<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(x) Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 1998
or
( ) 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
(State or 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, New York, NY 10080
---------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 236-5662
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited Partnership
Units
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
---- ----
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 and non-voting common equity held by
non-affiliates of the registrant: the registrant is a limited partnership; as of
February 1, 1999, limited partnership units with an aggregate value of
$53,122,166 were outstanding and held by non-affiliates.
Documents Incorporated by Reference
The registrant's "1998 Annual Report and Independent Auditors' Report," the
annual report to security holders for the fiscal year ended December 31, 1998,
is incorporated by reference into Part II, Item 8 and Part IV hereof and filed
as an Exhibit herewith.
<PAGE>
JOHN W. HENRY & CO./MILLBURN L.P.
ANNUAL REPORT FOR 1998 ON FORM 10-K
Table of Contents
-----------------
<TABLE>
PART I PAGE
------
<S> <C> <C>
Item 1. Business...................................................................................... 1
Item 2. Properties.................................................................................... 5
Item 3. Legal Proceedings............................................................................. 6
Item 4. Submission of Matters to a Vote of Security Holders........................................... 6
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................... 6
Item 6. Selected Financial Data....................................................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................... 19
Item 8. Financial Statements and Supplementary Data................................................... 25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 25
PART III
--------
Item 10. Directors and Executive Officers of the Registrant............................................ 26
Item 11. Executive Compensation........................................................................ 28
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 28
Item 13. Certain Relationships and Related Transactions................................................ 29
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 30
</TABLE>
<PAGE>
PART I
Item 1: Business
--------
(a) General Development of Business:
-------------------------------
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 the Partnership's 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 second public offering of Series B Units of limited
partnership (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 third public offering of Series C Units of limited partnership (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 Fund's objective is
achieving, through speculative trading, substantial capital appreciation over
time.
The proceeds of each of the three series of Units were each
initially allocated equally among the Partnership's two trading advisors -- John
W. Henry & Company, Inc. ("JWH") and Millburn Ridgefield Corporation
("Millburn") (collectively, the "Trading Advisors" or the "Advisors").
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").
JWH and Millburn (each an "Advisor", together, "Advisors")
have been the Partnership's only trading advisors since inception. Each Advisor
was allocated 50% of the total assets of each Series as of the date such Series
began trading. Subsequently, these allocations have varied over time, but have
been periodically rebalanced to 50%/50%. All series have the same percentage
allocation of assets between the Advisors. As of December 31, 1998, 51% of the
capital of each Series of units was allocted to JWH and 49% was allocated to
Millburn. As of December 1, 1996, the Partnership placed all of its assets under
the management of the Advisors through investing in two private limited
liability companies ("Trading LLCs" or "LLCs") sponsored by MLIP each one of
which was traded by one of the Advisors. Investing assets in the Trading LLCs
rather than trading directly did not change the operation or fee structure of
the Partnership. The administrative authority over the Partnership remains with
MLIP.
As of December 31, 1998, the aggregate capitalization of the
Fund was $56,163,313, the total capitalization of the Series A, Series B and
Series C Units was $13,379,531, $28,093,880 and $14,689,902, 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 $296.13 (excluding a $20 per Series A Unit distribution paid as of
November 30, 1990), $240.61 and $187.52, respectively.
The highest month-end Net Asset Value per Series A Unit
through December 31, 1998 was $305.92 (September, 1998) and the lowest
$100.31(May, 1990); the highest month-end Net Asset Value per Series B Unit
through December 31, 1998 was $248.57 (September, 1998) and the lowest $91.20
(May, 1992); the highest month-end Net Asset Value per Series C Unit through
December 31, 1998 was $193.72 (September, 1998) and the lowest $75.87 (May,
1992).
1
<PAGE>
(b) Financial Information about Segments:
------------------------------------
The Partnership's business constitutes only one segment for
financial reporting purposes, i.e., a speculative "commodity pool." The
Partnership does not engage in sales of goods or services.
(c) Narrative Description of Business:
---------------------------------
General
The Fund trades (currently through its investment in Trading
LLCs) in the international futures, options on futures and forward markets with
the objective of achieving substantial capital appreciation.
The Partnership has entered into advisory agreements with each
Trading Advisor (the "Advisory Agreement"). JWH trades 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
trades 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. Commodity pool performance 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
Market Sectors. Under the direction of the two Advisors, the
--------------
Partnership trades a portfolio which is concentrated in the financial, currency
and metals markets. The limited focus of the Fund's trading increases volatility
and market risk.
Market Types. The Fund trades on a variety of United States
------------
and foreign futures exchanges. Substantially all of the Fund's off-exchange
trading takes place in the highly liquid, institutionally-based currency forward
markets.
Many of the Partnership's currency trades are executed in the
spot and forward foreign exchange markets (the "FX Markets") where there are no
direct execution costs. Instead, the participants, banks and dealers, including
Merrill Lynch International Bank ("MLIB"), in the FX Markets take a "spread"
between the prices at which they are prepared to buy and sell a particular
currency and such spreads are built into the pricing of the spot or forward
contracts with the Partnership. The General Partner anticipates that some of the
Partnership's foreign currency trades will be executed through MLIB, an
affiliate of the General Partner. MLIB has discontinued the operation of the
foreign exchange service desk, which included seeking multiple quotes from
counterparties unrelated to MLIB for a service fee and trade execution.
In its exchange of futures for physical ("EFP") trading, the
Partnership acquires cash currency positions through banks and dealers,
including Merrill Lynch. The Partnership pays a spread when it exchanges these
positions for futures. This spread reflects, in part, the different settlement
dates of the cash and the futures contracts,
2
<PAGE>
as well as prevailing interest rates, but also includes a pricing spread in
favor of the banks and dealers, which may include a Merrill Lynch entity.
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.
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 which markets the Fund may trade or as to how 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 customer accounts at Merrill Lynch.
Interest paid by Merrill Lynch on the Fund's U.S. Dollar and
------------------------------------------------------------
Non U.S. Dollar Assets. The Fund's U.S. dollar assets are maintained at MLF. On
- ----------------------
assets held in U.S. dollars, Merrill Lynch credits the Fund with interest at the
prevailing 91-day U.S. Treasury bill rate. The Fund is credited with interest on
any of its net gains actually held by Merrill Lynch in non-U.S. dollar
currencies at a prevailing local rate received by Merrill Lynch. Merrill Lynch
may derive certain economic benefit, in excess of the interest which Merrill
Lynch pays to the Fund, from possession of such assets.
Merrill Lynch charges the Fund Merrill Lynch's cost of
financing realized and unrealized losses on the Fund's non-U.S.
dollar-denominated positions.
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.
During 1998 and 1997, all of the Fund's assets were invested
in the two Trading LLCs mentioned above. Therefore, no direct charges were
incurred by the Fund during these two years. The following table summarizes the
charges incurred by the Fund during 1996.
1996
--------------------------------
Cost % of Average
Dollar Month-End
Amount Net Assets
- ---------------------------------------------------------
Brokerage $ 5,406,851 9.67%
Commissions
Administrative Fees 115,039 0.21
Profit Shares 97,468 0.17
===============================
Total $ 5,619,358 10.05%
===============================
----------------------------
The foregoing table does not reflect the bid-ask spreads paid
by the Fund on its forward trading, or the benefits which may be derived by
Merrill Lynch from the deposit of certain of the Fund's U.S. dollar available
assets in offset accounts. See Item 1(c), "Narrative Description of Business --
Use of Proceeds and Interest Income."
3
<PAGE>
The Fund's average month-end Net Assets during 1998, 1997 and
1996 equaled $56,223,504, $62,234,507, and $55,910,847, respectively.
During 1998 and 1997, all of the Fund's assets were invested
in the two Trading LLCs mentioned above. Therefore, no direct interest was
earned by the Fund during these two years. In 1996, the Fund earned $0, $0 and
$1,842,887 in interest income, or approximately 0%, 0%, and 3.30% of the Fund's
average month-end Net Assets.
Prior to January 1, 1996, 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). Effective
February 1, 1997, the Partnership's brokerage commission percentage was reduced
to .7917 of 1% (a 9.50% annual rate).
Description of Current Charges
<TABLE>
<CAPTION>
<S> <C> <C>
Recipient Nature of Payment Amount of Payment
- --------- ----------------- -----------------
MLF Brokerage Commissions A flat-rate monthly commission of 0.7917 of 1% of the Fund's
month-end assets (a 9.50% annual rate).
MLIP estimates that the round-turn equivalent rates
charged to ML Millburn Global L.L.C. (Millburn LLC)
during the years ended 1998 and 1997 were
approximately $151 and $162, respectively. MLIP
estimates that the round-turn equivalent rates
charged to ML JWH Financial and Metals Portfolio
L.L.C. ("JWH LLC") during the years ended 1998 and
1997 were approximately $133 and $198, respectively. MLIP
estimates that the round-turn equivalent commission
rate charged to the Partnership during the year
ended 1996 was approximately $143 (not including,
in calculating round-turn equivalents, forward
contracts on a future-equivalent basis).
MLF Use of Fund assets Merrill Lynch may derive an economic benefit from
the deposit of certain of the Fund's U.S. dollar
assets.
MLIP Administrative Fees The Fund pays MLIP a monthly Administrative Fee
equal to 0.020833 of 1% of the Fund's month-end assets
(0.25% annually). MLIP pays all of the Fund's routine
administrative costs.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
MLIB; Other Bid-ask spreads Bid-ask spreads on forward and related trades.
Counterparties
Trading Advisors Profit Shares Prior to January 1, 1997, quarterly profit shares
of 15% and 20% of any New Trading Profit achieved
by each Advisor's Fund account, individually, were
paid to JWH and Millburn, respectively. Beginning
January 1, 1997, Millburn's Profit Share began to
be calculated on an annual basis. Profit Shares
are also paid upon redemption of Units. New
Trading Profit is calculated separately in respect
of each Advisor, irrespective of the overall
performance of the Fund.
Trading Advisors Consulting Fees MLF pays the Advisors annual consulting fees
up to 4% of the average month-end assets allocated
to them for management.
MLF; Extraordinary expenses Actual costs incurred; none paid to date.
Others
</TABLE>
Regulation
The General Partner, the Trading Advisors and the Commodity
Broker are each subject to regulation by the Commodity Futures Trading
Commission (the "CFTC") and the National Futures Association. Other than in
respect of its periodic reporting requirements under the Securities Exchange Act
of 1934, 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 Geographic Areas
--------------------------------------------
The Partnership trades on a number of foreign commodity
exchanges. The Partnership does not engage in the sales of goods or services.
Item 2: Properties
----------
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 (Merrill Lynch World Headquarters, World
Financial Center, South Tower, New York, New York, 10080). The General Partner
performs all administrative services for the Partnership from the General
Partner's offices.
5
<PAGE>
Item 3: Legal Proceedings
-----------------
ML&Co. - the sole stockholder of Merrill Lynch Group, Inc.
(which is the sole stockholder of MLIP and MLF and the 100% indirect owner of
all Merrill Lynch entities involved in the operation of the Fund) - as well as
certain of its subsidiaries and affiliates have been named as defendants in
civil actions, arbitration proceedings and claims arising out of their
respective business activities. Although the ultimate outcome of these actions
cannot be predicted at this time and the results of legal proceedings cannot be
predicted with certainty, it is the opinion of management that the result of
these matters will not be materially adverse to the business operations or
financial condition of MLIP or the Fund.
MLIP itself has never been the subject of any material
litigation.
Item 4: Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Partnership has never submitted any matter to a vote of
its Limited Partners.
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
Item 5(a)
(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, 1998, there were 460, 1,443 and 730 holders
of the Series A, B and C Units, respectively, including the General Partner.
(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 further distributions.
Item 5(b)
Not applicable.
