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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, 1999
or
/ / Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 0-26932
THE MILLBURN WORLD RESOURCE TRUST
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-6415-583
- ------------------------------- ---------------------------
(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:
UNITS OF BENEFICIAL INTEREST
-----------------------------
(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 statements
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 29, 2000: $48,270,400
Documents Incorporated by Reference
None
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TABLE OF CONTENTS
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PART I
Item 1. Business................................................................................ 1
Item 2. Properties.............................................................................. 2
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............................. 7
Item 8. Financial Statements and Supplementary Data............................................. 12
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................................................... 12
PART III
Item 10. Directors and Executive Officers of the Registrant...................................... 12
Item 11. Executive Compensation.................................................................. 14
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 14
Item 13. Certain Relationships and Related Transactions.......................................... 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K............................................................................. 15
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PART I
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.
Units continue to be offered on a monthly basis at Net Asset Value per unit. The
offering is registered under the Securities Act of 1933, as amended. PaineWebber
Incorporated acts as principal selling agent on a best efforts basis. A total of
$96,161,427 of Units have been sold to the public as of December 31, 1999.
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 and
subsequently has contributed an additional $417,000 as of December 31, 1999.
After reflecting a net loss of $24,973 and profit share of $0, this investment
totaled (after deductions for redemptions) $848,658, as of December 31, 1999.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Partnership's business constitutes only one segment, i.e., a
speculative commodity pool. The Partnership does not engage in sales of goods
and services.
(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 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. 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. 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 Securities Incorporated and PaineWebber Incorporated (the
"Brokers") act as the primary futures brokers for the Trust. The Trust executes
currency forward trades with Prudential Securities Incorporated. 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's organizational and initial offering costs, $600,000, were
advanced by the Managing Owner, for which it was reimbursed by the Trust in 24
equal monthly installments. The reimbursement of these costs was completed in
the year ended December 31, 1997. The Trust will pay any extraordinary expenses
which it may incur.
The Trust is open-ended and offers Units on a continuing basis at net
asset value as of the first day of each month. 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
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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 assets not deposited as margin are maintained, unless
applicable foreign regulations require otherwise, only in instruments authorized
by the CFTC for the investment of "customer segregated funds."
REGULATION
Under the Commodity Exchange Act, as amended (the "CEA"), commodity
exchanges and futures trading are subject to regulation by the Commodity Futures
Trading Commission (the "CFTC"). National Futures Association ("NFA"), a
"registered futures association" under the CEA, is the only non-exchange
self-regulatory 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 and the Managing Owner, 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.
As members of NFA, the Managing Owner and the Brokers 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. 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 FOREIGN AND
DOMESTIC OPERATIONS AND EXPORT SALES
The Trust 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.
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.
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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. 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 business 10 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, 1999, there were 2200 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) RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM
REGISTERED SECURITIES.
Registrant has made no sales of unregistered securities within the past
three years.
REG. S-K ITEM 701(f)
(1) The use of proceeds information is being disclosed for Registration
Statement No. 33-90756 declared effective on July 12, 1995 and Registration
Statement No. 333-50209, filed pursuant to Rule 429 under the Securities Act of
1933, declared effective May 18, 1998.
(4)(iv) For the account of the issuer, the amount of Units sold as of
December 31, 1999 is $96,161,427; and the aggregate offering price of the amount
sold as of December 31, 1999 is $96,161,427.
(vi) The net offering proceeds to the issuer totaled $96,161,427.
(vii) From the effective date of the Registration Statements to
December 31, 1999, the amount of net offering proceeds to the issuer
for commodity futures and forward trading totaled $96,161,427.
Item 6. SELECTED FINANCIAL DATA
The following is a summary of operations for the fiscal years 1999,
1998, 1997 and 1996 and for the period from September 13, 1995 to December 31,
1995, and total assets of the Trust at December 31, 1999, 1998, 1997, 1996 and
1995. The Partnership commenced trading operations on September 13, 1995.
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For the period
For the Year Ended For the Year Ended For the Year Ended For the Year Ended September 13, 1995
December 31, 1999 December 31, 1998 December 31, 1997 December 31, 1996 to December 31, 1995
------------------ ------------------ ------------------ ------------------ --------------------
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Revenue:
Net realized and unrealized
trading gain (loss), net of
brokerage commissions of
$5,496,697, $6,528,321,
$6,057,327, $3,998,675 and
$548,790 in 1999, 1998, 1997,
1996 and 1995, respectively $ (8,946,891) $ 578,319 $ (945,912) $ 5,143,118 $ 2,733.790
Interest income 3,026,673 3,810,780 3,467,544 2,115,972 303,229
============ ============ ============ ============ ============
(5,920,218) 4,389,099 2,521,632 7,259,090 3,037,019
Foreign exchange gain (loss) (33,211) (198,930) 62,685 (72,910) (9,539)
============ ============ ============ ============ ============
Total income $ (5,953,429) $ 4,190,169 $ 2,584,317 $ 7,186,180 3,027,480
============ ============ ============ ============ ============
Expenses:
Administrative expenses 389,267 581,101 345,473 519,753 59,492
============ ============ ============ ============ ============
Total expenses 389,267 581,101 $ 1,041,140 $ 1,348,834 520,332
============ ============ ============ ============
Net Income (loss) $ (6,342,696) $ 3,609,068 $ 2,238,844 $ 6,666,427 $ 2,967,988
============ ============ ============ ============
Less Profit Share
to General Partner -- -- $ 695,667 $ 829,081 $ 460,840
Net income (loss) for
pro rata allocation to partners -- $ 3,609,068 $ 1,543,117 $ 5,837,346 $ 2,507,148
Total assets $ 53,150,824 $ 76,437,649 $ 74,862,554 $ 58,342,769 27,177,664
============ ============ ============ ============ ============
Total limited partners' capital $ 49,635,958 $ 72,947,006 $ 72,794,694 $ 54,723,006 25,201,890
============ ============ ============ ============ ============
Net asset value per Unit $ 1,109.88 $ 1,234.38 $ 1,182.43 $ 1,150.14 1,050.69
============ ============ ============ ============ ============
Redemption value per Unit $ 1,109.88 $ 1,234.38 $ 1,182.43 $ 1,154.81 1,072.34
============ ============ ============ ============ ============
Increase in net asset value per Unit $ (124.50) $ 51.95 $ 32.29 $ 99.45 $ 50.69
============ ============ ============ ============ ============
Increase in redemption value per Unit $ (124.50) $ 51.95 $ 27.62 $ 82.47 $ 72.34
============ ============ ============ ============ ============
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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 are offered for sale as of the beginning, and may be redeemed as
of the end, of each month.
