FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended: June 30, 2005
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number: 000-50725
NESTOR PARTNERS
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2149317
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o MILLBURN RIDGEFIELD CORPORATION
411 West Putnam Avenue
Greenwich, Connecticut 06830
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 625-7554
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant Limited Partnership Interests
to Section 12(g) of the Act: (Title of Class)
Indicate by check mark whether the registrant (1) 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Nestor Partners
Financial statements
For the three and six months ended June 30, 2005 and 2004 (unaudited)
Statements of Financial Condition (a) 1
Condensed Schedules of Investments (a) 2
Statements of Operations (b) 6
Statements of Changes in Partners' Capital (c) 8
Statements of Financial Highlights (b) 10
Notes to the Financial Statements 12
(a) At June 30, 2005 (unaudited) and December 31, 2004 (b) For the three and six
months ended June 30, 2005 and 2004 (unaudited) (c) For the six months ended
June 30, 2005 and 2004 (unaudited)
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Nestor Partners
Statements of Financial Condition
UNAUDITED
June 30 December 31
2005 2004
----------------------------------------------------
ASSETS
Equity in trading accounts:
Investments in U.S. Treasury notes?at market value
(amortized cost $52,849,320 and $46,930,539) $ 52,763,017 $ 46,848,072
Net unrealized appreciation on open futures and
forward currency contracts 6,030,060 4,523,726
Due from brokers 11,508,076 6,193,636
Cash denominated in foreign currencies (cost $701,228
and $2,129,278) 649,792 2,169,971
----------------------------------------------------
Total equity in trading accounts 70,950,945 59,735,405
INVESTMENTS IN U.S. TREASURY NOTES?at market value
(amortized cost $83,345,893 and $133,147,061) 83,209,628 133,032,588
CASH AND CASH EQUIVALENTS 7,972,746 16,278,049
ACCRUED INTEREST RECEIVABLE 443,476 472,441
----------------------------------------------------
TOTAL $ 162,576,795 $ 209,518,483
====================================================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Capital withdrawals payable $ 1,167,953 $ 12,993,466
Capital contributions received in advance 3,100 2,165,900
Accrued brokerage fees 411,053 475,296
Accrued expenses 202,299 305,683
----------------------------------------------------
Total liabilities 1,784,405 15,940,345
PARTNERS' CAPITAL 160,792,390 193,578,138
----------------------------------------------------
TOTAL $ 162,576,795 $ 209,518,483
====================================================
See notes to financial statements
Nestor Partners
Condensed Schedule of Investments
June 30, 2005 (UNAUDITED)
Futures and Forward Currency Contracts % of Partners' Net Unrealized
Capital Appreciation/
(Depreciation)
- -------------------------------------------------------------------------------------------------------------------------
FUTURES CONTRACTS
Long futures contracts:
Energies 0.15 % $ 233,603
Grains (0.68) (1,100,154)
Interest rates 2.77 4,449,744
Metals (0.78) (1,250,902)
Softs (0.02) (39,638)
Stock indices 0.47 771,090
-------------------------------------------------
Total long futures contracts 1.91 3,063,743
-------------------------------------------------
Short futures contracts:
Energies 0.04 58,391
Grains 0.05 88,038
Interest rates (0.01) (10,828)
Livestock 0.04 65,120
Metals 0.04 61,717
Softs (0.11) (171,517)
-------------------------------------------------
Total short futures contracts 0.05 90,921
-------------------------------------------------
TOTAL INVESTMENTS IN FUTURES CONTRACTS-Net 1.96 3,154,664
-------------------------------------------------
FORWARD CURRENCY CONTRACTS
Total long forward currency contracts 1.47 2,364,363
Total short forward currency contracts 0.32 511,033
-------------------------------------------------
TOTAL INVESTMENTS IN FORWARD CURRENCY
CONTRACTS-Net 1.79 2,875,396
-------------------------------------------------
TOTAL 3.75 % $ 6,030,060
=================================================
(Continued)
See notes to financial statements
Nestor Partners
Condensed Schedule of Investments
June 30, 2005 (UNAUDITED)
U.S. Treasury Notes
Face Amount Description % of Partners'
Capital Value
-------------------------------------------------------------------------------------------------------------
$ 13,975,000 U.S. Treasury notes, 2.000%, 08/31/05 8.67 % $ 13,944,430
44,380,000 U.S. Treasury notes, 1.875%, 11/30/05 27.44 44,116,494
34,055,000 U.S. Treasury notes, 1.625%, 02/28/06 20.93 33,650,597
44,680,000 U.S. Treasury notes, 2.500%, 05/31/06 27.52 44,261,124
----------------------------------------
Total investments in U.S. Treasury notes
(amortized cost $136,195,213) 84.56 % $ 135,972,645
========================================
(Concluded)
See notes to financial statements
Nestor Partners
Condensed Schedule of Investments
December 31, 2004
Futures and Forward Currency Contracts % of Partners' Net Unrealized
Capital Appreciation/
(Depreciation)
- ------------------------------------------------------------------------------------------------------------------------
FUTURES CONTRACTS
Long futures contracts:
Energies (0.23)% $ (453,238)
Interest rates 0.01 20,112
Livestock 0.02 36,230
Metals 0.06 128,996
Softs 0.08 153,181
Stock indices 0.82 1,588,752
-------------------------------------------------
Total long futures contracts 0.76 1,474,033
-------------------------------------------------
Short futures contracts:
Energies 0.20 369,720
Grains 0.15 283,181
Interest rates 0.01 17,599
Metals 0.03 64,779
Softs (0.04) (67,820)
