<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended: December 31, 1998
/ / Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 0-19436
---------
THE MILLBURN CURRENCY FUND II, L.P.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3117668
- ------------------------------- ----------------
(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 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 X No
----- -----
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
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
Aggregate market value of the voting and non-voting common equity held by
non-affiliates as of February 28, 1999: $1,399,606.
Documents Incorporated by Reference
None.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I
Item 1. Business.................................................. 1
Item 2. Properties................................................ 3
Item 3. Legal Proceedings......................................... 3
Item 4. Submission of Matters to a Vote of Security Holders....... 3
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 3
Item 6. Selected Financial Data................................... 3
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 5
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 8
Item 8. Financial Statements and Supplementary Data............... 8
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 8
PART III
Item 10. Directors and Executive Officers of the Registrant........ 8
Item 11. Executive Compensation.................................... 10
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 10
Item 13. Certain Relationships and Related Transactions............ 10
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................. 11
</TABLE>
i
<PAGE>
PART I
Item 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
The Millburn Currency Fund II, L.P. (the "Partnership") is a limited
partnership organized March 21, 1991 pursuant to a Limited Partnership
Agreement (the "Limited Partnership Agreement"), under the Delaware Revised
Uniform Limited Partnership Act. The Partnership was funded through an
offering of Limited Partnership Units (the "Units") and commenced operations
on August 5, 1991. The offering to the public of 200,000 Units began on
April 5, 1991 and was completed on August 5, 1991. The offering was
registered under the Securities Act of 1933, as amended. The Chicago
Corporation acted as selling agent on a best efforts basis. A total of
132,478 Units was sold to the public during the initial public offering.
The Partnership is the sole limited partner of a separate limited
partnership (the "Trading Company") formed under the Delaware Revised Uniform
Limited Partnership Act. Approximately 50% of the proceeds from the offering
of Units were invested in the Trading Company at the commencement of
operations. The balance of the proceeds was invested in zero coupon United
States Treasury Notes ("STRIPS") which matured on November 15, 1996. The
Trading Company engages in the speculative trading of primarily currency
futures, forward contracts and related options. The Trading Company was
formed to isolate the Partnership's STRIPS from risk of trading loss. The
Trading Company initially began speculative trading as if 100% of the
Partnership's assets (the "Allocated Assets") were invested in the Trading
Company. As of December 31, 1997, all of the Partnership's assets are
Allocated Assets. As of August 1, 1998, the Trading Company invested the
Allocated Assets in Millburn Currency Fund L.P., a limited partnership
operated by Millburn Ridgefield Corporation which trades pursuant to the same
trading program as the Partnership. Millburn Currency Fund L.P. ("MCF") fees
are waived with respect to the Partnership's investment, though the
Partnership does pay its pro rata share of MCF's expenses.
Millburn Ridgefield Corporation (the "General Partner"), a Delaware
corporation, is the general partner of the Partnership and the Trading
Company and performs various administrative services for the Partnership.
The General Partner acts as the commodity trading advisor for the Trading
Company. The General Partner invested a total of $202,000 in the Partnership
and the Trading Company at the outset of trading; after reflecting net income
of $18,473 in 1991, $54,287 in 1992, ($13,391) in 1993, ($16,633) in 1994,
$55,743 in 1995, $56,599 in 1996, $101,863 in 1997 and ($10,509) in 1998,
this investment totaled $447,892 as of December 31, 1998.
Pursuant to a Customer Agreement, Morgan Stanley & Co. Incorporated (the
"Currency Dealer") acted as the primary currency dealer for the Trading
Company. MCF executes currency trades with Morgan Stanley & Co. as well as
with other currency dealers. MCF pays the Currency Dealer and other currency
dealers "bid asked" spreads on its forward trades, as such spreads are
incorporated into the pricing of forward contracts. The General Partner
monitors MCF'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 through its limited partnership
interest in the Trading Company and the Trading Company's investment in MCF.
The Trading Company's sole trading advisor is the General Partner. The
General Partner trades the Trading Company's assets almost exclusively in
currency forward contracts, primarily in the interbank market. Pursuant to
the Limited Partnership Agreement, prior to November 15, 1996, the General
Partner received a flat-rate monthly brokerage fee equal to 0.833% of the
Allocated Assets (a 10% annual rate). As of November 15, 1996 the brokerage
fee was reduced to 0.666% of the Partnership's month-end Allocated Assets (an
8% annual rate). The General Partner also receives a profit share equal to
15% of any new trading profit as defined, determined as of the end of each
calendar quarter. The quarterly profit share is calculated after deducting
interest income and brokerage fees. The Trading Company enters into trades
based on the level of Allocated Assets. The level of Allocated Assets as of
December 31, 1998 approximates the net assets of the Partnership.
1
<PAGE>
At the commencement of the Partnership's operations, the General Partner
invested that portion of the Partnership's assets not invested in the Trading
Company in STRIPS in order to assure limited partners the return of 75% of
their initial capital contributions to the Partnership at the end of
approximately 5 years from the commencement of operations (the "Initial Time
Horizon"). At the end of the Initial Time Horizon, November 15, 1996, when
the STRIPS matured the General Partner gave limited partners the opportunity
to redeem their Units at net asset value. The Partnership continues to trade
in currency futures, forward contracts and related options. From time to time
the General Partner may cause the Trading Company to distribute a portion of
its trading profit to the Partnership as a means to protect such profits from
subsequent trading losses. As of December 31, 1998 the Trading Company had
made no such distributions.
The Trading Company's assets are invested in Millburn Currency Fund L.P.
which in turn deposits its assets with banks and currency forward dealers
with which it trades and in futures brokerage accounts. A substantial
majority of such assets are held in United States Treasury bills. As a result
the Partnership earns a yield on approximately 95% of its available assets.