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. The risks
associated with exchange-traded contracts are generally perceived to be less
than those associated with over-the-counter transactions, because exchanges
typically (but not universally) provide clearinghouse arrangements in which the
collective credit (in some cases limited in amount, in some cases not) of the
members of the exchange is pledged to support the financial integrity of the
exchange. In over-the-counter transactions, on the other hand, traders must rely
solely on the credit of their respective individual counterparties. Margins,
which may be subject to loss in the event of a default, are generally required
in exchange trading, and counterparties may require margin in the
over-the-counter markets.
The 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) limiting trading to markets which the
Managing Owner believes are sufficiently liquid in respect of the amount of
trading contemplated; (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.
Due to the nature of the Trust's business, substantially all its assets
are represented by cash, United States government obligations and short-term
foreign sovereign debt 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 held with the same counterparty; net
positions are then settled by entering into offsetting positions and by cash
payments.
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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 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, 1999, the Trust experienced no meaningful periods of illiquidity in
any of the numerous markets traded by the Managing Owner.
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.
1999
During 1999, the Trust suffered trading losses of $3,450,194. Brokerage
fees of $5,496,697 were paid or accrued. The Trust paid no Profit Shares.
Interest income of $3,026,673 partially offset the Trust's losses and expenses
resulting in a net loss (inclusive of administrative expenses) of $6,342,696 and
a 10.1% decrease in the Net Asset Value per Unit.
1999 was a difficult year for managed futures traders and the Trust
posted a sizable loss. The one bright spot was the energy sector where a broad
uptrend provided significant profit opportunities in crude oil and oil products.
Sill, extreme volatility in natural gas prices resulted in losses that reduced
the positive impact from this sector. Similarly, in currency trading, solid
profits from short Euro positions vis-a-vis the dollar, yen, and Eastern
European currencies were largely offset by losses from trading yen, Swiss franc
and Norwegian krone. Mixed results also occurred in stock indices where gains
from trading the Hang Seng, Topix and S&P indices were largely offset by losses
in Nikkei index positions. Interest rates too produced mixed results, with
losses from Japanese and U.S. interest rate futures overwhelming gains from
European futures trading. Metals trading showed a similar pattern. Profits from
gold and aluminum trading were greatly offset by losses from zinc and copper.
Meanwhile, trading of grains (corn, soybeans, wheat) was modestly unprofitable.
Finally, with extreme price volatility affecting coffee and sugar trading
throughout 1999, the softs sector was highly unprofitable for the year.
1998
During 1998, the Trust achieved gross trading gains of $7,106,640.
Brokerage fees of 6,528,321 were paid or accrued. The Trust paid no Profit
Shares. Interest income of $3,810,780 resulted in net income (after deduction
for administrative expenses) of $3,609,068 and a 4.4% increase in the Net Asset
Value per Unit.
During 1998, the trust was profitable. Against a low inflation
background, trading in interest rate futures was highly profitable, particularly
during the third quarter when "flight to quality" produced sizable gains on long
positions in U.S., European and Japanese interest rate futures. Short positions
in Japanese government bond futures near year-end were also very profitable when
the bond yield rebounded from an historically low level. Energy trading was also
very profitable as short positions in crude oil, heating oil, London gas oil and
unleaded gas benefited from the declining energy prices that reflected
continuing slack demands worldwide combined with lack of production restraint
from both OPEC and non-OPEC producers. Grain trading was fractionally
profitable.
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Currency trading, while registering mixed results in various sectors, was
slightly unprofitable overall. 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 were offset by losses in cross rate trading. Stock index trading lost
money as gains in Hong Kong and U.S. index positioning fell short of losses in
trading Japanese and Australian indices. Volatile, non-trending price action in
copper futures resulted in losses in metal trading. In the softs sector,
volatile swings in coffee and cocoa prices generated losses that overwhelmed the
significant gains that were made in short sugar positions.
1997
During 1997, the Trust achieved gross trading gains of $5,111,415.
Brokerage fees of $6,057,327 and Profit Shares of $695,667 were paid or accrued.
Interest income of $3,467,544 resulted in net income (after deduction for
administrative expenses, but without reduction for organizational and initial
offering cost reimbursement payments) of $1,543,177 and a 2.8% increase in the
Net Asset Value per Unit.
During 1997, the Trust was profitable. For the year, financial markets'
trading (interest rates, currencies, and stock indices) was profitable. However,
substantial losses resulted from trading the non-financial sectors, especially
metals. The majority of currency trading profits occurred in dollar trading
versus the Japanese yen and European community currency bloc. In the interest
rate sector, trading of the Japanese government bond future was profitable, and
gains were also produced in trading futures for the Euro-yen, U.S. treasury
note, Spanish government bond, Italian bond, and Australian bond. Trading of the
German bond and Pibor futures produced notable losses. Stock index futures
trading was profitable for Japan's Topix and Nikkei, Korea's Hang Seng, and
Australia's All Ordinaries. In the non-financial component of the Trust's
portfolio, metal futures trading was negative, particularly due to losses from
London aluminum and nickel. Trading in softs also was generally negative as
sizable losses were produced in sugar, orange juice and cocoa. However, gains
from coffee positions countered these losses to large extent. In the energy
sector, gains in natural gas served to counterbalance losses in crude oil,
heating oil, unleaded gas, and London gas oil. Trading of grain futures was
slightly negative for the year.