-------------------------------------------------
Total short futures contracts 0.35 667,459
-------------------------------------------------
TOTAL INVESTMENTS IN FUTURES CONTRACTS-Net 1.11 2,141,492
-------------------------------------------------
FORWARD CONTRACTS
Total long forward currency contracts 3.55 6,865,386
Total short forward currency contracts (2.32) (4,483,152)
-------------------------------------------------
TOTAL INVESTMENTS IN FORWARD CURRENCY
CONTRACTS-Net 1.23 2,382,234
-------------------------------------------------
TOTAL 2.34 % $ 4,523,726
=================================================
(Continued)
See notes to financial statements
Nestor Partners
Condensed Schedule of Investments
December 31, 2004
U.S. Treasury Notes
Face Amount Description % of Partners'
Capital Value
------------------------------------------------------------------------------------------------------------
$ 60,230,000 U.S. Treasury notes, 1.500%, 02/28/05 31.09 % $ 60,192,357
60,230,000 U.S. Treasury notes, 1.250%, 05/31/05 30.96 59,928,850
60,230,000 U.S. Treasury notes, 1.875%, 11/30/05 30.87 59,759,453
----------------------------------------
Total investments in U.S. Treasury notes
(amortized cost $180,077,600) 92.92 % $ 179,880,660
========================================
(Concluded)
See notes to financial statements
Nestor Partners
Statements of Operations (UNAUDITED)
For the three months ended
June 30 June 30
2005 2004
--------------------------------------------
INVESTMENT INCOME:
Interest income $ 1,091,606 $ 573,748
--------------------------------------------
EXPENSES:
Brokerage fees 1,221,821 1,374,293
Administrative expenses 104,943 123,032
Custody fees 7,711 8,118
--------------------------------------------
Total expenses 1,334,475 1,505,443
--------------------------------------------
NET INVESTMENT LOSS (242,869) (931,695)
--------------------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES):
Net realized gains (losses) on closed positions:
Futures and forward currency contracts (9,442,798) (27,454,603)
Foreign exchange translation 58,605 145,781
Net change in unrealized appreciation:
Futures and forward currency contracts 12,792,955 (6,405,552)
Foreign exchange translation (22,526) (49,716)
Net gains (losses) from U.S. Treasury notes:
Net change in unrealized depreciation 179,460 (342,036)
--------------------------------------------
Total net realized and unrealized gains (losses) 3,565,696 (34,106,126)
--------------------------------------------
NET INCOME (LOSS) 3,322,827 (35,037,821)
LESS PROFIT SHARE TO GENERAL PARTNER 7,011 (949,589)
--------------------------------------------
NET INCOME (LOSS) AFTER PROFIT SHARE TO
GENERAL PARTNER $ 3,315,816 $ (34,088,232)
============================================
See notes to financial statements
Nestor Partners
Statements of Operations (UNAUDITED)
For the six months ended
June 30 June 30
2005 2004
----------------------------------------------------
INVESTMENT INCOME:
Interest income $ 2,161,390 $ 1,129,004
----------------------------------------------------
EXPENSES:
Brokerage fees 2,613,960 2,827,125
Administrative expenses 222,488 265,695
Custody fees 16,026 14,955
----------------------------------------------------
Total expenses 2,852,474 3,107,775
----------------------------------------------------
NET INVESTMENT LOSS (691,084) (1,978,771)
----------------------------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES):
Net realized gains (losses) on closed positions:
Futures and forward currency contracts (10,091,726) (11,644,179)
Foreign exchange translation 27,076 145,781
Net change in unrealized appreciation:
Futures and forward currency contracts 1,506,334 (11,944,399)
Foreign exchange translation (92,128) (36,542)
Net losses from U.S. Treasury notes:
Net change in unrealized depreciation (25,628) (394,400)
----------------------------------------------------
Total net realized and unrealized losses (8,676,072) (23,873,739)
----------------------------------------------------
NET LOSS (9,367,156) (25,852,510)
LESS PROFIT SHARE TO GENERAL PARTNER 7,011 26,491
----------------------------------------------------
NET LOSS AFTER PROFIT SHARE TO
GENERAL PARTNER $ (9,374,167) $ (25,879,001)
====================================================
See notes to financial statements
Nestor Partners
Statements of Changes in Partners' Capital (UNAUDITED)
For the six months ended June 30, 2005:
Special New Profit
Limited Partners Limited Partners Memo Account General Partner Total
-----------------------------------------------------------------------------------------------------
PARTNERS' CAPITAL-
January 1, 2005 $ 152,324,173 $ 37,543,063 $ - $ 3,710,902 $ 193,578,138
Contributions 5,010,862 1,946,972 - - 6,957,834
Withdrawals (28,706,461) (1,186,252) - (483,713) (30,376,426)
Net loss (8,174,949) (1,098,456) - (93,751) (9,367,156)
General Partner's allocation:
New Profit-Accrued (7,011) - 7,011 -
Transfer of New Profit Memo
Account to General Partner - - - - -
PARTNERS' CAPITAL-
-----------------------------------------------------------------------------------------------------
June 30, 2005 $ 120,446,614 $ 37,205,327 $ 7,011 $ 3,133,438 $ 160,792,390
=====================================================================================================
For the six months ended
June 30, 2004:
Limited Partners Special Limited Partners New Profit Memo AccGeneral Partner Total
----------------------------------------------------------------------------------------------------
PARTNERS' CAPITAL-
January 1, 2004 $ 158,551,000 $ 47,828,770 $ - $ 4,284,428 $ 210,664,198
Contributions 31,203,625 315,191 - - 31,518,816
Withdrawals (15,343,217) (11,464,981) - (657,400) (27,465,598)
Net loss (21,831,637) (3,619,866) (4,140) (396,867) (25,852,510)