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." 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 Dealer and the General
Partner, 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 Dealer 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. The CFTC has adopted a rule requiring all domestic commodity
exchanges to submit for approval speculative position limits for all futures
contracts traded on such exchanges. Most exchanges also limit the changes in
futures contract prices that may occur during a single trading day. The
Trading Company 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 and the Trading Company have no employees.
(d) Financial information about foreign and
domestic operations and export sales
------------------------------------
The Partnership does not engage in material operations in foreign
countries (although it does trade in foreign currency forward contracts), nor
is a material portion of its revenues derived from foreign customers.
2
<PAGE>
Item 2. PROPERTIES
The Partnership and the Trading Company do not own or use any
physical properties in the conduct of their business. The General Partner or
an affiliate perform all administrative services for the Partnership and the
Trading Company from their offices.
Item 3. LEGAL PROCEEDINGS
The General Partner is not aware of any pending legal proceedings to
which either the Partnership or the Trading Company 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.
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 calendar quarter.
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, 1998, there were 186 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. Not applicable.
Item 6. SELECTED FINANCIAL DATA
The following is a summary of operations and total assets of the
Partnership and the Trading Company on a consolidated basis for fiscal years,
1998, 1997, 1996, 1995 and 1994.
3
<PAGE>
<TABLE>
<CAPTION>
For the Year For the Year For the Year For the Year For the Year
Ended 12/31/98 Ended 12/31/97 Ended 12/31/96 Ended 12/31/95 Ended 12/31/94
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenue:
Net realized and unrealized trading
gain (loss), net of brokerage
commissions of $125,801, $162,296,
$498,741, $678,093, $772,866 and
$1,217,730 in 1998, 1997, 1996, 1995
and 1994, respectively $ (221,020) $ 350,548 $ 112,269 $ 241,232 $ (1,372,856)
Unrealized appreciation
(depreciation) on STRIPS -- -- (134,525) 126,813 (649,559)
Accrued interest on STRIPS -- -- 246,964 479,358 544,878
Net realized gains on
STRIPS transactions -- -- 20,090 15,885 26,520
Other interest income 66,427 130,936 119,825 30,845 16,191
------------ ------------ ------------ ------------ ------------
Total income (loss) (154,593) 481,484 364,623 894,113 (1,434,826)
------------ ------------ ------------ ------------ ------------
Expenses:
Profit Share -- -0- -0- -0- -0-
Administrative expenses 31,502 24,572 53,676 66,242 87,886
------------ ------------ ------------ ------------ ------------
Total expenses* 16,002 24,572 53,676 66,242 87,886
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (170,595) $ 456,912 $ 310,947 $ 827,891 $ (1,522,712)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total assets $ 1,871,489 $ 2,263,838 $ 2,524,307 $ 6,516,573 $ 7,320,125
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total limited partners' capital $ 1,365,729 $ 1,722,984 $ 1,886,615 $ 5,759,049 $ 6,414,677
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net asset value per Unit $ 109.95 $121.94 $ 102.77 $ 95.30 $ 85.48
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Redemption value per Unit** $ 109.95 $ 121.94 $ 102.77 $ 93.74 $ 85.39
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Increase (decrease) in net asset
value per Unit $ (11.99) $ 19.17 $ 7.47 $ 9.82 $ (16.99)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Increase (decrease) in redemption
value per Unit $ (11.99) $ 19.17 $ 7.47 $ 8.35 $ (10.80)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
- ------------
*The General Partner reimbursed the Partnership $15,500 for administrative
expenses incurred in 1998.
** The Partnership's STRIPS were valued at the lower of cost plus accrued
interest or market value for the purpose of calculating redemption value. The
redemption value of a Unit was lower than its net asset value in prior years
because the market value of the STRIPS was higher than cost plus accrued
interest as of December 31, 1995, and 1994 due to fluctuations in market
interest rates.
4
<PAGE>
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,
directly or indirectly through its investment in the Trading Company, 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 on
currencies. 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. 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 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) limiting trading to markets which
the General Partner believes are sufficiently liquid in respect of the amount
of trading contemplated; (2) diversifying positions among various currencies;
(3) limiting the assets committed as margin, generally within a range of 10%
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, such as the Currency Dealer,
as brokers and counterparties.
The Trading Company (and MCF) is generally required to deposit
approximately 5% of the notional value of its forward contract positions with
the Currency Dealer (or other currency dealers) as collateral. At any time,
and from time to time, the Trading Company (or MCF) may have open positions
with the Currency Dealer or other currency dealers with a total notional
value of as much as five times the capitalization of the Partnership and
collateral deposits of up to approximately 15% of the capital of the
Partnership at either currency dealer.
The Partnership's futures contracts are settled by offset in the
futures markets and are cleared through 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 futures contract 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 payment.
LIQUIDITY
Prior to November 15, 1996, when the Partnership's STRIPS matured
most if not all of the Partnership's assets, other than its interest in the
Trading Company, were held in the form of STRIPS. STRIPS are zero-coupon
Treasury bonds for which a liquid secondary market exists. The market value
of STRIPS is, however, sensitive to changes in market interest
5
<PAGE>
rates and an increase in interest rates would result in a decrease in the
value of the Partnership's STRIPS. Subsequent to November 15, 1996, most if
not all of the Partnership's assets are invested in the Trading Company which
has invested its assets in MCF.
The Trading Company's (and MCF's) assets are either deposited in
cash or United States Treasury bills with the Currency Dealer or other
currency dealers or are invested by the General Partner in United States
Treasury bills or "customer segregated funds accounts." To the extent
deposited as margin with the Currency Dealer or other currency dealers the
Trading Company's (and MCF's) assets are subject to the General Partner's
ability to close out its currency futures or forward contracts positions.
