UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

 

ý        Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

 

For the Fiscal Year Ended:  December 31, 2002

 

or

 

¨        Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

 

Commission File Number:  000-21446

 

THE MILLBURN GLOBAL OPPORTUNITY FUND L.P.

(Exact name of registrant as specified in its charter)

 

 

Registrant’s telephone number, including area code:   (203) 625-7554

 

Securities registered pursuant to Section 12(b) of the Act:   None

 

Securities registered pursuant to Section 12(g) of the Act:	Limited Partnership Units
	(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  ý

No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý

Indicate by check mark whether the registrant is an accelerated filer (defined in Rule 12b-2 of the Act).

 

Yes  o

No  ý

 

Aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2002:  $6,009,436.

 

Documents Incorporated by Reference

 

Registrant’s Financial Statements for the Years ended December 31, 2002, 2001 and 2000 with Report of Independent Auditors, the annual report to security holders for the fiscal year ended December 31, 2002, are incorporated by reference into Part II item 8 and Part IV hereof and filed as an exhibit herewith.

 

 

PART I

 

Item 1.    Business

 

(a)           General development of business

 

The Millburn Global Opportunity Fund L.P. (the “Partnership”) is a limited partnership organized July 9, 1992 pursuant to a Limited Partnership Agreement (the “Limited Partnership Agreement”), under the Delaware Revised Uniform Limited Partnership Act.  Between October 30, 1992 and December 31, 1992 (the “Initial Offering”), units of limited partnership interest in the Partnership (the “Units”) were publicly offered.  The proceeds of the Initial Offering and interest thereon were held in escrow until January 7, 1993 at which time an aggregate of $11,420,054 (11,420.054 Units) was turned over to the Partnership and the Partnership commenced operations.  Units continued to be offered until May 30, 1993.  The offering was registered under the Securities Act of 1933, as amended.  Smith Barney, Harris Upham & Co. Incorporated acted as selling agent on a best efforts basis.  A total of 11,420.054 Units were sold to the public during the initial public offering, and an additional 28,881.766 Units were subsequently sold to the public.

 

The Partnership engages in speculative trading in futures, forward contracts and related options, primarily in the currency and financial instrument markets.

 

Millburn Ridgefield Corporation (the “General Partner”), a Delaware corporation, is the general partner and the commodity trading advisor for the Partnership.  The General Partner invested $125,000 in the Partnership at the outset of trading and subsequently contributed an additional $316,183.  After reflecting a net gain of $152,283 and a redemption of $350,000 in 2002; this investment totaled $374,134, as of December 31, 2002.

 

Smith Barney Inc., Morgan Stanley & Co. Incorporated, and Deutsche Bank (the “Currency Dealers”) act as the primary currency dealers and futures brokers for the Partnership.  The Partnership also executes currency and forward trades with other currency dealers and futures brokers when their prices are advantageous to the Partnership.  The Partnership pays the currency dealers “bid asked” spreads on its forward trades, as such spreads are incorporated into the pricing of forward contracts.  The General Partner monitors the Partnership’s trades to ensure that the prices it receives are competitive.

 

(b)   Financial information about industry segments

The Partnership’s business constitutes only one segment, speculative trading of currency futures, forward contracts and related options.  The Partnership does not engage in sales of goods and services.

 

(c)   Narrative description of business

 

The Partnership engages in the speculative trading of currency futures, forward contracts and related options.  The Partnership’s sole trading advisor is the General Partner.  The General Partner trades the Partnership’s assets primarily in currency markets, trading primarily forward contracts in the interbank market.  Pursuant to the Limited Partnership Agreement, the General Partner receives a flat-rate monthly brokerage fee equal to 0.6875 of 1% of the Net Assets (an 8.25% annual rate), which is reduced to 0.52 of 1% of Net Assets (a 6.25% annual rate) for Units issued to Limited Partners who invest $1,000,000 or more in the Partnership.  The General Partner also receives a profit share equal to 17.5% of any new trading profit, determined as of the end of each calendar quarter.  The quarterly profit share is calculated after deducting interest income and brokerage fees.