Inflation may be a significant factor in the Trust's profitability in
light of the Trust's trading in energy, agricultural and metals markets.
However, inflationary cycles can give rise to types of price movements which can
either have a favorable or an adverse impact on the Trust's profitability.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTRODUCTION
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE
The Trust is a speculative commodity pool. Unlike an operating company,
the risk of market sensitive instruments is integral, not incidental, to the
Trust's main line of business.
Market movements result in frequent changes in the fair market value of
the Trust's open positions and, consequently, in its earnings and cash flow. The
Trust's market risk is influenced by a wide variety of factors, including the
level and volatility of interest rates, exchange rates, equity price levels, the
market value of financial instruments and contracts, the diversification effects
among the Trust's open positions and the liquidity of the markets in which it
trades.
The Trust can rapidly acquire and/or liquidate both long and short
positions in a wide range of different markets. Consequently, it is not possible
to predict how a particular future market scenario will affect performance, and
the Trust's past performance is not necessarily indicative of its future
results.
Value at Risk is a measure of the maximum amount which the Trust could
reasonably be expected to lose in a given market sector. However, the inherent
uncertainty of the Trust's speculative trading and the recurrence in the markets
traded by the Trust of market movements far exceeding expectations could result
in actual trading or non-trading losses far beyond the indicated Value at Risk
or the Trust's experience to date (I.E., "risk of ruin"). In
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light of the foregoing as well as the risks and uncertainties intrinsic to all
future projections, the inclusion of the quantification included in this section
should not be considered to constitute any assurance or representation that the
Trust's losses in any market sector will be limited to Value at Risk or by the
Trust's attempts to manage its market risk.
QUANTIFYING THE TRUST'S TRADING VALUE AT RISK
QUANTITATIVE FORWARD-LOOKING STATEMENTS
THE FOLLOWING QUANTITATIVE DISCLOSURES REGARDING THE TRUST'S MARKET
RISK EXPOSURES CONTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
SAFE HARBOR FROM CIVIL LIABILITY PROVIDED FOR SUCH STATEMENTS BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 (SET FORTH IN SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934). ALL
QUANTITATIVE DISCLOSURES IN THIS SECTION ARE DEEMED TO BE FORWARD-LOOKING
STATEMENTS FOR PURPOSES OF THE SAFE HARBOR, EXCEPT FOR STATEMENTS OF HISTORICAL
FACT.
The Trust's risk exposure in the various market sectors traded by the
Managing Owner is quantified below in terms of Value at Risk. Due to the Trust's
mark-to-market accounting, any loss in the fair value of the Trust's open
positions is directly reflected in the Trust's earnings (realized or unrealized)
and cash flow (at least in the case of exchange-traded contracts in which
profits and losses on open positions are settled daily through variation
margin).
Exchange maintenance margin requirements have been used by the Trust as
the measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed 95-99% of the maximum one-day losses in the fair
value of any given contract incurred during the time period over which
historical price fluctuations are researched for purposes of establishing margin
levels. The maintenance margin levels are established by dealers and exchanges
using historical price studies as well as an assessment of current market
volatility (including the implied volatility of the options on a given futures
contract) and economic fundamentals to provide a probabilistic estimate of the
maximum expected near-term one-day price fluctuation.
In the case of market sensitive instruments which are not exchange
traded (almost exclusively currencies in the case of the Trust), dealers'
margins have been used as Value at Risk.
The fair value of the Trust's futures and forward positions does not
have any optionality component. However, the Managing Owner may also trade
commodity options on behalf of the Trust. The Value at Risk associated with
options is reflected in the following table as the margin requirement
attributable to the instrument underlying each option.
In quantifying the Trust's Value at Risk, 100% positive correlation in
the different positions held in each market risk category has been assumed.
Consequently, the margin requirements applicable to the open contracts have
simply been aggregated to determine each trading category's aggregate Value at
Risk. The diversification effects resulting from the fact that the Trust's
positions are rarely, if ever, 100% positively correlated have not been
reflected.
THE TRUST'S TRADING VALUE AT RISK IN DIFFERENT MARKET SECTORS
The following table indicates the average, highest and lowest
amounts of trading Value at Risk associated with the Trust's open positions
by market category for fiscal year 1999 and the actual trading Value at Risk
as of December 31, 1998. During fiscal year 1999, the Trust's average total
capitalization was approximately $60,888,816 .As of December 31, 1998, the
Trust's total capitalization was approximately $73.8 million.
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FISCAL YEAR 1999
Average Value % of Average Highest Value At Lowest Value At
Market Sector At Risk Capitalization Risk Risk
-------------- ----------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Interest Rates $ 1.7 2.8% $ 2.4 $ 1.4
Currencies $ 5.8 9.5% $ 6.9 $ 4.5
Stock Indices $ 1.7 2.8% $ 2.2 $ 1.1
Metals $ 1.2 2.1% $ 1.7 $ 0.6
Commodities $ 0.9 1.5% $ 1.3 $ 0.7
Energy $ 1.8 2.8% $ 3.5 $ 0.8
Total $13.2 21.6%
</TABLE>
Average, highest and lowest Value at Risk amounts relate to the
quarter-end amounts for each calendar quarter-end during the fiscal year.
