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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2004
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-18215
JOHN W. HENRY & CO./MILLBURN L.P.
(Exact Name of Registrant as
specified in its charter)
Delaware 06-1287586
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
c/o Merrill Lynch Alternative Investments LLC
Princeton Corporate Campus
800 Scudders Mill Road - Section 2G
Plainsboro, New Jersey 08536
(Address of principal executive offices)
(Zip Code)
609-282-6996
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No/ /
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JOHN W. HENRY & CO./MILLBURN L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, DECEMBER 31,
2004 2003
(UNAUDITED)
-------------- --------------
ASSETS
Investments in Trading LLCs $ 22,230,444 $ 31,976,838
Receivable from Trading LLCs 93,913 226,885
-------------- --------------
TOTAL $ 22,324,357 $ 32,203,723
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Administrative fees and other payables $ 50,000 $ 6,098
Redemptions payable 43,913 220,787
-------------- --------------
Total liabilities 93,913 226,885
-------------- --------------
PARTNERS' CAPITAL:
General Partner:
(209 and 209 Series A Units) 62,841 83,679
(478 and 478 Series B Units) 116,616 155,512
(339 and 339 Series C Units) 64,475 85,946
Limited Partners:
(19,039 and 20,239 Series A Units) 5,724,565 8,103,322
(42,161 and 46,566 Series B Units) 10,285,670 15,149,651
(31,422 and 33,127 Series C Units) 5,976,277 8,398,728
-------------- --------------
Total partners' capital 22,230,444 31,976,838
-------------- --------------
TOTAL $ 22,324,357 $ 32,203,723
============== ==============
NET ASSET VALUE PER UNIT
Series A (Based on 19,248 and 20,448 Units outstanding) $ 300.68 $ 400.38
============== ==============
Series B (Based on 42,639 and 47,044 Units outstanding) $ 243.96 $ 325.34
============== ==============
Series C (Based on 31,761 and 33,466 Units outstanding) $ 190.19 $ 253.53
============== ==============
See notes to financial statements.
2
JOHN W. HENRY & CO./MILLBURN L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(unaudited)
FOR THE THREE FOR THE THREE FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2004 2003
-------------- -------------- -------------- --------------
REVENUES:
Trading profits (loss):
Realized $ (3,076,834) $ (1,697,962) $ (4,756,662) $ 7,225,096
Change in unrealized 1,579,555 2,207,298 (845,517) (1,006,397)
-------------- -------------- -------------- --------------
Total trading results (1,497,279) 509,336 (5,602,179) 6,218,699
-------------- -------------- -------------- --------------
Interest income 91,782 80,148 245,942 268,514
-------------- -------------- -------------- --------------
Total revenues (1,405,497) 589,484 (5,356,237) 6,487,213
-------------- -------------- -------------- --------------
EXPENSES:
Brokerage commissions 479,439 710,783 1,733,551 2,147,037
Profit Shares - 160,995 33,869 844,588
Administrative fees 164,100 20,905 370,243 63,148
-------------- -------------- -------------- --------------
Total expenses 643,539 892,683 2,137,663 3,054,773
-------------- -------------- -------------- --------------
NET INCOME (LOSS) $ (2,049,036) $ (303,199) $ (7,493,900) $ 3,432,440
============== ============== ============== ==============
NET INCOME (LOSS) PER UNIT:
Weighted average number of General Partner
and Limited Partner units outstanding 94,083 103,401 96,368 106,049
============== ============== ============== ==============
Net income (loss) per weighted average
General Partner and Limited Partner Unit $ (21.78) $ (2.93) $ (77.76) $ 32.37
============== ============== ============== ==============
Net income (loss) per weighted average General Partner
and Limited Partner Unit by series
Series A $ (27.52) $ (3.58) $ (98.73) $ 41.19
============== ============== ============== ==============
Series B $ (22.39) $ (3.04) $ (79.36) $ 32.90
============== ============== ============== ==============
Series C $ (17.48) $ (2.37) $ (62.98) $ 26.17
============== ============== ============== ==============
All items of income and expense are allocated from investments in Trading LLCs.
See notes to financial statements.