General Partner's allocation:
New Profit-Accrued (26,491) - 26,491 - -
Transfer of New Profit Memo
Account to General Partner - - - - -
PARTNERS' CAPITAL-
----------------------------------------------------------------------------------------------------
June 30, 2004 $ 152,553,280 $ 33,059,114 $ 22,351 $ 3,230,161 $ 188,864,906
====================================================================================================
See notes to financial statements
Nestor Partners
Statements of Financial Highlights (UNAUDITED)
For the three months ended June 30, 2005 Limited Special Limited
Partners Partners
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average capital:
Net investment income (loss) (a) (1.35) % 2.03 %
===============================================
Total expenses (a) 3.96 % 0.58 %
Profit share allocation (b) - % - %
-----------------------------------------------
Total expenses and profit share allocation 3.96 % 0.58 %
===============================================
Total return before profit share allocation (b) 2.28 % 3.15 %
Profit share allocation (b) - % - %
-----------------------------------------------
Total return after profit share allocation 2.28 % 3.15 %
===============================================
For the three months ended June 30, 2004 Limited Special Limited
Partners Partners
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average capital:
Net investment income (loss) (a) (2.45) % 0.43 %
===============================================
Total expenses (a) 3.62 % 0.73 %
Profit share allocation (b) (0.60) % - %
-----------------------------------------------
Total expenses and profit share allocation 3.02 % 0.73 %
===============================================
Total return before profit share allocation (b) (15.66) % (15.00) %
Profit share allocation (b) 0.49 % - %
-----------------------------------------------
Total return after profit share allocation (15.17) % (15.00) %
===============================================
(a) annualized (b) not annualized
See notes to financial statements
Nestor Partners
Statements of Financial Highlights (UNAUDITED)
For the six months ended June 30, 2005 Limited Special Limited
Partners Partners
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average capital:
Net investment income (loss) (a) (1.51) % 1.83 %
===============================================
Total expenses (a) 3.95 % 0.61 %
Profit share allocation (b) - % - %
-----------------------------------------------
Total expenses and profit share allocation 3.95 % 0.61 %
===============================================
Total return before profit share allocation (b) (4.51) % (2.91) %
Profit share allocation (b) (0.01) % - %
-----------------------------------------------
Total return after profit share allocation (4.52) % (2.91) %
===============================================
For the six months ended June 30, 2004 Limited Special Limited
Partners Partners
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average capital:
Net investment income (loss) (a) (2.48) % 0.36 %
===============================================
Total expenses (a) 3.55 % 0.69 %
Profit share allocation (b) 0.02 % - %
-----------------------------------------------
Total expenses and profit share allocation 3.57 % 0.69 %
===============================================
Total return before profit share allocation (b) (12.25) % (10.94) %
Profit share allocation (b) 0.01 % - %
-----------------------------------------------
Total return after profit share allocation (12.24) % (10.94) %
===============================================
<FN>
(a) annualized (b) not annualized
</FN>
See notes to financial statements
NOTES TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of Nestor Partners' (the "Partnership")
financial condition at June 30, 2005 (unaudited) and December 31, 2004 and the
results of its operations for the three and six month periods ended June 30,
2005 and 2004 (unaudited). These financial statements present the results of
interim periods and do not include all disclosures normally provided in annual
financial statements. It is suggested that these financial statements be read in
conjunction with the audited financial statements and notes included in the
Partnership's annual report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 2004. The December 31, 2004
information has been derived from the audited financial statements as of
December 31, 2004.
The Partnership pays administrative expenses for legal, audit and accounting
services, up to 0.25 of 1% per annum of the Partnership's average month-end net
assets. A portion of such expenses are paid to an affiliate of Millburn
Ridgefield Corporation (the "General Partner"), The Millburn Corporation
("TMC"), for providing accounting services to the Partnership. The Partnership
incurred administrative expenses of $104,943 and $222,488, respectively, during
the three and six month periods ended June 30, 2005, of which $74,790 and
$148,687, respectively, relates to legal and accounting services provided to the
Partnership by TMC. The General Partner pays all administrative expenses in
excess of 0.25 of 1% per annum of the Partnership's average month-end net
assets.
Interests sold through Selling Agents engaged by the General Partner are
generally subject to a 2.5% redemption charge for redemptions made prior to the
end of the twelfth month following their sale. All redemption charges will be
paid to the General Partner. At June 30, 2005 there were no redemption charges
owed to the General Partner.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Reference is made to Item 1, "Financial Statements". The information contained
therein is essential to, and should be read in connection with, the following
analysis.