Most, if not all of the Trading Company's (and MCF's) positions are
in currency forward contracts. Forward contracts are not traded on a
commodity exchange. The Trading Company (and MCF) could be prevented from
promptly liquidating unfavorable positions, thereby subjecting the Trading
Company to substantial losses which could exceed the margin initially
committed to such trades. In addition, the Trading Company (or MCF) 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 loss for the fiscal year ended December 31,
1998 and a profit for the fiscal years ended December 31, 1997 and 1996.
Total Partnership capital as of December 31, 1998, 1997 and 1996,
equaled $1,813,621, $2,181,385 and $2,243,153, respectively. The net asset
value per Unit as of December 31, 1998 was $109.95, a decrease in value for
1998 of 9.8%, as of December 31, 1997 was $121.94, an increase in value for
1997 of 18.7%, and as of December 31, 1996 was $102.77, an increase in value
for 1996 of 7.8%. The increase (decrease) in value is calculated based on net
asset value per Unit as of the previous December 31.
Approximately 43% of the Partnership's loss in 1998 was due to The
Trading Company's currency trading and investment in MCF as gross direct
trading losses of $141,994 plus a gain of $46,775 from the investment in MCF
less brokerage fees of $125,801 resulted in a net trading loss of $221,020.
The Partnership earned or accrued interest of $66,427 during fiscal year
1998. A substantial majority of the Partnership's Profits in fiscal year 1997
was due to the Trading Company's currency trading as gross trading gains of
$512,844 exceeded brokerage fees of $162,296 for a net trading gain of
$350,548. The Partnership also accrued or earned interest of $130,936 during
fiscal year 1997. A substantial portion of the Partnership's profits in
fiscal year 1996 was due to accrued or earned interest of $246,964 on its
STRIPS as well as accrued or earned interest of $119,825 on its other assets.
The Trading Company's currency trading during 1996 also showed a profit as
gross trading gains of $611,010 exceeded brokerage fees of $498,741 for a net
trading gain of $112,269. The Partnership showed a net gain of $20,090 on
transactions in the STRIPS and a loss of $134,525 due to depreciation in the
value of the STRIPS.
During fiscal year 1998, as assets in the company declined, it
became more difficult to implement trades in the most cost-effective manner.
Therefore, at the end of July, the assets of the trading company were
invested in Millburn Currency Fund L.P., a limited partnership of more
substantial size that has been managed by the General Partner since 1990.
During fiscal year 1998, the trading company was unprofitable. Trading on
both sides of dollar/yen produced excellent results, but these gains were
more than offset by losses on trading the European currencies against the
dollar. Meanwhile, gains from trading exotic currencies fell well short of
losses occurring in cross rate trading.
During fiscal year 1997, the Trading Company was profitable. In
January and February, long dollar positions were profitable. In mid-February,
the Japanese yen had begun to strengthen and the Company took long yen
positions versus the dollar and several European currencies. An abrupt
reversal of this pattern produced losses in both dollar and cross rate
trading during March. In April, currency trading was generally calm. May's
trading resulted in losses on long dollar positions against Europe which
overwhelmed profits from cross rate trading. During June, cross rate
positions were again profitable, while dollar trading was slightly negative.
In July, long dollar positions versus Europe were profitable. In August
6
<PAGE>
and September, a dollar decline eroded a portion of these earlier profits.
Markets were somewhat volatile in October before the onset of a renewed
dollar uptrend in November. The Company had losses in October followed by a
recovery in November and December. The majority of the gains for the year
were produced in dollar trading, but exotics and crosses were also profitable.
During fiscal year 1996, the Trading Company traded profitably. As the
year commenced, long dollar positions versus the Japanese yen and European
currencies were quite profitable. In February, the Fund had its worst
decline for the year when 20 of the 21 currency positions in the portfolio
sustained losses. This poor performance in such a wide array of markets and
trading strategies at the same time is highly unusual. In March, short
German mark positions versus a number of other European currencies produced
losses. In April, European exchange rates weakened broadly, and long dollar
and yen positions versus a variety of European currencies were profitable.
As the dollar vacillated without a trend, currency trading losses in May were
countered by similar gains in June. During the summer, the dollar declined
broadly at first, before snapping back in September. This whipsaw action
generated cumulative currency losses during the third quarter of 1996. As
the U.S. currency advance gained strength during the final three months of
1996, long dollar positions versus yen and European currencies, acquired via
options as well as futures, proved very profitable. At the same time, a long
British pound position against the U.S. currency produced gains.
Inflation is not a significant factor in the Partnership's
profitability.
THE YEAR 2000 COMPUTER ISSUE
Many existing computer systems use only two digits to refer to a year.
This technique can cause the systems to treat the year 2000 as 1900, an
effect commonly known as the "Year 2000 Problem." The Partnership, like
other financial and business organizations, depends on the smooth functioning
of computer systems and could be adversely affected if the computer systems
on which it relies do not properly process and calculate date-related
information concerning dates on or after January 1, 2000
The General Partner administers the business of the Partnership through
various systems and processes maintained by the General Partner. The General
Partner's modifications for Year 2000 compliance are proceeding and are
expected to be completed, with respect to mission-critical systems, by April
1999, and, with respect to other systems, by July 1999. The expenses
incurred to date by the General Partner in preparing for Year 2000 compliance
have not had a material adverse impact on the General Partner's financial
position, and the expenses to be incurred in becoming fully Year 2000
compliant are not expected to have a material adverse impact on the General
Partner's financial position. The Partnership itself has no systems or
information technology applications relevant to its operations and, thus, has
no expenses related to addressing the Year 2000 Problem.
In addition to the General Partner, the Partnership is dependent on the
capability of the various exchanges, currency dealers and other third parties
with which the Partnership has material relationships to prepare adequately
for the Year 2000 Problem, and its impact on their systems and processes.
