
---------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Income (loss) from investments $ (5,273,759) $ 11,356,796 $ (1,134,309) $ 3,872,096
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (5,273,759) $ 11,356,796 $ (1,134,309) $ 3,872,096
============= ============= ============= =============
NET INCOME PER UNIT:
Weighted average number of units
outstanding 223,130 260,011 229,930 270,675
============= ============= ============= =============
Weighted average net income (loss)
per Limited Partner
and General Partner Unit $ (23.64) $ 43.68 $ (4.93) $ 14.31
============= ============= ============= =============
</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
------------------------------------------
For the nine months ended September 30, 1999 and 1998
-----------------------------------------------------
<TABLE>
<CAPTION>
Units Limited Partners General Partner
----- ---------------- ---------------
Series A Series B Series C Series A Series B Series C Series A Series B
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PARTNERS' CAPITAL,
December 31, 1997 51,772 137,220 92,459 $14,487,473 $31,223,304 $16,376,709 $ 221,605 $ 456,174
Redemptions (5,783) (15,088) (8,527) (1,430,084) (3,152,220) (1,334,901) (70,937) (133,279)
Net Income 857,532 1,954,367 1,043,951 3,516 9,666
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
PARTNERS, CAPITAL
September 30, 1998 45,989 122,132 83,932 $13,914,921 $30,025,451 $16,085,759 $ 154,184 $ 332,561
=========== =========== =========== =========== =========== =========== =========== ===========
PARTNERS' CAPITAL
December 31, 1998 45,182 116,759 78,337 $13,230,285 $27,771,959 $14,516,267 $ 149,246 $ 321,921
Redemptions (4,269) (10,779) (7,688) (1,271,117) (2,590,016) (1,451,929) - -
Net Income (Loss) (264,968) (570,613) (284,177) (3,392) (7,250)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
PARTNERS' CAPITAL
September 30, 1999 40,913 105,980 70,649 $11,694,200 $24,611,330 $12,780,161 $ 145,854 $ 314,671
=========== =========== =========== =========== =========== =========== =========== ===========
<CAPTION>
Series C Total
----------- -----------
<S> <C> <C>
PARTNERS' CAPITAL,
December 31, 1997 $ 258,899 $63,024,164
Redemptions (88,401) $(6,209,822)
Net Income 3,064 $ 3,872,096
----------- -----------
PARTNERS, CAPITAL
September 30, 1998 $ 173,562 $60,686,438
=========== ===========
PARTNERS' CAPITAL
December 31, 1998 $ 173,635 $56,163,313
Redemptions - $(5,313,062)
Net Income (Loss) (3,910) $(1,134,310)
----------- -----------
PARTNERS' CAPITAL
September 30, 1999 $ 169,725 $49,715,941
=========== ===========
</TABLE>
See notes to financial statements.
4
<PAGE>
JOHN W. HENRY & CO./MILLBURN L.P.
(A Delaware Limited Partnership)
------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to present fairly the
financial position of John W. Henry & Co./Millburn L.P. (the "Partnership"
or the "Fund") as of September 30, 1999, and the results of its operations
for the three and nine month periods ended September 30, 1999 and 1998.
However, the operating results for the interim periods may not be indicative
of the results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with general accepted accounting
principles have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the Partnership's Annual Report on Form 10-K filed with
the Securities and Exchange Commission for the year ended December 31, 1998
(the "Annual Report").
As of December 1, 1996, the Partnership invested all of its assets in
Trading LLCs. The Partnership was, thus, invested indirectly in the trading
of derivative instruments, but did not itself hold any derivative positions.
Consequently, no such positions subsequent to November 30, 1996 are
reflected in these financial statements.
2. INVESTMENTS
As of September 30, 1999, the Partnership had an investment in JWH LLC and
Millburn LLC of $24,313,894 and $25,402,047, respectively. For the period
ending December 31, 1998, the Partnership had an investment in JWH LLC and
Millburn LLC of $28,886,199 and $27,277,114, respectively.