Average Capitalization is the average of the Trust's capitalization at the end
of each calendar quarter of fiscal year 1999. Dollar amounts represent millions
of dollars.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
% of Total
Market Sector Value At Risk Capitalization
------------- ------------- --------------
<S> <C> <C>
Interest Rates $ 2.9 million 3.9%
Currencies $ 4.4 million 5.9%
Stock Indices $ 2.3 million 3.1%
Metals $ 1.9 million 2.6%
Commodities $ 1.7 million 2.3%
Energies $ 1.9 MILLION 2.6%
--------------
Total $15.1 million 20.4 %
============= ======
</TABLE>
MATERIAL LIMITATIONS ON VALUE AT RISK
AS AN ASSESSMENT OF MARKET RISK
The face value of the market sector instruments held by the Trust is
typically many times the applicable maintenance margin requirement (maintenance
margin requirements generally ranging between approximately 1% and 10% of
contract face value) as well as many times the capitalization of the Trust. The
magnitude of the Trust's open positions creates a "risk of ruin" not typically
found in most other investment vehicles. Because of the size of its positions,
certain market conditions -- unusual, but historically recurring from time to
time -- could cause the Trust to incur severe losses over a short period of
time. The foregoing Value at Risk table -- as well as the past performance of
the Trust -- give no indication of this "risk of ruin."
NON-TRADING RISK
The Trust has non-trading market risk on its foreign cash balances not
needed for margin. However, these balances (as well as any market risk they
represent) are immaterial.
The Trust also has non-trading cash flow risk as a result of holding a
substantial portion (approximately 88%) of its assets in U.S. Treasury bills and
other short-term debt instruments (as well as any market risk they represent)
for margin and cash management purposes. Although the Managing Owner does not
anticipate that, even in the case of major interest rate movements, the Trust
would sustain a material mark-to-market loss on its securities
9
<PAGE>
positions, if short-term interest rates decline so will the Trust's cash
management income. The Trust also maintains a portion (approximately 3%) of its
assets in cash in interest-bearing bank accounts. These cash balances are also
subject (as well as any market risk they represent) to cash flow risk, which is
not material.
QUALITATIVE DISCLOSURES REGARDING PRIMARY TRADING RISK EXPOSURES
THE FOLLOWING QUALITATIVE DISCLOSURES REGARDING THE TRUST'S MARKET RISK
EXPOSURES -- EXCEPT FOR (i) THOSE DISCLOSURES THAT ARE STATEMENTS OF HISTORICAL
FACT AND (ii) THE DESCRIPTIONS OF HOW THE MANAGING OWNER MANAGES THE TRUST'S
PRIMARY MARKET RISK EXPOSURES -- CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT. THE TRUST'S PRIMARY MARKET RISK EXPOSURES AS WELL AS
THE STRATEGIES USED AND TO BE USED BY THE MANAGING OWNER FOR MANAGING SUCH
EXPOSURES ARE SUBJECT TO NUMEROUS UNCERTAINTIES, CONTINGENCIES AND RISKS, ANY
ONE OF WHICH COULD CAUSE THE ACTUAL RESULTS OF THE TRUST'S RISK CONTROLS TO
DIFFER MATERIALLY FROM THE OBJECTIVES OF SUCH STRATEGIES. GOVERNMENT
INTERVENTIONS, DEFAULTS AND EXPROPRIATIONS, ILLIQUID MARKETS, THE EMERGENCE OF
DOMINANT FUNDAMENTAL FACTORS, POLITICAL UPHEAVALS, CHANGES IN HISTORICAL PRICE
RELATIONSHIPS, AN INFLUX OF NEW MARKET PARTICIPANTS, INCREASED REGULATION AND
MANY OTHER FACTORS COULD RESULT IN MATERIAL LOSSES AS WELL AS IN MATERIAL
CHANGES TO THE RISK EXPOSURES AND THE RISK MANAGEMENT STRATEGIES OF THE TRUST.
THERE CAN BE NO ASSURANCE THAT THE TRUST'S CURRENT MARKET EXPOSURE AND/OR RISK
MANAGEMENT STRATEGIES WILL NOT CHANGE MATERIALLY OR THAT ANY SUCH STRATEGIES
WILL BE EFFECTIVE IN EITHER THE SHORT- OR LONG-TERM. INVESTORS MUST BE PREPARED
TO LOSE ALL OR SUBSTANTIALLY ALL OF THEIR INVESTMENT IN THE TRUST.
The following were the primary trading risk exposures of the Trust as
of December 31, 1999, by market sector.
INTEREST RATES. Interest rate risk is the principal market exposure of
the Trust. Interest rate movements directly affect the price of the sovereign
bond positions held by the Trust and indirectly the value of its stock index and
currency positions. Interest rate movements in one country as well as relative
interest rate movements between countries materially impact the Trust's
profitability. The Trust's primary interest rate exposure is to interest rate
fluctuations in the United States and the other G-7 countries. However, the
Trust also takes positions in futures contracts on the government debt of
smaller nations -- E.G., Spain. The Managing Owner anticipates that G-7 interest
rates will remain the primary market exposure of the Trust for the foreseeable
future. The changes in interest rates which have the most effect on the Trust
are changes in long-term, as opposed to short-term, rates. Most of the
speculative positions held by the Trust are in medium- to long-term instruments.
Consequently, even a material change in short-term rates would have little
effect on the Trust were the medium- to long-term rates to remain steady.
CURRENCIES. The Trust's currency exposure is to exchange rate
fluctuations, primarily fluctuations which disrupt the historical pricing
relationships between different currencies and currency pairs. These
fluctuations are influenced by interest rate changes as well as political and
general economic conditions. The Trust trades in a large number of currencies,
including cross-rates -- I.E., positions between two currencies other than the
U.S. dollar. However, the Trust's major exposures have typically been in the
dollar/yen, dollar/euro and dollar/swiss positions. The Managing Owner does not
anticipate that the risk profile of the Trust's currency sector will change
significantly in the future.
STOCK INDICES. The Trust's primary equity exposure is to equity price
risk in the G-7 countries. The stock index futures traded by the Trust are by
law limited to futures on broadly based indices. As of December 31, 1999, the
Trust's primary exposures were in the Simex (Singapore), Nikkei (Japan) and Hang
Sang (Hong Kong) stock indices. The Trust is primarily exposed to the risk of
adverse price trends or static markets in the major U.S., European and Asian
indices. (Static markets would not cause major market changes but would make it
difficult for the Trust to avoid numerous small losses.)