OPERATIONAL OVERVIEW
Due to the nature of the Partnership's business, its results of operations
depend on the General Partner's ability to recognize and capitalize on trends
and other profit opportunities in different sectors of the global capital and
commodity markets. The General Partner's trading methods are confidential, so
that substantially the only information that can be furnished regarding the
Partnership's results of operations is contained in the performance record of
its trading. Unlike operating businesses, general economic or seasonal
conditions do not directly affect the profit potential of the Partnership, and
its past performance is not necessarily indicative of future results. The
General Partner believes, however, that there are certain market conditions, for
example, markets with strong price trends, in which the Partnership has a better
likelihood of being profitable than in others.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership raises additional capital only through the sale of Interests.
Partnership capital may also be increased by trading profits, if any. The
Partnership does not engage in borrowing. Interests may be offered for sale as
of the beginning of each month.
The Partnership trades futures and forward contracts on interest rates,
commodities, currencies, metals, energy and stock indices. Due to the nature of
the Partnership's business, substantially all its assets are represented by cash
and United States government obligations, while the Partnership maintains its
market exposure through open futures and forward contract positions.
The Partnership's assets are generally held as cash, cash equivalents or U.S.
Government obligations which are used to margin or collateralize the
Partnership's futures and forward positions and are withdrawn, as necessary, to
pay redemptions and expenses. Other than potential market-imposed limitations on
liquidity, due, for example, to daily price fluctuation limits, which are
inherent in the Partnership's futures and forward trading, the Partnership's
assets are highly liquid and are expected to remain so.
There have been no material changes with respect to the Partnership's critical
accounting policies, off-balance sheet arrangements or disclosure of contractual
obligations as reported in the Partnership's Annual Report on Form 10-K for
fiscal year 2004.
RESULTS OF OPERATIONS
During its operations through the three and six month periods ending June 30,
2005, the Partnership experienced no meaningful periods of illiquidity in any of
the numerous markets traded by the General Partner.
Due to the nature of commodity trading, the results of operations for the
interim period presented should not be considered indicative of the results that
may be expected for the entire year.
PROFIT SHARE
The following table indicates the total profit share earned and accrued during
the three and six months ended June 30, 2005 and 2004. Profit share earned (from
Limited Partners' redemptions) is credited to the New Profit memo account as
defined in the Partnership's Partnership Agreement.
Three months ended: Jun 30, 2005 Jun 30, 2004
------------ ------------
Profit share earned $ -- $ 9,361
Profit share accrued (1) 7,011 --
Profit share reversal (2) -- (958,950)
------------ ------------
Total profit share $ 7,011 $ (949,589)
Six months ended: Jun 30, 2005 Jun 30, 2004
------------ ------------
Profit share earned $ -- $ 26,491
Profit share accrued (1) 7,011 --
Profit share reversal n/a n/a
------------ ------------
Total profit share $ 7,011 $ 26,491
(1) At June 30
(2) Accrued at March 31, reversed on April 1
Month Ending: Total Partners'
Capital
- --------------------------------------------------------
June 30, 2005 $ 160,792,390
March 31, 2005 178,605,560
December 31, 2004 193,578,138
- ----------------------------------------------------------------------
Periods ended June 30, 2005
- ----------------------------------------------------------------------
Three Months Six Months
---------------------------------------
Change in Partners' Capital $ (17,813,170) $ (32,785,748)
Percent Change -9.97% -16.94%
THREE MONTHS ENDED JUNE 30, 2005
The decrease in the Partnership's net assets of $17,813,170 was attributable to
withdrawals of $23,073,644, which was partially offset by contributions of
$1,937,647 and net income from operations (before profit share) of $3,322,827.
Brokerage fees are calculated on the net asset value on the last day of each
month and are affected by trading performance, subscriptions and redemptions.
Brokerage fees for the three months ended June 30, 2005 decreased $152,472
relative to the corresponding period in 2004.
The Partnership pays administrative expenses for legal, audit and accounting
services, up to 0.25 of 1% per annum of the Partnership's average month-end net
assets. Administrative expenses for the three months ended June 30, 2005
decreased $18,089 relative to the corresponding period in 2004. The decrease
was attributable to a decrease in the Partnership's net assets.
Interest income is derived from cash and U.S. Treasury instruments held at the
Partnership's brokers and custodian. Interest income for the three months ended
June 30, 2005 increased $517,858, relative to the corresponding period in 2004.
This increase was attributable to an increase in short-term Treasury yields,
which was partially offset by a decrease in the Partnership's U.S. Treasury
holdings as a result of net redemptions.
During the three months ended June 30, 2005, the Partnership experienced net
realized and unrealized gains of $3,565,696 from its trading operations
(including foreign exchange translations and U.S. Treasury notes). Brokerage
fees of $1,221,821, administrative expenses of $104,943, custody fees of $7,711
and an accrued profit share to the General Partner of $7,011 were incurred.
Interest income of $1,091,606 partially offset the Partnership's expenses
resulting in a net income after profit share to General Partner of $3,315,816.
