Item 1. Business
(a) General development of business
The Millburn World Resource Trust (the “Trust”) is a business trust organized June 7, 1995 pursuant to a Declaration of Trust and Trust Agreement (the “Trust Agreement”), under the Delaware Business Trust Act. Between July 12, 1995 and September 11, 1995 (the “Initial Offering”), units of beneficial interest in the Trust (the “Units”) were publicly offered at an initial price of $1,000 per Unit. The proceeds of the Initial Offering and interest thereon were held in escrow until September 13, 1995 at which time an aggregate of $15,141,664 was turned over to the Trust and the Trust commenced operations. The Trust most recently offered Units during January 2002 and, as of December 31, 2004, Units were not being offered. The offering is registered under the Securities Act of 1933, as amended, and a total of $150 million of Units have been registered. A total of $98,280,140 of Units have been sold to the public as of December 31, 2004.
The Trust engages in speculative trading in the futures, options and forward markets.
Millburn Ridgefield Corporation (the “Managing Owner”), a Delaware corporation, is the managing owner and the commodity trading advisor for the Trust. The Managing Owner invested $400 in the Trust as an initial capital contribution to the Trust and $155,005 in the Trust at the outset of trading. Thereafter, the Managing Owner contributed an additional $417,000 and has redeemed $950,000 of Units as of December 31, 2004. After reflecting cumulative gains and profit shares of $561,467, the Managing Owner’s investment in the Trust totaled $183,872 as of December 31, 2004.
(b) Financial information about industry segments
The Trust’s business constitutes only one segment, i.e., a speculative commodity pool. The Trust does not engage in sales of goods and services. Financial information regarding the Trust’s business is set forth in Item 6 “Selected Financial Data” and in the Trust’s Financial Statements included as Exhibit 13.01 to this report.
(c) Narrative description of business
The Trust engages in the speculative trading of futures, options on futures and forward contracts. The Trust’s sole trading advisor is the Managing Owner. The Managing Owner trades the Trust’s assets, pursuant to its World Resource Portfolio, in the agricultural, metals, energy, interest rate and stock indices futures and futures options markets and in the currency markets, trading primarily forward contracts in the interbank market. The objective of the Managing Owner’s trading method is to participate in all major sustained price moves in the markets traded. The Managing Owner regards its approach as long-term in nature. The Managing Owner makes trading decisions pursuant to its trading method, which includes technical trend analysis, certain non-trend-following technical systems, and the money management principles described below, which may be revised from time to time.
The first step in the trading methodology is developing trading systems which generate buy or sell decisions in a particular market based on the direction of price trends occurring over different time-frames. Over the last 30 years, the Managing Owner has developed hundreds of trading systems. These “heritage” systems are augmented from time to time with the results of research. The Managing Owner tests the full range of the systems in each market against five, ten or fifteen years of historical data to simulate the results the system would have achieved in the markets had the system been used to make trading decisions during the simulation period. It then calculates (i) the profitability of the systems and (ii) a number of statistics designed to identify high quality profits such as (a) the percentage of profitable trades, (b) the worst losses experienced, (c) the average giveback of maximum profits on profitable trades and (d) Sharpe ratio (risk-adjusted returns).
The Managing Owner selects multiple systems in each market after a review of statistical data for the heritage systems in an effort to diversify away from reliance on a single system. The Managing Owner attempts to
select systems with different characteristics to smooth the return stream. The Managing Owner then selects portfolio weightings taking into account statistical data on the systems’ returns, the relative volatility of the markets, liquidity constraints and the Managing Owner’s judgment and experience.
Risk is a function of both price level and price volatility. In attempting to assess market volatility as a means of monitoring and evaluating risk, the Managing Owner uses its volatility overlay as a part of individual market risk management. This system is designed to measure the risk in the portfolio’s position in each market and signals a decrease in position size when risk increases and an increase in position size when risk decreases.
In addition to the volatility overlay, the Managing Owner’s risk management focuses on money management principles applicable to the portfolio as a whole rather than to individual markets and control of leverage and portfolio size. There are, however, no restrictions on the amount of leverage the Managing Owner may use at any given time.
Pursuant to the Trust Agreement, the Managing Owner receives a flat-rate monthly brokerage fee equal to 0.75 of 1% of the month-end Net Assets (a 9.0% annual rate). The Managing Owner retains the right to charge less than the annual brokerage rate of 9% to those subscribers who either invest $1,000,000 or more in the Units or subscribe without incurring the selling commission paid by the Managing Owner. These reductions have no effect on other investors. The Managing Owner also receives a profit share equal to 17.5% of any new trading profit as defined, determined as of the end of each calendar quarter. The quarterly profit share is calculated net of brokerage fees and administrative expenses and excluding interest income.
Prudential Financial Derivatives LLC, Deutsche Bank Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith Inc. act as the futures brokers for the Trust. The Trust executes currency forward trades with several brokers and banks, including Morgan Stanley & Co. Incorporated and clears all such trades with Morgan Stanley & Co. Incorporated, serving as prime broker. The Trust pays “bid asked” spreads on its forward trades, as such spreads are incorporated into the pricing of forward contracts. The Managing Owner monitors the Trust’s trades to ensure that the prices it receives are competitive.