METALS. The World Resource program used for the Trust trades precious
and base metals. The Trust's primary metals market exposure is to fluctuations
in the price of gold aluminum, copper and zinc.
COMMODITIES. The Trust's primary commodities exposure is to
agricultural price movements which are often directly affected by severe or
unexpected weather conditions. Grains, coffee, sugar, cotton and cocoa accounted
for the substantial bulk of the Trust's commodities exposure as of December 31,
1999. In the past, the
10
<PAGE>
Trust has had material market exposure to live cattle, orange juice and the
soybean complex and may do so again in the future. However, the Trust will
maintain an emphasis on grains, coffee, sugar, cotton and cocoa, in which the
Trust has historically taken its largest commodity positions.
ENERGY. The Trust's primary energy market exposure is to gas and oil
price movements, often resulting from political developments in the Middle East.
Although the Managing Owner trades natural gas, oil is the dominant energy
market exposure of the Trust. Oil prices are volatile and substantial profits
and losses have been and are expected to continue to be experienced in this
market.
QUALITATIVE DISCLOSURES REGARDING NON-TRADING RISK EXPOSURE
The following were the only non-trading risk exposures of the Trust as
of December 31, 1999.
FOREIGN CURRENCY BALANCES. The Trust's primary foreign currency
balances are in Japanese yen, euro and Hong Kong dollars. The Trust controls
the non-trading risk of these balances by regularly converting these balances
back into dollars (no less frequently than twice a month).
SECURITIES POSITIONS. The Trust's only market exposure in instruments
held other than for trading is in its securities portfolio. The Trust holds only
cash or interest-bearing, credit risk-free, short-term paper -- typically U.S.
Treasury instruments with durations no longer than 1 year. Violent fluctuations
in prevailing interest rates could cause immaterial mark-to-market losses on the
Trust's securities, although substantially all of these short-term instruments
are held to maturity.
QUALITATIVE DISCLOSURES REGARDING MEANS OF MANAGING RISK EXPOSURE
The Managing Owner attempts to control risk through the systematic
application of its trading method, which includes a multi-system approach to
price trend recognition, an analysis of market volatility, the application of
certain money management principles, which may be revised from time to time, and
adjusting leverage or portfolio size. In addition, the Managing Owner limits its
trading to markets which it believes are sufficiently liquid in respect of the
amount of trading it contemplates conducting.
The Managing Owner develops trading systems using various classes of
quantitative models and data such as price, volume and interest rates, and tests
those systems in numerous markets against historical data to simulate trading
results. The Managing Owner then analyses the profitability of the systems
looking at such features as the percentage of profitable trades, the worst
losses experienced, the average giveback of maximum profits on profitable trades
and risk adjusted returns. The performance of all systems in the market are then
ranked, and a number of systems (typically, four to ten) are selected which make
decisions in different ways at different times. This multi-system approach
ensures that the total risk intended to be taken in a market is spread over
several different strategies.
The Managing Owner also attempts to assess market volatility as a means
of monitoring and evaluating risk. In doing so, the Managing Owner uses a
volatility overlay system which measures the risk in a portfolio's position in a
market and signals a decrease in position size when risk increases and an
increase in position size when risk decreases. The Managing Owner's volatility
overlay maintains overall portfolio risk and distribution of risk across markets
within designated ranges.
The Managing Owner's risk management also focuses on money management
principles applicable to a portfolio as a whole rather than to individual
markets. The first principle is reducing overall portfolio volatility through
diversification among markets. The Managing Owner seeks a portfolio in which
returns from trading in different markets are not highly correlated, that is, in
which returns are not all positive or negative at the same time. Additional
money management principles include limiting the assets committed as margin or
collateral, generally within a range of 15% to 35% of an account's net assets;
avoiding the use of unrealized profits in a particular market as margin for
additional positions in the same market; and changing the equity used for
trading an account solely on a controlled periodic basis, not automatically due
to an increase in equity from trading profits.
11
<PAGE>
Another important risk management function is the careful control of
leverage or portfolio size. Leverage levels are determined by simulating the
entire portfolio over the past five or ten years to determine the worst case
experienced by the portfolio in the simulation period. The worst case or
peak-to-trough drawdown is measured from a daily high in portfolio assets to the
subsequent daily low whether that occurs days, weeks or months after the daily
high. If the Managing Owner considers the drawdown too severe, it reduces the
leverage or portfolio size.
The Managing Owner determines asset allocation among markets and
position size on the basis of the money management principals and trading data
research discussed above and the market experience of the Managing Owner's
principals. From time to time the Managing Owner may adjust the size of a
position, long or short, in any given market. Decisions to make such adjustments
require the exercise of judgment and may include consideration of the volatility
of the particular market; the pattern of price movements, both inter-day and
intra-day; open interest; volume of trading; changes in spread relationships
between various forward contracts; and overall portfolio balance and risk
exposure.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements required by this item are included as Exhibit
13.01 to this report.
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
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 Millburn Ridgefield Corporation
as of December 31, 1998 are as follows:
Harvey Beker, age 46. Mr. Beker is President, Co-Chief Executive
Officer and Co-Chairman of Millburn Ridgefield and The Millburn Corporation, and
a partner of ShareInVest 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 55. Mr. Crapple is Co-Chief Executive Officer
and a Co-Chairman of Millburn Ridgefield and a Director of The Millburn
Corporation and a partner of ShareInVest Research L.P. In 1966 he graduated with
honors from the University of Wisconsin where his field of concentration was
economics and he was
12
<PAGE>
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
director and member of the Executive Committee and a former Chairman of the
Eastern Regional Business Conduct Committee of the NFA, Chairman 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 41. 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 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 52. Mr. Fitzsimmons is a Senior Vice-President
of The Managing Owner and The Millburn Corporation and a partner of ShareInVest
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 The Managing Owner 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 42. Mr. Goodman is an Executive Vice-President,
Director of Trading and Co-Director of Research of The Managing Owner and The
Millburn Corporation and a partner of ShareInVest 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 The Managing Owner in 1982
as Assistant Director of Trading.