6
<PAGE>
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 For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Trading Profits
Realized Gain $ -- $ -- $ 8,749,410 $ 23,852,578 $ 3,650,307
Change in Unrealized Loss -- -- (1,760,218) (651,118) (2,731,447)
---------------------------------------------------------------------------------------
Total Trading Results -- -- 6,989,192 23,201,460 918,860
---------------------------------------------------------------------------------------
Interest Income -- -- 1,842,887 2,863,384 1,998,830
---------------------------------------------------------------------------------------
Total Revenues -- -- 8,832,079 26,064,844 2,917,690
---------------------------------------------------------------------------------------
Expenses:
Brokerage Commissions -- -- 5,406,851 7,412,789 7,717,269
Administrative Fees -- -- 115,039 -- --
Profit Shares -- -- 97,468 729,138 508,502
---------------------------------------------------------------------------------------
Total Expenses -- -- 5,619,358 8,141,927 8,225,771
---------------------------------------------------------------------------------------
Income from Investments 1,867,451 7,357,688 7,171,609 -- --
---------------------------------------------------------------------------------------
Net Income (Loss) $ 1,867,451 $ 7,357,688 $ 10,384,330 $ 17,922,917 $ (5,308,081)
=======================================================================================
<CAPTION>
December 31, December 31, December 31, December 31, December 31,
Balance Sheet Data 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fund Net Asset Value $56,163,313 $63,024,164 $60,834,088 $57,921,834 $53,987,444
Net Asset Value per Series A Unit $296.13 $284.11 $252.54 $210.29 $155.90
Net Asset Value per Series B Unit $240.61 $230.87 $205.27 $171.02 $127.16
Net Asset Value per Series C Unit $187.52 $179.92 $159.97 $133.82 $99.07
</TABLE>
1998 and 1997 variations in income statement line items are due to investing
assets in Trading LLCs.
<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>
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
---------------------------------------------------------------------------------------------------------------------------
1997 $273.52 $270.58 $267.94 $261.04 $251.03 $257.22 $283.93 $270.03 $274.52 $273.84 $277.30 $284.11
---------------------------------------------------------------------------------------------------------------------------
1998 $281.00 $268.85 $270.14 $248.62 $257.02 $249.67 $238.22 $270.01 $305.92 $298.60 $280.52 $296.13
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<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>
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
---------------------------------------------------------------------------------------------------------------------------
1997 $222.32 $219.93 $217.78 $212.17 $204.08 $209.10 $230.77 $219.46 $223.11 $222.53 $225.33 $230.87
---------------------------------------------------------------------------------------------------------------------------
1998 $228.36 $218.48 $219.55 $202.07 $208.90 $202.93 $193.60 $219.40 $248.57 $242.64 $227.97 $240.61
---------------------------------------------------------------------------------------------------------------------------
<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>
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
---------------------------------------------------------------------------------------------------------------------------
1997 $173.26 $171.40 $169.73 $165.35 $159.04 $162.96 $179.85 $171.03 $173.88 $173.43 $175.61 $179.92
---------------------------------------------------------------------------------------------------------------------------
1998 $177.97 $170.27 $171.11 $157.48 $162.80 $158.15 $150.88 $170.99 $193.72 $189.10 $177.67 $187.52
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pursuant to CFTC policy, monthly performance is presented from January 1, 1994
even though all Series were outstanding prior to such date.
8
<PAGE>
JOHN W. HENRY & CO./MILLBURN L.P.
(SERIES A UNITS)
December 31, 1998
Type of Pool: Selected-Advisor/Publicly-Offered/Non-"Principal Protected"(1)
Inception of Trading: January 5, 1990
Aggregate Subscriptions: $18,182,000
Current Capitalization: $13,379,531
Worst Monthly Drawdown(2):(9.58)% (2/96)
Worst Peak-to-Valley Drawdown(3):(19.33)% (7/94-1/95)
Net Asset Value per Series A Unit, December 31, 1998: $296.13
------------------------------------------------------------------------------
Monthly Rates of Return(4)
------------------------------------------------------------------------------
Month 1998 1997 1996 1995 1994
------------------------------------------------------------------------------
January (1.09)% 8.31% 10.17% (5.81)% (7.76)%
------------------------------------------------------------------------------
February (4.32) (1.07) (9.58) 14.09 0.08
------------------------------------------------------------------------------
March 0.48 (0.98) (1.97) 22.24 8.78
------------------------------------------------------------------------------
April (7.97) (2.58) 3.93 4.72 (0.36)
------------------------------------------------------------------------------
May 3.38 (3.83) (4.31) 0.81 (0.11)
------------------------------------------------------------------------------
June (2.86) 2.47 1.46 (1.63) 6.73
------------------------------------------------------------------------------
July (4.58) 10.38 (0.17) (2.66) (6.94)
------------------------------------------------------------------------------
August 13.34 (4.90) (2.38) 2.45 (5.72)
------------------------------------------------------------------------------
September 13.30 1.66 3.19 (1.99) 2.58
------------------------------------------------------------------------------
October (2.39) (0.25) 14.17 0.45 1.31
------------------------------------------------------------------------------
November (6.05) 1.26 7.39 0.34 (3.75)
------------------------------------------------------------------------------
December 5.56 2.46 (1.16) 0.38 (2.41)
------------------------------------------------------------------------------
Compound Annual 4.24% 12.49% 20.09% 34.89% (8.64)%
Rate of Return
------------------------------------------------------------------------------
(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, 1993 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, 1993 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.
9
<PAGE>
JOHN W. HENRY & CO./MILLBURN L.P.
(SERIES B UNITS)
December 31, 1998
Type of Pool: Selected-Advisor/Publicly-Offered/Non-"Principal Protected"(1)
Inception of Trading: January 28, 1991
Aggregate Subscriptions: $50,636,000
Current Capitalization: $28,093,880
Worst Monthly Drawdown(2): (9.41)% (2/96)
Worst Peak-to-Valley Drawdown(3):(19.32)% (7/94-1/95)
-------------
Net Asset Value per Series B Unit, December 31, 1998: $240.61
Monthly Rates of Return(4)
Month 1998 1997 1996 1995 1994
------------------------------------------------------------------------------
January (1.09)% 8.31% 10.47% (5.93)% (7.91)%
------------------------------------------------------------------------------
February (4.33) (1.08) (9.41) 14.22 0.09
------------------------------------------------------------------------------
March 0.49 (0.98) (2.14) 22.06 9.08
------------------------------------------------------------------------------
April (7.96) (2.58) 3.86 4.57 (0.41)
------------------------------------------------------------------------------
May 3.38 (3.81) (4.38) 0.66 (0.22)
------------------------------------------------------------------------------
June (2.86) 2.46 1.40 (1.52) 6.85
------------------------------------------------------------------------------
July (4.60) 10.36 (0.14) (2.75) (6.90)
------------------------------------------------------------------------------
August 13.33 (4.90) (2.49) 2.71 (5.77)
------------------------------------------------------------------------------
September 13.30 1.66 3.22 (2.04) 2.59
------------------------------------------------------------------------------
October (2.39) (0.26) 14.17 0.48 1.53
------------------------------------------------------------------------------
November (6.05) 1.26 7.30 0.31 (3.81)
------------------------------------------------------------------------------
December 5.54 2.46 (1.14) 0.31 (2.42)
------------------------------------------------------------------------------
Compound Annual 4.20% 12.46% 20.03% 34.49% (8.43)%
Rate of Return
------------------------------------------------------------------------------
(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, 1993 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, 1993 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 C UNITS)
December 31, 1998
Type of Pool: Selected-Advisor/Publicly-Offered/Non-"Principal Protected"(1)
Inception of Trading: January 2, 1992
Aggregate Subscriptions: $40,000,000
Current Capitalization: $14,689,902
Worst Monthly Drawdown(2): (9.54)% (2/96)
Worst Peak-to-Valley Drawdown(3): (19.20)% (7/94-1/95)
-------------
Net Asset Value per Series C Unit, December 31, 1998: $187.52
- ------------------------------------------------------------------------------
Monthly Rates of Return(4)
- ------------------------------------------------------------------------------
Month 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------
January (1.08)% 8.31% 10.52% (6.00)% (7.97)%
- ------------------------------------------------------------------------------
February (4.33) (1.07) (9.54) 14.12 0.13
- ------------------------------------------------------------------------------
March 0.49 (0.97) (2.18) 22.31 9.19
- ------------------------------------------------------------------------------
April (7.97) (2.58) 3.86 4.53 (0.36)
- ------------------------------------------------------------------------------
May 3.38 (3.82) (4.43) 0.70 (0.36)
- ------------------------------------------------------------------------------
June (2.86) 2.46 1.45 (1.44) 7.28
- ------------------------------------------------------------------------------
July (4.60) 10.36 (0.08) (2.74) (7.05)
- ------------------------------------------------------------------------------
August 13.33 (4.90) (2.71) 2.90 (5.90)
- ------------------------------------------------------------------------------
September 13.29 1.67 3.21 (1.91) 2.83
- ------------------------------------------------------------------------------
October (2.38) (0.26) 14.17 0.59 1.58
------------------------------------------------------------------------------
November (6.05) 1.26 7.14 0.32 (3.69)
------------------------------------------------------------------------------
December 5.54 2.45 (1.09) 0.17 (2.31)
- ------------------------------------------------------------------------------
Compound Annual 4.20% 12.47% 19.54% 35.08% (7.88)%
Rate of Return
------------------------------------------------------------------------------
(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, 1993 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, 1993 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.
11
<PAGE>
(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.
Item 7: Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
- -------------
Results of Operations
- ---------------------
General
- -------
JWH and Millburn have been the Fund's two Advisors since
inception. Although from time to time one of the Advisors is allocated a greater
percentage of the Fund's assets than the other as a result of differential
performance, MLIP periodically rebalances the Fund's asset allocation to
approximately 50%/50%.
The Advisors are both trend-following traders, whose programs
do not attempt to predict price movements. No fundamental economic supply or
demand analyses are used by either JWH or Millburn, and no macroeconomic
assessments of the relative strengths of different national economies or
economic sectors. Instead, their programs apply proprietary computer models to
analyzing past market data, and from this data alone attempt to determine
whether market prices are trending. As technical traders, JWH and Millburn base
their strategies on the theory that market prices reflect the collective
judgment of JWH and Millburn and are, accordingly, the best and most efficient
indication of market movements. However, there are frequent periods during which
fundamental factors external to the market dominate prices.
If an Advisor's models identify a trend, they signal positions
which follow it. When these models identify the trend as having ended or
reversed, these positions are either closed out or reversed. Due to their
trend-following character, the Advisors' programs do not predict either the
commencement or the end of a price movement. Rather, their objective is to
identify a trend early enough to profit from it and detect its end or reversal
in time to close out the Fund's positions while retaining most of the profits
made from following the trend.
In analyzing the performance of trend-following programs such
as those implemented by JWH and Millburn, economic conditions, political events,
weather factors, etc., are not directly relevant because only market data has
any input into trading results. Furthermore, there is no direct connection
between particular market conditions and price trends. There are so many
influences on the markets that the same general type of economic event may lead
to a price trend in some cases but not in others. The analysis is further
complicated by the fact that the programs are designed to recognize only certain
types of trends and to apply only certain criteria of when a trend has begun.
Consequently, even though significant price trends may occur, if these trends
are not comprised of the type of intra-period price movements which their
programs are designed to identify, either or both Advisors may miss the trend
altogether.
Performance Summary
This performance summary is an outline description of how the
Fund performed in the past, not necessarily any indication of how it will
perform in the future. In addition, the general causes to which certain price
movements are attributed may or may not in fact have caused such movements, but
simply occurred at or about the same time.
Both Advisors are unlikely to be profitable in markets in
which such trends do not occur. Static or erratic prices are likely to result in
losses. Similarly, unexpected events (for example, a political upheaval, natural
disaster or governmental intervention) can lead to major short-term losses as
well as gains.
12
<PAGE>
While there can be no assurance that either Advisor will be
profitable, under any given market condition, markets in which substantial and
sustained price movements occur typically offer the best profit potential for
the Fund.
13
<PAGE>
1998
Global interest rate markets provided the Fund with its most
profitable positions in the first quarter, particularly in European bonds where
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. In the second quarter, swings in the U.S.
dollar and developments in Japan affected bond markets, causing the Fund's
interest rate trading to result in losses. This was turned around in the third
quarter, as markets worldwide were turned upside down and the Fund's
non-correlation with general equity and debt markets was strongly exhibited.