An analysis of the trading gain (loss) by sector is as follows:
Sector % Gain (Loss)
- -------- -------------
Currencies (0.08)%
Energies (0.98)%
Grains (0.84)%
Interest rates 7.12%
Livestock (0.11)%
Metals (1.48)%
Softs (0.75)%
Stock indices (0.38)%
-------------
Total 2.50%
SIX MONTHS ENDED JUNE 30, 2005
The decrease in the Partnership's net assets of $32,785,748 was attributable to
withdrawals of $30,376,426, which was partially offset by contributions of
$6,957,834 and a net loss from operations (before profit share) of $9,367,156.
Brokerage fees are calculated on the net asset value on the last day of each
month and are affected by trading performance, subscriptions and redemptions.
Brokerage fees for the six months ended June 30, 2005 decreased $213,165
relative to the corresponding period in 2004.
The Partnership pays administrative expenses for legal, audit and accounting
services, up to 0.25 of 1% per annum of the Partnership's average month-end net
assets. Administrative expenses for the six months ended June 30, 2005 decreased
$43,207 relative to the corresponding period in 2004. The decrease was
attributable to a decrease in the Partnership's net assets.
Interest income is derived from cash and U.S. Treasury instruments held at the
Partnership's brokers and custodian. Interest income for the six months ended
June 30, 2005 increased $1,032,386 relative to the corresponding period in 2004.
This increase was attributable to an increase in short-term Treasury yields,
which was partially offset by a decrease in the Partnership's cash and U.S.
Treasury holdings.
During the six months ended June 30, 2005, the Partnership experienced net
realized and unrealized losses of $8,676,072 from its trading operations
(including foreign exchange translations and U.S. Treasury notes). Brokerage
fees of $2,613,960, administrative expenses of $222,488, custody fees of $16,026
and an accrued profit share to the General Partner of $7,011 were incurred.
Interest income of $2,161,390 partially offset the Partnership's expenses
resulting in a net loss of $9,374,167. An analysis of the trading gain (loss) by
sector is as follows:
Sector % Gain (Loss)
- -------- -------------
Currencies (5.87)%
Energies 0.34%
Grains (2.21)%
Interest rates 7.97%
Livestock (0.24)%
Metals (1.44)%
Softs (1.04)%
Stock indices (1.26)%
-------------
Total (3.75)%
Management Discussion - 2005
- ----------------------------
THREE MONTHS ENDED JUNE 30, 2005
For the three month period ended June 30, 2005, the Partnership's Limited
Partners and Special Limited Partners posted gains, net of fees, of 2.28% and
3.15%, respectively. Interest rate trading was profitable. Currency and stock
index futures trading were essentially flat for the period, but did produced
good gains in May and June. On the other hand, trading of non-financial
markets--energy, metals, and soft and agricultural commodities resulted in
quarterly losses.
Long positions in European, British, Japanese, and Canadian note and bond
futures, were broadly profitable. Continuing sluggish growth on the Continent,
signs of slowing growth in the U.K., and even some reduction in China's still
strong expansion encouraged purchasers of fixed income futures. Moreover,
inflation worldwide, both actual and expected, appears well contained due in
large part to the seemingly endless supply of cheap productive labor available
in China, India, Eastern Europe and other emerging nations.
Long worldwide equity futures positions were maintained throughout the quarter.
Initially these positions generated losses, but in May and June widespread gains
brought the sector's performance back to unchanged. For the quarter overall,
long positions in European and South African stock index futures were quite
profitable, while trading of U.S. and Asian equity futures generated offsetting
losses.
Currency trading also produced mixed results. Non-dollar trading was
fractionally profitable, while dollar trading was similarly negative. Short euro
positions relative to the currencies of Canada, Sweden and Poland were
profitable. Unfavorable short-term interest rate differentials and increasing
concerns about Continental Europe's tepid growth prospects undermined the euro.
In addition, a long euro/short Swedish krona trade produced a gain as the
Swedish Riksbank cut its official interest rate below the European Central Bank
rate. Short Japanese yen positions against the Australian and Canadian
currencies were also quite profitable. Here too it appears that interest rate
differentials and relative growth contributed to the yen's weakness. Meanwhile,
trading of dollar positions was unprofitable. Short dollar positions relative to
the Korean, Australian and New Zealand units, and long dollar positions versus
the South African rand, euro, pound sterling and Japanese yen were not
profitable. On the other hand, short dollar positions against the Brazilian real
and Canadian dollar did produce gains.
Energy prices retreated in April and May, and losses on long positions in crude
and products were widespread, although prices recovered late in the quarter and
trimmed the losses noticeably.
Metals prices were volatile, and worries about slowing growth seemed to weigh on
the markets. Long positions in zinc, nickel, lead, copper, silver and gold
produced losses that outweighed slight gains from long platinum and short tin
trades. A short aluminum trade also lost money.
In agricultural trading, prices were volatile. Long positions throughout the soy
complex resulted in losses when improved weather news generated price declines.
Short corn and wheat trades also resulted in losses. Finally, short sugar, cocoa
and cotton positions were slightly unprofitable, as was a long coffee trade.
THREE MONTHS ENDED MARCH 31, 2005
For the three-month period ended March 31, 2005, the Partnership's Limited
Partners and Special Limited Partners had negative returns of 6.64% and 5.87%,
respectively. This period was characterized by significant price volatility in
most markets, including trend reversals in a number of currency and equity
futures.