Dennis B. Newton, age 48. Mr. Newton is a Senior Vice-President of The
Managing Owner. His primary responsibilities are in administration and
marketing. Prior to joining The Managing Owner 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 48. Mr. Smith is an Executive Vice-President and
Co-Director of Research of The Managing Owner and The Millburn Corporation and a
partner of ShareInVest 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 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 Managing Owner in 1975.
13
<PAGE>
(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.
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. 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 $848,658 as
of December 31, 1999, 1.68% of the Partnership's total equity, the equivalent of
764.64 Units.
(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 Trust allocated to the
Managing Owner $5,496,697 in brokerage fees and $0 in profit share for the year
ended December 31, 1999. The Managing Owners' managing owner interest showed an
allocation of loss of $24,973 for the year ended December 31, 1999. The Trust is
prohibited from making any loans.
14
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following are included with the 1999 Report of Independent
Accountants, a copy of which is filed hereto 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, 1999 and 1998 F-3
Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 F-4
Statements of Changes in Trust Capital for the years
ended December 31, 1999, 1998 and 1997 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 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.
<TABLE>
<CAPTION>
DESIGNATION DESCRIPTION
----------- ------------
<S> <C>
13.01 1999 Report of Independent Accountants
27.01 Financial Data Schedule
</TABLE>
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.
<TABLE>
<S> <C>
3.02 Certificate of Trust of the Trust.
10.01 Form of Subscription Agreement and Power of Attorney.
</TABLE>
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.
<TABLE>
<S> <C>
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.
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
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.
<TABLE>
<S> <C>
3.01 Amended and Restated Declaration of Trust and Trust Agreement
</TABLE>
(b) REPORTS ON FORM 8-K
No report on Form 8-K was filed by the Partnership during the quarter
ended December 31, 1999.
16
<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 27th day of March, 2000.
THE MILLBURN WORLD RESOURCE TRUST
By: The Managing Owner Corporation,
Managing Owner
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
Managing Owner of the Registrant in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Title with
Signature General Partner Date
- --------- --------------- ----
<S> <C> <C>
/s/ HARVEY BEKER President, Co-Chief March 27, 2000
- ---------------------------------
Harvey Beker Executive Officer and Director
(Principal Financial and Accounting
Officer)
/s/ GEORGE E. CRAPPLE Co-Chief Executive March 27, 2000
- --------------------------------
George E. Crapple Officer and Director
(Principal Executive Officer)
</TABLE>
(Being the principal executive officer, the principal financial and
accounting officer, and a majority of the directors of Millburn Ridgefield
Corporation)
Millburn Ridgefield Corporation
Managing Owner of Registrant
March 27, 2000
By /s/ HARVEY BEKER
---------------------------
Harvey Beker
President
<PAGE>
Exhibit 13.01
MILLBURN WORLD RESOURCE TRUST. F-1
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 World
Resource Trust, at December 31, 1999 and 1998 and the related statements of
operations and of changes in Trust capital for the years ended December 31,
1999, 1998 and 1997 are complete and accurate.
GEORGE E. CRAPPLE, CO - CHIEF EXECUTIVE OFFICER
MILLBURN RIDGEFIELD CORPORATION
MANAGING OWNER OF THE MILLBURN WORLD RESOURCE TRUST
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Unitholders of
The Millburn World Resource Trust:
In our opinion, the accompanying statements of financial condition and the
related statements of operations and of changes in Trust capital present fairly,
in all material respects, the financial position of The Millburn World Resource
Trust at December 31, 1999 and 1998, and the results of its operations for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Trust's management; 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 auditing
standards generally accepted in the United States, 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.
PricewaterhouseCoopers LLP
February 11, 2000
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST F-3
STATEMENTS OF FINANCIAL CONDITION
AT DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
Equity in trading accounts:
Cash $ 2,885,005 $ 3,646,692
Investments in U.S. Treasury bills - at value (amortized
cost $20,714,304 and $19,502,626 at December 31,
1999 and 1998, respectively) (Note 2) 20,714,304 19,502,626
Unrealized appreciation on open contracts 3,240,145 6,974,974
Unrealized depreciation on open contracts (259,646) (1,457,528)
---------------- ------------------
TOTAL EQUITY IN TRADING ACCOUNTS 26,579,808 28,666,764
Money market fund 2,534,912 2,278,968
Investment in U.S. Treasury bills - at value (amortized cost
$24,036,104 and $45,491,917 at December 31,
1999 and 1998, respectively) (Note 2) 24,036,104 45,491,917
---------------- ------------------
TOTAL ASSETS $ 53,150,824 $ 76,437,649
---------------- ------------------
---------------- ------------------
LIABILITIES AND TRUST CAPITAL
Accounts payable and accrued expenses $ 70,961 $ 62,706
Redemptions payable to unitholders, net (Note 8) 2,261,893 2,066,608
Accrued brokerage fees (Note 4) 333,354 487,698
---------------- ------------------
TOTAL LIABILITIES 2,666,208 2,617,012
---------------- ------------------
Trust capital (Notes 4, 8 and 9):
Managing Owner interest 848,658 873,631
Unitholders, (44,722.052 and 59,096.099 Units of Beneficial
Interest outstanding at December 31, 1999 and 1998,
respectively) 49,635,958 72,947,006
---------------- ------------------
TOTAL TRUST CAPITAL 50,484,616 73,820,637
---------------- ------------------
TOTAL LIABILITIES AND TRUST CAPITAL $ 53,150,824 $ 76,437,649
---------------- ------------------
---------------- ------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST F-4
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Income (Note 2):
Net gains (losses) on trading of futures,
forward and option contracts
Realized gains (losses)
Futures and forwards $ (913,247) $ 5,390,695 $ 4,123,599