 

The Partnership’s assets not deposited as margin will be maintained, unless applicable foreign regulations require otherwise, only in instruments authorized by the CFTC for the investment of “customer segregated funds.”

 

Regulation

 

Under the Commodity Exchange Act, as amended (the “CEA”), commodity exchanges and futures trading are subject to regulation by the Commodity Futures Trading Commission (the “CFTC”).  National Futures Association (“NFA”), a “registered futures association” under the CEA, is the only non-exchange self-regulatory

 

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organization for futures industry professionals.  The CFTC has delegated to NFA responsibility for the registration of “commodity trading advisors,” “commodity pool operators,” “futures commission merchants,” “introducing brokers” and their respective associated persons and “floor brokers” and “floor traders.”  The CEA requires commodity pool operators and commodity trading advisors, such as the General Partner, and commodity brokers or futures commission merchants, such as the Currency Dealers, to be registered and to comply with various reporting and record keeping requirements.  The CFTC may suspend a commodity pool operator’s or trading advisor’s registration if it finds that its trading practices tend to disrupt orderly market conditions or in certain other situations.  In the event that the registration of the General Partner as a commodity pool operator or a commodity trading advisor were terminated or suspended, the General Partner would be unable to continue to manage the business of the Partnership.  Should the General Partner’s registration be suspended, termination of the Partnership might result.

 

As members of NFA, the General Partner and the Currency Dealers are subject to NFA standards relating to fair trade practices, financial condition and customer protection.  As the self-regulatory body of the futures industry, NFA promulgates rules governing the conduct of futures industry professionals and disciplines those professionals which do not comply with such standards.

 

In addition to such registration requirements, the CFTC and certain commodity exchanges have established limits on the maximum net long or net short position which any person may hold or control in particular commodities.  Most exchanges also limit the changes in futures contract prices that may occur during a single trading day.  The Partnership, however, primarily trades currency forward contracts which are not subject to regulation by any United States Government agency.

 

(i)            through (xii) - not applicable.

 

(xiii)         the Partnership has no employees.

 

(d)           Financial information about geographic areas

 

The Partnership does not engage in material operations in foreign countries (although it does trade from the United States in foreign currency forward contracts and on foreign futures exchanges), nor is a material portion of its revenues derived from foreign customers.

(e)           Available information

 

Not applicable.  The Partnership is not an accelerated filer.

 

Item 2.    Properties

 

The Partnership does not own or use any physical properties in the conduct of their business.  The General Partner or an affiliate perform administrative services for the Partnership from their offices.

 

Item 3.    Legal Proceedings

 

The General Partner is not aware of any pending legal proceedings to which either the Partnership is a party or to which any of their assets are subject.  In addition there are no pending material legal proceedings involving the General Partner.

 

Item 4.    Submission of Matters to a Vote of Security Holders

 

None.

 

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PART II

 

Item 5.    Market for the Registrant’s Common Equity and Related Stockholder Matters

 

(a)           Market Information.   There is no trading market for the Units, and none is likely to develop.  Units may be redeemed upon 10 days’ written notice at their net asset value as of the last day of any month.  In the event that all Units for which redemption is requested cannot be redeemed as of any redemption date, Units will be redeemed in the order that requests for redemption have been received by the General Partner.

 

(b)           Holders.   As of December 31, 2002, there were 311 holders of Units.

 

(c)           Dividends.   No distributions or dividends have been made on the Units, and the General Partner has no present intention to make any.

 

(d)           Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities.

 

There have been no sales of registered or unregistered securities of the Partnership since May 30, 1993.