The major U.S. futures exchanges participated in the Futures Industry
Association Y2K Beta Test during September 1998 and will participate in the
Futures Industry Association Y2K industry-wide test for Year 2000 compliance
during the first and second quarters of 1999. The Futures Industry
Association Y2K Tests are to test links with outside entities. The currency
dealers used by the Partnership are addressing their Year 2000 issues and
those which are registered as Futures Commission Merchants will participate
in the Futures Industry Association Y2K industry-wide test for Year 2000
compliance during the first and second quarters of 1999. The General Partner
is currently implementing procedures to monitor the progress of currency
dealers used by the Partnership, exchanges and other third parties with which
the Partnership has a material relationship in addressing their Year 2000
issues.
The most likely and most significant risk to the Partnership associated
with the lack of Year 2000 readiness is the failure of third parties,
including currency dealers, exchanges, and various regulators to resolve
their Year 2000 issues in a timely manner. This risk could involve the
temporary inability to transfer funds electronically or to determine the Net
Asset Value of the Partnership, in which case it could become impossible for
the Trading company (or MCF) to continue trading activities and redemption
payments could be delayed until the Partnership's assets could be valued
and/or funds could be transferred. If the General Partner believes, prior to
December 31, 1999, that any third party has failed to resolve a Year 2000
issue likely to have a material adverse impact on the Partnership, the
General Partner will attempt to close any Partnership positions carried by
such third party or exposed to such third party's failure to resolve its Year
2000 issue and cease trading with or through such third party until such
issue is resolved.
7
<PAGE>
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 are included in exhibit
13.01 hereto.
The supplementary financial information specified by Item 302 of
Regulation S-K is not applicable.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on
accounting and financial disclosure.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a,b) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
Millburn Ridgefield Corporation, the General Partner, 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 quantiative, systematic techniques since
1971.
The principals and senior officers of Millburn Ridgefield
Corporation as of December 31, 1997 are as follows:
Harvey Beker, age 45. Mr. Beker is President, Co-Chief Executive
Officer and a Director of Millburn Ridgefield and The Millburn Corporation,
and a partner of ShareIn Vest Research L.P. He received a Bachelor of Arts
degree in economics from New York University 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. During his tenure
at Millburn, he has been instrumental in the development of the research,
trading and operations areas. Mr. Beker became a principal of the firm in
1982.
George E. Crapple, age 54. Mr. Crapple is Co-Chief Executive
Officer and a Director of Millburn Ridgefield, a Director of the Millburn
Corporation and a partner of ShareIn Vest Research, L.P. 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 Millburn
Ridgefield in 1976 and joined Millburn Ridgefield Corporation on April 1,
1983 on a full-time basis. Mr. Crapple is a member of the Board of Directors
and a former Chairman of the Eastern Regional Business Conduct Committee of
the NFA, Vice Chairman of the Board of Directors and member of the Executive
Committee of the Managed Funds Association, a member of the Financial
Products Advisory Committee of the CFTC and a former member of the Board of
Directors and Nominating Committee of the Futures Industry Association.
Gregg R. Buckbinder, age 40. Mr. Buckbinder is Senior Vice
President and Chief Operating Officer of Millburn Ridgefield and The Millburn
Corporation. He graduated CUM LAUDE from Pace University in 1980 with a
B.B.A. in accounting and received an M.S. in taxation from Pace in 1988. He
joined Millburn 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
8
<PAGE>
account businesses. Mr. Buckbinder was employed by Tucker Anthony, a
securities broker and dealer, from 1985 to 1990 where he was First Vice
President and Controller, and from 1983 to 1984 where he designed and
implemented various operations and accounting systems. He was with the public
accounting firm of Ernst & Whinney from 1984 to 1985 as a manager in the tax
department and from 1980 to 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.
Mark B. Fitzsimmons, age 51. Mr. Fitzsimmons is a Senior Vice-President
of Millburn Ridgefield and The Millburn Corporation and a partner of Shareln
Vest Research L.P. His responsibilities include both marketing and investment
strategy. 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. He joined Millburn Ridgfield 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 1977 to 1987 he was with Chemical Bank New York
Corporation, 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 1973 to 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.
Barry Goodman, age 41. Mr. Goodman is an Executive Vice-President,
Director of Trading and Co-Director of Research of Millburn Ridgefield and
The Millburn Corporation and a partner of ShareIn Vest Research L.P. 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 1980
through late 1982 he was a commodity trader for E.F. Hutton & Co., Inc. At
Hutton he also designed and maintained various technical indicators and
coordinated research projects pertaining to the futures markets. He joined
Millburn Ridgefield in 1982 as Assistant Director of Trading.
Dennis B. Newton, age 47. Mr. Newton is a Senior Vice-President of
Millburn Ridgefield. His primary responsibilities are in administration and
marketing. Prior to joining Millburn Ridgefield in September 1991, Mr. Newton
was President of Phoenix Asset Management, Inc., a registered commodity pool
operator from April 1990 to August 1991. Prior to his employment with
Phoenix, Mr. Newton was a Director of Managed Futures with Prudential-Bache
Securities Inc. from September 1987 to March 1990. Mr. Newton joined
Prudential-Bache from Heinold Asset Management, Inc. where he was a member of
the senior management team. Heinold was a pioneer and one of the largest
sponsors of funds utilizing futures and currency forward trading.
Grant N. Smith, age 47. Mr. Smith is an Executive Vice-President and
Co-Director of Research of Millburn Ridgefield and The Millburn Corporation
and a partner of ShareIn Vest Research L.P. 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 in 1974 and a 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 Millburn Ridgefield in 1975.
