Nestor Partners 10-K 2006 FY Annual report

Exhibit 13.01

Nestor Partners

Financial Statements for the Years Ended

December 31, 2006, 2005 and 2004 and

Report of Independent Registered Public

Accounting Firm

NESTOR PARTNERS

TABLE OF CONTENTS
	Page
AFFIRMATION OF MILLBURN RIDGEFIELD CORPORATION
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	1
FINANCIAL STATEMENTS:
Statements of Financial Condition	2
Condensed Schedules of Investments	3–6
Statements of Operations	7
Statements of Changes in Partners’ Capital	8
Statements of Financial Highlights	9
Notes to Financial Statements	10–15

AFFIRMATION OF MILLBURN RIDGEFIELD CORPORATION

In compliance with the Commodity Futures Trading Commission’s regulations, I hereby affirm that to the best of my knowledge and belief, the information contained in the statements of financial condition of Nestor Partners at December 31, 2006 and 2005, including the condensed schedules of investments, and the related statements of operations, changes in partners’ capital, and financial highlights for the years ended December 31, 2006, 2005, and 2004, are complete and accurate.

Harvey Beker, Co-Chief Executive Officer
Millburn Ridgefield Corporation
General Partner of Nestor Partners

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of
Nestor Partners:

We have audited the accompanying statements of financial condition of Nestor Partners (the “Partnership”) as of December 31, 2006 and 2005, including the condensed schedules of investments, and the related statements of operations, changes in partners’ capital, and financial highlights for the years ended December 31, 2006, 2005 and 2004. These financial statements and financial highlights are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, 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, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Nestor Partners at December 31, 2006 and 2005, and the results of its operations, changes in partners’ capital, and financial highlights for the years ended December 31, 2006, 2005 and 2004 in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

New York, New York

February 15, 2007

NESTOR PARTNERS

STATEMENTS OF FINANCIAL CONDITION

AT DECEMBER 31, 2006 AND 2005

	2006		2005
ASSETS
EQUITY IN TRADING ACCOUNTS:
Investments in U.S. Treasury notes―at market value (amortized cost $45,775,054 and $63,348,239)	$	45,761,875	$	63,181,691
Net unrealized appreciation (depreciation) on open futures and forward currency contracts	9,240,848		(1,371,678		)
Due from brokers	6,847,054		3,923,683
Cash denominated in foreign currencies (cost $3,216,906 and $2,589,356)	3,222,378		2,553,075
Total equity in trading accounts	65,072,155		68,286,771
INVESTMENTS IN U.S. TREASURY NOTES―at market value (amortized cost $92,232,843 and $96,770,338)	92,198,954		96,642,066
CASH AND CASH EQUIVALENTS	5,105,014		15,359,071
ACCRUED INTEREST RECEIVABLE	936,128		677,070
TOTAL	$	163,312,251	$	180,964,978
LIABILITIES AND PARTNERS’ CAPITAL
LIABILITIES:
Capital contributions received in advance	$	725,000	$	3,987,000
Accrued brokerage fees	325,946		389,427
Accrued expenses	387,775		373,843
Capital withdrawals payable	14,171,689		5,187,787
Other liabilities	—		75,000
Total liabilities	15,610,410		10,013,057
PARTNERS’ CAPITAL	147,701,841		170,951,921
TOTAL	$	163,312,251	$	180,964,978

See notes to financial statements.

2

NESTOR PARTNERS

CONDENSED SCHEDULE OF INVESTMENTS

AT DECEMBER 31, 2006

	Net Unrealized
	Appreciation		Net
	(Depreciation)		Unrealized
	as a % of		Appreciation
	Partners’ Capital		(Depreciation)
FUTURES AND FORWARD CURRENCY CONTRACTS
LONG FUTURES CONTRACTS:
Grains	0.22	%	$	321,754
Interest rates	(0.76	)	(1,123,031		)
Metals	(0.09	)	(131,262		)
Softs	—		6,188
Stock indices	1.44		2,120,454
Total long futures contracts	0.81		1,194,103
SHORT FUTURES CONTRACTS:
Energies	0.57		840,877
Interest rates	1.63		2,403,088
Livestock	—		2,430
Metals	—		(2,950		)
Softs	(0.16	)	(226,786		)
Total short futures contracts	2.04		3,016,659
TOTAL INVESTMENTS IN FUTURES CONTRACTS—Net	2.85		4,210,762
FORWARD CURRENCY CONTRACTS:
Total long forward currency contracts	2.67		3,933,503
Total short forward currency contracts	0.74		1,096,583
TOTAL INVESTMENTS IN FORWARD
CURRENCY CONTRACTS—Net	3.41		5,030,086
TOTAL	6.26	%	$	9,240,848