Global investors staged a major flight to quality, resulting in a significant
widening of credit spreads on a global basis. In October, investors pushed the
yields on U.S. Treasury bonds to a 31-year low. The long bond yield fell about
75 basis points in 1998 as the world economy slowed more than expected,
inflation continued to fall, the anticipated small U.S. budget deficit turned
into substantial surplus, and the Federal Reserve lowered interest rates.
Gold prices began the year drifting sideways, and continued to
weaken following news in the second quarter of a European Central Bank consensus
that ten to fifteen percent of reserves should be made up of gold bullion, which
was at the low end of expectations. Gold was unable to extend third quarter
rallies or to build any significant upside momentum, resulting in a trendless
environment. This was also the case in the fourth quarter, as gold's cost of
production declined. Also, silver markets remained range-bound, while also
experiencing a significant selloff in November, and aluminum traded at its
lowest levels since 1994, with many aluminum smelters operating at a loss.
In currency markets, results early in the year were mixed,
although marginally unprofitable. During the second quarter, the Japanese yen
weakened during June to an eight-year low versus the U.S. dollar. In the third
quarter, Japan's problems spread to other sectors of the global economy, causing
commodities prices to decline as demand from the Asian economies weakened, and
Japan's deepening recession and credit crunch continued through the fourth
quarter.
Trading results in stock index markets were also mixed in
early 1998, 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. Second quarter results were profitable as the Asia-Pacific
region's equity markets weakened across the board. In particular, Hong Kong's
Hang Seng index trended downward during most of the second quarter and traded at
a three-year low. As U.S. equity markets declined in July and August, the Fund
profited from short positions in the S&P 500, most notably during August, when
the index dropped 14.5%. Volatility in September made for a difficult trading
environment in the stock index sector, and the Fund incurred modest losses,
although results remained profitable for the quarter and the year overall in
these markets.
Trading results are not included for 1998 because the Fund
traded exclusively through investing in LLCs.
1997
Trend reversals and extreme market volatility, affected by
such factors as the Asian flu and El Nino, were characteristic of most of 1997.
However, the year proved to be a profitable one overall for the Fund as trends
in several key markets enabled the Trading Advisors to profit despite the
significant obstacles. Although trading results in several sectors may have been
lackluster, the global currency and bond markets offered noteworthy trading
opportunities, which resulted in significant profits in these markets during the
year. Additionally, the currency and interest rate sectors of the Fund's
portfolio represented its largest percentage of market commitments.
In currency markets, the U.S. dollar rallied and started 1997
on a strong note, rising to a four-year high versus the Japanese yen and
two-and-a-half year highs versus the Deutsche mark and the Swiss franc. However,
the dollar underwent two significant corrections during the year. The first
correction occurred in the Spring against
14
<PAGE>
the Japanese yen, due to the G7 finance ministers' determination that a further
dollar advance would be counter-productive to their current goals. From August
through mid-November, the dollar corrected against the Eurocurrencies in advance
of a well-advertised tightening by the Bundesbank. By mid-December the dollar
had bounced back to new highs against the yen and was rallying against the mark.
Global interest rate markets began the year on a volatile
note, as investors evaluated economic data for signs of inflation. By the middle
of the year, economic data in key countries was positive indicating lower
inflation and igniting a worldwide rally in the bond markets. Specifically,
investor sentiment was particularly strong in the U.S., where prices on the
30-year Treasury bond and 10-year Treasury note rose to their highest levels in
over two years. This followed a largely positive economic report delivered by
Federal Reserve Chairman Greenspan in testimony before Congress. Effects of the
plunge in the Hong Kong stock market in late October spread rapidly throughout
the world's financial markets, including global bond markets. After continued
volatility in subsequent months made trading difficult, 1997 interest rate
trading ended on a positive note when U.S. and Japanese bond markets rallied as
a flight to safety from plunging stock markets around the world occurred in
December.
Trading results are not included for 1997 because the Fund
traded exclusively through investing in LLCs.
1996
Total Trading
Results
Interest Rates $ 5,080,346
Stock Indices (992,453)
Currencies 2,659,762
Metals 241,537
-----------
$ 6,989,192
===========
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.
Variables Affecting Performance
- -------------------------------
The principal variables which determine the net performance of
the Fund are gross profitability and interest income.
15
<PAGE>
During all periods set forth under "Selected Financial Data,"
the interest rates in many countries were at unusually low levels. The low
interest rates in the United States (although higher than in many other
countries) negatively impacted revenues because interest income is typically a
major component of the Fund's 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 Fund may be reduced as compared to high
yielding and much lower risk fixed-income investments.
The Fund's Brokerage Commissions and Administrative Fees are a
constant percentage of the Fund's assets allocated to trading. The only Fund
costs (other than the insignificant currency trading costs) which are not based
on a percentage of the Fund's assets (allocated to trading or total) are the
Profit Shares payable to each of JWH and Millburn separately on their individual
performance, irrespective of the overall performance of the Fund. 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 JWH and Millburn
(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 incurred offsetting losses, reducing overall
trading gains but not the Profit Shares paid to the successful Advisor) --
suggesting the likelihood of generally trendless, non-consensus markets.
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.
Except in unusual circumstances, factors -- 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; Capital Resources
- ----------------------------
The Fund borrows only to a limited extent and only on a
strictly short-term basis in order to finance losses on non-U.S. dollar
denominated trading positions pending the conversion of the Fund's dollar
deposits. These borrowings are at a prevailing short-term rate in the relevant
currency.
Substantially all of the Fund's assets are held in cash. The
Net Asset Value of the Fund's cash is not affected by inflation. However,
changes in interest rates could cause periods of strong up or down price trends,
during which the Fund's profit potential generally increases. Inflation in
commodity prices could also generate price movements which the strategies might
successfully follow.
Substantially all of the Fund's assets are held in cash.
Accordingly, except in very unusual circumstances, the Fund should be able to
close out any or all of its open trading positions and liquidate any or all of
its securities holdings quickly and at market prices. This permits an Advisor to
limit losses as well as reduce market exposure on short notice should its
strategies indicate doing so. In addition, because there is a readily available
market value for the Fund's positions and assets, the Fund's monthly Net Asset
Value calculations are precise, and investors need only wait ten business days
to receive the full redemption proceeds of their Units.
Year 2000 Compliance Initiative
16
<PAGE>
As the millennium approaches, Merrill Lynch has undertaken
initiatives to address the Year 2000 problem (the "Y2K problem"). The Y2K
problem is the result of a widespread programming technique that causes computer
systems to identify a date based on the last two numbers of a year, with the
assumption that the first two numbers of the year are "19". As a result, the
year 2000 would be stored as "00," causing computers to incorrectly interpret
the year as 1900. Left uncorrected, the Y2K problem may cause information
technology systems (e.g., computer databases) and non-information technology
systems (e.g., elevators) to produce incorrect data or cease operating
completely.
Merrill Lynch believes that it has identified and evaluated
its internal Y2K problem and that it is devoting sufficient resources to
renovating technology systems that are not already Year 2000 compliant. The
resource-intensive renovation phase (as further discussed) of Merrill Lynch's
Year 2000 efforts was approximately 95% completed as of January 31, 1999.
Merrill Lynch will focus primarily on completing its renovation and testing and
on integration of the Year 2000 programs of recent acquisitions during the
remainder of 1999. In order to focus attention on the Y2K problem, management
has deferred certain other technology projects: however, this deferral is not
expected to have a material adverse effect on the company's business, results of
operations, or financial condition.
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 its need for liquidity.
In 1995, Merrill Lynch established the Year 2000 Compliance
Initiative, which is an enterprisewide effort to address the risks associated
with the Y2K problem, both internal and external. The Year 2000 Compliance
Initiative's efforts to address the risks associated with the Y2K problem have
been organized into six phases: planning, pre-renovation, renovation, production
testing, certification, and integration testing.
The planning phase involved defining the scope of the Year
2000 Compliance Initiative, including its annual budget and strategy, and
determining the level of expert knowledge available within Merrill Lynch
regarding particular systems or applications. The pre-renovation phase involved
developing a detailed enterprisewide inventory of applications and systems,
identifying the scope of necessary renovations to each application system, and
establishing a conversion schedule. During the renovation phase, source code is
actually converted, date fields are expanded or windowed (windowing is used on
an exception basis only), test data is prepared, and each system or application
is tested using a variety of Year 2000 scenarios. The production testing phase
validates that a renovated system is functionally the same as the existing
production version, that renovation has not introduced defects, and that
expanded or windowed date fields continue to handle current dates properly. The
certification phase validates that a system can run successfully in a Year 2000
environment. The integration testing phase, which will occur throughout 1999,
validates that a system can successfully interface with both internal and
external systems. Finally, as Merrill Lynch continues to implement new systems,
they are also being tested for Year 2000 readiness.
In 1996 and 1997, as part of the planning and pre-renovation
phases, both plans and funding of plans for inventory, preparation, renovation,
and testing of computer systems for the Y2K problem were approved. All plans for
both mission-critical and non-mission-critical systems are tracked and
monitored. The work associated with the Year 2000 Compliance Initiative has been
accomplished by Merrill Lynch employees, with the assistance of consultants
where necessary.
As part of the production testing and certification phases,
Merrill Lynch has performed, and will continue to perform, both internal and
external Year 2000 testing intended to address the risks from the Y2K problem.
As of January 31, 1999, production testing was approximately 93% completed. In
July 1998, Merrill Lynch participated in an industrywide Year 2000 systems test
sponsored by the Securities Industry Association ("SIA"), in
17
<PAGE>
which selected firms tested their computer systems in mock stock trades that
simulated dates in December 1999 and January 2000. Merrill Lynch will
participate in further industrywide testing sponsored by the SIA, currently
scheduled for March and April 1999, which will involve an expanded number of
firms, transactions, and conditions. Merrill Lynch also participated in various
other domestic and international industry tests during 1998.
Merrill Lynch continues to survey and communicate with third
parties whose Year 2000 readiness is important to the company. Information
technology and non-information technology vendors and service providers are
contacted in order to obtain their Year 2000 compliance plans. Based on the
nature of the response and the importance of the product or service involved,
Merrill Lynch determines if additional testing is needed. The results of these
efforts are maintained in a database that is accessible throughout the firm.
Third parties that have been contacted include transactional counterparties,
exchanges, and clearinghouses; a process to access and rate their responses has
been developed. This information as well as other Year 2000 readiness
information on particular countries and their political subdivisions will be
used by Merrill Lynch to manage risk resulting from the Y2K problem. 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. In connection with information technology and
non-information technology products and services, contingency plans, which are
developed at the business unit level, may include selection of alternative
vendors or service providers and changing business practices so that a
particular system is not needed. In the case of securities exchanges and
clearinghouses, risk mitigation could include the re-routing of business. In
light of the interdependency of the parties in or serving the financial markets,
however, there can be no assurance that all Y2K problems will be identified and
remediated on a timely basis or that all remediation will be successful. The
failure of exchanges, clearing organizations, vendors, service providers,
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.
At year-end 1998, the total estimated expenditures for the
entire Year 2000 Compliance Initiative were approximately $425 million, of which
approximately $125 million was remaining. The majority of these remaining
expenditures are expected to cover testing, risk management, and contingency
planning. There can be no assurance that the costs associated with such
remediation efforts will not exceed those currently anticipated by Merrill
Lynch, or that the costs associated with the remediation efforts or the possible
failure of such remediation efforts would not have a material adverse effect on
Merrill Lynch's business, results of operations, or financial condition.
European Economic and Monetary Union ("EMU") Initiative
As of January 1, 1999, the "euro" was adopted as the common
legal currency of participating member states of the EMU. As a consequence of
the introduction of and conversion to the euro, Merrill Lynch was required to
make significant changes to nearly 200 global business systems in order to
reflect the substitution of the euro for the 11 member national currencies and
the European currency unit. The introduction of the euro brings about
fundamental changes in the structure and nature of European financial markets,
including the creation of a unified, more liquid capital market in Europe. As
financial markets in EMU member states converge and local barriers are removed,
competition is expected to increase.
The introduction of the euro affects all Merrill Lynch
facilities that transact, distribute, or provide custody or recordkeeping for
securities or cash denominated in the currency of a participating member state.
