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: March 31, 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 months ended March 31, 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 (b) 7
Statements of Financial Highlights (b) 8
Notes to the Financial Statements 9
(a) At March 31, 2005 (unaudited) and December 31, 2004
(b) For the three months ended March 31, 2005 and 2004 (unaudited)
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NESTOR PARTNERS
STATEMENTS OF FINANCIAL CONDITION
UNAUDITED
MARCH 31 DECEMBER 31
2005 2004
------------------------------
ASSETS
Equity in trading accounts:
Investments in U.S. Treasury notes-at market value
(amortized cost $56,042,227 and $46,930,539) $ 55,903,741 $ 46,848,072
Net unrealized appreciation (depreciation) on open futures and
forward currency contracts (6,762,895) 4,523,726
Due from brokers 5,869,787 6,193,636
Cash denominated in foreign currencies (cost $1,358,492
and $2,129,278) 1,329,582 2,169,971
------------------------------
Total equity in trading accounts 56,340,215 59,735,405
INVESTMENTS IN U.S. TREASURY NOTES-at market value
(amortized cost $123,613,045 and $133,147,061) 123,349,503 133,032,588
CASH AND CASH EQUIVALENTS 3,807,382 16,278,049
ACCRUED INTEREST RECEIVABLE 722,498 472,441
------------------------------
TOTAL $ 184,219,598 $ 209,518,483
==============================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Capital withdrawals payable $ 4,516,898 $ 12,993,466
Capital contributions received in advance 383,000 2,165,900
Due to broker 142,101 --
Accrued brokerage fees 454,494 475,296
Accrued expenses 117,545 305,683
------------------------------
Total liabilities 5,614,038 15,940,345
PARTNERS' CAPITAL 178,605,560 193,578,138
------------------------------
TOTAL $ 184,219,598 $ 209,518,483
==============================
See notes to financial statements
NESTOR PARTNERS
CONDENSED SCHEDULE OF INVESTMENTS
MARCH 31, 2005 (UNAUDITED)
% OF NET UNREALIZED
PARTNERS' APPRECIATION/
FUTURES AND FORWARD CURRENCY CONTRACTS CAPITAL (DEPRECIATION)
- -------------------------------------------------------------------------------
FUTURES CONTRACTS
Long futures contracts:
Energies 0.18% $ 317,565
Grains (0.15) (266,780)
Interest rates 0.66 1,185,553
Livestock (0.06) (102,480)
Metals (0.16) (290,965)
Softs (0.06) (107,734)
Stock indices (1.09) (1,958,116)
-----------------------------
Total long futures contracts (0.68) (1,222,957)
-----------------------------
Short futures contracts:
Grains 0.01 18,225
Interest rates 0.23 429,354
Metals (0.02) (42,155)
Softs (0.03) (56,605)
-----------------------------
Total short futures contracts 0.19 348,819
-----------------------------
TOTAL INVESTMENTS IN FUTURES CONTRACTS-Net (0.49) (874,138)
-----------------------------
FORWARD CURRENCY CONTRACTS
Total long forward currency contracts (4.49) (8,016,833)
Total short forward currency contracts 1.19 2,128,076
-----------------------------
TOTAL INVESTMENTS IN FORWARD CURRENCY
CONTRACTS-Net (3.30) (5,888,757)
-----------------------------
TOTAL (3.79)% $ (6,762,895)
=============================
(Continued)
See notes to financial statements
NESTOR PARTNERS
CONDENSED SCHEDULE OF INVESTMENTS
MARCH 31, 2005 (UNAUDITED)
U.S. TREASURY NOTES
% OF
PARTNERS'
FACE AMOUNT DESCRIPTION CAPITAL VALUE
- --------------------------------------------------------------------------------
$ 60,230,000 U.S. Treasury notes, 1.250%, 05/31/05 33.64% $ 60,079,425
20,075,000 U.S. Treasury notes, 2.000%, 08/31/05 11.19 19,987,172
60,230,000 U.S. Treasury notes, 1.875%, 11/30/05 33.42 59,684,166
40,155,000 U.S. Treasury notes, 1.625%, 02/28/06 22.11 39,502,481
------------------------
TOTAL INVESTMENTS IN U.S. TREASURY NOTES
(AMORTIZED COST $179,655,272) 100.36% $179,253,244
========================
(Concluded)
See notes to financial statements
NESTOR PARTNERS
CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2004
% OF NET UNREALIZED
PARTNERS' APPRECIATION/
FUTURES AND FORWARD CURRENCY CONTRACTS CAPITAL (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
% OF
PARTNERS'
FACE AMOUNT DESCRIPTION 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
MARCH 31 MARCH 31
2005 2004
----------------------------
INVESTMENT INCOME:
Interest income $ 1,069,784 $ 555,259
----------------------------
EXPENSES:
Brokerage fees 1,392,139 1,452,832
Administrative expenses 117,545 142,663
Custody fees 8,315 6,837
----------------------------
Total expenses 1,517,999 1,602,332
----------------------------
NET INVESTMENT LOSS (448,215) (1,047,073)
----------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES):
Net realized gains (losses) on closed positions:
Futures and forward currency contracts (648,928) 15,810,424
Foreign exchange translation (31,529) --
Net change in unrealized appreciation:
Futures and forward currency contracts (11,286,621) (5,538,849)
Foreign exchange translation (69,602) 13,174
Net losses from U.S. Treasury notes