Options - 1,114,879 (486,783)
Change in unrealized appreciation
(depreciation):
Futures and forwards (2,536,947) 764,120 1,548,085
Options - (163,054) (73,486)
--------------- ------------------ -------------------
--------------- ------------------ -------------------
(3,450,194) 7,106,640 5,111,415
Less, Brokerage fees (Note 4) 5,496,697 6,528,321 6,057,327
--------------- ------------------ -------------------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON TRADING OF FUTURES,
FORWARD AND OPTION CONTRACTS (8,946,891) 578,319 (945,912)
Interest income 3,026,673 3,810,780 3,467,544
Foreign exchange gain (loss) (33,211) (198,930) 62,685
--------------- ------------------ -------------------
TOTAL INCOME (LOSS) (5,953,429) 4,190,169 2,584,317
--------------- ------------------ -------------------
Expenses (Note 2):
Profit share (Note 4) - - 695,667
Administrative expenses 389,267 581,101 345,473
--------------- ------------------ -------------------
389,267 581,101 1,041,140
--------------- ------------------ -------------------
NET INCOME (LOSS) $(6,342,696) $ 3,609,068 $ 1,543,177
--------------- ------------------ -------------------
--------------- ------------------ -------------------
NET INCOME (LOSS) PER UNIT OF
BENEFICIAL INTEREST (NOTE 9) $ (124.50) $ 51.95 $ 32.29
--------------- ------------------ -------------------
--------------- ------------------ -------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST F-5
STATEMENTS OF CHANGES IN TRUST CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW PROFITS
MEMO MANAGING
UNITHOLDERS ACCOUNT OWNER TOTAL
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
TRUST CAPITAL AT DECEMBER 31, 1996 $54,723,006 $ - $ 1,417,312 $ 56,140,318
Proceeds from sale of 22,517.798 Units of
Beneficial Interest 26,834,427 7,679 115,000 26,957,106
Net income 1,469,088 323 73,766 1,543,177
Redemptions (8,664.831 Units of
Beneficial Interest) (10,231,827) (8,002) (1,525,536) (11,765,365)
Limited Partnership Units (131.370) allocated - - - -
Managing Owner's Profit Share - 695,667 - 695,667
Transfer from New Profits Memo Account to
Managing Owner - (695,667) 695,667 -
--------------- ---------------- ---------------- ----------------
TRUST CAPITAL AT DECEMBER 31, 1997 72,794,694 - 776,209 73,570,903
Proceeds from sale of 9,536.800 Units
of Beneficial Interest 11,163,820 - - 11,163,820
Net income 3,511,646 97,422 3,609,068
Redemptions (12,173.848 Units of Beneficial
Interest) (14,523,154) - - (14,523,154)
Limited Partnership Units (169.279) allocated - - - -
--------------- ---------------- ---------------- ----------------
72,947,006 - 873,631 73,820,637
--------------- ---------------- ---------------- ----------------
TRUST CAPITAL DATED DECEMBER 31, 1998
Proceeds from sale of 3,163.697 Units of
Beneficial Interest 3,655,051 - - 3,655,051
Net loss (6,317,723) - (24,973) (6,342,696)
Redemptions (17,657.948 Units of Beneficial
Interest) (20,648,376) - - (20,648,376)
Limited Partnership Units (120.204) allocated - - - -
--------------- ---------------- ---------------- ----------------
TRUST CAPITAL DATED DECEMBER 31,91999 $49,635,958 $ - $ 848,658 $ 50,484,616
--------------- ---------------- ---------------- ----------------
--------------- ---------------- ---------------- ----------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST F-6
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. PARTNERSHIP ORGANIZATION
The Millburn World Resource Trust (the "Trust") was organized on June
7, 1995 under the Delaware Business Trust Act. The Trust is engaged in
speculative trading in the futures, options and forward markets. The
instruments that are traded by the Trust are volatile and involve a
high degree of risk. The Trust commenced trading operations on
September 13, 1995.
Millburn Ridgefield Corporation (the "Managing Owner") has agreed to
make additional capital contributions, subject to certain possible
exceptions in order to maintain its capital account at not less than 1%
of the total capital accounts of the Trust. The Managing Owner and the
holders of the Units of Beneficial Interest ("Units") issued by the
Trust will share in any profits and losses of the Trust in proportion
to the percentage interest owned by each, before brokerage commissions
and profit share allocations. There are 63,400 Units authorized for
sale.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. INVESTMENTS
Open options, futures and forward contracts are valued at
market value. Realized gains (losses) and changes in
unrealized appreciation (depreciation) 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
the statements of operations in net gains (losses) on trading
of futures, forward and option contracts. Investments in U.S.
government obligations are valued at cost plus amortized
discount which approximates value. Amortization of discount is
reflected as interest income.
b. FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are
translated at quoted prices of such currencies. Purchases and
sales of investments are translated at the exchange rate
prevailing when such transactions occurred.
c. INCOME TAXES
Income taxes have not been provided, as each Unitholder is
individually liable for the taxes, if any, on his share of the
Trust'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 amounts of revenues and expenses during the
period. Actual results could differ from these estimates.
e. RIGHT OF OFFSET
The customer agreements between the Trust and certain brokers
give the Trust 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.
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST F-7
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. ORGANIZATION AND OFFERING COSTS
Organizational and initial offering costs (exclusive of selling
commissions), estimated at $600,000, were advanced by the Managing
Owner and were reimbursed by the Trust in 24 equal monthly
installments, subject to a provision that the monthly installments
received during any fiscal year did not in the aggregate exceed 0.167
of 1% (a 2% annual rate) of the month-end Net Asset Value of the Trust
as of each of the months elapsed during such fiscal year including the
month of determination. The reimbursement of these costs was completed
in the year ended December 31, 1997. The total costs were deducted from
Trust capital upon commencement of trading, and reduced the redemption
value per Unit to the extent that the reimbursement payments were made
to the Managing Owner. The Managing Owner also pays, from its own
funds, selling commissions on all sales of Units.