The Trust pays its administrative expenses, including offering costs, and any extraordinary expenses which it may incur. The Managing Owner pays all the routine costs of executing and clearing the Trust’s trades and all compensation due to the selling agents.
The Trust is open-ended and may offer Units at net asset value as of the first day of each month, although it is not currently doing so. Unitholders may redeem any or all of their Units upon 10 business days’ written notice to the Managing Owner at their net asset value as of the last day of any month. Units redeemed on or prior to the end of the first and second successive six-month periods after their sale will pay a redemption charge of 4% and 3%, respectively, of the net asset value at which they are redeemed (3% and 2%, respectively, in the case of subscriptions for $1,000,000 or more). These redemption charges are paid to the Managing Owner. Requests for redemption will be honored and payment will be made, except in the event of highly unusual market disruptions, within 15 business days of the effective date of redemption.
The Trust’s cash and Treasury instruments are used by the Trust to engage in its trading activities and as reserves to support that trading. The Trust’s assets deposited with the Trust’s futures brokers as margin are maintained in “customer segregated funds accounts” or “foreign futures and foreign options secured amount accounts” and are held in cash, or U.S. Treasury instruments. Trust assets not deposited as margin are maintained in bank or brokerage accounts and are held primarily in bank money market funds or U.S. Treasury instruments.
The Trust does not engage in lending (other than through permitted securities investments). The Managing Owner does not anticipate making any distributions of Trust profits, if any.
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 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 Managing Owner, and commodity brokers or futures commission merchants, such as the Brokers, 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 Managing Owner as a commodity pool operator or a commodity trading advisor were terminated or suspended, the Managing Owner would be unable to continue to manage the business of the Trust. Should the Managing Owner’s registration be suspended, termination of the Trust might result.
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. Currency forward contracts are not subject to regulation by any United States Government agency.
(i) through (xii) - not applicable.
(xiii) the Trust has no employees.
(d) Financial information about geographic areas
The Trust 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
The Trust files quarterly, annual and current reports with the Securities and Exchange Commission (“SEC”). These reports are available to read and copy at the SEC’s Public Reference Facilities in Washington, D.C. at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC’s toll free number, 1-800-SEC-0330, for further information. The Trust does not maintain a website where these reports are posted. However, the Trust’s filings are posted on the SEC’s website at http://www.sec.gov.
Item 2.
Item 2. Properties
The Trust does not own or use any physical properties in the conduct of its business. The Managing Owner or an affiliate perform all administrative services for the Trust from their offices.
Item 3.
Item 3. Legal Proceedings
The Managing Owner is not aware of any pending legal proceedings to which either the Trust is a party or to which any of its assets are subject. In addition there are no pending material legal proceedings involving the Managing Owner.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5.
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 business days’ written notice to the Managing Owner at their net asset value as of the last day of any month, subject to certain early redemption charges.
(b) Holders.
As of December 31, 2004, there were 519 holders of Units.
(c) Dividends.
No distributions or dividends have been made on the Units, and the Managing Owner has no present intention to make any.
(d) Securities Authorized for Issuance Under Equity Compensation Plans
None.
(e) Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities.
Registrant has made no sales of unregistered securities within the past three years.
(f) Issuer Purchases of Equity Securities.
Pursuant to the Trust’s Declaration of Trust and Trust Agreement, Unitholders may redeem their Units at the end of each calendar month at the then current month-end Net Asset Value per Unit. The redemption of Units has no impact on the value of Units that remain outstanding, and Units are not reissued once redeemed.
The following table summarizes the redemptions by Unitholders during the fourth calendar quarter of 2004:
Item 6.
Item 6. Selected Financial Data
The following is a summary of operations for the fiscal years 2004, 2003, 2002, 2001 and 2000, and total assets of the Trust at December 31, 2004, 2003, 2002, 2001 and 2000. The Trust commenced trading operations on September 13, 1995.
*From trading of futures and forward contracts, foreign exchange transactions and U.S. Treasury obligations
**Includes custody fees
Item 7.
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
Units may be offered for sale as of the beginning, and may be redeemed as of the end, of each month. Units are not, however, currently being offered.
The amount of capital raised for the Trust should not have a significant impact on its operations, as the Trust has no significant capital expenditure or working capital requirements other than for monies to pay trading losses, brokerage commissions and charges. Within broad ranges of capitalization, the Managing Owner’s trading positions should increase or decrease in approximate proportion to the size of the Trust.
The Trust raises additional capital only through the sale of Units and trading profits (if any) and does not engage in borrowing.
The Trust trades futures, options and forward contracts on interest rates, commodities, currencies, metals, energy and stock indices. 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 to be measured by the face amount of the futures 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 plus the value of the margin or collateral held by the counterparty. 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 or collateral in the over-the-counter markets.
The Managing Owner 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 markets; (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 Trust controls credit risk by dealing exclusively with large, well capitalized financial institutions, such as the Brokers, as brokers and counterparties.