(Continued)

3

NESTOR PARTNERS

CONDENSED SCHEDULE OF INVESTMENTS

AT DECEMBER 31, 2006

U.S. TREASURY NOTES

		Value as a % of
Face		Partners’
Amount	Description	Capital		Value
$ 35,205,000	U.S. Treasury notes, 2.250%, 02/15/07	23.76	%	$	35,089,484
34,730,000	U.S. Treasury notes, 3.125%, 05/15/07	23.35		34,485,805
34,730,000	U.S. Treasury notes, 2.750%, 08/15/07	23.19		34,247,036
34,730,000	U.S. Treasury notes, 3.000%, 11/15/07	23.11		34,138,504
	Total investments in U.S. Treasury notes
	(amortized cost $138,007,897)	93.41	%	$	137,960,829

(Concluded)

See notes to financial statements.

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NESTOR PARTNERS

CONDENSED SCHEDULE OF INVESTMENTS

AT DECEMBER 31, 2005

	Net Unrealized
	Appreciation		Net
	(Depreciation)		Unrealized
	as a% of		Appreciation
	Partners’ Capital		(Depreciation)
FUTURES AND FORWARD CURRENCY CONTRACTS
LONG FUTURES CONTRACTS:
Energies	0.03	%	$	57,335
Grains	0.12		206,573
Interest rates	0.22		379,281
Livestock	(0.02	)	(33,020		)
Metals	1.07		1,833,136
Softs	0.89		1,527,165
Stock indices	0.59		986,160
Total long futures contracts	2.90		4,956,630
SHORT FUTURES CONTRACTS:
Grains	(0.31	)	(530,337		)
Interest rates	0.41		703,356
Metals	0.01		18,590
Softs	(0.18	)	(307,159		)
Total short futures contracts	(0.07	)	(115,550		)
Total investments in futures contracts—net	2.83		4,841,080
FORWARD CURRENCY CONTRACTS:
Total long forward currency contracts	(2.65	)	(4,536,349		)
Total short forward currency contracts	(0.98	)	(1,676,409		)
Total investments in forward currency contracts—net	(3.63	)	(6,212,758		)
TOTAL	(0.80	)%	$	(1,371,678	)

(Continued)

5

NESTOR PARTNERS

CONDENSED SCHEDULE OF INVESTMENTS

AT DECEMBER 31, 2005

U.S. TREASURY NOTES

		Value as a% of
Face		Partners’
Amount	Description	Capital		Value
$34,055,000	U.S. Treasury notes, 1.625%, 02/28/06	19.85	%	$	33,927,294
44,680,000	U.S. Treasury notes, 2.500%, 05/31/06	25.94		44,344,900
28,230,000	U.S. Treasury notes, 2.375%, 08/15/06	16.31		27,877,125
54,440,000	U.S. Treasury notes, 2.875%, 11/30/06	31.39		53,674,438
	Total investments in U.S. Treasury notes
	(amortized cost $160,118,577)	93.49	%	$	159,823,757

(Concluded)

See notes to financial statements.

6

NESTOR PARTNERS

STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

	2006			2005			2004
INVESTMENT INCOME:
Interest income	$	8,039,516		$	4,819,054		$	2,406,435
EXPENSES:
Brokerage fees	4,317,248			4,802,240			5,497,025
Administrative expenses	448,912			434,264			499,091
Custody fees	26,883			26,346			29,493
Total expenses	4,793,043			5,262,850			6,025,609
NET INVESTMENT INCOME (LOSS)	3,246,473			(443,796		)	(3,619,174		)
NET REALIZED AND UNREALIZED GAINS (LOSSES):
Net realized gains (losses) on closed positions:
Futures and forward currency contracts	3,165,360			15,906,728			4,721,012
Foreign exchange translation	(204,576		)	(159,844		)	219,374
Net change in unrealized appreciation (depreciation):
Futures and forward currency contracts	10,612,526			(5,895,404		)	(5,227,037		)
Foreign exchange translation	41,753			(76,974		)	6,791
Net gains (losses) from U.S. Treasury notes—net change in unrealized appreciation (depreciation)	247,752			(97,880		)	(230,211		)
Total net realized and unrealized gains (losses)	13,862,815			9,676,626			(510,071		)
NET INCOME (LOSS)	17,109,288			9,232,830			(4,129,245		)
LESS PROFIT SHARE TO GENERAL PARTNER	2,092,010			1,140,619			484,760
NET INCOME (LOSS) AFTER PROFIT SHARE TO GENERAL PARTNER	$	15,017,278		$	8,092,211		$	(4,614,005	)

See notes to financial statements.