Malcolm H. Wiener, age 63. Mr. Wiener is the founder of Millburn
Ridgefield, The Millburn Corporation and ShareIn Vest Research L.P., serves
as an adviser to these entities and is a major investor in funds managed by
Millburn Ridgefield and ShareIn Vest Research L.P. He does not, however, have
investment or operational authority or responsibility for any of these
entities or supervisory authority over their officers or employees. Mr.
Wiener graduated MAGNA CUM LAUDE from Harvard College in 1957, where his
field of concentration was Economics and he was elected to Phi Beta Kappa.
From 1957 to 1960 he served as an officer in the United States Navy. Mr.
Wiener graduated from the Harvard Law School in 1963 and practiced law in New
York City specializing in corporate law and financial transactions until
1973. Mr. Wiener began research on and the trading of futures contracts
pursuant to systematic trading methods and money management principles in
1971 and the management on a full time basis of private funds in this area in
1973. He is the author of numerous papers on the history of trade and is a
member of the Council on Foreign Relations. He serves on the boards or
visiting committees of various non-profit institutions including the Kennedy
School of Government and the Wiener Center for Social Policy at Harvard
University, the Harvard Art Museums, the Metropolitan Museum in New York, the
Museum of Fine Arts in Boston, the American School of Classical Studies in
Athens and the Council on Economic Priorities in New York.
9
<PAGE>
The Partnership and the Trading Company have no directors or
executive officers. The Partnership and the Trading Company are controlled
and managed by the General Partner. There are no "significant employees' of
the Partnership.
Item 11. EXECUTIVE COMPENSATION
The Partnership and the Trading Company have no directors or
officers. None of the directors or oficers of the General Partner receive
"other compensation" from the Partnership or the Trading Company. The
General Partner makes all trading decisions on behalf of the partnership and
the Trading company. The General Partner receives monthly brokerage
commissions of 0.666% of the Allocated Assets and a quarterly profit share of
15% of any new trading profit.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The Partnership knows of no person who owns beneficially more than
5% of the Units. All of the Partnership's general partnership interest is
held by the General Partner.
(b) SECURITY OWNERSHIP OF MANAGEMENT
Under the terms of the Limited Partnership Agreement, the
Partnership's affairs are managed by the General Partner which has
discretionary authority over the Trading Copany's currency trading. The
General Partner's general partnership interest was valued at $447,892 as of
December 31, 1998, 24.7% of the Partnership's total equity, the equivalent of
4,073.597 Units.
Harvey Beker, the Co-Chief Executive Officer of the General
Partner, owns a single Unit in the Partnership. The value of his interest as
of December 31, 1997 is $109.95
(c) CHANGES IN CONTROL
None
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Item 11. EXECUTIVE COMPENSATION" and Item 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." The Trading Company
allocated to the General Partner $125,801, $162,296 and $498,741 in brokerage
commissions and $0, $0 and $0 in profit share for fiscal years 1998, 1997
and 1996, respectively. The General Partner's general partnership interest
showed an allocation of, gain (loss) of $(10,509), $101,863 and $56,599 in
fiscal years 1998, 1997 and 1996, respectively.
10
<PAGE>
PART 1V
Item 14. EXHBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following financial statements are included herewith as exhibit
13.01.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Affirmation of Millburn Ridgefield Corporation.......... F-1
Report of Independent Accountants....................... F-2
Statements of Financial Condition as of
December 31, 1998 and 1997............................. F-3
Statements of Operations for the years ended
December 31, 1998, 1997 and 1996....................... F-4
Statement of Changes in Partners' Capital for the
year ended December 31, 1998, 1997 and 1996............ F-5
Notes to Financial Statements........................... F-6
</TABLE>
(a)(2) FINANCIAL STATEMENT SCHEDULES
------------------------------
All Schedules are omitted for the reason that they are not required,
are not applicable, because equivalent information has been included in the
financial statemetns or thenotes thereto.
(a)(3) EXHIBITS AS REQUIRED BY ITEM 601 OF REGULATION S-K
<TABLE>
<CAPTION>
DESIGNATION DESCRIPTION
<S> <C>
1.01 Form of Selling Agreement among the Partnership, the General Partner,
the Currency Dealer and The Chicago Corporation.
3.01 Form of Limited Partnership Agreement of the Partnership (included as Exhibit A
to the Prospectus).
3.02 Certificate of Limited Partnership of the Partnership.
10.01 Form of Subscription Agreement and Power of Attorney.
10.02 Form of Foreign Exchange Customer Agreement among the Trading Company and the
Currency Dealer.
10.03 Escrow Agreement among the Partnership, The Chicago Corporation and
Harris Trust and Savings Bank.
10.04 Form of Commodity Customer Services Agreement between the General Partner and
Phoenix Asset Management, Inc.
</TABLE>
THE ABOVE EXHIBITS ARE INCORPORATED HEREIN BY REFERENCE FROM AMENDMENT
NO. 3 TO THE REGISTRATION STATEMENT (FILE NO. 33-34485) FILED ON MARCH 28,
1991 ON FORM S-1 UNDER THE SECURITIES ACT OF 1933.
The following exhibits are filed herewith.
13.01 1998 Report of Independent Accountants
27.01 Financial Data Schedule
11
<PAGE>
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Partnership during the quarter ended
December 31, 1998.
12
<PAGE>
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, in the City of
Greenwich and State of Connecticut on the 26th day of March, 1999.
THE MILLBURN CURRENCY FUND, II, L.P.
By: Millburn Ridgefield Corporation,
General Partner
By /s/ Harvey Beker
-------------------------------
Harvey Beker
President
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
General Partner of the Registrant in the capacities and on the date indicated.