Merrill Lynch's systems or procedures that handle such securities or cash were
modified in order to implement the conversion to the euro. The implementation
phase is continuing into the first quarter of 1999 to resolve any
post-conversion issues. The success of Merrill Lynch's euro conversion efforts
was dependent on the euro-compliance of third parties, such as trading
counterparties, financial intermediaries (e.g., securities and commodities
exchanges, depositories, clearing organizations, and commercial banks), and
vendors.
18
<PAGE>
As of the end of the 1998 fiscal year, the total estimated
expenditures associated with the introduction of and conversion to the euro were
approximately $79 million, of which $1 million is remaining to be spent during
the first quarter of 1999 on compliance efforts and project administration.
Management believes that it has identified and evaluated all of the systems and
operational modifications necessary for the conversion to the euro. On January
4, 1999 and since then, Merrill Lynch has conducted normal business operations,
having successfully completed its conversion program. Management does not expect
the introduction of the euro to have a negative effect on its future business,
currency risk, or competitive positioning in the European markets.
Item 7A: Quantitative and Qualitative Disclosures About Market Risks.
-----------------------------------------------------------
Introduction
Past Results Not Necessarily Indicative of Future Performance
-------------------------------------------------------------
The Fund is a speculative commodity pool. Unlike an operating
company, the risk of market sensitive instruments is integral, not incidental,
to the Fund's main line of business.
Market movements result in frequent changes in the fair market
value of the Fund's open positions and, consequently, in its earnings and cash
flow. The Fund's market risk is influenced by a wide variety of factors,
including the level and volatility of interest rates, exchange rates, equity
price levels, the market value of financial instruments and contracts, the
diversification effects among the Fund's open positions and the liquidity of the
markets in which it trades.
The Fund, under the direction of the two Trading Advisors
which it has retained since inception, rapidly acquires and liquidates both long
and short positions in a wide range of different markets. Consequently, it is
not possible to predict how a particular future market scenario will affect
performance, and the Fund's past performance is not necessarily indicative of
its future results.
Value at Risk is a measure of the maximum amount which the
Fund could reasonably be expected to lose in a given market sector. However, the
inherent uncertainty of the Fund's speculative trading and the recurrence in the
markets traded by the Fund of market movements far exceeding expectations could
result in actual trading or non-trading losses far beyond the indicated Value at
Risk or the Fund's experience to date (i.e., "risk of ruin"). In light of the
foregoing as well as the risks and uncertainties intrinsic to all future
projections, the quantifications included in this section should not be
considered to constitute any assurance or representation that the Fund's losses
in any market sector will be limited to Value at Risk or by the Fund's attempts
to manage its market risk.
Quantifying the Fund's Trading Value at Risk
--------------------------------------------
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Fund's
market risk exposures contain "forward-looking statements" within the meaning of
the safe harbor from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).
All quantitative disclosures in this section are deemed to be forward-looking
statements for purposes of the safe harbor, except for statements of historical
fact.
The Fund's risk exposure in the various market sectors traded
by the Advisors is quantified below in terms of Value at Risk. Due to the Fund's
mark-to-market accounting, any loss in the fair value of the Fund's open
positions is directly reflected in the Fund's earnings (realized or unrealized)
and cash flow (at least in the case of exchange-traded contracts in which
profits and losses on open positions are settled daily through variation
margin).
19
<PAGE>
Exchange maintenance margin requirements have been used by the
Fund as the measure of its Value at Risk. Maintenance margin requirements are
set by exchanges to equal or exceed the maximum loss in the fair value of any
given contract incurred in 95%-99% of the one-day time periods included in the
historical sample (generally approximately one year) researched for purposes of
establishing margin levels. The maintenance margin levels are established by
dealers and exchanges using historical price studies as well as an assessment of
current market volatility (including the implied volatility of the options on a
given futures contract) and economic fundamentals to provide a probabilistic
estimate of the maximum expected near-term one-day price fluctuation.
In the case of market sensitive instruments which are not
exchange-traded (almost exclusively currencies in the case of the Fund), the
margin requirements for the equivalent futures positions have been used as Value
at Risk. In those rare cases in which a futures-equivalent margin is not
available, dealers' margins have been used.
The fair value of the Fund's futures and forward positions
does not have any optionality component. However, both JWH and Millburn trade
options on futures to a limited extent. The Value at Risk associated with
options is reflected in the following table as the margin requirement
attributable to the instrument underlying each option.
100% positive correlation in the different positions held in
each market risk category has been assumed. Consequently, the margin
requirements applicable to the open contracts have been aggregated to determine
each trading category's aggregate Value at Risk. The diversification effects
resulting from the fact that the Fund's positions are rarely, if ever, 100%
positively correlated have not been reflected.
The Fund's Trading Value at Risk in Different Market Sectors
The following table indicates the trading Value at Risk
associated with the Fund's open positions by market category as of December 31,
1998. As of December 31, 1998, the Fund's total capitalization was $56,163,313.
The Fund does not trade commodities or energy futures.
December 31, 1998
-----------------
% of Total
Market Sector Value at Risk Capitalization
------------- ------------- --------------
Interest Rates $ 3,110,066 5.54%
Currencies 1,822,438 3.25
Stock Indices 558,504 0.99
Metals 459,900 0.82
------------- ------
Total $ 5,950,908 10.60%
============= ======
20
<PAGE>
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Fund is typically many times the applicable maintenance margin requirement
(maintenance margin requirements generally ranging between approximately 1% and
10% of contract face value) as well as many times the capitalization of the
Fund. The magnitude of the Fund's open positions creates a "risk of ruin" not
typically found in most other investment vehicles. Because of the size of its
positions, certain market conditions -unusual, but historically recurring from
time to time -- could cause the Fund to incur severe losses over a short period
of time. The foregoing Value at Risk table -- as well as the past performance of
the Fund -- give no indication of this "risk of ruin."
21
<PAGE>
Non-Trading Risk
Foreign Currency Balances; Cash on Deposit with MLF
The Fund has non-trading market risk on its foreign cash
balances not needed for margin. However, these balances (as well as the market
risk they represent) are immaterial.
The Fund also has non-trading market risk on the approximately
90%-95% of its assets which are held in cash at MLF. The value of this cash is
not interest rate sensitive, but there is cash flow risk in that if interest
rates decline so will the cash flow generated on these monies. This cash flow
risk is immaterial.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Fund's
market risk exposures -- except for (i) those disclosures that are statements of
historical fact and (ii) the descriptions of how the Fund manages its primary
market risk exposures -- constitute forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act. The Fund's primary market risk exposures as well as the strategies
used and to be used by MLIP and the Fund's two Advisors for managing such
exposures are subject to numerous uncertainties, contingencies and risks, any
one of which could cause the actual results of the Fund's risk controls to
differ materially from the objectives of such strategies. Government
interventions, defaults and expropriations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in historical price
relationships, an influx of new market participants, increased regulation and
many other factors could result in material losses as well as in material
changes to the risk exposures and the risk management strategies of the Fund.
There can be no assurance that the Fund's current market exposure and/or risk
management strategies will not change materially or that any such strategies
will be effective in either the short- or long-term. Investors must be prepared
to lose all or substantially all of the time value of their investment in the
Fund.
The following were the primary trading risk exposures of the Fund as of
December 31, 1998, by market sector.
Interest Rates. Interest rate risk is the principal market
--------------
exposure of the Fund. Interest rate movements directly affect the price of
derivative sovereign bond positions held by the Fund and indirectly the value of
its stock index and currency positions. Interest rate movements in one country
as well as relative interest rate movements between countries materially impact
the Fund's profitability. The Fund's primary interest rate exposure is to
interest rate fluctuations in the United States and the other G-7 countries.
However, the Fund also takes positions in the government debt of smaller
nations -e.g., New Zealand and Australia. The General Partner anticipates that
G-7 interest rates will remain the primary market exposure of the Fund for the
foreseeable future.
Currencies. The Fund trades in a large number of currencies,
----------
including cross-rates -- i.e., positions between two currencies other than the
U.S. dollar. However, the Fund's major exposures have typically been in the
dollar/yen, dollar/mark and dollar/pound positions. The General Partner does not
anticipate that the risk profile of the Fund's currency sector will change
significantly in the future, although it is difficult at this point to predict
the effect of the introduction of the Euro on the currency trading strategies of
JWH or Millburn. The currency trading Value at Risk figure includes foreign
margin amounts converted into U.S. dollars with an incremental adjustment to
reflect the exchange rate risk inherent to the dollar-based Fund in expressing
Value at Risk in a functional currency other than dollars.
22
<PAGE>
Stock Indices. The Fund's primary equity exposure is to equity
-------------
index price movements. The stock index futures traded by the Fund are by law
limited to futures on broadly based indices. As of December 31, 1998, the Fund's
primary exposures were in the S&P 500, Financial Times (England), Nikkei (Japan)
and DAX (Germany) stock indices. The General Partner anticipates little, if any,
trading in non-G-7 stock indices. The Fund is primarily exposed to the risk of
adverse price trends or static markets in the major U.S., European and Japanese
indices.
Metals. The Fund's primary metals market exposure is to
------
fluctuations in the price of gold and silver. Although certain of the Advisors
will from time to time trade base metals such as aluminum, copper and tin, the
principal market exposures of the Fund have consistently been in the precious
metals, gold and silver (and, to a much lesser extent, platinum). The Advisors'
gold trading has been increasingly limited due to the long-lasting and mainly
non-volatile decline in the price of gold over the last 10-15 years. However,
silver prices have remained volatile over this period, and the Advisors have
from time to time taken substantial positions as they have perceived market
opportunities to develop. The General Partner anticipates that gold and silver
will remain the primary metals market exposure for the Fund.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the
Fund as of December 31, 1998.
Foreign Currency Balances. The Fund's primary foreign currency
-------------------------
balances are in Japanese yen, German marks, British pounds and French francs.
The Fund has de minimis exchange rate exposure on these balances.
U.S. Dollar Cash Balance. The Fund holds U.S. dollars only in
------------------------
cash at MLF. The Fund has immaterial cash flow interest rate risk on its cash on
deposit with MLF in that declining interest rates would cause the income from
such cash to decline.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
Trading Risk
The General Partner has procedures in place intended to
control market risk, although there can be no assurance that they will, in fact,
succeed in doing so. These procedures focus primarily on monitoring the trading
of JWH and Millburn, calculating the Net Asset Value of the Fund accounts
managed by the two Advisors as of the close of business on each day and
reviewing outstanding positions for over-concentrations. While MLIP does not
itself intervene in the markets to hedge or diversify the Fund's market
exposure, MLIP may urge either or both of JWH and Millburn to reallocate
positions managed by the two Advisors, in an attempt to avoid
over-concentrations. However, such interventions are unusual.
23
<PAGE>
Each of JWH and Millburn applies its own risk management
policies to its trading.
JWH Risk Management
JWH attempts to control risk in all aspects of the investment
process -- from confirmation of a trend to determining the optimal exposure in a
given market, and to money management issues such as the startup or upgrade of
investor accounts. JWH double checks the accuracy of market data, and will not
trade a market without multiple price sources for analytical input. In
constructing a portfolio, JWH seeks to control overall risk as well as the risk
of any one position, and JWH trades only markets that have been identified as
having positive performance characteristics. Trading discipline requires plans
for the exit of a market as well as for entry. JWH factors the point of exit
into the decision to enter (stop loss). The size of JWH's positions in a
particular market is not a matter of how large a return can be generated but of
how much risk it is willing to take relative to that expected return.
To attempt to reduce the risk of volatility while maintaining
the potential for excellent performance, proprietary research is conducted on an
ongoing basis to refine the JWH investment strategies. Research may suggest
substitution of alternative investment methodologies with respect to particular
contracts; this may occur, for example, when the testing of a new methodology
has indicated that its use might have resulted in different historical
performance. In addition, risk management research and analysis may suggest
modifications regarding the relative weighting among various contracts, the
addition or deletion of particular contracts from a program, or a change in
position size in relation to account equity. The weighting of capital committed
to various markets in the investment programs is dynamic, and JWH may vary the
weighting at its discretion as market conditions, liquidity, position limit
considerations and other factors warrant.