After declining for several months, the dollar staged a significant rally and
losses were sustained on short dollar positions against the yen, South African
rand, Singapore dollar, euro and a number of other European currencies. Tepid
growth in the 12-nation euro zone, dovish comments from the European Central
Bank, and further rate increases from the Federal Reserve seemed to outweigh, at
least temporarily, the dollar depressing effect of concerns about central banks
sales of dollars to diversify reserve holdings.
Equity markets were also volatile during the quarter due to concerns about
higher interest rates in the U.S., sluggish economic activity in "Old Europe"
and the possibility of slower growth in Asia. Losses on long positions in U. S.
and Hong Kong index futures outweighed small gains from long positions in
European and Japanese indices.
A multi-year downtrend in grain prices reversed abruptly, and short positions in
corn, wheat, soybeans and soybean meal sustained large losses. Trading of other
agricultural commodities was also somewhat unprofitable.
In the interest rate sector, higher short-term rates in the U.S. produced a
sizable gain on a short Eurodollar futures trade. Meanwhile, global long-term
interest rates declined but with a good deal of volatility. Hence, positions in
notes and bonds had little net impact on NAV.
Energy prices were quite volatile but maintained an upward momentum during the
quarter. Consequently, long crude, heating oil, kerosene, and London gasoil
positions were profitable. Natural gas trading, on the other hand, produced a
small loss.
Month Ending: Total Partners'
Capital
- ----------------------------------------------------------
June 30, 2004 $ 188,864,906
March 31, 2004 233,530,893
December 31, 2003 210,664,198
- ----------------------------------------------------------------------
PeriodS ended June 30, 2004
- ----------------------------------------------------------------------
Three Months Six Months
-------------------------------------
Change in Partners' Capital $(44,665,987) $(21,799,292)
Percent Change -19.13% -10.35%
THREE MONTHS ENDED JUNE 30, 2004
The Partnership's net assets decreased $44,665,987 during the three months ended
June 30, 2004. This decrease was attributable to withdrawals of $23,645,166, a
net loss of $34,088,232, and a reversal of accrued profit share to the General
Partner during the first quarter of $958,950, which was partially offset by
contributions of $14,017,000 and an allocation to the New Profit memo account of
$9,361.
Brokerage fees are calculated on the net asset value on the last day of each
month and are affected by trading performance, contributions and withdrawals.
Brokerage fees for the three months ended June 30, 2004 increased $54,253
relative to the corresponding period in 2003.
The Partnership pays administrative expenses for legal, audit and accounting
services, up to 0.25 of 1% per annum of the Partnership's average month-end net
assets. Administrative expenses for the three months ended June 30, 2004
increased $20,916 relative to the corresponding period in 2003. The increase
was attributable to an increase in the Partnership's net assets.
Interest income is derived from cash and U.S. Treasury instruments held at the
Partnership's brokers and custodian. Interest income for the three months ended
June 30, 2004 increased $62,430 relative to the corresponding period in 2003.
This increase was attributable to an increase in the Partnership's net assets,
which was partially offset by a decrease in short-term Treasury yields.
During the three months ended June 30, 2004, the Partnership reversed accrued
incentive fee at March 31, 2004 of $958,950. In addition, the Partnership
experienced net realized and unrealized losses of $34,106,126 from its trading
operations (including foreign exchange translations and U.S. Treasury notes).
Brokerage fees of $1,374,293, administrative expenses of $123,032, custody fees
of $8,118 and accrued profit share to the New Profit Memo account of $9,361 were
incurred. Interest income of $573,748 partially offset the Partnership's
expenses resulting in a net loss after profit share to General Partner of
$34,088,232. An analysis of the trading gain (loss) by sector is as follows:
Sector % Gain (Loss)
- --------- -------------
Currencies (4.64)%
Energies 0.78%
Grains (0.40)%
Interest rates (5.88)%
Metals (1.65)%
Softs 0.13%
Stock indices (3.34)%
-------------
Total (15.00)%
SIX MONTHS ENDED JUNE 30, 2004
The Partnership's net assets decreased $21,799,292 during the six months ended
June 30, 2004. This decrease was attributable to withdrawals of $27,465,598, a
net loss from of operations (before profit share) of $25,852,510, which was
partially offset by contributions of $31,518,816.
Brokerage fees are calculated on the net asset value on the last day of each
month and are affected by trading performance, contributions and withdrawals.
Brokerage fees for the six months ended June 30, 2004 increased $382,090
relative to the corresponding period in 2003.
The Partnership pays administrative expenses for legal, audit and accounting
services, up to 0.25 of 1% per annum of the Partnership's average month-end net
assets. Administrative expenses for the six months ended June 30, 2004 increased
$73,222 relative to the corresponding period in 2003. The increase was
attributable to an increase in the Partnership's net assets.
Interest income is derived from cash and U.S. Treasury instruments held at the
Partnership's brokers and custodian. Interest income for the six months ended
June 30, 2004 increased $95,741, relative to the corresponding period in 2003.
This increase was attributable to an increase in the Partnership's cash and U.S.
Treasury investments, which was partially offset by a decrease in short-term
Treasury yields.
During the six months ended June 30, 2004, The Partnership experienced net
realized and unrealized losses of $23,873,739 from its trading operations
(including foreign exchange translations and Treasury obligations). Brokerage
fees of $2,827,125, administrative expenses of $265,695, custody fees of $14,955
and accrued profit share to the General Partner of $26,491 were incurred.