Title with
Signature General Partner Date
- --------- --------------- ----
By /s/ Harvey Beker President, Co-Chief March 26, 1999
--------------------- Executive Officer and Director
Harvey Beker (Principal Financial and
President Accounting Officer)
By /s/ George E. Crapple Co-Chief March 26, 1999
--------------------- Executive Officer and Director
George E. Crapple (Principal Executive Officer)
(Being the principal executive officer, the principal financial and
accounting officer, and a majority of the directors of Millburn Ridgefield
Corporation)
Millburn Ridgefield Corporation March 26, 1999
General Partner of Registrant
By /s/ Harvey Beker
-------------------------------
Harvey Beker
President
13
<PAGE>
THE MILLBURN CURRENCY FUND II, L.P.
AFFIRMATION OF MILLBURN RIDGEFIELD CORPORATION
In compliance with the Commodity Futures Trading Commission's regulations, I
hereby affirm that to the best of my knowledge and belief, the information
contained in the statements of financial condition of The Millburn Currency
Fund II, L.P., as of December 31, 1998 and 1997 and the related statements of
operations and changes in partners' capital for the years ended December 31,
1998, 1997 and 1996 are complete and accurate.
/s/ George E. Crapple
- ---------------------
GEORGE E. CRAPPLE, VICE CHAIRMAN
MILLBURN RIDGEFIELD CORPORATION
GENERAL PARTNER OF THE MILLBURN CURRENCY FUND II, L.P.
F-1
<PAGE>
PRICEWATERHOUSE COOPERS [LOGO]
PricewaterhouseCoopers LLP
1301 Avenue of the Americas
New York, NY 10019-6013
Telephone (212)259 1000
Facsimile (212)259 1301
REPORT OF INDEPENDENT ACCOUNTANTS
February 4, 1999
To the Partners of
The Millburn Currency Fund II, L.P.:
In our opinion, the accompanying statements of financial condition at
December 31, 1998 and 1997, and the related statements of operations and
changes in partners' capital for the years ended December 31, 1998, 1997
and 1996 present fairly, in all material respects, the financial position
of The Millburn Currency Fund II, L.P. at December 31, 1998 and 1997, and the
results of its operations for the years ended December 31, 1998, 1997 and
1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the management of the General
Partner; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
F-2
<PAGE>
<TABLE>
<CAPTION>
THE MILLBURN CURRENCY FUND II, L.P.
STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 1998 AND 1997
ASSETS: 1998 1997
------------ -----------
<S> <C> <C>
Equity in trading accounts:
Cash $ - $ 60,578
Investments in U.S. Treasury bills - at value (amortized cost
$1,757,480 at December 31, 1997) (Note 2) - 585,841
Options owned, at market value (cost $5,638 at
December 31, 1997) - 8,000
Net unrealized appreciation (depreciation) on open contracts (529) 19,299
------------ -----------
(529) 673,718
Investment in U.S. Treasury bills - at value (amortized cost
$1,171,466 at December 31, 1997) - 1,171,639
Investment in Millburn Currency Fund, L.P. (Note 9) 1,867,851 -
Money market fund 3,749 418,481
Prepaid administrative fees 418 -
------------ -----------
Total assets $ 1,871,489 $ 2,263,838
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL:
Accounts payable and accrued expenses $ - $ 11,983
Redemptions payable to limited partners (Note 7) 48,378 58,531
Accrued brokerage commissions (Note 3) 9,490 11,939
------------ ------------
Total liabilities 57,868 82,453
------------ ------------
Partners' capital (Note 3, 7 and 8):
General Partner 447,892 458,401
Limited Partners, 12,421 and 14,130 Limited Partnership Units
outstanding in 1998 and 1997, respectively 1,365,729 1,722,984
------------ ------------
Total partners' capital 1,813,621 2,181,385
------------ ------------
Total liabilities and partners' capital $ 1,871,489 $ 2,263,838
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
THE MILLBURN CURRENCY FUND II, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income (Note 1):
Net gains (losses) on trading of currency
contracts and options:
Realized gains (losses) on closed positions
Futures and forwards $ (99,265) $ 603,549 $ 295,667
Options (20,639) 35,372 (14,326)
------------ ------------ ------------
(119,804) 638,921 281,341
------------ ------------ ------------
Change in unrealized appreciation (depreciation)
Future and forwards (19,828) (102,035) 282,702
Options (2,362) (24,042) 46,967
------------ ------------ ------------
(22,190) (126,077) 329,669
Net unrealized appreciation on investment in
Millburn Currency Fund. L.P. (Note 9) 46,775 - -
------------ ------------ ------------
(95,219) 512,844 611,010
Less, Brokerage fees (Note 3) 125,801 162,296 498,741
------------ ------------ ------------
Net realized and unrealized gains (losses)
on trading of futures, forward and
option contracts (221,020) 350,548 112,269
Net realized gains on sale of U.S. Treasury
Stripped Notes - - 20,090
Change in unrealized appreciation (depreciation)
on U.S. Treasury Stripped Notes - - (134,525)
Accrued Interest Income on U.S. Treasury
Stripped Notes - - 246,964
Other interest income 66,427 130,936 119,825
------------ ------------ ------------
Total income (loss) (154,593) 481,484 364,623
Administrative expenses 31,502 24,572 53,676
Expenses reimbursed by General Partner (15,500) - -
------------ ------------ ------------
Net expenses (16,002) 24,572 53,676
------------ ------------ ------------
Net income (loss) $ (170,595) $ 456,912 $ 310,947
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) per Limited
Partnership Unit (Note 8) $ (11.99) $ 19.17 $ 7.47
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
THE MILLBURN CURRENCY FUND II, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNER TOTAL
---------- --------- ----------
<S> <C> <C> <C>
Partners' capital at December 31, 1995 $5,759,049 $ 299,939 $6,058,988
Net income 254,348 56,599 310,947
Redemptions (42,075 Limited Partnership Units) (4,126,782) -- (4,126,782)
---------- --------- ----------
Partners' capital at December 31, 1996 1,886,615 356,538 2,243,153
Net income 355,049 101,863 456,912
Redemptions (4,228 Limited Partnership Units) (518,680) -- (518,680)
---------- --------- ----------
Partners' capital at December 31, 1997 1,722,984 458,401 2,181,385
---------- --------- ----------
Net loss (160,086) (10,509) (170,595)
Redemptions (1,709 Limited Partnership Units) (197,169) -- (197,169)
---------- --------- ----------
Partners' capital at December 31, 1998 $1,365,729 $ 447,892 $1,813,621
---------- --------- ----------
---------- --------- ----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
THE MILLBURN CURRENCY FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
1. PARTNERSHIP ORGANIZATION:
The Millburn Currency Fund II, L.P. (the "Partnership") is a limited
partnership, which was organized on March 21, 1991 under the Delaware
Revised Uniform Limited Partnership Act and which commenced trading
operations on August 5, 1991.