JWH may determine that risks arise when markets are illiquid
or erratic, such as may occur cyclically during holiday seasons, or on the basis
of irregularly occurring market events. In such cases, JWH at its sole
discretion may override computer-generated signals and may at times use
discretion in the application of its quantitative models, which may affect
performance positively or negatively.
Adjustments in position size in relation to account equity
have been and continue to be an integral part of JWH's investment strategy. At
its discretion, JWH may adjust the size of a position in relation to equity in
certain markets or entire programs. Such adjustments may be made at certain
times for some programs but not for others. Factors which may affect the
decision to adjust the size of a position in relation to account equity include
ongoing research, program volatility, assessments of current market volatility
and risk exposure, subjective judgment, and evaluation of these and other
general market conditions.
Millburn Risk Management
Millburn attempts to control risk through the systematic
application of its trading method, which includes a multi-system approach to
price trend recognition, an analysis of market volatility, the application of
certain money management principles, which may be revised from time to time, and
adjusting leverage or portfolio size. In addition, Millburn Ridgefield limits
its trading to markets which it believes are sufficiently liquid in respect of
the amount of trading it contemplates conducting.
Millburn develops trading systems using various classes of
quantitative models and data such as price, volume and interest rates, and tests
those systems in numerous markets against historical data to simulate trading
results. Millburn Ridgefield then analyses the profitability of the systems
looking at such features as the percentage of profitable trades, the worst
losses experienced, the average giveback of maximum profits on profitable trades
and risk adjusted returns. The performance of all systems in the market are then
ranked, and three or four systems are selected which make decisions in different
ways at different times. This multi-system approach ensures that the total
24
<PAGE>
risk intended to be taken in a market is spread over several different
strategies.
Millburn also attempts to assess market volatility as a means
of monitoring and evaluating risk. In doing so, Millburn Ridgefield uses a
volatility overlay system which measures the risk in a portfolio's position in a
market and signals a decrease in position size when risk increases and an
increase in position size when risk decreases. Millburn's volatility overlay
maintains overall portfolio risk and distribution of risk across markets within
designated ranges.
Millburn's risk management also focuses on money management
principles applicable to a portfolio as a whole rather than to individual
markets. The first principle is reducing overall portfolio volatility through
diversification among markets. Millburn Ridgefield seeks a portfolio in which
returns from trading in different markets are not highly correlated, that is, in
which returns are not all positive or negative at the same time. Additional
money management principles include limiting the assets committed as margin or
collateral, generally within a range of 15% to 30% of an account's net assets;
avoiding the use of unrealized profits in a particular market as margin for
additional positions in the same market; and changing the equity used for
trading an account solely on a controlled periodic basis, not automatically due
to an increase in equity from trading profits.
Another important risk management function is the careful
control of leverage or portfolio size. Leverage levels are determined by
simulating the entire portfolio over the past five or ten years to determine the
worst case experienced by the portfolio in the simulation period. The worst case
or peak-to-trough drawdown, is measured from a daily high in portfolio assets to
the subsequent daily low whether that occurs days, weeks or months after the
daily high. If Millburn Ridgefield considers the drawdown too severe, it reduces
the leverage or portfolio size.
Millburn determines asset allocation among markets and
position size on the basis of the money management principals and trading data
research discussed above and the market experience of Millburn's principals.
From time to time Millburn Ridgefield may adjust the size of a position, long or
short, in any given market. Decisions to make such adjustments require the
exercise of judgment and may include consideration of the volatility of the
particular market; the pattern of price movements, both inter-day and intra-day;
open interest; volume of trading; changes in spread relationships between
various forward contracts; and overall portfolio balance and risk exposure.
Non-Trading Risk
The Fund controls the non-trading exchange rate risk by
regularly converting foreign balances back into dollars (no less frequently than
twice a month, and more frequently if a particular foreign currency balance
becomes unusually high).
The Fund has cash flow interest rate risk on its cash on
deposit with MLF in that declining interest rates would cause the income from
such cash to decline. However, a certain amount of cash or cash equivalents must
be held by the Fund in order to facilitate margin payments and pay expenses and
redemptions. MLIP does not take any steps to limit the cash flow risk on its
cash held on deposit at MLF.
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. The General Partner
promoted the Fund and is its controlling person.
Item 9: Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
There were no changes in or disagreements with independent
auditors on accounting or financial disclosure.
25
<PAGE>
PART III
Item 10: Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
10(a) & 10(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 directors and executive officers of MLIP and their
business backgrounds are as follows.
John R. Frawley, Jr. Chairman, Chief Executive Officer,
President and Director
Jeffrey F. Chandor Senior Vice President, Director of
Sales, Marketing and Research and Director
Jo Ann Di Dario Vice President, Chief Financial Officer and
Treasurer, through April 30, 1999
Michael L. Pungello Vice President, Chief Financial Officer and
Treasurer, effective May 1, 1999
Joseph H. Moglia Director
Allen N. Jones Director
Stephen G. Bodurtha Director
Steven B. Olgin Vice President, Secretary and
Director of Administration
John R. Frawley, Jr. was born in 1943. Mr. Frawley is
Chairman, Chief Executive Officer, President and a Director of MLIP and
Co-Chairman of MLF. He joined Merrill Lynch Pierce Fenner & Smith Incorporated
("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 formation in 1990 through
its dissolution in 1994. Mr. Frawley has served four consecutive one-year terms
as Chairman of the Managed Funds Association (formerly, the Managed Futures
Association), a national trade association that represents the managed futures,
hedge funds and fund of funds industry. Mr. Frawley currently serves as a member
of the CFTC's Global Markets Advisory Committee.
Jeffrey F. Chandor was born in 1942. Mr. Chandor is Senior
Vice President, 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
International Institutional Equities, Equity Derivatives 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. Mr. Chandor is
serving a two-year term as a director of the Managed Funds Association.
Jo Ann Di Dario was born in 1946. Ms. Di Dario is, through
April 30, 1999, Vice President, Chief Financial Officer and Treasurer of MLIP.
Before joining MLIP in May 1998, she was self-employed for one year. From
February 1996 to May 1997, she worked as a consultant for Global Asset
Management, an international mutual fund organizer and operator headquartered in
London, where she offered advice on restructuring their back-office operations.
From May 1992 to January 1996, she served as a Vice President of Meridian Bank
Corporation, a regional
26
<PAGE>
bank holding company. She was responsible for managing the treasury operations
of Meridian Bank Corporation including its wholly-owned subsidiary, Meridian
Investment Company Inc. From September 1991 to May 1992, Ms. Di Dario managed
the Domestic Treasury Operations of First Fidelity Bank, a regional bank. From
January 1991 to September 1991, Ms. Di Dario was self-employed. For the previous
five years, Ms. Di Dario was Vice President, Secretary and Controller of Caxton
Corporation, a Commodity Pool Operator and Commodity Trading Advisor. Her
background includes seven years of public accounting experience, and she
graduated with high honors from Stockton State College with a Bachelor of
Science degree in Accounting.
Michael L. Pungello was born in 1957. Effective May 1, 1999,
Mr. Pungello will become Vice President, Chief Financial Officer and Treasurer
of MLIP. He was First Vice President and Senior Director of Finance for Merrill
Lynch's Operations, Services and Technology Group from January 1998 to March
1999. Prior to that, Mr. Pungello spent over 18 years with Deloitte & Touche
LLP, and was a partner in their Financial Services practice from June 1990 to
December 1997. He graduated from Fordham University in 1979 with a Bachelor of
Science degree in accounting and received his Master of Business Administration
degree in Finance from New York University in 1987.
Joseph H. Moglia was born in 1949. Mr. Moglia is a Director of
MLIP. In 1971, he graduated from Fordham University with a Bachelor of Arts
degree in Economics. He later received his Master of Science degree from the
University of Delaware. He taught at the high school and college level for
sixteen years. Mr. Moglia joined MLPF&S in 1984, and has served in a number of
senior roles, including Director of New York Fixed Income Institutional Sales,
Director of Global Fixed Income Institutional Sales, and Director of the
Municipal Division. He is currently Senior Vice President and Director of the
Investment Strategy and Product Group in Merrill Lynch Private Client, and
Director of Middle Markets.
Allen N. Jones was born in 1942. Mr. Jones is a Director of
MLIP and, from July 1995 until January 1998, Mr. Jones was also Chairman of the
Board of Directors 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. From February 1994 to April
1997, Mr. Jones was the Director of Individual Financial Services of the Merrill
Lynch Private Client Group. In April 1997, Mr. Jones became the Director of
Private Client marketing.
Stephen G. Bodurtha was born in 1958. Mr. Bodurtha is a
Director of MLIP. In 1980, Mr. Bodurtha graduated magna cum laude from Wesleyan
University, Middletown, Connecticut with a Bachelor of Arts degree in
Government. From 1980 to 1983, Mr. Bodurtha worked in the Investment Banking
Division of Merrill Lynch. In 1985, he was awarded his Master of Business
Administration degree from Harvard University, where he also served as
Associates Fellow (1985 to 1986). From 1986 to 1989, Mr. Bodurtha held the
positions of Associate and Vice President with Kidder, Peabody & Co.,
Incorporated where he worked in their Financial Futures & Options Group. Mr.
Bodurtha joined MLPF&S in 1989 and has held the position of First Vice President
since 1995. He has been the Director in charge of the Structured Investments
Group of MLPF&S since 1995.
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 Funds Association's Government Relations Committee and
has served as an arbitrator for the NFA. Mr. Olgin is also a member of the
Committee on Futures Regulation of the Association of the Bar of the City of New
York.
As of December 31, 1998, the principals of MLIP had no
investment in the Fund, and MLIP's general partnership interest was valued at
$644,802.
MLIP acts as general partner to twelve 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 (SM) L.P., The SECTOR Strategy Fund (SM)
27
<PAGE>
II L.P., The SECTOR Strategy Fund (SM) V L.P., The SECTOR Strategy Fund (SM) VI
L.P., ML Global Horizons L.P., ML Principal Protection 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:
-----------------------------
Not applicable.
Item 11: Executive Compensation
----------------------
The officers of the General Partner are remunerated by the
General Partner 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 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, 1998, no person or "group" is known to be
or have been the beneficial owner of more than 5% 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, 1998, the Trading Advisors owned 515 Series
A Units, 500 Series B Units and 1,000 Series C Units and the General Partner
owned 504 Series A Units, 1,338 Series B Units and 926 Series C Units
(unit-equivalent general partnership interests) which was, in each case, less
than 2% of each series of the total Units outstanding, respectively.
(c) Changes in Control:
------------------
None.
28
<PAGE>
Item 13: Certain Relationships and Related Transactions
----------------------------------------------
(a) Transactions Between Merrill Lynch and the Fund
-----------------------------------------------
All of the service providers to the Fund, other than the
Advisors, are affiliates of Merrill Lynch. Merrill Lynch negotiated with the
Advisors over the level of its advisory fees and Profit Shares. However, none of
the fees paid by the Fund to any Merrill Lynch party were negotiated, and they
are higher than would have been obtained in arm's-length bargaining.
The Fund pays Merrill Lynch substantial Brokerage Commissions
and Administrative Fees as well as bid-ask spreads on forward currency trades.
The Fund also pays MLF interest on short-term loans extended by MLF to cover
losses on foreign currency positions.
Within the Merrill Lynch organization, MLIP is the direct
beneficiary of the revenues received by different Merrill Lynch entities from
the Fund. MLIP controls the management of the Fund and serves as its promoter.
Although MLIP has not sold any assets, directly or indirectly, to the Fund, MLIP
makes substantial profits from the Fund due to the foregoing revenues.
No loans have been, are or will be outstanding between MLIP or
any of its principals and the Fund.
MLIP pays substantial selling commissions and trailing
commissions to MLPF&S for distributing the Units. MLIP is ultimately paid back
for these expenditures from the revenues it receives from the Fund.
(b) Certain Business Relationships:
------------------------------
MLF, an affiliate of the General Partner, acts as the
principal commodity broker for the Partnership.
In 1998 the Partnership expensed: (i) Brokerage Commissions of
$1,264,141 to the Commodity Broker, which included $1,704,043 in consulting fees
earned by the Trading Advisors; and (ii) Administrative Fees of $33,266 to MLIP.