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NESTOR PARTNERS

STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

				Special			New Profit
	Limited			Limited			Memo			General
	Partners			Partners			Account			Partner			Total
PARTNERS’ CAPITAL—January 1, 2004	$	158,551,000		$	47,828,770		$	—		$	4,284,428		$	210,664,198
Contributions	47,947,926			1,205,657			—			—			49,153,583
Withdrawals	(48,474,692		)	(12,528,306		)	—			(1,107,400		)	(62,110,398		)
Net income (loss)	(5,215,301		)	1,036,942			(1,047		)	50,161			(4,129,245		)
General Partner’s allocation—profit share	(484,760		)	—			484,760			—			—
Transfer of New Profit Memo Account to General Partner	—			—			(483,713		)	483,713			—
PARTNERS’ CAPITAL—December 31, 2004	152,324,173			37,543,063			—			3,710,902			193,578,138
Contributions	12,748,963			2,007,151			—			—			14,756,114
Withdrawals	(43,567,219		)	(1,422,830		)	—			(1,625,112		)	(46,615,161		)
Net income	5,221,311			3,700,476			779			310,264			9,232,830
General Partner’s allocation—profit share	(1,140,619		)	—			1,140,619			—			—
Transfer of New Profit Memo Account to General Partner	—			—			(1,141,398		)	1,141,398			—
PARTNERS’ CAPITAL—December 31, 2005	125,586,609			41,827,860			—			3,537,452			170,951,921
Contributions	16,121,682			3,138,546			—			—			19,260,228
Withdrawals	(56,887,936		)	(631,001		)	—			(2,100,659		)	(59,619,596		)
Net income	10,668,416			5,935,379			8,650			496,843			17,109,288
General Partner’s allocation—profit share	(2,043,240		)	(48,770		)	2,092,010			—			—
Transfer of New Profit Memo Account to General Partner	—			—			(2,100,660		)	2,100,660			—
PARTNERS’ CAPITAL—December 31, 2006	$	93,445,531		$	50,222,014		$	—		$	4,034,296		$	147,701,841

See notes to financial statements.

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NESTOR PARTNERS

STATEMENTS OF FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

			Special
	Limited		Limited
	Partners		Partners
YEAR ENDED DECEMBER 31, 2006:
Ratios to average capital—net investment income	1.11	%	3.60	%
Total expenses	3.39		0.88
Profit share allocation	1.59		0.11
Total expenses and profit share allocation	4.98		0.99
Total return before profit share allocation	10.82		13.61
Profit share allocation	(2.02	)	(0.11	)
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION	8.80	%	13.50	%
YEAR ENDED DECEMBER 31, 2005:
Ratios to average capital—net investment income (loss)	(1.03	)%	2.24	%
Total expenses	3.81		0.57
Profit share allocation	0.85		—
Total expenses and profit share allocation	4.66		0.57
Total return before profit share allocation	6.13		9.61
Profit share allocation	(0.90	)	—
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION	5.23	%	9.61	%
YEAR ENDED DECEMBER 31, 2004:
Ratios to average capital—net investment income (loss)	(2.43	)%	0.52	%
Total expenses	3.65		0.67
Profit share allocation	0.31		—
Total expenses and profit share allocation	3.96		0.67
Total return before profit share allocation	(1.63	)	1.38
Profit share allocation	(0.28	)	—
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION	(1.91	)%	1.38	%

See notes to financial statements.

9

NESTOR PARTNERS

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

1.ORGANIZATION OF THE PARTNERSHIP

Nestor Partners (the “Partnership”) is a limited partnership, which was organized in 1976 under the New Jersey Uniform Limited Partnership Act. The Limited Partnership Agreement (the “Agreement”) was amended and restated as of April 5, 2004. The Partnership engages in the speculative trading of futures and forward currency contracts. The instruments that are traded by the Partnership are volatile and involve a high degree of market risk.