The Partnership is the sole limited partner of a separate limited
partnership Millburn Currency Fund II Trading Company L.P. ("Trading
Company") which engages in speculative trading principally of currency
forward and futures contracts and related options. The instruments that
are traded by the Partnership are volatile and involve a high degree of
risk.
Millburn Ridgefield Corporation (the "General Partner") is the General
Partner and trading advisor of the Partnership and the Trading Company.
The General Partner and each limited partner share in the profits and
losses of the Partnership, except for brokerage fees and profit-share
allocation, on the basis of their proportionate interests of Partnership
capital determined before brokerage fees and profit share (see Note 3),
except that no limited partner shall be liable for obligations of the
Partnership in excess of their initial capital contribution and profits,
if any, net of distributions. Brokerage fees and profit share are
determined on the basis of the Allocated Assets and Net Trading Profit
applicable to the limited partners' accounts and are allocated to such
accounts.
The Partnership will be liquidated as soon as practicable after August 1,
2011, or if the net assets of the Partnership decline to less than
$250,000 or under other circumstances as defined in the Limited
Partnership Agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. INVESTMENTS:
Open options, futures and forward contracts are valued at market value.
Realized gain (loss) and changes in unrealized values on futures,
forward and option contracts are recognized in the periods in which
the contracts are closed or the changes occur, and are included in net
gains (losses) on trading of futures, forward and option contracts.
Investments in U.S. Treasury Bills are valued at cost plus amortized
discount which closely approximates fair value. Amortization of
discount is reflected as interest income.
The original issue discounts on the U.S. Treasury Stripped Notes were
amortized over their lives using the interest method.
The investment in Millburn Currency Fund, L.P. is valued based on the
initial investment, plus its proportionate share of net income, less
any redemptions (see Note 9).
F-6
<PAGE>
THE MILLBURN CURRENCY FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
b. FOREIGN CURRENCY TRANSLATION:
Assets and liabilities denominated in foreign currencies are
translated at quoted prices of such currencies.
c. INCOME TAXES:
Income taxes have not been provided, as each partner is individually
liable for the taxes, if any, on his share of the Partnership's income
and expenses.
d. ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amount of revenues and
expenses during the period. Actual results could differ from those
estimates.
e. RIGHT OF OFFSET:
The customer agreements between the Partnership and brokers give the
Partnership the legal right to net unrealized gains and losses.
Unrealized gains and losses related to transactions with these brokers
are reflected on a net basis in the equity in trading accounts in the
statements of financial condition.
3. LIMITED PARTNERSHIP AGREEMENT:
The Limited Partnership Agreement provides that the General Partner shall
control, conduct and manage the business of the Partnership, and may make
all trading decisions for the Partnership.
A monthly brokerage fee equal to 0.666% (an 8% annual fee) of the
Partnership's month end Allocated Assets (as defined in the limited
partnership agreement) is payable to the General Partner. Prior to
November 15, 1996 a monthly fee of 0.833% was charged (a 10% annual
rate). Allocated Assets are determined before reduction for any redemptions,
distributions, accrued brokerage fees, or profit share. The General
Partner pays any commissions and fees due clearing and third-party brokers.
F-7
<PAGE>
THE MILLBURN CURRENCY FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. LIMITED PARTNERSHIP AGREEMENT (CONTINUED):
The General Partner also receives a profit share equal to 15% of New
Trading Profit, as defined, as of the end of each calendar quarter.
The Partnership pays all routine legal, accounting, administrative,
printing and similar costs associated with its operation, excluding any
indirect expenses of the General Partner. The General Partner has
voluntarily agreed to limit administrative expenses to an amount equal to
1% per annum of the average net assets of the Partnership for the year
ended December 31, 1998.
4. TRADING ACTIVITIES:
All of the derivatives owned by the Partnership, including options,
futures and forwards, are held for trading purposes. The results of the
Partnership's trading activity are shown in the statements of operations.
The fair value of the derivative financial instruments at December 31, 1998
and 1997, respectively was ($529) and $27,299, and the average fair value
during the years then ended, calculated on a monthly basis, was ($6,357)
and $80,513, respectively.
The Partnership conducts its trading activities with various brokers
acting either as a broker or counterparty to various transactions. At
December 31, 1997, the cash and treasury bills included in the
Partnership's equity by U.S. Commodity Futures Trading Commission
regulations, or in security or custody accounts as required pursuant to
agreements with counterparties.
5. DERIVATIVE FINANCIAL INSTRUMENTS:
The Partnership is party to derivative financial instruments in the
normal course of its business. These instruments include forwards, futures
and options, whose value is based upon an underlying asset, index, or
reference rate, and generally represent future commitments to exchange
currencies or cash flows, or to purchase or sell other financial
instruments at specific terms on specified future dates. These instruments
may be traded on an exchange or over-the-counter. Exchange traded
instruments are standardized and include futures and certain options. Each
of these instruments is subject to various risks similar to those related
to the underlying instruments including market and credit risk.