The financial instruments traded by the Trust contain varying degrees of off-balance sheet risk whereby changes in the market values of the futures and forward contracts underlying the financial instruments or the Trust’s satisfaction of the obligations may exceed the amount recognized in the statement of financial condition of the Trust.
Due to the nature of the Trust’s business, substantially all its assets are represented by cash and United States government obligations, while the Trust maintains its market exposure through open futures and forward contract positions.
The Trust’s futures contracts are settled by offset and are cleared by the exchange clearinghouse function. Open futures positions are marked to market each trading day and the Trust’s trading accounts are debited or credited accordingly. Options on futures contracts are settled either by offset or by exercise. If an option on a future
is exercised, the Trust is assigned a position in the underlying future which is then settled by offset. The Trust’s spot and forward currency transactions conducted in the interbank market are settled by netting offsetting positions or payment obligations and by cash payments.
The value of the Trust’s cash and financial instruments is not materially affected by inflation. Changes in interest rates, which are often associated with inflation, could cause the value of certain of the Trust’s debt securities to decline, but only to a limited extent. More important, changes in interest rates could cause periods of strong up or down market price trends, during which the Trust’s profit potential generally increases. However, inflation can also give rise to markets which have numerous short price trends followed by rapid reversals, markets in which the Trust is likely to suffer losses.
Liquidity
The Trust’s assets are generally held as cash or cash equivalents which are used to margin the Trust’s futures positions and withdrawn, as necessary, to pay redemptions and expenses. Other than potential market-imposed limitations on liquidity, due, for example, to limited open interest in certain futures markets or to daily price fluctuation limits, which are inherent in the Trust’s futures and forward trading, the Trust’s assets are highly liquid and are expected to remain so. During its operations through December 31, 2004, the Trust experienced no meaningful periods of illiquidity in any of the numerous markets traded by the Managing Owner.
Critical Accounting Estimates
The Trust records its transactions in futures and forward currency contracts, including related income and expenses, on a trade date basis. Open futures contracts traded on an exchange are valued at market, which is based on the closing settlement price on the exchange where the futures contract is traded by the Trust on the day with respect to which Net Assets are being determined. Open forward currency contracts are recorded at fair value, based on pricing models that consider the current market prices (“Spot Prices”) plus the time value of money (“Forward Points”) and contractual prices of the underlying financial instruments. The Spot Prices and Forward Points for open forward currency contracts are generally based on the 3:00 P.M. New York time prices provided by widely used quotation service providers on the day with respect to which Net Assets are being determined. The Forward Points from the quotation service providers are generally in periods of one month, two months, three months and six months forward while the contractual forward delivery dates for the foreign currency contracts traded by the Trust may be in between these periods.
The Managing Owner’s policy is to calculate the Forward Points for each contract being valued by determining the number of days from the date the forward currency contract is being valued to its maturity date and then using straight-line interpolation to calculate the valuation of Forward Points for the applicable forward currency contract. The Managing Owner will also compare the calculated price to the forward currency prices provided by dealers to determine whether the calculated price is fair and reasonable.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions, such as accrual of expenses, that affect the amounts and disclosures reported in the financial statements. Based on the nature of the business and operations of the Trust, the Managing Owner believes that the estimates utilized in preparing the Trust’s financial statements are appropriate and reasonable, however actual results could differ from these estimates. The estimates used do not provide a range of possible results that would require the exercise of subjective judgment. The Managing Owner further believes that, based on the nature of the business and operations of the Trust, no other reasonable assumptions relating to the application of the Trust’s critical accounting estimates other than those currently used would likely result in materially different amounts from those reported.
Off-Balance Sheet Arrangements
The Trust does not engage in off-balance sheet arrangements with other entities.
Contractual Obligations
The Trust does not enter into any contractual obligations or commercial commitments to make future payments of a type that would be typical for an operating company or that would affect its liquidity or capital resources. The Trust’s sole business is trading futures and forward currency contracts, both long (contracts to buy) and short (contracts to sell). All such contracts are settled by offset, not delivery. Substantially all such contacts are for settlement within four months of the trade date and substantially all such contracts are held by the Trust for less than four months before being offset or rolled over into new contracts with similar maturities. The Trust’s Financial Statements, included as Exhibit 13.01 to this report, present a Condensed Schedule of Investments setting forth net unrealized appreciation (depreciation) of the Trust’s open future and forward currency contracts, both long and short, at December 31, 2004.
Results of Operations
Performance Summary
The Trust’s success depends on the Managing Owner’s ability to recognize and capitalize on trends and other profit opportunities in different sectors of the world economy. The Managing Owner’s trading methods are confidential, so that substantially the only information that can be furnished regarding the Trust’s results of operations is its performance record. Unlike most operating businesses, general economic or seasonal conditions have no direct effect on the profit potential of the Trust, while, at the same time, its past performance is not necessarily indicative of future results. Because of the speculative nature of its trading, operational or economic trends have little relevance to the Trust’s results. The Managing Owner believes, however, that there are certain market conditions - for example, markets with strong price trends - in which the Trust has a better opportunity of being profitable than in others.