The General Partner of the Partnership is Millburn Ridgefield Corporation (the “General Partner”). Principals, employees, former employees, and other affiliates of the General Partner have invested in the Partnership as special limited partners.

The Agreement provides that subject to certain limitations, the General Partner shall conduct and manage the business of the Partnership. The General Partner has the right to make all investment decisions regarding the Partnership, authorize the payments of distributions to partners, enter into customer agreements with brokers, and take such other actions, as it deems necessary or desirable, to manage the business of the Partnership.

The limited partners, special limited partners, New Profit Memo Account, and the General Partner share in the profits and losses of the Partnership, which are determined before brokerage fees (Note 2) and profit share allocations on the basis of their proportionate interests of Partnership capital (Note 3). The General Partner and special limited partners are charged lower brokerage fees than limited partners, which in 2004 resulted in the General Partner and special limited partners experiencing net gains and the limited partners, in aggregate, net losses. No limited partner or special limited partner shall be liable for Partnership obligations in excess of their capital contribution plus profits allocated to their capital accounts, if any.

Subject to certain conditions, a partner has the right to redeem all or a portion of its partnership capital as of any month-end upon fifteen days’ prior written notice to the General Partner. In its sole discretion, the General Partner may permit redemptions on shorter notice or as of a date other than month-end. Partners who purchased their interests through certain selling agents and redeem their partnership capital prior to the one-year anniversary of their subscription will pay the applicable early redemption fee. Redemptions will be made as of the last day of the month for an amount equal to the net asset value of the portion of a partner’s capital being redeemed; a redeeming partner shall receive such redeemed capital less the redemption fee, if any.

The General Partner, subject to Commodity Futures Trading Commission requirements, may (at its discretion) sell additional Limited Partnership Interests to persons desiring to become limited partners.

The Partnership will dissolve on October 31, 2017, or in the event of certain conditions set forth in the Agreement.

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2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investments—The Partnership records its transactions in futures and forward currency contracts, including related income and expenses, on a trade-date basis.

Open futures contracts are valued at market value and open forward currency contracts are valued at fair value which is based on pricing models that consider the time value of money and the current market and contractual prices of the underlying financial instruments. Realized gains (losses) and changes in unrealized appreciation (depreciation) on futures and forward currency contracts are recognized in the periods in which the contracts are closed or the changes occur, and are included in net realized and unrealized gains (losses) in the statements of operations.

Investments in U.S. Treasury notes are valued at the market value based on bid quotations reported daily in The Wall Street Journal. The Partnership amortizes premiums and accretes discounts on U.S. Treasury notes using the effective interest method. Such securities are normally on deposit with financial institutions as collateral for performance of the Partnership’s trading obligations with respect to derivative contracts and are held for safekeeping in a custody account.

Foreign Currency Translation—Assets and liabilities denominated in foreign currencies are translated to U.S. Dollars at quoted prices of such currencies. Purchases and sales of investments are translated to U.S. Dollars at the exchange rate prevailing when such transactions occurred.

Brokerage Fees—The Agreement provides that the Partnership shall charge the limited partners’ capital accounts and pay the General Partner brokerage fees at a fixed rate of 0.542% per month of net asset value (6.5% per annum) of limited partnership interests. Effective July 1, 2003, the General Partner reduced the brokerage fee rate to 0.458% per month of net asset value (5.5% per annum). The General Partner retains the right to charge less than the annual brokerage rate except as specified in the Agreement. The General Partner bears all commission and clearing charges due to third-party brokers.

Administrative Expenses—The Partnership bears expenses, including periodic legal, accounting and filing fees, up to an amount equal to ¼ of 1% per annum of the average net assets of the Partnership. The General Partner bears any excess over such amounts. The Partnership will pay any extraordinary expenses applicable to it.

The Partnership’s administrative expenses included $308,037, $317,619, and $263,807 in 2006, 2005, and 2004, respectively, which relates to legal and accounting services provided to the Partnership by an affiliate of the General Partner.

Income Taxes—Income taxes have not been provided, as partners are individually liable for the taxes, if any, on their share of the Partnership’s income and expenses.