3
JOHN W. HENRY & CO./MILLBURN L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(unaudited)
UNITS GENERAL PARTNER
----- ------------------------------------------------
SERIES A SERIES B SERIES C SERIES A SERIES B SERIES C
-------------- -------------- -------------- -------------- -------------- --------------
PARTNERS' CAPITAL,
December 31, 2002 22,607 49,697 36,756 $ 82,826 $ 148,873 $ 85,813
Additions - 60 - - 20,255 -
Net income - - - 9,242 15,796 9,585
Redemptions (1,902) (2,186) (2,778) - - -
-------------- -------------- -------------- -------------- -------------- --------------
PARTNERS' CAPITAL,
September 30, 2003 20,705 47,571 33,978 $ 92,068 $ 184,924 $ 95,398
============== ============== ============== ============== ============== ==============
PARTNERS' CAPITAL,
December 31, 2003 20,448 47,044 33,466 $ 83,679 $ 155,512 $ 85,946
Net loss - - - (20,838) (38,896) (21,471)
Redemptions (1,200) (4,405) (1,705) - - -
-------------- -------------- -------------- -------------- -------------- --------------
PARTNERS' CAPITAL,
September 30, 2004 19,248 42,639 31,761 $ 62,841 $ 116,616 $ 64,475
============== ============== ============== ============== ============== ==============
LIMITED PARTNERS
----------------
SERIES A SERIES B SERIES C TOTAL
-------------- -------------- -------------- --------------
PARTNERS' CAPITAL,
December 31, 2002 $ 8,023,008 $ 14,329,638 $ 8,258,617 $ 30,928,775
Additions - - - 20,255
Net income 891,312 1,592,041 914,464 3,432,440
Redemptions (754,141) (700,278) (693,143) (2,147,562)
-------------- -------------- -------------- --------------
PARTNERS' CAPITAL,
September 30, 2003 $ 8,160,179 $ 15,221,401 $ 8,479,938 $ 32,233,908
============== ============== ============== ==============
PARTNERS' CAPITAL,
December 31, 2003 $ 8,103,322 $ 15,149,651 $ 8,398,728 $ 31,976,838
Net loss (1,906,452) (3,483,768) (2,022,475) (7,493,900)
Redemptions (472,305) (1,380,213) (399,976) (2,252,494)
-------------- -------------- -------------- --------------
PARTNERS' CAPITAL,
September 30, 2004 $ 5,724,565 $ 10,285,670 $ 5,976,277 $ 22,230,444
============== ============== ============== ==============
See notes to financial statements.
4
JOHN W. HENRY & CO./MILLBURN L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, the financial statements contain all adjustments
necessary to present fairly the financial position of John W. Henry &
Co./Millburn L.P. (the "Partnership") as of September 30, 2004, and the results
of its operations for the three and nine month periods ended September 30, 2004
and 2003. However, the operating results for the interim periods may not be
indicative of the results for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in conformity with accounting principles general
accepted in the United States of America have been omitted. It is suggested that
these financial statements be read in conjunction with the financial statements
and notes thereto included in the Partnership's Annual Report on Form 10-K filed
with the Securities and Exchange Commission for the year ended December 31,
2003.
2. INVESTMENTS
As of September 30, 2004, the Partnership had investments in ML JWH Financials
and Metals Portfolio LLC ("JWH LLC") and Millburn Global LLC ("Millburn LLC")
(collectively, "Trading LLCs") of $11,115,222 and $11,115,222, respectively. As
of December 31, 2003, the Partnership had investments in JWH LLC and Millburn
LLC of $ 15,988,419 and $15,988,419, respectively.