In addition, MLIP and its affiliates may have derived certain economic benefits
from possession of the Fund's assets, as well as from foreign exchange and EFP
trading.
(c) Indebtedness of Management:
--------------------------
The Partnership is prohibited from making any loans, to
management or otherwise.
(d) Transactions with Promoters:
---------------------------
Not applicable.
29
<PAGE>
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
<TABLE>
<S> <C> <C>
(a)1. Financial Statements: Page
-------------------- ----
Independent Auditors' Report 1
Statements of Financial Condition as of December 31, 1998 and 1997 2
For the years ended December 31, 1998, 1997 and 1996:
Statements of Income 3
Statements of Changes in Partners' Capital 4
Notes to Financial Statements 5-15
</TABLE>
(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:
<TABLE>
<S> <C>
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.
10.02(a) Form of Consulting Agreement between each trading advisor, the Partnership and
Merrill Lynch Futures Inc.
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
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 International Bank, Merrill Lynch Investment Partners Inc., Merrill
Lynch Futures Inc. and the Fund.
Exhibit 10.06: Is incorporated herein by reference from
- ------------- Exhibit 10.06 contained in the Registrant's report on
Form 10-K for the year ended December 31, 1996.
10.07(a) Form of Advisory and Consulting Agreement Amendment
among Merrill Lynch Investment Partners Inc., each
Advisor, the Fund and Merrill Lynch Futures.
Exhibit 10.07(a): Is incorporated herein by reference from Exhibit 10.07(a)
- ---------------- contained in the Registrant's report on Form 10-K for the
year ended December 31, 1996.
10.07(b) Form of Amendment to the Customer Agreement among the Partnership and MLF.
Exhibit 10.07(b) Is incorporated herein by reference from Exhibit 10.07(b) contained in the
- ---------------- Registrant's report on Form 10-K for the year ended December 31, 1996.
13.01 1998 Annual Report and Independent Auditors' Report.
Exhibit 13.01: Is filed herewith.
13.01(a) 1998 Annual Reports and Independent Auditors' Reports for the following
Trading Limited Liability Companies sponsored by Merrill Lynch Investment
Partners' Inc.:
ML Millburn Global L.L.C.
ML JWH Financial and Metals Portfolio L.L.C.
Exhibit 13.01(a): Is incorporated herein by reference from Form 10-K (fiscal year ended December
- ---------------- 31, 1998) Commission File number 0-18702 for The S.E.C.T.O.R. Fund (SM) L.P.
(Registration Statement File No. 33-34432 filed on May 25, 1990 under the
Securities Act of 1933).
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.
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
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
1998.
</TABLE>
32
<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.
Chairman, Chief Executive Officer,
President 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 March 25, 1999 by the
following persons on behalf of the Registrant and in the capacities indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ John R. Frawley, Jr. Chairman, Chief Executive Officer, President and Director March 25, 1999
- ------------------------ (Principal Executive Officer)
John R. Frawley, Jr.
/s/ Jo Ann Di Dario Vice President, Chief Financial Officer, and Treasurer March 25, 1999
- ------------------------ (Principal Financial and Accounting Officer)
Jo Ann Di Dario
/s/ Jeffrey F. Chandor Senior Vice President, Director of Sales, March 25, 1999
- ------------------------ Marketing and Research, and Director
Jeffrey F. Chandor
/s/ Allen N. Jones Director March 25, 1999
- ------------------------
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.)
<TABLE>
<S> <C> <C>
MERRILL LYNCH INVESTMENT General Partner of Registrant March 25, 1999
PARTNERS INC.
By: /s/John R. Frawley, Jr.
- ----------------------------
John R. Frawley, Jr.
</TABLE>
33
<PAGE>
JOHN W. HENRY & CO./MILLBURN L.P.
1998 FORM 10-K
INDEX TO EXHIBITS
-----------------
Exhibit
Exhibit 13.01 1998 Annual Report and Independent Auditors' Report
<PAGE>
JOHN W. HENRY & CO./ MILLBURN L.P.
(A Delaware Limited Partnership)
Financial Statements for the years ended
December 31, 1998, 1997 and 1996 and
Independent Auditors' Report
[LOGO] Merrill Lynch
<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 ninth fiscal year of trading on December 31, 1998 with a Net Asset
Value ("NAV") per Unit of $296.13, representing an increase of 4.23% from the
December 31, 1997 NAV per Unit of $284.11. During 1998, trading profits were
generated in the interest rate markets, while losses were incurred in the
metals, currency and stock index markets.
Global interest rate markets provided the Fund with its most profitable
positions for the first quarter, particularly in European bonds where 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. In the second quarter, swings in the U.S. dollar
and developments in Japan affected bond markets, causing the Fund's interest
rate trading to result in losses. This was turned around in the third quarter,
as markets worldwide were turned upside down and the Fund's non-correlation with
general equity and debt markets was strongly exhibited. Global investors staged
a major flight to quality, resulting in a significant widening of credit spreads
on a global basis. In October, investors pushed the yields on U.S. Treasury
bonds to a 31-year low. The long bond yield fell about 75 basis points in 1998
as the world economy slowed more than expected, inflation continued to fall, the
anticipated small U.S. budget deficit turned into substantial surplus, and the
Federal Reserve lowered interest rates.
Gold prices began the year drifting sideways, and continued to weaken following
news in the second quarter of a European Central Bank consensus that ten to
fifteen percent of reserves should be made up of gold bullion, which was at the
low end of expectations. Gold was unable to extend third quarter rallies or to
build any significant upside momentum, resulting in a trendless environment.
This was also the case in the fourth quarter, as gold's cost of production
declined. Also, silver markets remained range-bound, while also experiencing a
significant selloff in November, and aluminum traded at its lowest levels since
1994, with many aluminum smelters operating at a loss.
In currency markets, results early in the year were mixed, although marginally
unprofitable. During the second quarter, the Japanese yen weakened during June
to an eight-year low versus the U.S. dollar. In the third quarter, Japan's
problems spread to other sectors of the global economy, causing commodities
prices to decline as demand from the Asian economies weakened, and Japan's
deepening recession and credit crunch continued through the fourth quarter.
Trading results in stock index markets were also mixed in early 1998, 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. Second quarter results were profitable as the Asia-Pacific region's
equity markets weakened across the board. In particular, Hong Kong's Hang Seng
index trended downward during most of the second quarter and traded at a three-
year low. As U.S. equity markets declined in July and August, the Fund profited
from short positions in the S&P 500, most notably during August, when the index
dropped 14.5%. Volatility in September made for a difficult trading environment
in the stock index sector, and the Fund incurred modest losses, although results
remained profitable for the quarter and the year overall in these markets.
<PAGE>
Despite a year of unprecedented volatility in key global markets, we were
pleased with the Fund's ability to generate a profit by trading both the long
and short side of a variety of markets, demonstrating its value as an element of
diversification in an investor's portfolio. We look forward to 1999 and the
opportunities it may present.
Sincerely,
John R. Frawley, Jr.
President
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 eighth fiscal year of trading on December 31, 1998 with a Net Asset
Value ("NAV") per Unit of $240.61, representing an increase of 4.22% from the
December 31, 1997 NAV per Unit of $230.87. During 1998, trading profits were
generated in the interest rate markets, while losses were incurred in the
metals, currency and stock index markets.
Global interest rate markets provided the Fund with its most profitable
positions for the first quarter, particularly in European bonds where 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. In the second quarter, swings in the U.S. dollar
and developments in Japan affected bond markets, causing the Fund's interest
rate trading to result in losses. This was turned around in the third quarter,
as markets worldwide were turned upside down and the Fund's non-correlation with
general equity and debt markets was strongly exhibited. Global investors staged
a major flight to quality, resulting in a significant widening of credit spreads
on a global basis. In October, investors pushed the yields on U.S. Treasury
bonds to a 31-year low. The long bond yield fell about 75 basis points in 1998
as the world economy slowed more than expected, inflation continued to fall, the
anticipated small U.S. budget deficit turned into substantial surplus, and the
Federal Reserve lowered interest rates.
Gold prices began the year drifting sideways, and continued to weaken following
news in the second quarter of a European Central Bank consensus that ten to
fifteen percent of reserves should be made up of gold bullion, which was at the
low end of expectations. Gold was unable to extend third quarter rallies or to
build any significant upside momentum, resulting in a trendless environment.
This was also the case in the fourth quarter, as gold's cost of production
declined. Also, silver markets remained range-bound, while also experiencing a
significant selloff in November, and aluminum traded at its lowest levels since
1994, with many aluminum smelters operating at a loss.
In currency markets, results early in the year were mixed, although marginally
unprofitable. During the second quarter, the Japanese yen weakened during June
to an eight-year low versus the U.S. dollar. In the third quarter, Japan's
problems spread to other sectors of the global economy, causing commodities
prices to decline as demand from the Asian economies weakened, and Japan's
deepening recession and credit crunch continued through the fourth quarter.
Trading results in stock index markets were also mixed in early 1998, 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. Second quarter results were profitable as the Asia-Pacific region's
equity markets weakened across the board. In particular, Hong Kong's Hang Seng
index trended downward during most of the second quarter and traded at a three-
year low. As U.S. equity markets declined in July and August, the Fund profited
from short positions in the S&P 500, most notably during August, when the index
dropped 14.5%. Volatility in September made for a difficult trading environment
in the stock index sector, and the Fund incurred modest losses, although results
remained
<PAGE>
profitable for the quarter and the year overall in these markets.
Despite a year of unprecedented volatility in key global markets, we were
pleased with the Fund's ability to generate a profit by trading both the long
and short side of a variety of markets, demonstrating its value as an element of
diversification in an investor's portfolio. We look forward to 1999 and the
opportunities it may present.
Sincerely,
John R. Frawley, Jr.
President
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 seventh fiscal year of trading on December 31, 1998 with a Net Asset
Value ("NAV") per Unit of $187.52, representing an increase of 4.22% from the
December 31, 1997 NAV per Unit of $179.92. During 1998, trading profits were
generated in the interest rate markets, while losses were incurred in the
metals, currency and stock index markets.
Global interest rate markets provided the Fund with its most profitable
positions for the first quarter, particularly in European bonds where 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. In the second quarter, swings in the U.S. dollar
and developments in Japan affected bond markets, causing the Fund's interest
rate trading to result in losses. This was turned around in the third quarter,
as markets worldwide were turned upside down and the Fund's non-correlation with
general equity and debt markets was strongly exhibited. Global investors staged
a major flight to quality, resulting in a significant widening of credit spreads
on a global basis. In October, investors pushed the yields on U.S. Treasury
bonds to a 31-year low. The long bond yield fell about 75 basis points in 1998
as the world economy slowed more than expected, inflation continued to fall, the
anticipated small U.S. budget deficit turned into substantial surplus, and the
Federal Reserve lowered interest rates.
Gold prices began the year drifting sideways, and continued to weaken following
news in the second quarter of a European Central Bank consensus that ten to
fifteen percent of reserves should be made up of gold bullion, which was at the
low end of expectations. Gold was unable to extend third quarter rallies or to
build any significant upside momentum, resulting in a trendless environment.
This was also the case in the fourth quarter, as gold's cost of production
declined. Also, silver markets remained range-bound, while also experiencing a
significant selloff in November, and aluminum traded at its lowest levels since
1994, with many aluminum smelters operating at a loss.
In currency markets, results early in the year were mixed, although marginally
unprofitable. During the second quarter the Japanese yen weakened during June
to an eight-year low versus the U.S. dollar. In the third quarter, Japan's
problems spread to other sectors of the global economy, causing commodities
prices to decline as demand from the Asian economies weakened, and Japan's
deepening recession and credit crunch continued through the fourth quarter.
Trading results in stock index markets were also mixed in early 1998, 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. Second quarter results were profitable as the Asia-Pacific region's
equity markets weakened across the board. In particular, Hong Kong's Hang Seng
index trended downward during most of the second quarter and traded at a three-
year low. As U.S. equity markets declined in July and August, the Fund profited
from short positions in the S&P 500, most notably during August, when the index
dropped 14.5%. Volatility in September made for a difficult trading environment
in the stock index sector, and the Fund incurred modest losses, although results
remained
<PAGE>
profitable for the quarter and the year overall in these markets.