5
<PAGE>
<TABLE>
<CAPTION>
For the three months
ended September 30, Total Brokerage Administrative Profit Income (Loss)
1999 Revenue Commissions Fees Shares from Investments
----------- ----------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Series A Units
JWH LLC $ (705,123) $ 154,110 $ 4,055 $ - $ (863,288)
Millburn LLC (359,813) 154,044 4,053 (104,309) (413,601)
----------- ----------- -------------- --------- -----------
Total $(1,064,936) $ 308,154 $ 8,108 $(104,309) $(1,276,889)
=========== =========== ============== ========= ===========
Series B Units
JWH LLC $(1,436,935) $ 313,367 $ 8,247 $ - $(1,758,549)
Millburn LLC (735,817) 315,850 8,312 (213,485) (846,494)
----------- ----------- -------------- --------- -----------
Total $(2,172,752) $ 629,217 $ 16,559 $(213,485) $(2,605,043)
=========== =========== ============== ========= ===========
Series C Units
JWH LLC $ (764,909) $ 167,926 $ 4,419 $ - $ (937,254)
Millburn LLC (395,565) 169,199 4,452 (114,643) (454,573)
----------- ----------- -------------- --------- -----------
Total $(1,160,474) $ 337,123 $ 8,871 $(114,643) $(1,391,827)
=========== =========== ============== ========= ===========
Total All Units
- ---------------
JWH LLC $(2,906,967) $ 635,401 $ 16,721 $ - $(3,559,091)
Millburn LLC (1,491,195) 639,093 16,817 (432,437) (1,714,668)
----------- ----------- -------------- --------- -----------
Total $(4,398,162) $ 1,274,494 $ 33,538 $(432,437) $(5,273,759)
=========== =========== ============== ========= ===========
<CAPTION>
For the three months
ended September 30, Total Brokerage Administrative Profit Income from
1998 Revenue Commissions Fees Shares Investments
----------- ----------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Series A Units
JWH LLC $ 2,126,981 $ 156,335 $ 4,113 $ 76,656 $ 1,889,877
Millburn LLC 955,648 150,918 3,972 83,363 717,395
----------- ----------- -------------- --------- -----------
Total $ 3,082,629 $ 307,253 $ 8,085 $ 160,019 $ 2,607,272
=========== =========== ============== ========= ===========
Series B Units
JWH LLC $ 4,661,405 $ 341,683 $ 8,994 $ 167,835 $ 4,142,893
Millburn LLC 2,120,792 332,509 8,750 184,031 1,595,502
----------- ----------- -------------- --------- -----------
Total $ 6,782,197 $ 674,192 $ 17,744 $ 351,866 $ 5,738,395
=========== =========== ============== ========= ===========
Series C Units
JWH LLC $ 2,444,577 $ 179,048 $ 4,711 $ 88,069 $ 2,172,749
Millburn LLC 1,113,759 174,230 4,585 96,564 838,380
----------- ----------- -------------- --------- -----------
Total $ 3,558,336 $ 353,278 $ 9,296 $ 184,633 $ 3,011,129
=========== =========== ============== ========= ===========
Total All Units
- ---------------
JWH LLC $ 9,232,963 $ 677,066 $ 17,818 $ 332,560 $ 8,205,519
Millburn LLC 4,190,199 657,657 17,307 363,958 3,151,277
----------- ----------- -------------- --------- -----------
Total $13,423,162 $ 1,334,723 $ 35,125 $ 696,518 $11,356,796
=========== =========== ============== ========= ===========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
For the nine months
ended September 30, Total Brokerage Administrative Profit Income (Loss)
1999 Revenue Commissions Fees Shares from Investments
------------ ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Series A Units
JWH LLC $ 26,364 $ 471,853 $ 12,416 $ - $ (457,905)
Millburn LLC 724,010 472,809 12,442 49,214 189,545
------------ ------------ -------------- ----------- --------------
Total $ 750,374 $ 944,662 $ 24,858 $ 49,214 $ (268,360)
============ ============ ============== =========== ==============
Series B Units
JWH LLC $ 24,543 $ 960,859 $ 25,288 $ - $ (961,604)
Millburn LLC 1,480,326 970,669 25,544 100,372 383,741
------------ ------------ -------------- ----------- --------------
Total $ 1,504,869 $ 1,931,528 $ 50,832 $ 100,372 $ (577,863)
============ ============ ============== =========== ==============
Series C Units
JWH LLC $ 30,209 $ 514,682 $ 13,543 $ - $ (498,016)
Millburn LLC 798,025 519,941 13,682 54,472 209,930
------------ ------------ -------------- ----------- --------------