Condensed statements of financial condition and statements of operations for JWH
LLC and Millburn LLC are set forth as follows:
SEPTEMBER 30, 2004
(UNAUDITED) DECEMBER 31, 2003
-------------------------------- --------------------------------
JWH MILLBURN JWH MILLBURN
LLC LLC LLC LLC
-------------- -------------- -------------- --------------
Assets $ 11,459,046 $ 11,206,136 $ 16,966,913 $ 16,374,341
============== ============== ============== ==============
Liabilities $ 343,824 $ 90,914 $ 978,494 $ 385,922
Members' Capital 11,115,222 11,115,222 15,988,419 15,988,419
-------------- -------------- -------------- --------------
Total $ 11,459,046 $ 11,206,136 $ 16,966,913 $ 16,374,341
============== ============== ============== ==============
5
JWH LLC
FOR THE THREE FOR THE THREE FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 SEPTEMBER 30, 2004 SEPTEMBER 30, 2003
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------------ ------------------ ------------------ ------------------
Revenues $ (499,081) $ (474,482) $ (2,816,380) $ 3,507,413
Expenses 247,526 350,428 919,324 1,509,041
------------------ ------------------ ------------------ ------------------
Net Income (Loss) $ (746,607) $ (824,910) $ (3,735,704) $ 1,998,372
================== ================== ================== ==================
MILLBURN LLC
FOR THE THREE FOR THE THREE FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 SEPTEMBER 30, 2004 SEPTEMBER 30, 2003
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------------ ------------------ ------------------ ------------------
Revenues $ (906,416) $ 1,063,966 $ (2,539,857) $ 2,979,800
Expenses 246,014 542,255 899,083 1,545,732
------------------ ------------------ ------------------ ------------------
Net Income (Loss) $ (1,152,430) $ 521,711 $ (3,438,940) $ 1,434,068
================== ================== ================== ==================
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership invests indirectly in derivative instruments by investing in the
Trading LLCs but does not itself hold any derivative instrument positions. The
nature of this Partnership has certain risks, which can not be presented on the
financial statements. The following summarizes some of those risks.
MARKET RISK
Derivative instruments involve varying degrees of off-balance sheet market risk.
Changes in the level or volatility of interest rates, foreign currency exchange
rates or the market values of the financial instruments or commodities
underlying such derivative instruments frequently results in changes in the net
unrealized profit (loss) as reflected in the respective Statements of Financial
Condition of the Trading LLCs. The Partnership's exposure to market risk is
influenced by a number of factors, including the relationships among the
derivative instruments held by the Partnership, through the Trading LLCs, as
well as the volatility and liquidity of such markets in which such derivative
instruments are traded.
The General Partner, Merrill Lynch Alternative Investments LLC ("MLAI"), has
procedures in place intended to control market risk exposure, although there
can be no assurance that they will, in fact, succeed in doing so. These
procedures focus primarily on monitoring the trading of the Advisors selected
from time to time for the Partnership, calculating the Net Asset Values of
the Advisors' respective Trading LLC accounts as of the close of business on
each day and reviewing outstanding positions for over-concentrations both on
an Advisor-by-Advisor and on an overall Partnership basis. While MLAI does
not itself intervene in the markets to hedge or diversify the Partnership's
market exposure, MLAI may urge Advisors to reallocate positions or itself
reallocate Partnership assets among Advisors (although typically only as of
the end of a month) in an attempt to avoid over-concentration. However, such
interventions are unusual and unless it appears that an Advisor has begun to
deviate from past practice and trading policies or to be trading erratically,
MLAI's basic risk control procedures
6
consist simply of the ongoing process of advisor monitoring and selection, with
the market risk controls being applied by the Advisors themselves.
CREDIT RISK
The risks associated with exchange-traded contracts are typically perceived to
be less than those associated with over-the-counter (non-exchange-traded)
transactions, because exchanges typically (but not universally) provide
clearinghouse arrangements in which the collective credit (in some cases limited
in amount, in some cases not) of the members of the exchange is pledged to
support the financial integrity of the exchange. In over-the-counter
transactions, on the other hand, traders must rely solely on the credit of their
respective individual counterparties. Margins, which may be subject to loss in
the event of a default, are generally required in exchange trading, and
counterparties may also require margin in the over-the-counter markets.
The Partnership, through the Trading LLCs, has credit risk in respect of its
counterparties and brokers, but attempts to mitigate this risk by dealing almost
exclusively with Merrill Lynch entities as clearing brokers.
The Partnership, through the Trading LLCs, in its normal course of business,
enters into various contracts with Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S") acting as its commodity broker. Pursuant to the brokerage agreement
with MLPF&S (which includes a netting arrangement), to the extent that such
trading results in receivables from and payables to MLPF&S, these receivables
and payables are offset and reported as a net receivable or payable and included
in Net Unrealized profit on open contracts on the Statements of Financial
Condition.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
MONTH-END NET ASSET VALUE PER SERIES A UNIT
JAN. FEB. MAR. APR. MAY JUN. JUL. AUG. SEP.