Fair Value of Financial Instruments—The fair value of the Partnership’s assets and liabilities, which qualify as financial instruments under Statement of Financial Accounting Standards (“SFAS”) No. 107, Disclosures about Fair Value of Financial Instruments, approximates the carrying amounts presented in the statements of financial condition.

Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. Actual results could differ from these estimates.

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Right of Offset—The customer agreements between the Partnership and its brokers give the Partnership the legal right to net unrealized gains and losses. Unrealized gains and losses related to offsetting transactions with these brokers are reflected on a net basis in the equity in trading accounts in the statements of financial condition.

Recently Issued Pronouncements—In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”) entitled “Accounting For Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109.” FIN 48 prescribes the minimum recognition threshold a tax position must meet in connection with accounting for uncertainties in income tax positions taken or expected to be taken by an entity before being measured and recognized in the financial statements. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006. The implementation of FIN 48 is not expected to have a material impact on the Partnership’s financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America, and expands disclosures about fair value measurements. While FAS 157 does not require any new fair value measurements, for some entities, the application of FAS 157 may change current practice. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The implementation of FAS 157 is not expected to have a material impact on the Partnership’s financial statements.

3.PROFIT SHARE ALLOCATION

The Agreement provides that the General Partner’s profit share equal to 20% of Trading Profits (as defined in the Agreement) at the end of each year is charged to the limited partners’ capital accounts. However, for limited partners’ withdrawals during the year, the profit share calculation shall be computed as though the withdrawal date was at year end. Because limited partners may purchase their partnership interests at different times, they may recognize different amounts of Trading Profits. Each limited partner pays a profit share only on Trading Profits applicable to its partnership interest. Limited partners who make multiple investments in the Partnership receive separate partnership interests for purposes of tracking the profit share. Accordingly, in any given year, some limited partners may experience net gains and be charged the 20% profit share allocation for all or a portion of their interests where limited partners in the aggregate experienced net losses.

Any profit share charged is added to the General Partner’s capital account to the extent net taxable capital gains are allocated to the General Partner, and the remainder, if any, of such profit share is added to the New Profit Memo Account. The General Partner may not make any withdrawal from the balance in the New Profit Memo Account. If, at the end of a subsequent year, net taxable gains are allocated to the General Partner in excess of such year’s profit share, a corresponding amount is transferred from the New Profit memo account to the General Partner’s capital account.

4.DUE FROM/TO BROKERS

At December 31, 2006 and 2005, the due from brokers balances in the statements of financial condition include cash receivable from brokers.

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5.TRADING ACTIVITIES

The Partnership conducts its trading activities with various brokers acting either as a broker or counterparty to various transactions. At December 31, 2006 and 2005, cash, due from brokers and Treasury notes aggregating $55,831,307 and $69,658,449, respectively, included in the Partnership’s equity in trading accounts, were held by such brokers in segregated accounts as collateral as required by U.S. Commodity Futures Trading Commission’s regulations or by the counterparty bank or broker. Such collateral can be sold or repledged by the counterparties, at their discretion.

The Partnership enters into contracts with various financial institutions that contain a variety of indemnifications. The Partnership’s maximum exposure under these arrangements is unknown. However, the Partnership has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

6.DERIVATIVE INSTRUMENTS

The Partnership is party to derivative financial instruments in the normal course of its business. These financial instruments include futures and forward currency contracts which may be traded on an exchange (“exchange-traded contracts”) or over-the-counter (“OTC contracts”).

The Partnership records its derivative activities on a mark-to-market basis as described in Note 2. For OTC contracts, the Partnership enters into master netting agreements with its counterparties. Therefore, assets represent the Partnership’s unrealized gains, less unrealized losses for OTC contracts in which the Partnership has a master netting agreement. Similarly, liabilities represent net amounts owed to counterparties on OTC contracts.

Futures contracts are agreements to buy or sell an underlying asset or index for a set price in the future. Initial margin deposits are made upon entering into futures contracts and can be either in cash or treasury securities. Open futures contracts are revalued on a daily basis to reflect the market value of the contracts at the end of each trading day. Variation margin payments are received or made, depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Partnership records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed. The Partnership bears the market risk that arises from changes in the value of these financial instruments.

Forward currency contracts entered into by the Partnership represent a firm commitment to buy or sell an underlying currency at a specified value and point in time based upon an agreed or contracted quantity. The ultimate gain or loss is equal to the difference between the value of the contract at the onset and the value of the contract at settlement date.