Total $ 828,234 $ 1,034,624 $ 27,225 $ 54,472 $ (288,087)
============ ============ ============== =========== ==============
Total All Units
- ---------------
JWH LLC $ 81,116 $ 1,947,394 $ 51,247 $ - $ (1,917,525)
Millburn LLC 3,002,364 1,963,420 51,668 204,058 783,216
------------ ------------ -------------- ----------- --------------
Total $ 3,083,480 $ 3,910,814 $ 102,915 $ 204,058 $ (1,134,309)
============ ============ ============== =========== ==============
<CAPTION>
For the nine months
ended September 30, Total Brokerage Administrative Profit Income from
1998 Revenue Commissions Fees Shares Investments
------------ ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Series A Units
JWH LLC $ 1,119,717 $ 468,459 $ 12,329 $ 76,656 $ 562,273
Millburn LLC 871,014 476,219 12,532 83,488 298,775
------------ ------------ -------------- ----------- --------------
Total $ 1,990,731 $ 944,678 $ 24,861 $ 160,144 $ 861,048
============ ============ ============== =========== ==============
Series B Units
JWH LLC $ 2,490,689 $ 1,012,466 $ 26,644 $ 167,835 $ 1,283,744
Millburn LLC 1,929,195 1,037,422 27,300 184,184 680,289
------------ ------------ -------------- ----------- --------------
Total $ 4,419,884 $ 2,049,888 $ 53,944 $ 352,019 $ 1,964,033
============ ============ ============== =========== ==============
Series C Units
JWH LLC $ 1,313,497 $ 529,060 $ 13,923 $ 88,069 $ 682,445
Millburn LLC 1,017,684 542,023 14,263 96,828 364,570
------------ ------------ -------------- ----------- --------------
Total $ 2,331,181 $ 1,071,083 $ 28,186 $ 184,897 $ 1,047,015
============ ============ ============== =========== ==============
Total All Units
- ---------------
JWH LLC $ 4,923,903 $ 2,009,985 $ 52,896 $ 332,560 $ 2,528,462
Millburn LLC 3,817,893 2,055,664 54,095 364,500 1,343,634
------------ ------------ -------------- ----------- --------------
Total $ 8,741,796 $ 4,065,649 $ 106,991 $ 697,060 $ 3,872,096
============ ============ ============== =========== ==============
</TABLE>
7
<PAGE>
Condensed statements of financial condition and statements of operations for JWH
LLC and Millburn LLC are set forth as follows:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------------------------------ ------------------------------------------
JHW Millburn JHW Millburn
LLC LLC LLC LLC
-------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Assets $ 24,858,749 $ 26,137,386 $ 29,277,397 $ 27,815,000
==================== =================== =================== ====================
Liabilities $ 544,855 $ 735,339 $ 391,198 $ 537,886
Members' Capital 24,313,894 25,402,047 28,886,199 27,277,114
-------------------- ------------------- ------------------- --------------------
Total $ 24,858,749 $ 26,137,386 $ 29,277,397 $ 27,815,000
==================== =================== =================== ====================
</TABLE>
<TABLE>
<CAPTION>
JWH LLC
-------
For the nine
For the three months For the three months For the nine months
ended September 30, months ended ended September 30, ended September 30,
1999 September 30, 1998 1999 1998
-------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Revenues $ (2,906,967) $ 9,232,962 $ 81,115 $ 1,970,640
Expenses 652,124 1,027,442 1,998,642 3,361,340
-------------------- ------------------- ------------------- --------------------
Net Income (Loss) $ (3,559,091) $ 8,205,520 $ (1,917,527) $ (1,390,700)
==================== =================== =================== ====================
</TABLE>
<TABLE>
<CAPTION>
Millburn LLC
------------
For the three For the nine
For the three months months months For the nine months
ended September 30, ended September 30, ended September 30, ended September 30,
1999 1998 1999 1998
-------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Revenues $ (1,491,195) $ 4,190,198 $ 3,002,365 $ 3,786,031
Expenses 223,475 1,038,922 2,219,147 2,583,807
-------------------- ------------------- ------------------- --------------------
Net Income $ (1,714,670) $ 3,151,276 $ 783,218 $ 1,202,224