------------------------------------------------------------------------------------------------
2003 $ 383.74 $ 393.54 $ 371.52 $ 376.91 $ 415.46 $ 402.31 $ 397.73 $ 406.17 $ 398.56
2004 $ 405.87 $ 422.69 $ 405.35 $ 363.10 $ 342.77 $ 328.18 $ 298.88 $ 303.02 $ 300.68
MONTH-END NET ASSET VALUE PER SERIES B UNIT
JAN. FEB. MAR. APR. MAY JUN. JUL. AUG. SEP.
------------------------------------------------------------------------------------------------
2003 $ 311.82 $ 319.78 $ 301.90 $ 306.27 $ 337.59 $ 326.91 $ 323.18 $ 330.04 $ 323.86
2004 $ 329.80 $ 343.47 $ 329.38 $ 294.84 $ 278.12 $ 266.28 $ 242.50 $ 245.86 $ 243.96
MONTH-END NET ASSET VALUE PER SERIES C UNIT
JAN. FEB. MAR. APR. MAY JUN. JUL. AUG. SEP.
------------------------------------------------------------------------------------------------
2003 $ 242.97 $ 249.18 $ 235.24 $ 238.65 $ 263.07 $ 254.75 $ 251.85 $ 257.19 $ 252.38
2004 $ 257.00 $ 267.65 $ 256.68 $ 229.80 $ 216.82 $ 207.59 $ 189.06 $ 191.68 $ 190.19
7
Performance Summary
All of the Partnership's assets are invested in Trading LLCs. The Partnership
receives trading profits as an investor in the Trading LLCs. The following
commentary describes the trading results of the Trading LLCs.
JANUARY 1, 2004 TO SEPTEMBER 30, 2004
January 1, 2004 to March 31, 2004
Gains were experienced in the interest rate, metals and stock indices and losses
in the currency sector. Overall, the Partnership experienced a positive rate of
return for the quarter.
The interest rate sector posted the largest gains. In January, the fixed income
market slowly drifted higher, but exhibited reversals, mainly due to foreign
exchange moves. Profits were generated from various positions at the short end
of the yield curve in the U.S. and Europe, while losses were posted at longer
points in the yield curve in both the U.S. and Europe. In February, fixed income
markets resumed their slow upward trend. The overall sector exposure had been
limited compared to historical exposures but profits were generated from both
U.S. and German yield curves. Gains were also posted in March. Long exposure to
most of the major global yield curves generated positive results. German Bunds
and the longer end of the U.S. yield curve posted gains, while Japanese exposure
detracted from performance.
The metals sector posted gains for the quarter. In January, long positions in
both precious and industrial metals generated positive returns. Copper continued
to move higher and rose to its highest price in more than six years due to
supply disruptions and heavy demand from new home construction. Gold also
reached highs not seen since 1988. In February, industrial metals generated
positive returns from the long side, while precious metals detracted from
performance. Base metals continued their upward move as the sector experienced
strong demand, shrinking supply and U.S. dollar weakness, helping to drive
prices higher. Strong industrial demand for copper and continued speculative
interest pushed the market to a seven year high. In March, industrial metals and
precious metals, especially gold, contributed to profits.
Stock indices also posted gains for the quarter. Stock indices posted a profit
for January as long exposure to global equities from momentum based and
fundamental models performed well. The main drivers to performance in this
sector were the DAX and the NASDAQ Indices. In February, exposure to global
equities produced negative performance. Asian equities produced positive
performance while other markets, specifically the U.S., outweighed those gains.
Stock indices posted a small gain for March. Asian equity exposure outperformed
U.S. exposure during the month.
The currency sector experienced losses despite gains early in the quarter. In
January, the currency sector continued its long trend of a weakening U.S.
dollar. Currency trading was very choppy, but gains were generated in the
earlier part of the month. The currency sector posted losses for the month of
February under highly volatile market conditions. The main event in the currency
markets was the meeting of the G-7 Finance Ministers, hoping that some
indication would be given as to the future directions of the U.S. dollar. The
U.S. dollar continued to be range bound after the meeting. Gains in the British
pound were not able to offset losses in other major or minor currency markets.
Losses were also posted in March under difficult trading conditions. All of the
political events during the month and rumors of the Bank of Japan's intervention
policies caused for significant uncertainty in the markets. Early U.S. dollar
strength turned around towards the end of the month and a large drop right at
the month's close saw the U.S. dollar fall to four year lows against the
Japanese yen.