During 2004, the Trust achieved net realized and unrealized gains of $443,927 from its trading operations (including foreign exchange transactions and translations). Brokerage fees of $1,003,462 were paid or accrued. The Trust paid no profit share to the Managing Owner. Interest income of $134,837 partially offset the Trust’s expenses resulting in a net loss (inclusive of administrative expenses) of $520,447 and a 3.86% decrease in the Net Asset Value per Unit. An analysis of the trading gain (loss) by sector is as follows:
The year 2004 was distinguished by dramatic transitions in the underlying character of market trading dynamics. Profitable trends in January and February gave way to a six month period of trendless, turbulent action across a broad swath of markets that produced significant losses. Beginning in September, trends reappeared and the Trust chalked up a sharp recovery in the year’s final four months. Interest rate and energy trading were profitable and to a lesser extent so was trading of agricultural commodities. These gains partially offset losses from currency, and stock index trading. The Trust generated a trading gain for the year.
At the start of the year, long positions in note and bond futures, particularly for the U.S. and Europe, were quite profitable as sluggish European growth, concerns about a “jobless” U.S. recovery and central bank buying of
treasuries drove interest rates down. Rising energy prices benefited long energy positions, and equity and metals trading were profitable. Currency trading was very unprofitable, however, as a dollar decline halted and reversed during the quarter.
From March through August, a number of uncertainties plagued market participants including: the June Iraqi elections, the U.S. Presidential elections in November, the strength of the American economy and thrust of Federal Reserve policy, and China’s foreign exchange, industrial and monetary policy directions. As a result, markets across the board displayed unprofitable, directionless price action. Trading of currencies, interest rates, stock indices, metals and agricultural commodities produced losses. Energy trading, in fact, was the only profitable sector for this period, and the gain was only marginal.
As the aforementioned uncertainties began to clarify, market participants became more confident of their opinions and a number of profitable trend opportunities emerged. In particular, a sharp dollar decline led to excellent profits from a series of short dollar positions, particularly versus the euro and Korean won. This dollar sell off was prompted by worries about persistent U. S. current account and budget deficits, as well as the rising probability that foreign central banks would begin to diversify their international reserve holdings away from the American currency. Trading of interest rate, stock index, and metal futures was also profitable over the last four months of the year.
During 2003, the Trust achieved net realized and unrealized gains of $1,202,555 from trading operations (including foreign exchange transactions and translations). Brokerage fees of $1,774,676 were paid or accrued. The Trust paid no profit share. Interest income of $253,838 partially offset the Trust’s expenses resulting in a net loss (inclusive of administrative expenses) of $421,139 and a 3.38% decrease in the Net Asset Value per Unit. An analysis of the trading gain (loss) by sector is as follows:
The Trust’s performance was quite volatile throughout the year 2003. Substantial gains registered in January and February were largely erased in March, when major long term price trends in currencies, energy and interest rates reversed abruptly as the Iraq invasion moved from rhetoric to reality, and as traders and investors rushed to square positions, moving to the sidelines at least temporarily. Then, in May, as the initial phase of the Iraqi conflict was reaching a quicker then expected resolution, concern about large U.S. budget and trade deficits, unfavorable U.S. interest rate differentials, and Treasury Secretary Snow’s apparent acquiescence to a weaker dollar, reignited a dollar selloff. At the same time, fears of deflation, and the Fed’s continued easy monetary policy, produced a renewed fall in interest rates. These broad movements brought with them a sizable profit for the portfolio. However, after slightly favorable summer results, interest rate and energy markets succumbed to volatility without sustained trends. Therefore, losses in these two sectors outweighed gains from currency, stock index, and metals trading over the second half of 2003.
On a sector basis, currency trading was profitable for 2003. Long positions in the euro and commodity currencies (South African rand, Australian and New Zealand dollars) were quite profitable as the U.S. currency fell. On the other hand, trading of Far Eastern currencies (yen, Korean won, and the Singapore dollar) produced losses,
since heavy Central Bank intervention throughout the region counterbalanced much of the downward pressure on the U.S. unit and led to erratic rate fluctuations.
Stock futures trading was profitable due to a general up move in equities worldwide. Long gold and copper positions were profitable, particularly later in the year, as flight to safety and a weak dollar boosted gold prices, and as a weak dollar and surging industrial demand pushed copper prices upward.
Energy prices were highly volatile during the year, particularly with the onset of hostilities in Iraq in March, and, hence energy trading generated losses in 2003.
Interest rate trading was very profitable during the first half of 2003 when rates worldwide were continuing to trend downward. However, when that trend reversed abruptly in mid-June and was followed by erratic non-directional range trading, offsetting losses were experienced, especially during the September - December period. Lastly, trading of agricultural commodities produced losses throughout the year.
During 2002, the Trust achieved net realized and unrealized gains of $5,309,031 from trading operations (including foreign exchange transactions and translations). Brokerage fees of $2,041,313 were paid or accrued. The Trust paid no profit share. Interest income of $469,289 partially offset the Trust’s expenses resulting in a net gain (inclusive of administrative expenses) of $3,630,872 and a 16.69% increase in the Net Asset Value per Unit. An analysis of the trading gain (loss) by sector is as follows:
The Trust’s interest rate trading and currency trading were highly profitable. Stock index and energy trading were also fractionally profitable, while trading of agricultural commodities and metals produced losses.