Despite a year of unprecedented volatility in key global markets, we were
pleased with the Fund's ability to generate a profit by trading both the long
and short side of a variety of markets, demonstrating its value as an element of
diversification in an investor's portfolio. We look forward to 1999 and the
opportunities it may present.
Sincerely,
John R. Frawley, Jr.
President
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, 1998, 1997 AND 1996:
Statements of Financial Condition 2
Statements of Income 3
Statements of Changes in Partners' Capital 4
Notes to Financial Statements 5-15
<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. (the "Partnership") as of December 31, 1998 and 1997,
and the related statements of income and of changes in partners' capital for
each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of its operations for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
February 4, 1999
<PAGE>
JOHN W. HENRY & CO./MILLBURN L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
Investments (Note 6) $ 56,163,313 $ 63,024,164
Receivable from investments (Note 6) 259,704 514,158
------------ -----------
TOTAL $ 56,423,017 $ 63,538,322
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Redemptions payable $ 259,704 $ 514,158
------------ ------------
Total liabilities 259,704 514,158
------------ -----------
PARTNERS' CAPITAL:
General Partner:
(504 and 780 Series A Units outstanding) 149,246 221,605
(1,338 and 1,976 Series B Units outstanding) 321,921 456,174
(926 and 1,439 Series C Units outstanding) 173,635 258,899
Limited Partners:
(44,678 and 50,992 Series A Units outstanding) 13,230,285 14,487,473
(115,421 and 135,244 Series B Units outstanding) 27,771,959 31,223,304
(77,411 and 91,020 Series C Units outstanding) 14,516,267 16,376,709
------------ -----------
Total partners' capital 56,163,313 63,024,164
------------ -----------
TOTAL $ 56,423,017 $ 63,538,322
============ ===========
NET ASSET VALUE PER UNIT
Series A $ 296.13 $ 284.11
============ ============
Series B $ 240.61 $ 230.87
============ ============
Series C $ 187.52 $ 179.92
============ ============
</TABLE>
See notes to financial statements.
2
<PAGE>
JOHN W. HENRY & CO./MILLBURN L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
REVENUES:
Trading profit (loss):
Realized $ - $ - $ 8,749,410
Change in unrealized - - (1,760,218)
------------------ ------------------ ------------------
Total trading results - - 6,989,192
Interest income (Note 2) - - 1,842,887
------------------ ------------------ ------------------
Total revenues - - 8,832,079
------------------ ------------------ ------------------
EXPENSES:
Brokerage commissions (Note 2) - - 5,406,851
Profit Shares (Note 3) - - 97,468
Administrative fees (Note 2) - - 115,039
------------------ ------------------ ------------------
Total expenses - - 5,619,358
------------------ ------------------ ------------------
INCOME FROM INVESTMENTS (Note 6) 1,867,451 7,357,688 7,171,609
------------------ ------------------ ------------------
NET INCOME $ 1,867,451 $ 7,357,688 $ 10,384,330
================== ================== ==================
NET INCOME PER UNIT:
Weighted average number of General Partner
and Limited Partner Units outstanding (Note 5) 264,787 294,640 327,875
================== ================== ==================
Net income per weighted average
General Partner and Limited
Partner Unit $ 7.05 $ 24.97 $ 31.67
================== ================== ==================
</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 YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series Series Series Limited Partners
------ ------- ------- ------------------------------------------
A B C Series Series Series
Units Units Units A B C
------ ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
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
Redemptions (4,604) (11,308) (8,236) (1,255,814) (2,498,029) (1,413,769)
Net income - - - 1,702,808 3,638,849 1,912,122
------ ------- ------- ------------ ------------ ------------
PARTNERS' CAPITAL,
DECEMBER 31, 1997 51,772 137,220 92,459 14,487,473 31,223,304 16,376,709
Redemptions (6,590) (20,461) (14,122) (1,665,001) (4,413,933) (2,362,377)
Net income (loss) - - - 407,813 962,588 501,935
------ ------- ------- ------------ ------------ ------------
PARTNERS' CAPITAL,
DECEMBER 31, 1998 45,182 116,759 78,337 $ 13,230,285 $ 27,771,959 $14,516,267
====== ======= ======= ============= ============ ===========
<CAPTION>
General Partner
-------------------------------------------------
Series Series Series
A B C Total
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
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
Redemptions - - - (5,167,612)
Net income 24,622 50,580 28,707 7,357,688
-------- --------- -------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1997 221,605 456,174 258,899 63,024,164
Redemptions (70,937) (133,279) (82,775) (8,728,302)
Net income (loss) (1,422) (974) (2,489) 1,867,451
-------- --------- -------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1998 $149,246 $ 321,921 $173,635 $56,163,313
======== ========= ======== ===========
</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
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 with respect to 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 with respect to the
Series C Units on January 2, 1992. (Series A, B and C units are,
hereinafter, collectively referred to as "Units.") The Partnership engages
(currently, through investments in limited liability companies (see below))
in the speculative trading of futures, options on futures and forward
contracts on a wide range of commodities. Merrill Lynch 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. Merrill Lynch Futures Inc. ("MLF"), an affiliate of Merrill
Lynch, is the Partnership's 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 such
Series in proportion to their respective interests in it.
John W. Henry & Company, Inc. and Millburn Ridgefield Corporation (each an
"Advisor", together, "Advisors") have been the Partnership's only trading
advisors since inception. Each Advisor was allocated 50% of the total assets
of each Series as of the date such Series began trading. Subsequently, these
allocations have varied over time. MLIP may, in its discretion, reallocate
assets as of any month-end. As of December 1, 1996, the Partnership placed
all of its assets under the management of the Advisors through investing in
private limited liability companies ("Trading LLCs" or "LLCs"), as described
in Note 6. Certain of the following notes to financial statements are
directly related to Partnership assets managed directly by the Advisors.
However, from December 1, 1996 on, references are to the Partnership's
investment in the Trading LLCs. The placement of assets into the LLCs did
not change the operation or fee structure of the Partnership. The
administrative authority over the Partnership remains with MLIP.
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.
5
<PAGE>
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 on open contracts in the Statements of Financial Condition
at the difference between the original contract value and the market value
(for those commodity interests for which market quotations are readily
available) or at fair value. The change in unrealized profit on open
contracts from one period to the next is reflected in change in unrealized in
the Statements of Income. Fair value is based on quoted market prices on the
exchange or market on which the contract is traded. (There were no open
contracts as of December 31, 1998, 1997 and 1996.) As of December 31, 1998,
1997 and 1996, revenue is recognized only from investments (See Note 6).
Foreign Currency Transactions
-----------------------------
The Partnership's functional currency is the U.S. dollar; however, it
transacts business in currencies other than the U.S. dollar. Assets and
liabilities denominated in currencies other than the U.S. dollar are
translated into U.S. dollars at the rates in effect at the dates of the
Statements of Financial Condition. Income and expense items denominated in
currencies other than the U.S. dollar are translated into U.S. dollars at the
rates in effect during the period. Gains and losses resulting from the
translation to U.S. dollars are reported in total trading results currently.
Operating Expenses
------------------
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.
Income Taxes
------------
No provision for income taxes has been made in the accompanying financial
statements as each Partner is individually responsible for such Partner's
respective share of the income and expenses of the series in which such
partner is invested as reported for income tax purposes.
Redemptions
-----------
A Limited Partner may 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.
Recently Issued Accounting Pronouncements
-----------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting standard No. 133, "Accounting for Derivative Instrument
and Hedging Activities" (the "Statement"). Such Statement is effective for
fiscal years commencing after June 15, 1999. The General Partner does not
believe that the Statement will have a significant effect on the financial
statements of the Partnership.
6
<PAGE>
2. RELATED PARTY TRANSACTIONS
The Partnership's U.S. dollar assets are maintained at MLF. On assets held in
U.S. dollars, Merrill Lynch credits the Partnership with interest at the
prevailing 91-day U.S. Treasury bill rate. The Partnership is credited with
interest on any of its net gains actually held by Merrill Lynch in non-U.S.
dollar currencies at a prevailing local rate received by Merrill Lynch.
Merrill Lynch may derive certain economic benefit, in excess of the interest
which Merrill Lynch pays to the Partnership, from possession of such assets.
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 General Partner determined that there may have been a miscalculation in
the interest credited to the Partnership for a period prior to November 1996
(such period may extend prior to that covered by these financial statements).
Accordingly, the General Partner credited current and former investors who
maintained a Merrill Lynch customer account in December 1997 with interest
which was compounded. Former investors who do not maintain a Merrill Lynch
customer account have been credited as their response forms are processed.
The total amount of the adjustment was approximately $779,000 for Series A
Units, $1,739,000 for Series B Units and $773,000 for Series C Units. Since
this amount was paid directly to investors by the General Partner, it is not
reflected in these financial statements. The General Partner determined that
interest was calculated appropriately since November 1996.
Prior to January 1, 1996, 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). Effective
February 1, 1997, the Partnership's brokerage commission percentage was
reduced to .792 of 1% (a 9.50% annual rate). 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.
MLIP estimates that the round-turn equivalent commission rate charged to the
Partnership during the year ended 1996 was approximately $143 (not including,
in calculating round-turn equivalents, forward contracts on a future-
equivalent basis). MLIP estimates that the round-turn equivalent rates
charged to ML Millburn Global L.L.C. ("Millburn LLC") (See Note 6) during the
years ended 1998 and 1997 were approximately $151 and $162, respectively.
MLIP estimates that the round-turn equivalent rates charged to ML JWH
Financial and Metals Portfolio L.L.C. ("JWH LLC") (See Note 6) during the
years ended 1998 and 1997 were approximately $133 and $198, respectively.
MLF pays the Advisors annual consulting fees up to 4% of the average
month-end assets allocated to them for management.
Many of the Partnership's currency trades are executed in the spot
and forward foreign exchange markets (the "FX Markets") where there are no
direct execution costs. Instead, the participants, banks and dealers,
including Merrill Lynch International Bank ("MLIB"), in the FX Markets take a
"spread" between the prices at which they are prepared to buy and sell a
particular currency and such spreads are built into the pricing of the spot
or forward contracts with the Partnership. The General Partner anticipates
that some of the Partnership's foreign currency trades will be executed
through MLIB, an affiliate of the General Partner. MLIB has discontinued the
operation of the foreign exchange service desk, which included seeking
multiple quotes from counterparties unrelated to MLIB for a service fee and
trade execution.
7
<PAGE>
In its exchange of futures for physical ("EFP") trading, the Partnership
acquires cash currency positions through banks and dealers, including Merrill
Lynch. The Partnership pays a spread when it exchanges these positions for
futures. This spread 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 the banks and dealers, which may
include a Merrill Lynch entity.
3. AGREEMENTS
The Partnership entered into Advisory Agreements. The Advisory Agreements
with each Trading Advisor for each series of Units are largely identical.
In the case of Trading LLCs, as defined in Note 6, the Trading LLCs entered
the Advisory Agreements with the Advisors.
Profit Shares of either 15% or 20%, of any New Trading Profit, as defined,
either as of the end of each calendar quarter or year, were paid to each
Advisor based on the performance of the Partnership account managed by such
Advisor, irrespective of the overall performance of the Partnership. Profit
Shares are also paid out in respect of Units redeemed as of the end of
interim months, to the extent the applicable percentage of any New Trading
Profits attributable to such Units.