8
April 1, 2004 to June 30, 2004
Losses were experienced in all four sectors. Overall, the Partnership
experienced a negative rate of return for the quarter.
The metals sector posted a loss for the quarter. In April, the combination of
the U.S. dollar strengthening and the fear of higher interest rates, which would
curb growth, caused base and precious metals to sell-off. Most markets during
May were range-bound and the U.S. dollar did not provide any momentum to these
markets. Exposure to aluminum was the main cause for losses as the market sold
off during the month of May. In June, industrial metals detracted from
performance as well as precious metals. Both industrial and precious metals
generated losses throughout the quarter.
Stock indices posted a net loss for the quarter. Equities rallied in the early
part of April, but fear of rate increases based on positive economic news sent
equities falling with a steep sell-off towards month's end. During May, equities
worldwide were weak on continued concerns of the imminent rate increases in U.S.
interest rates. The Japanese Nikkei index experienced a sudden deterioration in
sentiment, which sent the market plunging approximately 5% in one day. Exposure
to this region and other equity indices generated losses, which were not
overcome in the latter part of the month. Volatility was very low throughout
June and there has not been a clear direction in the markets. Losses were
incurred in both the U.S. and global equity positioning.
The currency sector also posted losses for each month of the quarter. The U.S.
dollar strengthened considerably during the month, with the Euro falling below
120 and the British pound falling to 1.77 in April. Gains in the Euro and the
Swiss franc were outweighed by losses in the Japanese yen and British pound
positioning. In May the U.S. dollar weakened against major currencies except for
the Australian dollar after strengthening considerably during the prior month.
Significant reversals occurred early in the month and led to range-bound market,
which creates a difficult environment for this trading style. In June, many
currency markets continued to be range bound waiting for the Federal Reserve's
decision on short term interest rates. Losses were incurred from positions in
the Euro, Swiss franc, British pound and other major markets.
The interest rate sector posted a loss for the quarter. The fixed income markets
experienced heightened volatility and fell sharply on April 2nd, followed by a
short bounce and then trended down for the rest of the month. Eurodollars and
short Sterling exposure proved profitable during the month of May, though the
sector posted a small loss for the month. Bond markets were fairly range bound
during the month, although yields on the ten-year note in the U.S. reached their
highest levels since July 2002. Bonds continued to be fairly range bound pending
the release of economic data and action by the U.S. Federal Reserve during the
month of June. Eurodollars fell early in the month and finally gained 28 basis
points from their lows. Gains in trading Japanese Government Bonds were
outweighed by losses in trading both U.S. fixed income and the European yield
curve.
July 1, 2004 to September 30, 2004
Losses were experienced in the stock indices and currency sectors, with gains in
the interest rate and metals sectors. Overall, the Partnership experienced a
negative rate of return for the quarter.
The interest rate sector posted a gain for the quarter despite losses posted in
July. In July, U.S. bond prices rallied for a second month on weaker employment
data. Bond prices in Europe advanced, while in Japan they declined. Eurodollar
futures rose sharply, as inflation figures were strong. In August, U.S. bond
prices rallied early in the month following the release of lackluster payroll
data. Bond prices in Europe also advanced. In September, U.S. Treasury markets
reacted to the employment data with a violent sell-off at the beginning of the
month, which caused a slight reduction in exposure. Softer economic data
eventually pushed longer-term maturities higher by the end of the month. Gains
in trading Japanese bonds outweighed losses in other global yield curves.
9
The metals sector posted a small gain for the quarter. Industrial metals
detracted from performance in July, as gains in copper could not offset losses
in aluminum positioning. Gold exposure also detracted from performance as prices
posted a modest gain. In August, gains in precious metals outweighed losses in
base metals. Industrial metals detracted from performance, particularly, copper.
Gold prices rose, as weak economic data continued to drive down expectations of
future rate hikes in the U.S. In September, industrial metals, particularly
copper added to performance. Copper rallied based on increasing demand from
China and tight supply conditions.
Trading in stock indices posted a loss for the quarter. Major global equity
markets recorded sharp declines in July. In August, on average, global equity
indices were largely unchanged for the month after an initial sell-off and rally
at the end of the month. Gains in the U.S. outweighed losses in exposure to
Asian and European equities. Global equity indices experienced a small rally
during September. European equities outperformed the U.S. and Asian markets.