==================== =================== =================== ====================
</TABLE>
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (the "Statement"), effective for fiscal
years beginning after June 15, 2000, however, the Fund has adopted the
Statement effective January 1, 1999. This Statement supercedes SFAS No. 119
("Discloure about Derivative Financial Instruments and air Value of
Financial Instruments") ans SFAS No. 105 ("Disclosure of information about
Financial Instruments with Off-Balance Sheet Risk and Financial Instruments
with Concentrations of Credit Risk") whereby disclosure of average
aggregate fair values and contract/notional values, respectively, of
derivative financial instruments is no longer required for an entity such
as the Partnership which carries its assets at fair value. Such Statement
sets forth a much broader definition of a derivative instrument. The
General Partner does not believe that the application of the provisions of
such statement has a significant effect on the financial statements.
SFAS No. 133 defines a derivative as a financial instrument or other
contract that has all three of the following characteristics (1) one or
more underlyings, notional amounts or payment provisions (2) requires no
initial net investment or a smaller initial net investment than would be
required relative to
8
<PAGE>
changes in market factors (3) terms require or permit net settlement. Generally,
derivatives include a future, forward, swap or option contract, or other
financial instrument with similar characteristics such as caps, floors and
collars.
Market Risk
- -----------
Derivative instruments involve varying degrees of off-balance sheet market risk,
and changes in the level or volatility of interest rates, foreign currency
exchange rates or the market values of the financial instruments or commodities
underlying such derivative instruments frequently result in changes in the
Partnership's unrealized profit (loss) on such derivative instruments as would
have been reflected in the Statements of Financial Condition had the Partnership
not invested all of its assets in the Trading LLCs. The Partnership's exposure
to market risk is influenced by a number of factors, including the relationships
among the derivative instruments held directly or indirectly by the Partnership
as well as the volatility and liquidity of the markets in which such derivative
instruments are traded.
The General Partner has procedures in place intended to control market risk
exposure, although there can be no assurance that they will, in fact, succeed
in doing so. These procedures focus primarily on monitoring the trading of
the 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 does
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. 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 (which has not
occurred to date), 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.
Credit Risk
- -----------
The risks associated with exchange-traded contracts are typically perceived to
be less than those associated with over-the-counter (non-exchange-traded)
transactions, because exchanges typically (but not universally) provide
clearinghouse arrangements in which the collective credit (in some cases
limited in amount, in some cases not) of the members of the exchange is
pledged to support the financial integrity of the exchange. In over-the-
counter transactions, on the other hand, traders must rely solely on the
credit of their respective individual counterparties. Margins, which may be
subject to loss in the event of a default, are generally required in exchange
trading, and counterparties may also require margin in the over-the-counter
markets.
The Partnership has credit risk in respect of its counterparties and brokers,
but attempts to control this risk by dealing almost exclusively with Merrill
Lynch entities as counterparties and brokers.
9
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
MONTH-END NET ASSET VALUE PER SERIES A UNIT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Jan. Feb. Mar. Apr. May Jun Jul. Aug. Sep.