Interest income of $1,129,004 partially offset the Partnership's expenses
resulting in a net loss after profit share to General Partner of $25,879,001. An
analysis of the trading gain (loss) by sector is as follows:
Sector % Gain (Loss)
- --------- -------------
Currencies (11.02)%
Energies 1.64%
Grains 0.09%
Interest rates 1.25%
Metals (0.91)%
Softs 0.13%
Stock indices (2.19)%
-------------
Total (11.01)%
Management Discussion - 2004
- ----------------------------
THREE MONTHS ENDED JUNE 30, 2004
The Partnership's net asset value fell sharply during the quarter. Trend
reversals followed by non-directional and volatile range-trading characterized a
broad spread of markets during the period. As a result sizable losses were
sustained in five of the six sectors in the portfolio: interest rates,
currencies, stock indices, metals and agricultural commodities. Energy was
moderately profitable for the quarter, but even there an uptrend seemed to peter
out near the end of the quarter.
Surprisingly strong U.S. employment reports beginning in April, and official
moves in China to slow its booming economy caused abrupt price trend reversals
in most of the markets comprising the Partnership's portfolio. For example, as
the quarter began, the Partnership held long positions across a broad range of
US and European interest rate futures. These positions had been quite profitable
in prior weeks and reflected declining interest rate trends that were in large
measure a response to the so-called "jobless recovery" in the U.S. However, in
the wake of strong employment data, interest rates rose sharply worldwide and
bond market sentiment seemed to turn negative on a dime. As a result, the
Partnership sustained sizable losses on its long bond futures positions.
Thereafter, interest rates vacillated and failed to sustain a trend.
At the start of the period, the Partnership also held long positions in a number
of Asian currencies including, the yen, Korean won and Singapore dollar. Long
commodity currency positions (Australian dollar, New Zealand dollar, and South
African rand) were also held by the Partnership. Market participants, intuiting
that any slowdown in Chinese growth would be negative for Asia and for
industrial commodities, sold the Asian and commodity currencies, producing
declines. Once again, subsequent trading in the quarter was largely
non-directional. Gold and copper prices, which were trending upward early in the
year, fell markedly due to the altered growth prospects in China and a
strengthening US currency, resulting in losses from long positions.
Stock markets were also unsettled by the changing prospects for growth, interest
rates and monetary policies throughout the world. Hence, trading in German,
U.S., and Hong Kong index futures resulted in losses.
An upward trend in energy prices led to gains from long positions in unleaded
gasoline, London gas oil, crude oil, and heating oil. Natural gas, on the other
hand, was quite volatile and produced a loss for the quarter.
Finally, with volatility in corn prices, losses were registered on both long and
short positions in corn.
THREE MONTHS ENDED MARCH 31, 2004
A large profit derived from trading interest rate futures combined with small
gains from stock index, energy, metals and agricultural commodity futures
trading more than outweighed a sizable loss that was produced trading in foreign
exchange markets.
Long positions in U.S., European and Japanese interest rate futures were
profitable as questions about the strength and sustainability of U.S. growth,
given the lack of employment expansion, speculation about a possible European
Central Bank rate cut to spur lagging economic activity, and persistent
purchases of U.S. treasuries by Asian Central Banks following massive foreign
exchange intervention pushed rates lower across the maturity spectrum.
Low interest rates and an improving economic environment provided some lift to
Japanese stock markets, and long positions in the NIKKEI and TOPIX index futures
were profitable. On the other hand, political uncertainties in Hong Kong and
growth concerns in Germany produced marginal losses on stock futures trades for
those two countries.
In the energy sector, a long position in unleaded gasoline and a long position
in crude oil were marginally profitable, while long heating oil, London gas oil
and natural gas positions generated small losses.
A long copper position, benefiting from the China inspired global demand for
base metals, was profitable, while a long gold position lost marginally.
Increased worldwide demand for grains led to rising corn prices and a gain on a
long corn position.
On the other hand, trading of foreign exchange rates, which were volatile but
non-directional for much of the period, generated sizable losses. Hence, aside
from modest gains from long positions in commodity currencies (Australian and
New Zealand dollars), a long sterling position relative to the euro, and a long
Euro trade against the Norwegian Krone, losses on the Partnership's currency
positions were widespread.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Value at Risk is a measure of the maximum amount which the Partnership could
reasonably be expected to lose in a given market sector. However, the inherent
uncertainty of the Partnership's speculative trading and the occurrence in
the markets traded by the Partnership of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated or the Partnership'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 inclusion of the quantification included in this section
should not be considered to constitute any assurance or representation that the
Partnership's losses in any market sector will be limited to Value at Risk or by
the Partnership's attempts to manage its market risk.
Materiality, as used in this section "Quantitative and Qualitative Disclosures
About Market Risk," is based on an assessment of reasonably possible market
movements and the potential losses caused by such movements, taking into account
the leverage, optionality and multiplier features of the Partnership's market
sensitive instruments.
Quantifying the Partnership's Trading Value at Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Partnership'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 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 Partnership's risk exposure in the various market sectors traded by the
General Partner is quantified below in terms of Value at Risk. Due to the
Partnership's mark-to-market accounting, any loss in the fair value of the
Partnership's open positions is directly reflected in the Partnership'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).