Gains in European equities were outweighed by losses in Asian and U.S. equities
exposure.
The currency sector posted the largest losses for the quarter. Currency markets
remain choppy as the market continues to react to new releases of weak economic
data. July began with a U.S. dollar sell-off, as a disappointing employment
report was released, and then went onto rally, based on a robust forecast for
U.S. economic growth by Federal Reserve Chairman, Alan Greenspan. The portfolio
had reduced exposure during the latter part of the month, as the U.S. dollar
strengthened. Losses were incurred in most major markets traded. Uncertainty
about the future macroeconomic environment resulted in random price moves and a
lack of any sustainable trends within the sector in August. The majority of the
losses came from positioning in the Japanese yen, the Euro and the British
pound. Most currency markets remained range bound versus the U.S. dollar
throughout September. The positive non-farm payroll data initially caused an
appreciation of the U.S. dollar, which later faded toward the end of the month,
as the announcement of China joining the G-8 meeting re-ignited a U.S. dollar
weakening. Losses in Japanese yen and British pound outweighed gains in the
Canadian dollar and Euro.
JANUARY 1, 2003 TO SEPTEMBER 30, 2003
January 1, 2003 to March 31, 2003
The Trading LLCs experienced gains in the interest rate, stock index and
currency sectors and losses in the metals sector. Overall, the Partnership
experienced a positive rate of return for the quarter.
Interest rate futures were the best performers for the quarter. Interest rates
continued to push lower as economic data for the fourth quarter announced an
annual growth rate for the economy of about 1% for 2002. Consumer spending and
confidence remained low and even the housing market stumbled in March.
The global fixed income markets continued their upward climb until mid-March
when expectations of a short conflict triggered the liquidation of many fixed
income investments hurting long exposure.
Trading in stock indices posted gains for each of the months in the quarter.
European stock markets attempted to start the year with some optimism only to
succumb to eroding prices throughout the quarter. Global economies suffered
throughout the quarter; however, in mid-March the equities market did react with
the currency and fixed income markets. Equities appeared to be more in tune to
the overall market fundamentals and were quick to resume their downward trend.
The currency forward and futures trading had gains for the quarter. The
weakening U.S. dollar was continuing to decline as it has for over a year and
the Trading LLCs were well positioned to capitalize on its U.S. dollar positions
against other currencies. In March, on hopes that the war with Iraq would be
short, the U.S. dollar strengthened and returned some of the profits earned
early in the year.
10
The metals sector had losses for the quarter. Gold drove profits in January as
it continued its run up. The general perception of risks in the financial
markets and the geopolitical situation unfolding was the main driver for the
gold market in January. The Trading LLCs sustained losses in February as the
long bias in precious metals hurt the portfolio when gold reversed its rising
trend in February with the announcement that the German Bundesbank had sold a
portion of its gold reserves. Industrial metals markets were choppy throughout
the quarter.
April 1, 2003 to June 30, 2003
The Trading LLCs realized gains in the currency, interest rate and stock index
sectors. Losses were realized in the metals sector. Overall, the Partnership
recognized gains for the quarter.
The currency sector drove the returns of the Partnership for the quarter. The
currency markets judged the developments in the Middle East as negative for the
U.S. economy and trade, and the U.S. dollar sold off against most major
currencies in April and May. U.S. Treasury Secretary John Snow indicated he was
comfortable with current decline in the U.S. dollar and that a cheaper U.S.
dollar would increase exports. The U.S. dollar reversed its weakening trend in
June which offset some of the previous gains.
The interest rate sector provided the Partnership with profits for the second
quarter. May gains outpaced losses from June. The decline in interest rates
resulted in profits in many of the Trading LLC long positions. Some factors that
kept the interest rates falling were rumors of deflation, hedging by long term
lenders against the falling interest rates, and foreign banks buying U.S.
Treasuries as part of their monetary policy to control the value of their
currency. The market reversed in June due to disappointing news about a smaller
rate cut by the U.S. Federal Reserve then expected.
The stock index futures produced small gains for the quarter capitalizing on the
global upswing in stock prices in June. Investors reacted to the hope that
deflation and economic contraction were coming to an end in Japan. Reports
indicate that the rally in Japanese stocks has been fueled by foreign mutual
funds, hedge funds and other non-Japanese institutional investors who invested
more than ten times as much as local investors in June.