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 Trust’s long positions in U.S., European, and Japanese interest rate futures generated sizable gains. The U. S. dollar weakened during 2002 as market participants came to doubt the likelihood of economic recovery in America. Hence, the capital inflows that had supported the dollar, despite America’s huge current account deficit, shrank and reversed. As a result, the Trust’s short dollar positions relative to the euro and Swiss franc were very profitable. A short dollar/long South African rand position was also profitable as gold prices were boosted by safe haven buying. The Trust’s Equity trading was moderately profitable due to short positions in German and U.S. equity futures, and the Trust’s long energy positions were slightly profitable as prices gained in the wake of Middle Eastern turmoil, particularly near year-end. Despite strong profits from long gold positions, the Trust’s metals trading lost money as non-precious metals prices fluctuated erratically, and in the agricultural sector, losses from trading sugar and cotton outweighed gains from trading corn.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not required.
Item 8.
Item 8. Financial Statements and Supplementary Data
Financial statements required by this item, including the report of Deloitte & Touche LLP for the fiscal year ended December 31, 2004, are included as Exhibit 13.01 to this report. The report of Ernst & Young LLP for the fiscal year ended December 31, 2003 is filed as Exhibit 13.02 hereto.
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, 2004 and 2003. This information has not been audited.
There were no extraordinary, unusual or infrequently occurring items recognized in any quarter within the two most recent fiscal years, and the Trust has not disposed of any segments of its business. There have been no year-end adjustments that are material to the results of any fiscal quarter reported above.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On August 25, 2004, Ernst & Young LLP notified the Board of Directors of the Managing Owner that it had resigned as the independent auditor for the Trust. On August 26, 2004, the Board of Directors of the Managing Owner approved the engagement of Deloitte & Touche LLP as independent registered public accounting firm for the Trust.
Disclosure regarding the change of the Trust’s auditors was previously reported on the Trust’s current report on Form 8-K filed August 26, 2004, as amended by Amendment No. 1 thereto filed on September 2, 2004. There were no disagreements with Ernst & Young LLP regarding accounting principles or practices, financial statement disclosure or audit scope or procedure.
Item 9A.
Item 9A. Controls and Procedures
The Managing Owner, with the participation of the Managing Owner’s principal executive officers and principal financial officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Trust as of the end of the fiscal year for which this Annual Report on Form 10-K is being filed, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective. There were no significant changes in the Managing Owner’s internal controls with respect to the Trust or
in other factors applicable to the Trust that could significantly affect these controls subsequent to the date of their evaluation.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
(a,b) Identification of Directors and Executive Officers
The Trust has no directors or executive officers. The Trust is controlled and managed by the Managing Owner under a delegation of authority by the Trust’s Trustee, Wilmington Trust Company.
Millburn Ridgefield Corporation, the Managing Owner, is a Delaware corporation organized in May 1982 to manage discretionary accounts in futures and forward markets. It is the corporate successor to a futures trading and advisory organization which has been continuously managing assets in the currency and futures markets using quantitative, systematic techniques since 1971.
The principals and senior officers of the Managing Owner as of December 31, 2004 are as follows:
Harvey Beker, age 51. Mr. Beker is Co-Chief Executive Officer and Co-Chairman of the Managing Owner and The Millburn Corporation, and a partner of their affiliate, ShareInVest Research L.P. He received a Bachelor of Arts degree in economics from New York University (“NYU”) in 1974 and a Master of Business Administration degree in finance from NYU in 1975. From June 1975 to July 1977, Mr. Beker was employed by Loeb Rhoades, Inc. where he developed and traded silver arbitrage strategies. From July 1977 to June 1978, Mr. Beker was a futures trader at Clayton Brokerage Co. of St. Louis. Mr. Beker has been employed by The Millburn Corporation since June 1978 and initially served as the Director of operations for its affiliate, Millburn Partners. During his tenure at Millburn (including its affiliates, Millburn Partners and CommInVest Research Limited Partnership (“CommInVest”)) he has been instrumental in the development of the research, trading and operations areas. Mr. Beker became a principal of the firm in June 1982, and a partner in ShareInVest, the predecessor of ShareInVest Research L.P. (“ShareInVest”), in April 1982.
Gregg R. Buckbinder, age 46. Mr. Buckbinder is Senior Vice-President and Chief Operating Officer of the Managing Owner and The Millburn Corporation and a partner, since January 2000, of ShareInVest. He graduated cum laude from Pace University (“Pace”) in 1980 with a B.B.A. in accounting and received an M.S. in taxation from Pace in 1988. He joined the Managing Owner and The Millburn Corporation in January 1998 from Odyssey Partners, L.P. where he was responsible for the operation, administration and accounting of the firm’s merchant banking and managed account businesses from July 1990 through December 1997. Mr. Buckbinder was employed by Tucker Anthony, a securities broker and dealer, from June 1985 to July 1990 where he was First Vice President and Controller, and from August 1983 to June 1984 where he designed and implemented various operations and accounting systems. He was with the public accounting firm of Ernst & Whinney from June 1984 to June 1985 as a manager in the tax department and from September 1980 to August 1983 as a senior auditor, with an emphasis on clients in the financial services business. He is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants.
