10-Q 1 a2093595z10-q.txt 10-Q 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, 2002 ------------------ 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 MLIM Alternative Strategies 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

See notes to financial statements. 2 JOHN W. HENRY & CO./MILLBURN L.P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS (unaudited)

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, 2002 AND 2001 (unaudited)

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 These financial statements have been prepared without audit. In the opinion of management, the financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of John W. Henry & Co./Millburn L.P. (the "Partnership") as of September 30, 2002, and the results of its operations for the three and nine month periods ended September 30, 2002 and 2001. 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, 2001. 2. INVESTMENTS As of September 30, 2002, the Partnership had investments in ML JWH Financials and Metals Portfolio LLC ("JWH LLC") and Millburn Global LLC ("Millburn LLC") ("Trading LLC", collectively) of $16,622,929 and $16,622,929, respectively. For the year ending December 31, 2001, the Partnership had investments in JWH LLC and Millburn LLC of $13,077,841 and $13,077,841, respectively. Total revenues and fees with respect to the Partnership's investments are set forth as follows:

Condensed statements of financial condition and statements of operations for JWH LLC and Millburn LLC are set forth as follows:

7 3. FAIR VALUE AND OFF-BALANCE SHEET RISK 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 resulted 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. MLIM Alternative Strategies LLC ("MLIM AS LLC") 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 Value 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 MLIM AS LLC does not itself intervene in the markets to hedge or diversify the Partnership's market exposure, MLIM AS LLC 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. Except in cases in which it appears that an Advisor has begun to deviate from past practice and trading policies or to be trading erratically, MLIM AS LLC's basic risk control procedures 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 the Statements of Financial Condition of the Trading LLC's under Equity in commodity futures trading accounts. 8 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations MONTH-END NET ASSET VALUE PER SERIES A UNIT