 

Item 6.    Selected Financial Data

 

The following is a summary of operations for fiscal year 2002, 2001, 2000, 1999 and 1998 and total assets of the Partnership at December 31, 2002, 2001, 2000, 1999 and 1998.  The Partnership commenced trading operations on January 7, 1993.

 

3

 

		For the Year Ended December 31, 2002			For the Year Ended 12/31/2001			For the Year Ended 12/31/2000			For the Year Ended 12/31/99			For the Year Ended 12/31/98
Revenue:
Total net realized and unrealized gains (losses)*		$	1,810,422		$	670,927		$	(861,565	)	$	463,999		$	646,388
Interest Income		121,410			357,563			517,863			654,566			886,163
Expenses:
Profit share		4,620			—			—			77,599			—
Administrative expenses		63,237			61,696			78,491			79,574			86,250
Brokerage commissions		478,449			553,083			656,725			1,062,865			1,299,470
Net income (loss) after profit share		$	1,385,526		$	413,711		$	(1,078,918	)	$	(101,477	)	$	146,831
Total assets		$	5,621,679		$	6,788,036		$	8,472,176		$	12,502,524		$	15,445,407
Total limited partners’ capital		$	5,065,864		$	5,953,784		$	7,162,609		$	10,991,922		$	13,830,609
Net asset value per Unit		$	1,704.57		$	1,385.67		$	1,322.54		$	1,445.93		$	1,479.31
Increase (decrease) in net asset value per Unit		$	318.90		$	63.13		$	(123.39	)	$	(33.38	)	$	15.81

 

*From trading futures and forward contracts, foreign exchange transactions and U.S. Treasury obligations

 

4

 

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Reference is made to “Item 6.  Selected Financial Data” and “Item 8.  Financial Statements and Supplementary Data.”  The information contained therein is essential to, and should be read in conjunction with, the following analysis.

 

Capital Resources

 

The Partnership does not intend to raise any additional capital through borrowing and, because it is a closed-end fund, it cannot sell any more Units unless it undertakes a new public offering, which would require another registration with the Securities and Exchange Commission.  Due to the nature of the Partnership’s business, it will make no significant capital expenditures, and substantially all its assets are and will be represented by cash equivalents or deposits in money market funds, United States Treasury securities, and investments in futures, forward contracts and related options.

 

The Partnership trades futures, options and forward contracts primarily on currencies and secondarily on financial instruments.  Risk arises from changes in the value of these contracts (market risk) and the potential inability of counterparties or brokers to perform under the terms of their contracts (credit risk).  Market risk is generally measured by the face amount of the positions acquired and the volatility of the markets traded.  The credit risk from counterparty non-performance associated with these instruments is the net unrealized gain, if any, on these positions.  The risks associated with exchange-traded contracts are generally perceived to be less than those associated with over-the-counter transactions, because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange is pledged to support the financial integrity of the exchange.  In over-the-counter transactions, on the other hand, traders must rely solely on the credit of their respective individual counterparties.  Margins which may be subject to loss in the event of a default, are generally required in exchange trading, and counterparties may require margin in the over-the-counter markets.

 

The General Partner has procedures in place to control market risk, although there can be no assurance that they will, in fact, succeed in doing so.  These procedures primarily focus on   (1) real time monitoring of open positions; (2) diversifying positions among various currencies and financial instruments; (3) limiting the assets committed as margin, generally within a range of 15% to 35% of an account’s Net Assets at exchange minimum margins, (including imputed margins on forward positions) although the amount committed to margin at any time may be substantially higher; (4) prohibiting pyramiding (that is, using unrealized profits in a particular market as margin for additional positions in the same market); and (5) changing the equity utilized for trading by an account solely on a controlled periodic basis rather than as an automatic consequence of an increase in equity resulting from trading profits.  The Partnership controls credit risk by dealing exclusively with large, well capitalized financial institutions as brokers and counterparties.