Market risk is the risk of potential changes in the value of the
financial instruments traded by the Partnership due to market changes,
including interest and foreign exchange rate movements and fluctuations in
commodity or security prices. Market risk is directly impacted by the
volatility and liquidity in the markets in which the related underlying
assets are traded.
F-8
<PAGE>
THE MILLBURN CURRENCY FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED):
Credit risk is the possibility that a loss may occur due to the failure
of a counterparty to perform according to the terms of a contract.
Credit risk is normally reduced to the extent that an exchange or
clearing organization acts as a counterparty to futures or options
transactions, since typically the collective credit of the members of
the exchange is pledged to support the financial integrity of the
exchange. In the case of over-the-counter transactions, the Partnership
must rely solely on the credit of the individual counterparties. The
Partnership's risk of loss in the event of counterparty default is
typically limited to the amounts recognized in the statement of financial
condition, not to the contract or notional amounts of the instruments.
6. OPEN DERIVATIVE INSTRUMENTS (CONTRACTS) AT DECEMBER 31, 1998 AND 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- -------------------------
NOTIONAL OR CONTRACTUAL NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS AMOUNT OF COMMITMENTS
-------------------------- -------------------------
TO PURCHASE TO SELL TO PURCHASE TO SELL
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Currencies* $129,000 $129,000 $976,000 $3,904,000
----------- ---------- ----------- ----------
</TABLE>
* Currencies include offsetting commitments to purchase and sell the same
currency on the same date in the future. These commitments are
economically offsetting but are not, as a technical matter, offset in
the forward market until the settlement date.
The notional or contractual amounts of these derivative instruments,
while not recorded in the financial statements, reflect the extent of
the Partnership's involvement in these instruments.
<TABLE>
<CAPTION>
NOTIONAL OR CONTRACTUAL UNREALIZED (DEPRECIATION)
AMOUNT OF COMMITMENTS APPRECIATION
------------------------- -------------------------
TO PURCHASE TO SELL GROSS NET
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998:
Exchange traded $ 129,000 $ 129,000 $ 3,990 $ (529)
----------- ----------- ----------- -----------
DECEMBER 31, 1997:
Exchange traded $ 968,000 $ 3,904,000 $ 2,362 $ 2,362
Non-exchange traded 8,000 -- 36,356 19,299
----------- ----------- ----------- -----------
$ 976,000 $ 3,904,000 $ 38,718 $ 21,661
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-9
<PAGE>
THE MILLBURN CURRENCY FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. DISTRIBUTIONS AND REDEMPTIONS:
Distributions of profits, if any, will be made at the sole discretion of
the General Partner. Units may be redeemed, at the option of any limited
partner, as of the last day of any calendar quarter on ten business days'
notice to the General Partner. Units are redeemed at Net Asset Value as
defined in the partnership agreement. No redemption fee is charged. No
distributions of profits have been made since the commencement of the
Partnership's operations.
Effective January 1, 1999, approximately $48,000 in redemptions were made
by unitholders.
8. NET ASSET VALUE PER UNIT:
Changes in the net asset value per Unit during the years ended
December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Net realized and unrealized gains (losses) on
trading of futures, forward and option contracts $ (18.82) $ 14.71 $ 2.70
Income from Millburn Currency Fund, L.P. 3.29 -- --
Net realized loss and unrealized
depreciation on U.S. Treasury Stripped Notes -- -- (2.75)
Interest income 4.67 5.49 8.81
Administrative expense (1.13) (1.03) (1.29)
-------- -------- -------
Net income (loss) per Unit (11.99) 19.17 7.47
Net asset value per Unit, beginning of year 121.94 102.77 95.30
-------- -------- -------
Net asset value per Unit, end of year $ 109.95 $121.94 $102.77
-------- -------- -------
-------- -------- -------
</TABLE>
9. INVESTMENT IN MILLBURN CURRENCY FUND, L.P.:
On August 1, 1998, the General Partner transferred $1,880,000 in assets
to Millburn Currency Fund, L.P., ("MCF"), a partnership managed by the
same General Partner, which uses identical trading strategies. The
Partnership was given a special limited partnership interest in MCF (not
subject to brokerage fee or profit share) and will receive its
proportionate share of trading income or loss based on its month end
investment as a percentage of MCF's total month end net asset value. At
December 31, 1998, the Partnership investment in MCF is $1,867,851,
representing a 5.38% in MCF's capital and profits.
F-10
<PAGE>
THE MILLBURN CURRENCY FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. INVESTMENT IN MILLBURN CURRENCY FUND, L.P. CONTINUED:
As of December 31, 1998, the Partnership's investment in Millburn
Currency Fund, L.P. is summarized as follows:
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Initial Investment $ 1,880,000
Income:
Realized gains 24,493
Change in unrealized depreciation (17,242)
------------
7,251
Interest and dividend Income 43,629
------------
Total income 50,880
------------
Less: Administrative expenses 4,105
------------
Net income 46,775
Less: Redemption 58,924
------------
Net asset value, as of December 31, 1998 $ 1,867,851
------------
------------
</TABLE>
F-11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Millburn
Currency Fund II Statements of Financial condition as of December 31, 1998 and
1997 and Statements of Operations for the years ended December 31, 1998, 1997
and 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 3,749
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,871,489
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,871,489
<CURRENT-LIABILITIES> 57,868
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,813,621
<TOTAL-LIABILITY-AND-EQUITY> 1,871,489
<SALES> 0
<TOTAL-REVENUES> (28,792)
<CGS> 0
<TOTAL-COSTS> 125,801
<OTHER-EXPENSES> 16,002
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (170,595)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (170,595)
<EPS-PRIMARY> (11.99)
<EPS-DILUTED> (11.99)
</TABLE>