8
<PAGE>
4. STATEMENT OF INCOME BY SERIES
The profit and loss of the Series A, Series B and Series C Units for the
years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Series A
---------------------------------------------------------
1998 1997 1996
---------------- ---------------- ------------------
<S> <C> <C> <C>
REVENUES:
Trading profit (loss):
Realized $ - $ - $ 2,029,650
Change in unrealized - - (382,321)
---------------- ---------------- ------------------
Total trading results - - 1,647,329
Interest income (Note 2) - - 417,739
---------------- ---------------- ------------------
Total revenues - - 2,065,068
---------------- ---------------- ------------------
EXPENSES:
Profit Shares (Note 3) - - 26,690
Brokerage commissions (Note 2) - - 1,239,114
Administrative fees (Note 2) - - 26,364
---------------- ---------------- ------------------
Total expenses - - 1,292,168
---------------- ---------------- ------------------
Income from investments (Note 6) 406,391 1,727,430 1,746,113
---------------- ---------------- ------------------
NET INCOME $ 406,391 $ 1,727,430 $ 2,519,013
================ ================ ==================
NET INCOME PER
UNIT OF PARTNERSHIP
INTEREST:
Weighted average number
of units outstanding (Note 5) 45,584 54,036 59,766
---------------- ---------------- ------------------
Net income per weighted
Average General Partner and
Limited Partner Unit $ 8.92 $ 31.97 $ 42.15
================ ================ ==================
<CAPTION>
Series B
-----------------------------------------------------------
1998 1997 1996
----------------- ------------------ ------------------
<S> <C> <C> <C>
REVENUES:
Trading profit (loss):
Realized $ - $ - $ 4,349,607
Change in unrealized - - (877,666)
----------------- ------------------ ------------------
Total trading results - - 3,471,941
Interest income (Note 2) - - 920,755
----------------- ------------------ ------------------
Total revenues - - 4,392,696
----------------- ------------------ ------------------
EXPENSES:
Profit Shares (Note 3) - - 44,910
Brokerage commissions (Note 2) - - 2,695,105
Administrative fees (Note 2) - - 57,343
----------------- ------------------ ------------------
Total expenses - - 2,797,358
----------------- ------------------ ------------------
Income from investments (Note 6) 961,614 3,689,429 3,562,401
----------------- ------------------ ------------------
NET INCOME $ 961,614 $ 3,689,429 $ 5,157,739
================= ================== ==================
NET INCOME PER
UNIT OF PARTNERSHIP
INTEREST:
Weighted average number
of units outstanding (Note 5) 119,686 143,414 158,197
----------------- ------------------ ------------------
Net income per weighted
Average General Partner and
Limited Partner Unit $ 8.03 $ 25.73 $ 32.60
================= ================== ==================
<CAPTION>
Series C
---------------------------------------------------------
1998 1997 1996
---------------- ---------------- -----------------
<S> <C> <C> <C>
REVENUES:
Trading profit (loss):
Realized $ - $ - $ 2,339,762
Change in unrealized - - (469,840)
---------------- ---------------- -----------------
Total trading results - - 1,869,922
Interest income (Note 2) - - 504,393
---------------- ---------------- -----------------
Total revenues - - 2,374,315
---------------- ---------------- -----------------
EXPENSES:
Profit Shares (Note 3) - - 25,868
Brokerage commissions (Note 2) - - 1,472,632
Administrative fees (Note 2) - - 31,332
---------------- ---------------- -----------------
Total expenses - - 1,529,832
---------------- ---------------- -----------------
Income from investments (Note 6) 499,446 1,940,829 1,863,095
---------------- ---------------- -----------------
NET INCOME $ 499,446 $ 1,940,829 $ 2,707,578
================ ================ =================
NET INCOME PER
UNIT OF PARTNERSHIP
INTEREST:
Weighted average number
of units outstanding (Note 5) 81,849 97,190 109,912
---------------- ---------------- -----------------
Net income per weighted
Average General Partner and
Limited Partner Unit $ 6.10 $ 19.97 $ 24.63
================ ================ =================
</TABLE>
9
<PAGE>
5. WEIGHTED AVERAGE UNITS
The weighted average number of Units of each series outstanding was computed
for purposes of disclosing net income per weighted average Unit. The weighted
average number of Units of each series outstanding at December 31, 1998, 1997
and 1996 equals the Units of such series outstanding as of such date,
adjusted proportionately for Units redeemed based on the respective length of
time each was outstanding during the year.
6. INVESTMENTS
The investments in the Trading LLCs are reflected in the financial statements
at fair value based upon the interest of each series of Units 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 Statements of Income as income from investments.
At December 31, 1998 and 1997, the Partnership had investments in the JWH LLC
and Millburn LLC as follows:
1998 1997
---------------- ----------------
JWH LLC $ 28,886,199 $ 31,979,914
Millburn LLC 27,277,114 31,044,250
---------------- ----------------
Total $ 56,163,313 $ 63,024,164
================ ================
10
<PAGE>
Total revenues and fees with respect to such investments are set forth as
follows:
<TABLE>
<CAPTION>
For the year ended Total Brokerage Administrative Profit Income from
December 31, 1998 Revenues Commissions Fees Shares Investments
----------------- ------------------------------------------------------------------------------
Series A Units
- ------------------------
<S> <C> <C> <C> <C> <C>
JWH LLC $ 995,747 $ 630,513 $ 16,592 $ 76,657 $ 271,985
Millburn LLC 829,825 633,628 16,674 45,117 134,406
----------------- ---------------- --------------- ----------------- -----------------
Total $ 1,825,572 $ 1,264,141 $ 33,266 $ 121,774 $ 406,391
================= ================ =============== ================= =================
Series B Units
- ------------------------
JWH LLC $ 2,200,199 $ 1,356,787 $ 35,705 $ 167,835 $ 639,872
Millburn LLC 1,832,991 1,374,689 36,176 100,384 321,742
----------------- ---------------- --------------- ----------------- -----------------
Total $ 4,033,190 $ 2,731,476 $ 71,881 $ 268,219 $ 961,614
================= ================ =============== ================= =================
Series C Units
- ------------------------
JWH LLC $ 1,148,318 $ 712,552 $ 18,752 $ 88,069 $ 328,945
Millburn LLC 962,693 721,776 18,994 51,422 170,501
----------------- ---------------- --------------- ----------------- -----------------
Total $ 2,111,011 $ 1,434,328 $ 37,746 $ 139,491 $ 499,446
================= ================ =============== ================= =================
Total - All Series
- ------------------------
JWH LLC $ 4,344,264 $ 2,699,852 $ 71,049 $ 332,561 $ 1,240,802
Millburn LLC 3,625,509 2,730,093 71,844 196,923 626,649
----------------- ---------------- --------------- ----------------- -----------------
Total $ 7,969,773 $ 5,429,945 $ 142,893 $ 529,484 $ 1,867,451
================= ================ =============== ================= =================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
For the year ended Total Brokerage Administrative Profit Income from
December 31, 1997 Revenues Commissions Fees Shares Investments
----------------- -------------------------------------------------------- -----------------
Series A Units
- ----------------------
<S> <C> <C> <C> <C> <C>
JWH LLC $ 1,759,089 $ 690,201 $ 17,813 $ 103,624 $ 947,451
Millburn LLC 1,758,987 751,834 19,390 207,784 779,979
----------------- ---------------- --------------- ----------------- -----------------
Total $ 3,518,076 $ 1,442,035 $ 37,203 $ 311,408 $ 1,727,430
================= ================ =============== ================= =================
Series B Units
- ----------------------
JWH LLC $ 3,771,359 $ 1,484,456 $ 38,315 $ 221,754 $ 2,026,834
Millburn LLC 3,773,695 1,625,922 41,942 443,236 1,662,595
----------------- ---------------- --------------- ----------------- -----------------
Total $ 7,545,054 $ 3,110,378 $ 80,257 $ 664,990 $ 3,689,429
================= ================ =============== ================= =================
Series C Units
- ----------------------
JWH LLC $ 1,981,710 $ 783,770 $ 20,229 $ 116,818 $ 1,060,893
Millburn LLC 1,995,533 858,854 22,154 234,589 879,936
----------------- ---------------- --------------- ----------------- -----------------
Total $ 3,977,243 $ 1,642,624 $ 42,383 $ 351,407 $ 1,940,829
================= ================ =============== ================= =================
Total - All Series
- ------------------------
JWH LLC $ 7,512,158 $ 2,958,427 $ 76,357 $ 442,196 $ 4,035,178
Millburn LLC 7,528,215 3,236,610 83,486 885,609 3,322,510
----------------- ---------------- --------------- ----------------- -----------------
Total $15,040,373 $ 6,195,037 $ 159,843 $ 1,327,805 $ 7,357,688
================= ================ =============== ================= =================
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
For the year ended Total Brokerage Administrative Profit Income from
December 31, 1996 Revenues Commissions Fees Shares Investments
----------------- -------------------------------------------------------- -----------------
Series A Units
- ----------------------
<S> <C> <C> <C> <C> <C>
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>
Condensed statements of financial condition and statements of operations for
JWH LLC and Millburn LLC are set forth as follows:
<TABLE>
<CAPTION>
JWH Millburn JWH Millburn
LLC LLC LLC LLC
December 31, 1998 December 31, 1998 December 31, 1997 December 31, 1997
------------------------- ------------------------- ------------------------- -----------------------
<S> <C> <C> <C> <C>
Assets $ 29,277,397 $ 27,815,000 $ 65,048,564 $ 35,584,936
========================= ========================= ========================= ========================
Liabilities $ 391,198 $ 537,886 $ 3,689,658 $ 1,454,658
Members' Capital 28,886,199 27,277,114 61,358,906 34,130,278
------------------------- ------------------------- ------------------------- ------------------------
Total $ 29,277,397 $ 27,815,000 $ 65,048,564 $ 35,584,936
========================= ========================= ========================= ========================
For the year ended For the year ended For the year ended For the year ended
December 31, 1998 December 31, 1998 December 31, 1997 December 31, 1997
------------------------- ------------------------- ------------------------- ------------------------
Revenues $ 1,391,001 $ 3,593,650 $ 15,279,401 $ 8,303,430
Expenses 4,069,362 3,108,411 6,714,041 4,600,706
------------------------- ------------------------- ------------------------- ------------------------
Net (Loss) Income $ (2,678,361) $ 485,239 $ 8,565,360 $ 3,702,724
========================= ========================= ========================= ========================
</TABLE>
<TABLE>
<CAPTION>
JWH Millburn
LLC LLC
For the period from For the period from
October 1, 1996 to December 2, 1996 to
December 31, 1996 December 31, 1996
------------------------- -------------------------
<S> <C> <C>
Revenues $ 19,365,949 $ 450,619
Expenses 4,426,261 291,370
------------------------- -------------------------
Net (Loss) Income $ 14,939,688 $ 159,249
========================= =========================
</TABLE>
13
<PAGE>
7. FAIR VALUE AND OFF-BALANCE SHEET RISK
As of December 1, 1996, the Partnership invested all of its assets in the
Trading LLCs. Accordingly, the Partnership is invested indirectly in
derivative instruments, but does not itself hold any derivative positions.
Consequently, no such positions subsequent to November 30, 1996 are
reflected in these financial statements or in this Note 7.
For the period from January 1, 1996 to November 30, 1996, the Partnership
traded futures, options on futures and forward contracts in interest rates,
stock indices, currencies and metals. The Partnership's total trading
results by reporting category were as follows:
Total Trading
Results
-----------------
1996
-----------------
Interest Rates $ 5,080,346
Stock Indices (992,453)
Currencies 2,659,762
Metals 241,537
-----------------
$ 6,989,192
=================
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 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
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,
14
<PAGE>
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.
The Partnership, in its normal course of business, entered into various
contracts, with MLF acting as its commodity broker. Pursuant to the
brokerage arrangement with MLF (which included a netting arrangement), to the
extent that such trading resulted in receivables from and payables to MLF,
these receivables and payables were 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.
/s/ Jo Ann Di Dario
Jo Ann Di Dario
Chief Financial Officer
Merrill Lynch Investment Partners Inc.
General Partner of
John W. Henry & Co./Millburn L.P.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 0 0
<RECEIVABLES> 259,704 514,158
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 56,163,313 63,024,164
<PP&E> 0 0
<TOTAL-ASSETS> 56,423,017 63,538,322
<SHORT-TERM> 0 0
<PAYABLES> 259,704 514,158
<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> 56,163,313 63,024,164
<TOTAL-LIABILITY-AND-EQUITY> 56,423,017 63,538,322
<TRADING-REVENUE> 0 0
<INTEREST-DIVIDENDS> 0 0
<COMMISSIONS> 0 0
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 1,867,451 7,357,688
<INCOME-PRE-EXTRAORDINARY> 1,867,451 7,357,688
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,867,451 7,357,688
<EPS-PRIMARY> 7.05 24.97
<EPS-DILUTED> 7.05 24.97
</TABLE>