 

The Partnership is generally required to deposit approximately 5% of the notional value of its forward contract positions with the Currency Dealers as collateral.  At any time, and from time to time, the Partnership may have open positions with the Currency Dealers with a total notional value of as much as three times the capitalization of the Partnership and collateral deposits of up to approximately 15% of the capital of the Partnership.

 

The Partnership’s futures contracts are settled by offset and are cleared by the exchange clearinghouse function.  Options on futures contracts are settled either by offset or by exercise.  If an option on a future is exercised, the Partnership is assigned a position in the underlying future which is then settled by offset.  The Partnership’s spot and forward currency transactions conducted in the interbank market are settled by netting offsetting positions held with the same counterparty; net positions are then settled by entering into offsetting positions and by cash payments.

 

Liquidity

 

The Partnership’s assets are either held in cash or are invested by the General Partner in United States Treasury bills or “customer segregated funds accounts.”  To the extent deposited as margin with currency dealers or futures brokers, the Partnership’s assets are subject to the General Partner’s ability to close out its currency futures or forward contracts positions.

 

5

 

During its operations through December 31, 2002, the Partnership experienced no meaningful periods of illiquidify in any of the markets traded by the Partnership.

 

Most of the Partnership’s positions are in currency forward contracts.  Forward contracts are not traded on a commodity exchange.  The Partnership could be prevented from promptly liquidating unfavorable positions, thereby subjecting the Partnership to substantial losses which could exceed the margin initially committed to such trades.  In addition, the Partnership may not be able to execute forward contract trades at favorable prices if little trading in the contracts it holds is taking place.  Other than these limitations on liquidity, which are inherent in the Partnership’s currency trading operations, the Partnership’s assets are highly liquid and are expected to remain so.  Generally, forward contracts can be offset at the discretion of the General Partner.  However, if the market is not liquid, it could prevent the timely closeout of an unfavorable position until the delivery date, regardless of the changes in their value or the General Partner’s investment strategies.

 

Results of Operations

 

Operating results show a profit for the fiscal years ended December 31, 2002, 2001, and 2000.

 

Total Partnership capital as of December 31, 2002, 2001, and 2000 equaled $5,439,998, $6,525,635 and $8,304,055, respectively.  The net asset value of a Unit as of December 31, 2002 was $1,704.57, an increase in value for fiscal year 2002 of 23.01%.  The net asset value of a Unit as of December 31, 2001 was $1,385.67, an increase in value for fiscal year 2001 of 4.77%; and the net asset value per Unit as of December 31, 2000 was $1,322.54 a decrease in value for fiscal year 2000 of 8.5%.

 

For 2002, the Partnership’s total administrative and brokerage commission expenses of $541,686 were partially offset by interest income of $121,410.  Total net realized and unrealized gains of $1,810,422 from its trading operations (including foreign exchange transactions and translations) resulted in net income for the year 2002 of $1,385,526 (after a $4,620 profit share to the General Partner).  For 2001, the Partnership’s total administrative and brokerage commission expenses of $614,779 were partially offset by interest income of $357,563.  Total net realized and unrealized gains of $670,927 from its trading operations (including foreign exchange transactions and translations) resulted in net income for the year 2001 of $413,711.  For 2000, the Partnership’s total administrative and brokerage commission expenses of $735,216 were partially offset by interest income of $517,863.  Total net realized and unrealized losses of $861,565 from its trading operations (including foreign exchange transactions and translations) resulted in a net loss for the year 2000 of $1,078,918.