George E. Crapple, age 60. Mr. Crapple is Co-Chief Executive Officer and Co-Chairman of the Managing Owner and The Millburn Corporation and a partner of ShareInVest. In 1966 he graduated with honors from the University of Wisconsin where his field of concentration was economics and he was elected to Phi Beta Kappa. In 1969 he graduated from Harvard Law School, magna cum laude, where he was a member of the Harvard Law Review. He was a lawyer with Sidley & Austin, Chicago, Illinois, from 1969 until April 1, 1983, as a partner since 1975, specializing in commodities, securities, corporate and tax law. He was first associated with the Managing Owner in 1976 and joined Managing Owner and The Millburn Corporation (including its affiliates, Millburn Partners and CommInVest) on April 1, 1983 on a full-time basis. He became a partner in ShareInVest in April 1984. Mr. Crapple is a Director, Member of the Executive Committee, Chairman of the Appeals Committee and a former Chairman of the Eastern Regional Business Conduct Committee of the NFA, past Chairman of the Managed
Funds Association, a member of the Global Markets Advisory Committee of the CFTC and a member of the board of directors of the Futures Industry Association (“FIA”).
Steven M. Felsenthal, age 35. Mr. Felsenthal is General Counsel and Chief Compliance Officer of the Managing Owner, The Millburn Corporation and ShareInVest. Prior to joining Millburn in January 2004, Mr. Felsenthal was a senior associate in the investment management group at Schulte Roth & Zabel LLP (September 1999- January 2004), where he represented and advised hedge funds, registered investment companies, investment advisers, broker-dealers and banks in connection with all facets of their asset management businesses, and a member of the tax department of Kramer, Levin, Naftalis & Frankel LLP (October 1996- September 1999). He graduated cum laude from Yeshiva University in 1991 with a bachelor of arts degree in political science, and order of the coif from Fordham University School of Law in 1996, where he also served as an editor of the Fordham Environmental Law Journal. Mr. Felsenthal received an LL.M degree in taxation from NYU School of Law in 2001 and has written and been quoted in numerous published articles on various topics related to investment management. Mr. Felsenthal is a member of the New York State Bar.
Mark B. Fitzsimmons, age 57. Mr. Fitzsimmons is a Senior Vice-President of the Managing Owner and The Millburn Corporation and a partner, since January 2000, of ShareInVest. His responsibilities include both business development and investment strategy. He joined the Managing Owner and its affiliates in January 1990 from Morgan Stanley & Co. Incorporated where he was a Principal and Manager of institutional foreign exchange sales and was involved in strategic trading for the firm from October 1987 until January 1990. From September 1977 to October 1987 he was with Chemical Bank New York Corporation (“Chemical”), first as a Senior Economist in Chemical’s Foreign Exchange Advisory Service and later as a Vice-President and Manager of Chemical’s Corporate Trading Group. While at Chemical he also traded both foreign exchange and fixed income products. From September 1973 to September 1977 Mr. Fitzsimmons was employed by the Federal Reserve Bank of New York, dividing his time between the International Research Department and the Foreign Exchange Department. He graduated summa cum laude from the University of Bridgeport, Connecticut in 1970 with a B.S. in economics. His graduate work was done at the University of Virginia, where he received a certificate of candidacy for a Ph.D. in economics in 1973.
Barry Goodman, age 47. Mr. Goodman is Executive Vice-President, Director of Trading and Co-Director of Research of the Managing Owner and The Millburn Corporation and a partner of ShareInVest . His responsibilities include overseeing the firm’s trading operation and managing its trading relationships, as well as the design and implementation of trading systems. He graduated magna cum laude from Harpur College of the State University of New York in 1979 with a B.A. in economics. From September 1980 through October 1982 he was a commodity trader for E. F. Hutton & Co., Inc. (“E.F. Hutton”). At E.F. Hutton, he also designed and maintained various technical indicators and coordinated research projects pertaining to the futures markets. He joined the Managing Owner and The Millburn Corporation (including its affiliate, Millburn Partners) in November 1982 as Assistant Director of Trading. He became a partner in ShareInVest in January 1984.
Dennis B. Newton, age 53. Mr. Newton is a Senior Vice-President of the Managing Owner and The Millburn Corporation. His primary responsibilities are in administration and business development. Prior to joining the Managing Owner and The Millburn Corporation in September 1991, Mr. Newton was President of Phoenix Asset Management, Inc. (“Phoenix”), a registered commodity pool operator from April 1990 to August 1991 and President of its affiliated introducing broker, Phoenix Futures Inc., from March 1990 to June 1991. Prior to his employment with Phoenix, Mr. Newton was a Director of Managed Futures with Prudential-Bache Securities Inc. (“Prudential-Bache”) from October 1987 to March 1990 and was associated with its affiliated futures commission merchant entity, Prudential Securities Futures Management, Inc. Mr. Newton joined Prudential-Bache from Heinold Asset Management, Inc. (“Heinold”), and its affiliated futures commission merchant, Heinold Commodities Inc., where he was a member of the senior management team from October 1974 to October 1987. Heinold was a pioneer and one of the largest sponsors of funds utilizing futures and currency forward trading.