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $281.00 $268.85 $270.14 $248.62 $257.02 $249.67 $238.22 $270.01 $305.92
- -----------------------------------------------------------------------------------------------------------
1999 $287.86 $291.22 $288.12 $297.02 $303.11 $319.42 $310.07 $302.24 $289.40
- -----------------------------------------------------------------------------------------------------------
</TABLE>
MONTH-END NET ASSET VALUE PER SERIES B UNIT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep.
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $228.36 $218.48 $219.55 $202.07 $208.90 $202.93 $193.60 $219.40 $248.57
- ----------------------------------------------------------------------------------------------------------
1999 $233.92 $236.65 $234.15 $241.40 $246.31 $259.56 $251.96 $245.60 $235.20
- ----------------------------------------------------------------------------------------------------------
</TABLE>
MONTH-END NET ASSET VALUE PER SERIES C UNIT
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep.
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $177.97 $170.27 $171.11 $157.48 $162.80 $158.15 $150.88 $170.99 $193.72
- -----------------------------------------------------------------------------------------------------------
1999 $182.30 $184.43 $182.48 $188.13 $191.96 $202.28 $196.36 $191.41 $183.30
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Performance Summary
January 1, 1998 to September 30, 1998
- -------------------------------------
January 1, 1998 to March 31, 1998
The Fund's positions in the global interest rate markets were profitable during
the quarter. In Europe, an extended bond market rally continued despite an
environment of robust growth in the United States, Canada and the United
Kingdom, as well as a strong pick-up in growth in continental Europe.
Gold prices drifted sideways and lower as Asian demand continued to slow and
demand in the Middle East was affected by low oil prices. Initially buoyed on
concerns about a U.S.-led military strike against Iraq, crude oil fell to a nine
year low, as the globally warm winter, the return of Iraq as a producer and the
Asian economic crisis added to OPEC's supply glut problems.
Trading results in stock index markets were mixed, but profitable, despite a
strong first-quarter performance by the U.S. equity market as several
consecutive weekly gains were recorded with most market averages setting new
highs. Results in currency trading were also mixed, but profitable. In
particular, the Swiss franc weakened versus the U.S. dollar.
Agricultural commodity markets provided profitable trading results overall.
Live cattle and hog prices trended downward throughout the quarter. Cotton
prices moved mostly upward during the quarter, but prices dropped off sharply at
the end of March.
April 1, 1998 to June 30, 1998
The Fund's most profitable positions during the quarter were in the global
interest rate markets. In Europe, an extended bond market rally continued
despite an environment of robust growth in the United States, Canada and the
United Kingdom, as well as a strong pick-up in growth in continental Europe.
Gold prices drifted sideways and lower as Asian demand continued to slow and
demand in the Middle East was affected by low oil prices. Trading results in
stock index markets were mixed, but unprofitable, despite a strong first-quarter
performance by the U.S. equity market as several consecutive weekly gains were
recorded with most market averages setting new highs. Results in currency
trading were also mixed, but unprofitable. In particular, the Swiss franc
weakened versus the U.S. dollar.
July 1, 1998 to September 30, 1998
Fund performance in July was essentially flat. In August and continuing into
September, financial markets in general were characterized by a flight to
quality that resulted from uncertainty over Russia's solvency, continued
weakness in Asia, and concerns that recessionary conditions would spread to the
United States and Europe. These factors, combined with generally less liquid
market conditions, led to a marked widening in bond credit spreads and a broad
sell-off in world-wide equity markets. Managed
10
<PAGE>
futures funds exhibited strong non-correlation to world markets in August and
again in September, generating significant profits on the long side of interest
rates and the short side of the commodity markets.