The metals sector posted a small loss for the second quarter. Positions in gold
shifted from profitable to not throughout the quarter. Copper and other base
metals were unprofitable.
July 1, 2003 to September 30, 2003
Two out of the four sectors were profitable during the third quarter for the
Trading LLCs. Gains were generated in the stock and metals sectors, while losses
were posted in interest rates and the currency sectors.
The stock index sector posted the strongest profits for the third quarter.
During the first part of the third quarter U.S. equities were fairly quiet while
strong gains were generated in trading global stock indices. The mid part of the
third quarter, the Japanese Nikkei was the star performer as it gained over 8%
on strong economic numbers. Gains in the Nikkei and the U.S. outweighed small
losses in other markets. At the end of the third quarter, small gains in the
Japanese Nikkei and the CAC 40 were outweighed by losses in other global
indices.
The metals sector posted gains for the third quarter. The beginning of the third
quarter profits in the industrial complex were outweighed by losses in the
precious metal sector. Copper and other industrial metals rallied on technical
buying and stronger demand as economies showed stronger growth prospects. During
the mid third quarter, the metals sector posted a gain while profits in precious
metals outweighed losses in the industrial complex. Long exposure in gold
generated gains as the market rallied $20 per ounce, while long exposure in
copper and other industrial metals posted losses. At the end of the third
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quarter, the metals sector posted a profit with long positions in the metals,
particularly gold and nickel, making significant price movements to the upside.
Wherein, gold appreciated by 2.50% and nickel appreciated by 8.02%. In
September, both the industrial and metal complex sectors benefited from
increases in valuation.
The interest rate sector posted a loss for the third quarter. The beginning of
the third quarter U.S. bond market suffered heavy losses after the U.S
government announced its intentions to borrow a record amount to finance the
huge deficit. European bonds were weaker, but outperformed the U.S. Profits
generated in the U.S. segment of the portfolio, across the entire yield curve
outweighed losses in global bonds. In the mid third quarter, there were massive
sell-offs in bonds during July, which seemed to have found a base during the
month of August. Despite a record $60 billion refunding program in the U.S.,
bonds managed a timid recovery after making new lows while the Japanese
government bonds lost five figures. With interest rates on hold at the short end
of the curve in the U.S., trading was characterized by small ranges, which
generated minor losses. The Japanese government bond exposure outweighed
moderate losses across other global fixed income markets. At the end of the
third quarter the short positions in the ten-year and 30 year sector of the U.S.
bond market generated losses, as yields dropped from 4.46% to 3.94% on the
ten-year.
The currency sector posted a loss for the third quarter. In the beginning of the
third quarter, the U.S. dollar appreciated relative to other currencies with
losses being experienced in most positions specifically, the Australian dollar,
the Canadian dollar and the British pound. Large reversals occurred in these
carry-trades, as markets focused attention on economic fundamentals rather than
yield differentials. During the middle of the third quarter, the U.S. dollar
appreciated relative to the European currencies. The third quarter ended with
the G-7 summit directing the market to the idea that a weak U.S. dollar is
important to global trade balance. Foreign currencies against the U.S. dollar
appreciated.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
Item 4. Controls and Procedures
Merrill Lynch Alternative Investments LLC, the General Partner of John W. Henry
& Co./Millburn L.P., with the participation of the General Partner's Chief
Executive Officer and the Chief Financial Officer, has evaluated the
effectiveness of the design and operation of its disclosure controls and
procedures with respect to the Partnership within 90 days of the filing date of
this quarterly report, and, based on this evaluation, has concluded that these
disclosure controls and procedures are effective. Additionally, there were no
significant changes in the Partnership's internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending proceedings to which the Partnership, Trading LLCs
or MLAI is a party.
Item 2. Changes in Securities and Use of Proceeds
(a) None.
(b) None.
(c) None.
(d) None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS
There are no exhibits required to be filed as part of this report.
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the first nine months of
fiscal 2004.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHN W. HENRY & CO./MILLBURN L.P.
By: MERRIL LYNCH ALTERNATIVE
INVESTMENTS LLC
General Partner
Date: November 15, 2004 By /s/ ROBERT M. ALDERMAN
----------------------
Robert M. Alderman
Chairman, Chief Executive Officer and Manager
(Principal Executive Officer)
Date: November 15, 2004 By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
14