Grant N. Smith, age 53. Mr. Smith is Executive Vice-President and Co-Director of Research of the Managing Owner and The Millburn Corporation and a partner of ShareInVest. He is responsible for the design, testing and implementation of quantitative trading strategies, as well as for planning and overseeing the computerized decision-support systems of the firm. He received a B.S. degree from the Massachusetts Institute of Technology (“M.I.T.”) in 1974 and an M.S. degree from M.I.T. in 1975. While at M.I.T. he held several teaching
and research positions in the computer science field and participated in various projects relating to database management. He joined the predecessor entity to The Millburn Corporation in June 1975, and has been continuously associated with the Managing Owner, The Millburn Corporation and their affiliates since that time.
Tod A. Tanis, age 50. Mr. Tanis is a Vice President, Principal Accounting Officer and Director of Operations of the Managing Owner and The Millburn Corporation. He is responsible for overseeing operations and accounting for the firm’s commodity pools. He graduated from Grove City College in May 1976 with a B.A. in accounting and joined the Managing Owner and The Millburn Corporation in May of 1983. Prior to joining Millburn, he was with E.F. Hutton, where he was a Manager from December 1982 to April 1983; a Supervisor from August 1982 to December 1982; an International Accountant from April 1979 to August 1982; and a staff accountant from June 1978 to April 1979. As a Manager at E.F. Hutton, he was responsible for all internal and external commodity reporting. Mr. Tanis also served as a Junior Accountant and then International Staff Accountant with Merrill Lynch & Company from September 1976 to May 1978.
(c) Identification of Certain Significant Employees
None.
(d) Family Relationships
None.
(e) Business Experience
See Item 10 (a,b) above.
(f) Involvement in Certain Legal Proceedings
None.
(g) Promoters and Control Persons
The Managing Owner is the sole promoter and control person of the Trust.
(h) Audit Committee Financial Expert
Since the Trust has no employees, officers or directors, the Trust has no audit committee. The Trust is managed by the Managing Owner. Gregg Buckbinder serves as the Managing Owner’s “audit committee financial expert.” Mr. Buckbinder is not independent of the management of the Managing Owner. The Managing Owner is a privately owned corporation managed by its shareholders. It has no independent directors.
(i) Code of Ethics
The Trust has no employees, officers or directors and is managed by the Managing Owner. The Managing Owner has adopted an Executive Code of Ethics that applies to its principal executive officers, principal financial officer and principal accounting officer. A copy of this Executive Code of Ethics may be obtained at no charge by written request to Millburn Ridgefield Corporation, 411 West Putnam Avenue, Greenwich, Connecticut 06830 or by calling 203-625-7554 (ask for Client Services).
Item 11.
Item 11. Executive Compensation
The Trust has no directors or officers. None of the directors or officers of the Managing Owner receive “other compensation” from the Trust. The Managing Owner makes all trading decisions on behalf of the Trust. The Managing Owner receives monthly brokerage commissions of 0.75 of 1% of the Net Assets (which is reduced to
0.58 of 1% of Net Assets for Unitholders who invest more than $1 million in the Trust) and a quarterly profit share of 17.5% of any new trading profit as defined.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
The Trust knows of no person who owns beneficially more than 5% of the Units. All of the Trust’s managing owner interest is held by the Managing Owner.
(b) Security Ownership of Management
Under the terms of the Trust Agreement, the Trust’s affairs are managed by the Managing Owner, which has discretionary authority over the Trust’s trading. The Managing Owner’s managing owner interest was valued at $183,872 as of December 31, 2004, 2.18% of the Trust’s total capital.
(c) Changes in Control
None.
(d) Securities Authorized for Issuance Under Equity Compensation Plans
None.
Item 13.
Item 13. Certain Relationships and Related Transactions
See “Item 11. Executive Compensation” and “Item 12. Security Ownership of Certain Beneficial Owners and Management.” The Trust allocated to the Managing Owner $1,003,462 in brokerage fees and $0 in profit share for the year ended December 31, 2004. The Managing Owners’ managing owner interest showed an allocation of gain of $28,351 for the year ended December 31, 2004. The Trust is prohibited from making any loans.
Item 14.
Item 14. Principal Accountant Fees and Services
(1) Audit Fees
The aggregate fees for professional services rendered by Deloitte & Touche LLP in connection with their audit of the Trust’s financial statements and reviews of the financial statements included in the quarterly reports on Form 10-Q and in connection with the statutory and regulatory filings for the year ended December 31, 2004 were approximately $25,000.
The aggregate fees for professional services rendered by Ernst & Young LLP in connection with their audit of the Trust’s financial statements and reviews of the financial statements included in the quarterly reports on Form 10-Q and in connection with the statutory and regulatory filings for the years ended December 31, 2004 and December 31, 2003 were approximately $2,667 and $35,500, respectively.