Interest rate trading was particularly profitable during the quarter. The
growth rate of the world bond market declined to its lowest level since 1987 at
7.7%, down 4.0% from the last peak in 1993. Global investors poured funds into
such instruments as U.S. Treasury issues and German Bunds, staging a major
flight to quality. As a result, there was a significant widening of credit
spreads on a global basis. Global fund managers also increased their already-
overweight exposure to U.S. Treasuries to a record high. The impact of these
events was that in September, the yield on the Japanese 5-year bond fell to
.67%, an all-time low, German 10-year Bunds fell to 3.89%, representing almost a
100-year low, and the 30-year bond in the U.S. dropped to its lowest level on
record.
As U.S. equity markets declined in July and August, the Fund profited from its
short positions in the stock index market, most notably during August, when the
S&P 500(R) dropped 14.5%. Volatility in September made for a difficult trading
environment, and the Fund incurred modest losses in the stock index sector
during September, but remained profitable for the quarter overall in these
markets.
In the metals markets, gold prices attempted to move higher against a backdrop
of volatility in major equity markets, increasing concerns about emerging
markets, economic chaos in Russia, weakness in the U.S. dollar, and increasing
worries about global economic conditions. However, gold was unable to extend
rallies and build any significant upside momentum resulting in a trendless
environment.
The Fund incurred losses from its currency trading during the quarter. In the
currency markets, Japan's problems spread to other sectors of the global
economy, causing commodities prices to decline as demand from the Asian
economies weakened, in turn putting pressure on Canada's commodity-sensitive
currency. In Germany, the federal election resulted in a shift to the left, as
Chancellor Helmut Kohl, after sixteen years in office, lost to Gerhard Schroder.
Surprisingly, this promoted a continued strengthening of the Deutsche mark
versus the U.S. dollar.
January 1, 1999 to September 30, 1999
- -------------------------------------
January 1, 1999 to March 31, 1999
The Fund produced gains in currency trading during the quarter. On a trade-
weighted basis, the Swiss franc ended the quarter at close to a seven-month low,
mostly as a result of the stronger U.S. dollar. In January, the yen had advanced
by nearly 35% against the dollar since early in August, and the Bank of Japan
lowered rates to keep the economy sufficiently liquid so as to allow fiscal
spending to restore some growth to the economy and to drive down the surging
yen.
Stock index trading was also profitable. Also of note, the Dow Jones Industrial
Average closed above the 10,000 mark for the first time ever at the end of
March, setting a record for the index.
Interest rate trading proved unprofitable for the Fund. Early in January, the
yield on the Japanese government 10-year bond increased to 1.8%, sharply above
the record low of 0.695% it reached on October 7, 1998. This was triggered by
the Japanese Trust Fund Bureau's decision to absorb a smaller share of future
issues, leaving the burden of financing future budget deficits to the private
sector.
In January, burdensome warehouse stocks and questionable demand prospects
weighed on base metals as aluminum fell to a 5-year low and copper fell to
nearly an 11-year low. Major surpluses in both metals were expected, keeping
prices down, and there was no supply side response to weak demand and lower
prices. However, the end of March showed copper and aluminum leading a surge in
base metals as prices recovered from multi-year lows. In precious metals, gold
failed to sustain a rally, and gold's role as a flight to safety vehicle has
clearly been greatly diminished as has its role as a monetary asset.
April 1, 1999 to June 30, 1999
During the second quarter of 1999, the Fund's NAV increased as the Fund profited
from trading in the interest rate, metals, stock indices and currencies markets.
Interest rate trading was profitable as the flight to quality in the bond market
reversed during the first half of 1999 and concerns about higher interest rates
in the U.S. continued to rattle the financial markets.
In the metals sector there were also gains. Throughout the first half of 1999,
gold prices were in a state of gradual erosion and in early June, prices hit
their lowest levels in over 20 years. Gold continued to show a lack of response
to political and military events such as Kosovo and also lost much of its role
as a monetary asset and flight to safety vehicle. The economic scenario for
Asia, Brazil, emerging market nations and Europe helped keep copper and other
base metals on the defensive as demand receded with virtually no supply side
response.