 

The Partnership registered a sharp gain for the year 2002 as interest rate trading, and currency trading were highly profitable.  Stock index trading also produced a moderate gain, while  trading of metal futures resulted in a fractional loss.  Sluggish worldwide economic activity, the continuing plunge of stock prices and the flight to safety and quality prompted by geopolitical uncertainties triggered large, persistent capital flows into government bills, notes and bonds worldwide.  Accordingly, the Partnership’s long positions in U. S., European, and Japanese interest rate futures generated sizable gains.  As market participants came to doubt the likelihood of economic recovery in America during 2002; the U. S. dollar weakened and the capital inflows that had supported the dollar, despite America’s huge current account deficit, shrank and reversed.  As a result, the Partnership’s short dollar positions relative to the euro, Swiss franc, and Korean won were very profitable.  A short dollar/long South African rand position was also profitable as gold prices were boosted by safe haven buying.  The Partnership’s equity trading was moderately profitable during 2002 due to short positions in German and U. S. equity futures, while the Partnership’s metals trading lost money, despite strong profits from long gold positions, as non-precious metals prices fluctuated erratically.

 

The Partnership was profitable for the full year 2001.  Trading in interest rate futures, dollar currency positions, and stock index futures was profitable.  On the other hand, non-dollar cross currency trading produced a loss, while metals trading had no appreciable impact on performance.  A long position in short-term eurodollar interest rates futures that persisted throughout the year was highly profitable in response to the continuous easing of monetary policy by the Federal Reserve.  A long position in 10-year German bond futures was also profitable for most of 2001.  These gains were partially offset by losses sustained trading with both long and short positions in Japanese government bond futures which were volatile without trend.  In currency trading, a long U.S. dollar position against the Japanese yen was very profitable and, to a lesser extent, so was a long dollar position relative to the Singapore dollar.  Meanwhile, trading of the dollar/euro exchange rate generated a loss.  Also, trading the euro versus the British pound and Norwegian krona produced losses.  Short German and Japanese stock index futures positions were quite profitable during the past year.  In addition, both long and short positions in Hong Kong equity index futures were profitable.  Finally, in metals, losses registered in trading of gold futures were essentially offset by gains from trading aluminum, copper and zinc futures.

 

6

 

The Partnership  posted a loss for the full year 2000.  The trading environment in all market segments was extremely difficult for the first three-quarters of the year, as most markets in all sectors were highly volatile with little or no consistent trends.  In the fourth quarter, however, the market environment improved significantly, and four market sectors were profitable, one sector had a zero result for the quarter, and the other sector had only a fractional loss.  On balance, interest rate trading was profitable thanks to a strong fourth quarter uptrend in futures prices.  Gains from U.S. and German interest rate positions led the way, while losses resulted from trading Japanese and U.K. instruments.  Dollar currency trading was also profitable due to a fourth quarter rebound.   Long dollar positions versus the European currencies and Thai Bhat were the leading gainers for 2000.  Cross rates trading of the Euro and Canadian dollar versus the Yen generated losses.  Persistent non-directional volatility plagued equity and metals trading.  In the equity sector, Hong Kong, Japanese and German futures produced the largest losses.  Trading in copper, aluminum, zinc and gold resulted in losses.

 

Inflation is not a significant factor in the Partnership’s profitability, except to the extent the inflation may affect forward contract prices.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

Not required.  The Partnership is a “small business issuer.”

 

Item 8.    Financial Statements and Supplementary Data

 

Financial statements required by this item, including the report of Ernst & Young LLP, are included as Exhibit 13.01 to this report.  The report of PricewaterhouseCoopers LLP is incorporated herein by reference from Exhibit 13.01 of the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and is filed as Exhibit 13.02 herewith.

 

The following summarized quarterly financial information presents the results of operations for the three month periods ended March 31, June 30, September 30 and December 31, 2002 and 2001.  This information has not been audited.

 

		4th Quarter 2002			3rd Quarter 2002			2nd Quarter 2002			1st Quarter 2002
Income (Loss):		$	(200,206	)	$	965,989		$	1,427,885		$	(261,838	)
Expenses:		153,033			140,870			125,948			126,453
Net Income (Loss):		(353,239		)	825,119			1,301,937			(388,291		)
Net Income (Loss) per Unit		(101.80		)	213.25			293.54			(86.09		)

 

4th Quarter 2001