(2) Audit-Related Fees
There were no fees for assurance and related services rendered by Deloitte & Touche LLP or Ernst & Young LLP for the years ended December 31, 2004 and December 31, 2003.
(3) Tax Fees
The aggregate fees for professional services rendered by Deloitte & Touche LLP for tax compliance, advice or planning services rendered by Deloitte & Touche LLP for the benefit of the Trust for the year ended December 31, 2004 was approximately $7,179.
Neither Deloitte & Touche LLP nor Ernst & Young LLP rendered tax compliance, advice or planning services for the benefit of the Trust for the year ended December 31, 2003.
(4) All Other Fees
None.
(5) Pre-Approval Policies
The board of directors of the Managing Owner pre-approves the engagement of the Trust’s auditor for all services to be provided by the auditor.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The following are included with the 2004 Report of Independent Registered Public Accounting Firm, a copy of which is filed herewith as Exhibit 13.01.
Affirmation of Millburn Ridgefield Corporation
Report of Independent Registered Public Accounting Firm
Statements of Financial Condition
Condensed Schedules of Investments
Statements of Operations
Statements of Changes in Trust Capital
Statements of Financial Highlights
Notes to Financial Statements
(a)(2) Financial Statement Schedules
All Schedules are omitted for the reason that they are not required or are not applicable because equivalent information has been included in the financial statements or the notes thereto.
(a)(3) Exhibits as required by Item 601 of Regulation S-K
The following exhibits are included herewith.
Designation
Description
13.01
2004 Report of Independent Registered Public Accounting Firm
13.02
2003 Report of Independent Auditors
31.1
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.3
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1
Section 1350 Certification of Principal Executive Officer
32.2
Section 1350 Certification of Principal Executive Officer
32.3
Section 1350 Certification of Principal Financial Officer
The following exhibits are incorporated by reference from Amendment No. 1 to the Registration Statement (File No. 33-90756) filed on June 27, 1995 on Form S-1 under the Securities Act of 1933.
3.02
Certificate of Trust of the Trust.
10.01 Form of Subscription Agreement and Power of Attorney.
The following exhibits are incorporated by reference from Post-Effective Amendment No. 1 to the Registration Statement (File No. 33-90756) filed on March 1, 1996 on Form S-1 under the Securities Act of 1933.
10.02 Selling Agreement among the Trust, the Managing Owner and the Principal Selling Agents (includes a form of Additional Selling Agent and Correspondent Selling Agent Agreement).
10.03(a) Customer Agreement among the Trust, the Managing Owner and a Principal Selling Agent in its capacity as a futures commission merchant.
10.03(b) Customer Agreement among the Trust, the Managing Owner and a Principal Selling Agent in its capacity as a futures commission merchant.
10.04 Escrow Agreement between the Trust and Chemical Bank, N.A.
The following exhibit is incorporated by reference from Post-Effective Amendment No. 5 to the Registration Statement (File No. 33-90756) filed February 18, 1997 on Form S-1 under the Securities Act of 1933.
3.01 Amended and Restated Declaration of Trust and Trust Agreement
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 30th day of March, 2005.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Managing Owner of the Registrant in the capacities and on the date indicated.
(Being the principal executive officers, the principal financial officer and principal accounting officer, and a majority of the directors of Millburn Ridgefield Corporation)
Millburn Ridgefield Corporation
Managing Owner of Registrant
March 30, 2005
EXHIBIT INDEX
The following exhibits are included herewith.
Designation
Description
13.01
Report of Independent Registered Public Accounting Firm
13.02
Report of Independent Auditors
31.1
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.3
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1
Section 1350 Certification of Principal Executive Officer
32.2
Section 1350 Certification of Principal Executive Officer
32.3
Section 1350 Certification of Principal Financial Officer
The following exhibits are incorporated by reference from Amendment No. 1 to the Registration Statement (File No. 33-90756) filed on June 27, 1995 on Form S-1 under the Securities Act of 1933.
3.02
Certificate of Trust of the Trust.
10.01
Form of Subscription Agreement and Power of Attorney.
The following exhibits are incorporated by reference from Post-Effective Amendment No. 1 to the Registration Statement (File No. 33-90756) filed on March 1, 1996 on Form S-1 under the Securities Act of 1933.
10.02
Selling Agreement among the Trust, the Managing Owner and the Principal Selling Agents (includes a form of Additional Selling Agent and Correspondent Selling Agent Agreement).
10.03(a)
Customer Agreement among the Trust, the Managing Owner and a Principal Selling Agent in its capacity as a futures commission merchant.
10.03(b)
Customer Agreement among the Trust, the Managing Owner and a Principal Selling Agent in its capacity as a futures commission merchant.
10.04
Escrow Agreement between the Trust and Chemical Bank, N.A.
The following exhibit is incorporated by reference from Post-Effective Amendment No. 5 to the Registration Statement (File No. 33-90756) filed February 18, 1997 on Form S-1 under the Securities Act of 1933.
3.01
Amended and Restated Declaration of Trust and Trust Agreement