11
<PAGE>
Stock Index trading also resulted in gains overall for the quarter, as equity
markets rallied worldwide in April and June.
Currency trading also resulted in gains for the Fund. After suffering under the
weight of lower commodity prices and the Asian recession, the Canadian dollar
underwent a significant rally in the first half of 1999, moving up about 3 cents
from the end of 1998. It has been in a corrective mode since early May, but
unlike past years has retained much of its gain.
July 1, 1999 to September 30, 1999
During the third quarter of 1999, the Fund's NAV decreased. Trading in the
interest rate, stock index, metals and currencies markets all resulted in
losses.
Interest rate trading was unprofitable for the third quarter. Eurodollar trading
generated losses amidst speculation of the probability of a tightening bias by
the US Federal Reserve. Eurodollar contracts gave up much of the gains that they
enjoyed following the Federal Open Market Committee's adoption of a neutral
bias.
The Fund suffered losses in stock index positions as trading throughout the
quarter was volatile. Though the S&P finished the third quarter by breaking its
post-October 1998 highs, stock index trading was mixed due to significant
volatility globally.
Trading in the metals markets was also unprofitable for the Fund. A major
statement from the President of the European Central Bank sent gold prices
sharply higher in late September. A key part of the statement was the fact that
the banks have agreed not to expand their gold lending. This initiated the first
bullish bias in years. Aluminum prices also traded higher even despite a 5-year
low in early March, managing to gain nearly 25 percent this year. Steady
Japanese consumer buying and the strength in the yen versus the dollar have
played a part in this.
Currency trading resulted in losses for the quarter as well. The Bank of Japan
refused to ease monetary policy which caused the yen to reach a two-year high
during the quarter. The most positive sign in Japan was that, for the second
quarter in a row, domestic consumption exceeded that of the year ago quarter.
YEAR 2000 COMPLIANCE
As the Year 2000 approaches, Merrill Lynch has undertaken initiatives to address
the Year 2000 problem (the "Y2K problem"), as more fully described in the 1998
Annual Report. The failure of Merrill Lynch's technology systems relating to a
Y2K problem would likely have a material adverse effect on the company's
business, results of operations, and financial condition. This effect could
include disruption of normal business transactions, such as the settlement,
execution, processing, and recording of trades in securities, commodities,
currencies, and other assets. The Y2K problem could also increase Merrill
Lynch's exposure to risk and legal liability and its need for liquidity.
The renovation phase of Merrill Lynch's Year 2000 system efforts, as described
in the 1998 Annual Report, was 100% completed as of June 30, 1999, and
production testing was 100% completed as of that date. In March and April 1999,
Merrill Lynch successfully participated in U.S. industrywide testing sponsored
by the Securities Industry Association. These tests involved an expanded number
of firms, transactions, and conditions compared with those previously conducted.
Merrill Lynch has participated in and continues to participate in numerous
industry tests throughout the world.
12
<PAGE>
Merrill Lynch's business units have developed and tested contingency plans. The
plans identify critical processes, potential Y2K problems, and personnel,
processes, and available resources needed to maintain operations. However, the
failure of exchanges, clearing organizations, vendors, service providers,
clients and counterparties, regulators, or others to resolve their own
processing issues in a timely manner could have a material adverse effect on
Merrill Lynch's business, results of operations, and financial condition.
In light of the interdependency of the parties in or serving the financial
markets, there can be no assurance that all Y2K problems and contingency
planning will be identified and remedied on a timely basis or that all
remediation will be successful. Public uncertainty regarding successful
remediation of the Y2K problem may cause a reduction in activity in the
financial markets. This could result in reduced liquidity as well as increased
volatility. Disruption or suspension of activity in the world's financial
markets is also possible. In some non-U.S. markets in which Merrill Lynch does
business, the level of awareness and remediation efforts relating to the Y2K
problem are thought to be less advanced than in the U.S. Management is unable at
this point to ascertain whether all significant third parties will successfully
address the Y2K problem. Merrill Lynch will continue to monitor third parties'
Year 2000 readiness to determine if additional or alternative measures are
necessary. Merrill Lynch's year-end balance sheet levels will depend on Y2K
risks and many other factors, including business opportunities and customer
demand.