Exchange maintenance margin requirements have been used by the Partnership as
the measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed 95-99% of the maximum one-day losses in the fair
value of any given contract incurred during the time period over which
historical price fluctuations are 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 Partnership), dealers' margins
have been used as Value at Risk.
The fair value of the Partnership's futures and forward positions does not have
any optionality component. However, the General Partner may also trade commodity
options on behalf of the Partnership. The Value at Risk associated with options
would be reflected in the margin requirement attributable to the instrument
underlying each option.
In quantifying the Partnership's Value at Risk, 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
simply been aggregated to determine each trading category's aggregate Value at
Risk. The diversification effects resulting from the fact that the Partnership's
positions are rarely, if ever, 100% positively correlated have not been
reflected.
In the case of contracts denominated in foreign currencies, the Value at Risk
figures include foreign margin amounts converted into U.S. Dollars.
The Partnership's Trading Value at Risk in Different Market Sectors
- -------------------------------------------------------------------
The following table indicates the average, highest and lowest amounts of trading
Value at Risk associated with the Partnership's open positions by market
category for each quarter-end during the period ended June 30, 2005. During the
six months ended June 30, 2005, the Partnership's average total capitalization
was approximately $172,945,000.
Average
Market Sector Value % of Average Highest Value Lowest Value
at Risk Capitalization at Risk at Risk
- ------------------------------------------------------------------------------
Currencies $ 21.7 12.5% $ 25.2 $ 18.2
Energies 1.7 1.0% 1.7 1.6
Grains 0.4 0.2% 0.5 0.2
Interest rates 6.0 3.4% 6.4 5.5
Livestock 0.2 0.1% 0.2 0.1
Metals 1.8 1.0% 1.8 1.8
Softs 0.7 0.4% 0.8 0.5
Stock indices 9.4 5.4% 11.0 7.7
Total $ 41.9 24.0%
Average, highest and lowest Value at Risk amounts relate to the quarter-end
amounts for the six months ended June 30, 2005. Average capitalization is the
average of the Partnership's capitalization at the end of each of the six months
ended June 30, 2005. Dollar amounts represent millions of dollars.
ITEM 4. CONTROLS AND PROCEDURES
Millburn Ridgefield Corporation, the General Partner of the Partnership, with
the participation of the General Partner's Co-Chief Executive Officers and Chief
Financial Officer, has evaluated the effectiveness of the design and operation
of its disclosure controls and procedures with respect to the Partnership as of
the end of the period covered by this quarterly report, and, based on their
evaluation, have concluded that these disclosure controls and procedures are
effective. There were no significant changes in the General Partner's internal
controls with respect to the Partnership or in other factors applicable to the
Partnership that could materially affect these controls subsequent to the date
of their evaluation.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings - None
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Pursuant to the Partnership's Declaration of Partnership and Partnership
Agreement, the Partnership may sell Limited Partnership Interests ("Interests")
at the beginning of each calendar month. On July 1, 2005, the Partnership sold
Interests to existing and new limited partners in the amount of $1,007,007.
There were no underwriting discounts or commissions in connection with the sales
of the Interests described above.
(c) Pursuant to the Partnership's Declaration of Partnership and Partnership
Agreement, investors may redeem their Interests at the end of each calendar
month at the then current month-end Net Asset Value. The redemption of Interests
has no impact on the value of Interests that remain outstanding, and Interests
are not reissued once redeemed.
The following table summarizes Interests redeemed
during the three months ended June 30, 2005:
Date of Limited Special Limited Total
Withdrawal Partners Partners
- ----------------------------------------------------------------------------------------
April 30, 2005 $ (6,290,496) $ (5,000) $ (6,295,496)
May 31, 2005 (15,610,195) - (15,610,195)
June 30, 2005 (1,152,953) (15,000) (1,167,953)
--------------------------------------------------------------
Total $ (23,053,644) $ (20,000) $ (23,073,644)
==============================================================
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. (a) Exhibits -
The following exhibits are incorporated by reference from the exhibit of the
same number and description filed with the Partnership's Registration Statement
(file # 000-50725) filed on April 29, 2004 on Form 10 under the Securities Act
of 1934 and declared effective June 28, 2004.
3.01 Amended and Restated Certificate of Limited Partnership of Nestor
Partners
3.02 Amended and Restated Agreement of Limited Partnership of Nestor Partners
10.01 Acknowledgement of Separate Risk Disclosure Statements and Customer
Agreement between Merrill Lynch Futures Inc. and Nestor Partners
10.02 Customer Agreement between Warburg Dillon Reed LLC and Nestor Partners
10.03 Futures and Options Agreement for Institutional Customers between
Deutsche Morgan Grenfell Inc. and Nestor Partners
10.04 Form of Selling Agreement
The following exhibits are included herewith:
31.01 Rule 13(a)-14(a)/15(d)-14(a) Certification of Co-Chief Executive Officer
31.02 Rule 13(a)-14(a)/15(d)-14(a) Certification of Co-Chief Executive Officer
31.03 Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Financial Officer
32.01 Section 1350 Certification of Co-Chief Executive Officer 32.02 Section
1350 Certification of Co-Chief Executive Officer 32.03 Section 1350
Certification of Chief Financial Officer
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.
By: Millburn Ridgefield Corporation,
General Partner
Date: August 15, 2005
/s/ Tod A. Tanis
Tod A. Tanis
Vice-President
(principal accounting officer)