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, 2002 TO SEPTEMBER 30, 2002 ------------------------------------- January 1, 2002 to March 31, 2002 Trading in the metals sector was unprofitable for the quarter. Long positions in gold suffered losses. The gold market slumped, reversing January gains. Base metal positioning posted losses as prices soared on the hope that an economic recovery in the United States would boost demand. Trading in the interest rate markets produced losses on conflicting economic reports. U.S. short rate profits offset losses incurred further out on the U.S. curve under very choppy market conditions. European and Japanese fixed income exposures posted losses under particularly direction-less markets. Global bond prices declined on growing optimism for a stronger economic outlook for the remainder of 2002, benefiting short positioning. Stock indices trading incurred losses for the quarter. Long equity exposures were flipped to short exposures during the quarter, added to losses in volatile market conditions as profit forecasts fell short and concern over the Enron accounting situation deepened. Global equity markets appreciated in March, notably in Japan, Germany and France, which generated losses on short positioning. Currency trading was the most unprofitable strategy for the quarter. Early in the quarter, strong gains were generated from short Japanese yen positions as the Japanese yen continued to depreciate against the U.S. dollar. In February, all of the futures traded currencies appreciated against the U.S. dollar, with the exception of the Canadian dollar. March was a relatively volatile month for G-7 currencies. The U.S. dollar fell from 133 to 127.50 Japanese yen during the 9 first week, and then almost completely reversed that move by month end, generating substantial losses. April 1, 2002 to June 30, 2002 Large profits were the result of trading in the currency sector. Strong trends developed from a weakening U.S. dollar and continued through June. Most of the majors currencies made new highs versus the U.S. dollar in June. The interest rate sector was profitable for the Partnership despite its slow start. The quarter began with a loss as interest rates were particularly sensitive to economic data that was released, and more so to its varied interpretations. By quarter end, the Partnership profited from a strong bond market, which benefited from the weakness in the stock market and unchanged interest rates. The trading in stock indices found profits from its short positions. Worldwide equity market attempted to move higher, but failed and resumed their longer-term downtrend. The metals sector sustained slight losses for the quarter. In June, the uptrend in gold reversed and losses were sustained on a long position eliminating slight profits earned earlier in the quarter. The metals sector sustained slight losses for the quarter. In June, the uptrend in gold reversed and losses were sustained on a long position eliminating slight profits earned earlier in the quarter. July 1, 2002 to September 30, 2002 Results from the interest rate sector provided solid positive performance for the Partnership. The yield curve on major debt instruments declined throughout the quarter. This market environment was supported by the increased risk aversion, the continued U.S. stock market decline and the conflicting reports regarding the pace of the U.S. economic recovery. The economic news from Europe also pointed to a weak recovery overseas. Stock index futures also brought strong positive returns for the quarter. The downward trending market created a good environment for the trend following traders. Investors in the equity markets are still liquidating equity exposure. Metals produced only slight losses this quarter citing declines in precious and base metals throughout the quarter due to liquidation pressures in the market. Gold, however, had a weak rally during the second half of the quarter. Currency trading was the sad story this quarter being the sector with overall losses. The sector was choppy throughout the quarter making it difficult for any of the trend following traders to lock onto a market trend. The Partnership, as a member of a class of plaintiffs, received a settlement payment in August relating to certain copper trades made by a number of investors, including the Partnership, during a period in the mid-1990s. Members of the class were those who purchased or sold Comex copper futures or options contracts between June 24, 1993 and June 15, 1996. The amount of the settlement for the Partnership was $100,571, which is included in the realized profit of JWH LLC and Millburn LLC for $52,219 and $48,352, respectively. The effect of the settlement payment was included in the Partnership's performance in August. 10 JANUARY 1, 2001 TO SEPTEMBER 30, 2001 ------------------------------------- January 1, 2001 to March 31, 2001 Trading in the interest rate markets was profitable during the quarter. Eurodollar trading was successful in January as the weakening U.S. economy and the Federal Reserve's move to cut interest rates caused Eurodollar futures contracts to rise dramatically from December 2000 lows. Japanese ten-year bonds and Euro-bund cross futures trading was profitable in February and March. Despite its volatility, trading in the currency markets resulted in gains. Losses from the British pound and the Euro offset early gains from Japanese yen positions. By February, the Euro fell from a near high 96 cents back to the 90-cent level, causing losses in long Euro positions. Profits from Japanese yen and Swiss franc positions realized in March erased losses sustained earlier in the quarter. Stock index trading was moderately successful for the Partnership. Profits from Hang Seng and FTSE Financial Times Stock Index outweighed losses from Nikkei 225, German DAX and Topix positions. Global equity markets remain caught between negative news about earnings and the potential positive effects of further monetary easings. Metals trading was moderately unprofitable for the Partnership. Gold, copper and aluminum trading alternated between profitability and unprofitability throughout the quarter. April 1, 2001 to June 30, 2001 Trading in the metals sector incurred slight losses. Weakness in the Euro, a decline in the Australian dollar to all time lows and producer and Central Bank selling sent gold prices lower. Copper trading was unprofitable despite a number of bullish developments due to existing demand constraints. Stock index trading sustained losses throughout the quarter on FTSE Financial Times Stock Index, Nikkei 225 and NASDAQ 100 positions. Trading in the currency markets was not profitable. Losses occurred from Japanese yen positions. The further weakening of the Japanese yen displayed how the global economy is not immune to the economic slowdown of the U.S. currency markets remained concerned with a hard landing for the Japanese economy. The Euro continued its downward trend versus the U.S. dollar. Trading in the interest rate sector was highly unprofitable for the Partnership. Positions in Euro-Bond futures, U.S. Treasury bonds and U.S. ten-year notes had significant losses. July 1 2001 to September 30, 2001 Stock index trading was profitable as various short positions fueled gains for the quarter. Short positions in the Japanese Nikkei and German DAX were profitable as indexes fell on poor corporate earnings and investor's anxiety that the terrorist attacks would cause the global economic slump to worsen. Trading in the interest rate sector was profitable. Eurodollar trading offset losses on Euro-Bund futures. Late gains from Japanese ten-year bonds negated earlier losses. Trading in the metals markets was successful. Positions in aluminum and copper posted gains in July as prices fell due to an apparent weakening in the retail sector, which had been the strongest in the economy. Long gold positions were profitable in September as investors flocked to gold in the aftermath 11 of the terrorist attacks. Investors feared the potential for enduring instability in currency and equity investments and their expected reduced returns. Currency trading was the only unprofitable strategy during the quarter. Losses were sustained in Swiss franc and Euro positions in July as the Euro appreciated relative to the U.S. dollar due to growing concerns over the lackluster U.S. economy. Short Japanese yen positions were also unprofitable. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable Item 4. Controls and Procedures MLIM Alternative Strategies 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 their evaluation, have 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 legal proceedings to which the Partnership or MLIM AS LLC 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 2002. 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: MLIM ALTERNATIVE STRATEGIES LLC (General Partner) Date: November 14, 2002 By /S/ FABIO P. SAVOLDELLI ----------------------- Fabio P. Savoldelli Chairman, Chief Executive Officer and Manager (Principal Executive Officer) Date: November 14, 2002 By /S/ MICHAEL L. PUNGELLO ----------------------- Michael L. Pungello Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 14 EXHIBIT 99 FORM OF CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 180 OF THE UNITED STATES CODE I, Fabio P. Savoldelli, certify that: 1. I have reviewed this quarterly report on Form 10-Q of John W. Henry & Co./Millburn L.P.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of board of directors (or persons performing the equivalent function): a) all significant deficiencies, if any, in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 ----------------------- By /S/ FABIO P. SAVOLDELLI ----------------------- Fabio P. Savoldelli Chairman, Chief Executive Officer and Manager (Principal Executive Officer) 15 EXHIBIT 99 FORM OF CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 180 OF THE UNITED STATES CODE I, Michael L. Pungello, certify that: 1. I have reviewed this quarterly report on Form 10-Q of John W. Henry & Co./Millburn L.P.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of board of directors (or persons performing the equivalent function): a) all significant deficiencies, if any, in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 ----------------------- By /S/ MICHAEL L. PUNGELLO ----------------------- Michael L. Pungello Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 16

HENRY JOHN W & CO/MILLBURN L P 10-Q