As of September 24, 1999, the total estimated expenditures of existing and
incremental resources for the Year 2000 compliance initiative was approximately
$520 million. This estimate includes $104 million of occupancy, communications,
and other related overhead expenditures, as Merrill Lynch is applying a fully
costed pricing methodology for this project. Of the total estimated
expenditures, approximately $40 million, related to continued testing,
contingency planning, and risk management. There can be no assurance that the
costs associated with such efforts will not exceed those currently anticipated
by Merrill Lynch, or that the possible failure of such efforts will not have a
material adverse effect on Merrill Lynch's business, results of operations, or
financial condition.
13
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following table indicates the trading Value at Risk associated with the
Fund's open positions by market category as of September 30, 1999 and December
31, 1998, and the average of the three and nine month periods ending September
30, 1999. As of September 30, 1999 and December 31, 1998, the Fund's total
capitalization was approximately $50 million and $56 million, all of which was
allocated to trading.
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------------------------- -------------------------------------
% OF TOTAL % OF TOTAL
MARKET SECTOR VALUE AT RISK CAPITALIZATION VALUE AT RISK CAPITALIZATION
- ------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Interest Rates $ 2,168,845 4.36% $ 3,110,066 5.54%
Currencies 2,187,944 4.40% 1,822,438 3.25%
Stock Indices 440,776 0.89% 558,504 0.99%
Metals 932,200 1.88% 459,900 0.82%
------------- -------------- ------------- --------------
$ 5,729,765 11.53% $ 5,950,908 10.60%
============= ============== ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Average month-end Average month-end
For the Period For the Period
July 1999 through September 1999 January 1999 through September 1999
------------------------------------- -------------------------------------
% OF TOTAL % OF TOTAL
MARKET SECTOR VALUE AT RISK CAPITALIZATION VALUE AT RISK CAPITALIZATION
- ------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Interest Rates $ 1,879,103 3.59% $ 2,391,081 4.46%
Currencies 2,186,229 4.18% 2,247,567 4.19%
Stock Indices 497,911 0.95% 704,383 1.32%
Metals 718,567 1.37% 714,194 1.33%
------------- -------------- ------------- --------------
$ 5,281,810 10.09% $ 6,057,225 11.30%
============= ============== ============= ==============
</TABLE>
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending legal proceedings to which the Partnership or the
General Partner is a party.
Item 2. Changes in Securities and Use of Proceeds
(a) None.
(b) None.
(c) None.
(d) None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
--------
There are no exhibits required to be filed as part of this report.
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed during the first nine months of
fiscal 1999.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHN W. HENRY & CO./MILLBURN L.P.
By: MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
Date: November 12, 1999 By /s/ JOHN R. FRAWLEY J.R.
------------------------------------
John R. Frawley, Jr.
Chairman, Chief Executive Officer,
President and Director
Date: November 12, 1999 By /s/ MICHAEL L. PUNGELLO
------------------------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 0 0
<RECEIVABLES> 50,375,641 56,423,017
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 50,375,641 56,423,017
<SHORT-TERM> 0 0
<PAYABLES> 659,700 259,704
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 49,715,941 56,163,313
<TOTAL-LIABILITY-AND-EQUITY> 50,375,641 56,423,017
<TRADING-REVENUE> 0 0
<INTEREST-DIVIDENDS> 0 0
<COMMISSIONS> 0 0
<INVESTMENT-BANKING-REVENUES> (1,134,309) 3,872,096
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> (1,134,309) 3,872,096
<INCOME-PRE-EXTRAORDINARY> (1,134,309) 3,872,096
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,134,309) 3,872,096
<EPS-BASIC> (4.93) 14.31
<EPS-DILUTED> (4.93) 14.31
</TABLE>