4. TRUST AGREEMENT
The Trust Agreement provides that the Managing Owner shall control,
conduct and manage the business of the Trust, and may make all trading
decisions.
The Trust pays brokerage fees to the Managing Owner at the annual rate
of 9.0% of the Trust's average month-end Net Assets of Unitholders
interests (prior to reduction for accrued brokerage fees or Profit
Share). 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.
The Managing Owner, not the Trust, will pay all routine costs of
executing and clearing the Trust's futures and options trades,
including brokerage commissions payable to the clearing brokers.
Profit Share equal to 17.5% of any New Trading Profits (as defined) in
excess of the highest cumulative level of Trading Profit as of any
previous calendar quarter-end is added to the New Profits Memo Account.
A transfer from such account to the Managing Owner's capital account is
made to the extent taxable capital gains are allocated to the Managing
Owner.
The Trust pays its legal, accounting, auditing, printing, postage and
similar administrative expenses (including the Trustee's fees, the
charges of an outside accounting services agency and the expenses of
updating the Prospectus), as well as extraordinary costs.
5. TRADING ACTIVITIES
All of the derivatives owned by the Trust, including options, futures
and forwards, are held for trading purposes. The results of the Trust's
trading activity are shown in the statements of operations. The fair
value of the derivative financial instruments, at December 31, 1999 and
1998, respectively, was $2,980,499 and $5,517,446.
The Trust conducts its trading activities with various brokers acting
either as a broker or counterparty to various transactions. At December
31, 1999 and 1998, respectively, cash and treasury bills, aggregating
$23,599,309 and $23,149,318, included in the Trust's equity in trading
accounts are held by such brokers in segregated accounts as required by
U.S. Commodity Futures Trading Commission's regulations or by the
counterparty bank or broker.
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST F-8
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. DERIVATIVE INSTRUMENTS
The Trust is party to derivative financial instruments in the normal
course of its business. These financial 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 at 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 financial instruments
including market and credit risk.
Market risk is the potential change in the value of the instruments
traded by the Trust 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.
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 Trust must
rely solely on the credit of the individual counterparties. The Trust'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.
The fair value of the Partnership's derivative financial instruments at
December 31, 1999 and 1998 is detailed below:
<TABLE>
<CAPTION>
UNREALIZED APPRECIATION
(DEPRECIATION)
------------------------------------
GROSS NET
<S> <C> <C>
DECEMBER 31, 1999:
Exchange traded $ 3,288,946 $ 2,846,384
Non-exchange traded 402,364 134,115
----------------- -----------------
$ 3,691,310 $ 2,980,499
----------------- -----------------
----------------- -----------------
DECEMBER 31, 1998:
Exchange traded $ 8,180,903 $ 6,717,476
Non-exchange traded 637,335 (1,200,030)
----------------- -----------------
$ 8,818,238 $ 5,517,446
----------------- -----------------
----------------- -----------------
</TABLE>
7. TERMINATION
The Trust will terminate on December 31, 2025 or at an earlier date if
certain conditions occur as defined in the Declaration of Trust and
Trust Agreement.
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST F-9
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. REDEMPTIONS
Units may be redeemed, at the option of any Unitholder, at Net Asset
Value (as defined) as of the close of business on the last business day
of any calendar month on ten business days' written notice to the
Managing Owner. Persons who redeem Units at or prior to the end of the
first and second successive six-month periods after such Units are sold
will be assessed redemption charges of 4% and 3%, respectively (3% and
2%, respectively, in the case of subscriptions of $1,000,000 or more),
of their redeemed Units' Net Asset Value as of the date of redemption.
All redemption charges will be paid to the Managing Owner.
Effective January 1, 2000, approximately $2,133,426 in redemptions were
made by unitholders.
9. NET ASSET VALUE PER UNIT
Changes in net asset value per Unit during the years ended December 31,
1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net realized and unrealized gains (losses)
on futures, forwards and options $ (173.00) $ 8.32 $ (19.79)
Interest income 56.51 54.85 72.56
Foreign exchange gain (loss) (0.65) (2.86) 1.31
Profit share expense - - (14.56)
Administrative expenses (7.36) (8.36) (7.23)
---------------- ------------------ ------------------
NET INCOME (LOSS) PER UNIT (124.50) 51.95 32.29
Net asset value per Unit, beginning of year 1,234.38 1,182.43 1,150.14
---------------- ------------------ ------------------
NET ASSET VALUE PER UNIT,
END OF YEAR $ 1,109.88 $ 1,234.38 $ 1,182.43
---------------- ------------------ ------------------
---------------- ------------------ ------------------
</TABLE>
10. NEW ACCOUNTING PRONOUNCEMENT
The Trust adopted Statement of Financial Accounting Standards No. 133
(SFAS 133), ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, on January 1, 1999. SFAS 133 requires that an entity
recognize all derivative instruments in the statement of financial
condition and measure those financial instruments at fair value. SFAS
133 has no impact on the Trust's capital and operating results as all
derivative instruments are recorded at fair value, with changes therein
reported in the statements of operations.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
Millburn World Resource Trust Statements of Financial Condition, Statments
of Operations and Statements of Changes in Trust Capital for December 31, 1999
and 1998 and for the years ended 1999, 1998 and 1997, respectively.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,419,917
<SECURITIES> 44,750,408
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 53,150,824
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 53,150,824
<CURRENT-LIABILITIES> 2,666,208
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 50,484,643
<TOTAL-LIABILITY-AND-EQUITY> 53,150,824
<SALES> 0
<TOTAL-REVENUES> (456,732)
<CGS> 0
<TOTAL-COSTS> 5,885,964
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,953,429)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,342,696)
<EPS-BASIC> (124.50)
<EPS-DILUTED> (124.50)
</TABLE>