Net change in unrealized depreciation (205,088) (52,364)
----------------------------
Total net realized and unrealized gains (losses) (12,241,768) 10,232,385
----------------------------
NET INCOME (LOSS) (12,689,983) 9,185,312
LESS PROFIT SHARE TO GENERAL PARTNER -- 976,081
----------------------------
NET INCOME (LOSS) AFTER PROFIT SHARE TO
GENERAL PARTNER $(12,689,983) $ 8,209,231
============================
See notes to financial statements
NESTOR PARTNERS
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005:
NEW
SPECIAL PROFIT
LIMITED LIMITED MEMO GENERAL
PARTNERS PARTNERS ACCOUNT PARTNER TOTAL
--------------------------------------------------------------------------------
PARTNERS' CAPITAL-
January 1, 2005 $152,324,173 $ 37,543,063 $ -- $ 3,710,902 $193,578,138
Contributions 4,180,862 839,325 -- -- 5,020,187
Withdrawals (5,652,817) (1,166,252) -- (483,713) (7,302,782)
Net loss (10,250,566) (2,250,000) -- (189,417) (12,689,983)
--------------------------------------------------------------------------------
PARTNERS' CAPITAL-
March 31, 2005 $140,601,652 $ 34,966,136 $ -- $ 3,037,772 $178,605,560
================================================================================
FOR THE THREE MONTHS ENDED MARCH 31, 2004:
NEW
SPECIAL 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 17,186,625 315,191 -- -- 17,501,816
Withdrawals (3,119,442) (43,591) -- (657,400) (3,820,433)
Net income (loss) 6,719,893 2,292,388 (196) 173,227 9,185,312
General Partner's allocation:
New Profit-Accrued (976,081) -- 17,131 958,950 --
--------------------------------------------------------------------------------
PARTNERS' CAPITAL-
March 31, 2004 $178,361,995 $ 50,392,758 $ 16,935 $ 4,759,205 $233,530,893
================================================================================
See notes to financial statements
NESTOR PARTNERS
STATEMENTS OF FINANCIAL HIGHLIGHTS (UNAUDITED)
LIMITED SPECIAL LIMITED
FOR THE THREE MONTHS ENDED MARCH 31, 2005 PARTNERS PARTNERS
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE CAPITAL (a):
Net investment income (loss) (1.66)% 1.64%
================================
Total expenses 3.94% 0.64%
Profit share allocation --% --%
--------------------------------
TOTAL EXPENSES AND PROFIT SHARE ALLOCATION 3.94% 0.64%
================================
Total return before profit share allocation (6.64)% (5.87)%
Profit share allocation --% --%
--------------------------------
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION (6.64)% (5.87)%
================================
LIMITED SPECIAL LIMITED
FOR THE THREE MONTHS ENDED MARCH 31, 2004 PARTNERS PARTNERS
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE CAPITAL (a):
Net investment income (loss) (2.51)% 0.31%
================================
Total expenses 3.48% 0.66%
Profit share allocation 2.25% --%
--------------------------------
TOTAL EXPENSES AND PROFIT SHARE ALLOCATION 5.73% 0.66%
================================
Total return before profit share allocation 4.04% 4.78%
Profit share allocation (0.58)% --%
--------------------------------
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION 3.46% 4.78%
================================
(a) Annualized
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 the Partnership's financial condition at
March 31, 2005 (unaudited) and December 31, 2004 and the results of its
operations for the three-month periods ended March 31, 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 for the year ended December 31, 2004
filed with the Securities and Exchange Commission. 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 the General
Partner, The Millburn Corporation ("TMC"), for providing accounting services to
the Partnership. The Partnership incurred administrative expenses of $117,545
during the three month period ended March 31, 2005, of which $73,897, 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 March 31, 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 month period ending March 31, 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 months ended March 31, 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: Mar 31, 2005 Mar 31, 2004
------------ ------------
Profit share earned $ -- $ 17,131
Profit share accrued (1) -- 958,950
------------ ------------
Total profit share $ -- $ 976,081
(1) At March 31
THREE MONTHS ENDED MARCH 31, 2005
TOTAL
PARTNERS'
AS OF: CAPITAL
- -------------------------------------------------------
March 31, 2005 $178,605,560
December 31, 2004 193,578,138
- -------------------------------------------------------
Period ended March 31, 2005
- -------------------------------------------------------
THREE MONTHS
------------
Change in Partners' Capital $(14,972,578)
Percent Change -7.73%
The decrease in the Partnership's net assets of $14,972,578 was attributable to
withdrawals of $7,302,782 and a net loss from operations of $12,689,983, which
was partially offset by contributions of $5,020,187.