Each of these financial instruments is subject to various risks similar to those related to the underlying financial instruments, including market risk, credit risk, concentration risk, and sovereign risk.

Market risk is the potential change in the value of the instruments traded by the Partnership due to market changes, including interest and foreign exchange rate movements and fluctuations in futures or security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. The financial instruments traded by the Partnership contain varying degrees of off-balance sheet risk whereby changes in the market values of the futures and forward currency contracts and the Partnership’s satisfaction of its

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obligations related to such market value changes may exceed the amount recognized in the statements of financial condition.

Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. Credit risk is normally reduced to the extent that an exchange or clearing organization acts as a counterparty to futures transactions, since typically the collective credit of the members of the exchange is pledged to support the financial integrity of the exchange. In the case of OTC transactions, the Partnership must rely solely on the credit of the individual counterparties. The contract amounts of the forward currency and futures contracts do not represent the Partnership’s risk of loss due to counterparty nonperformance. The Partnership’s exposure to credit risk associated with counterparty nonperformance of these contracts is limited to the unrealized gains inherent in such contracts, which are recognized in the statements of financial condition, plus the value of margin or collateral held by the counterparty. The amount of such credit risk was $29,077,055 and $43,906,779 at December 31, 2006 and 2005, respectively.

The General Partner has established procedures to actively monitor market risk and minimize credit risk, although there can be no assurance that it will, in fact succeed in doing so. The General Partner’s market risk control procedures include diversification of the Partnership���s portfolio and continuously monitoring the portfolio’s open positions, historical volatility and maximum historical loss. The General Partner seeks to minimize credit risk primarily by depositing and maintaining the Partnership’s assets at financial institutions and brokers which the General Partner believes to be creditworthy. The Partnership’s trading activities are primarily with brokers and other financial institutions located in North America, Europe and Asia. All futures transactions of the Partnership are cleared by major securities firms pursuant to customer agreements. For all forward currency transactions, the Partnership utilizes a single clearing broker which is a major financial institution.

The Partnership is subject to sovereign risk such as the risk of restrictions being imposed by foreign governments on the repatriation of cash and the effects of political or economic uncertainties. Net unrealized appreciation (depreciation) on futures and forward currency contracts are denominated in the Partnership’s functional currency (U.S. Dollar). Cash settlement of futures and forward currency contracts is made in the local currency (settlement currency) and then translated to U.S. Dollars.

14

Net unrealized appreciation (depreciation) on futures and forward currency contracts by settlement currency type, denominated in U.S. Dollars, is detailed below:

	December 31,
	2006					2005
	Total Net					Total Net
	Unrealized					Unrealized
	Appreciation			Percent of		Appreciation			Percent of
Currency Type	(Depreciation)			Total		(Depreciation)			Total
Aussie dollar	$	397,950		4.31	%	$	408,298		(29.77	)%
British pound	671,168			7.26		(14,230		)	1.04
Canadian dollar	(694,556		)	(7.52	)	335,830			(24.48	)
Euro	1,984,900			21.48		1,424,609			(103.86	)
Hong Kong dollar	549,899			5.95		(239,809		)	17.48
Hungarian forint	313,424			3.39		—			—
Japanese yen	2,233,502			24.17		(2,706,149		)	197.29
New Zealand dollar	96,156			1.04		—			—
Norwegian krona	—			—		(198,360		)	14.46
Polish zloty	—			—		125,813			(9.17	)
South African rand	172,414			1.87		260,592			(19.00	)
Swedish krona	52,291			0.57		(382		)	0.03
Swiss franc	927,525			10.04		—			—
Turkish lira	(130,175		)	(1.41	)	—			—
U.S. dollar	2,666,350			28.85		(767,890		)	55.98
Total	$	9,240,848		100.00	%	$	(1,371,678	)	100.00	%

7.FINANCIAL HIGHLIGHTS

The ratios are calculated based on limited partners’ capital and special limited partners’ capital taken as a whole. The computation of such ratios based on the amount of expenses and profit share allocation assessed to an individual partner’s capital account may vary from these ratios based on the timing of capital transactions and differences in individual partner’s brokerage fees and profit share allocation arrangements.

Returns are calculated for limited partners and special limited partners taken as a whole. An individual partner’s returns may vary from these returns based on the timing of capital transactions and differences in individual partners’ brokerage fees and profit share allocation arrangements.

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