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 March 31, 2005 decreased $60,693,
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 March 31, 2005
decreased $25,118, 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. Interest income for the three months ended March 31, 2005
increased $514,525, 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 net assets.
During the three months ended March 31, 2005, the Partnership experienced net
realized and unrealized losses of $12,241,768 from its trading operations
(including foreign exchange translations and Treasury obligations). Brokerage
fees of $1,392,139, administrative expenses of $117,545 and custody fees of
$8,315 incurred. Interest income of $1,069,784 partially offset the
Partnership's expenses resulting in a net loss of $12,689,983. An analysis of
the trading gain (loss) by sector is as follows:
Sector % Gain (Loss)
- -------- -------------
Currencies (5.58)%
Energies 1.33%
Grains (1.38)%
Interest rates 0.79%
Livestock (0.13)%
Metals 0.04%
Softs (0.29)%
Stock indices (0.88)%
-------------
Total (6.10)%
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 net asset value.
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.
THREE MONTHS ENDED MARCH 31, 2004
The Partnership's net assets increased 10.85% in the first quarter of 2004. This
increase was attributable to contributions of $17,501,816 and net income from
operations of $9,185,312, which was partially offset by redemptions of
$3,820,433.
Brokerage fees are calculated on the net asset value on the last day of each
month and are affected by trading performance and redemptions. Brokerage fees
for the three months ended March 31, 2004 increased $327,838, 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 March 31, 2004
increased $52,306, 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. Interest income for the three months ended March 31, 2004
increased $33,314, 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 March 31, 2004, the Partnership achieved net
realized and unrealized gains of $10,232,385 from its trading operations
including foreign exchange translations and Treasury obligations). Brokerage
fees of $1,452,832, administrative expenses of $142,663, custody fees of $6,837
and an accrued profit share of $976,081 were incurred. Interest income of
$555,259 offset the Partnership's expenses resulting in net income of
$8,209,231. An analysis of the trading gain (loss) by sector is as follows:
Sector % Gain (Loss)
- ------ -------------
Currencies (6.17)%
Energies 0.85%
Grains 0.49%
Interest rates 7.58%
Metals 0.75%
Softs --
Stock indices 1.19%
-------------
Total 4.69%
=============
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 March 31, 2005. During the
three months ended March 31, 2005, the Partnership's average total
capitalization was approximately $186,074,000.
Average Highest Lowest
Value % of Average Value Value
Market Sector at Risk Capitalization at Risk at Risk
- --------------------------------------------------------------------------
Currencies $ 25.2 13.5% $ 25.2 $ 25.2
Energies 1.7 0.9% 1.7 1.7
Grains 0.2 0.1% 0.2 0.2
Interest rates 5.5 3.0% 5.5 5.5
Livestock 0.2 0.1% 0.2 0.2
Metals 1.8 1.0% 1.8 1.8
Softs 0.8 0.4% 0.8 0.8
Stock indices 11.0 5.9% 11.0 11.0
Total $ 46.4 24.9%
Average, highest and lowest Value at Risk amounts relate to the quarter-end
amounts for the three months ended March 31, 2005. Average capitalization is the
average of the Partnership's capitalization at the end of each of the three
months ended March 31, 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 March 1, 2005, the Partnership sold
Interests to existing and new limited partners in the amount of $299,563. 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, partners may redeem their Interests at the end of each calendar
month. The value of an Interest held by a partner is the value of the capital
account established for that partner. 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
March 31, 2005:
SPECIAL
MONTH ENDING: LIMITED LIMITED
PARTNERS PARTNERS
- -----------------------------------------------------------
January 31, 2005 $ (522,637) $ --
February 28, 2005 (1,779,531) --
March 31, 2005 (3,350,649) (1,166,252)
------------------------------
TOTAL $(5,652,817) $ (1,166,252)
==============================
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: May 13, 2005
/s/ Tod A. Tanis
Tod A. Tanis
Vice-President
(principal accounting officer)