-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O42JnDYvFRxZSGHF3XkEBdP7k51fWSYAET3xQECq2/z6ZHkHQeJrRQbhht9aJ3a0 HKggIvsxZlEBaVG79VeNmw== 0000873781-98-000001.txt : 19980401 0000873781-98-000001.hdr.sgml : 19980401 ACCESSION NUMBER: 0000873781-98-000001 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MILLBURN CURRENCY FUND II LP CENTRAL INDEX KEY: 0000873781 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES [6200] IRS NUMBER: 223117668 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-34485-01 FILM NUMBER: 98579922 BUSINESS ADDRESS: STREET 1: C/O MILLBURN RIDGEFIELD CORP STREET 2: 411 WEST PUTNAM AVENUE CITY: GREENWICH STATE: CT ZIP: 06830 MAIL ADDRESS: STREET 1: C/O MILLBURN RIDGEFIELD CORP STREET 2: 411 WEST PUTNAM AVEUE CITY: GREENWICH STATE: CT ZIP: 06830 10-K405 1 THE MILLBURN CURRENCY FUND II, L.P., 10-K 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, 1997 or [ ] 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 (I.R.S. Employer of 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 None to Section 12(b) of the Act: Securities registered pursuant Limited Partnership Units to Section 12(g) of the Act: (Title of Class) Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark 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: $1,640,139 Documents Incorporated by Reference None. TABLE OF CONTENTS Page 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 ............................ 4 Item 6. Selected Financial Data ................................... 4 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .................... 6 Item 7A. Quantative and Qualitative Disclosures About Market Risk ............................................ 10 Item 8. Financial Statements and Supplementary Data ............... 10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................. 10 PART III Item 10. Directors and Executive Officers of the Registrant ....... 11 Item 11. Executive Compensation ................................... 13 Item 12. Security Ownership of Certain Beneficial Owners and Management ........................................ 13 Item 13. Certain Relationships and Related Transactions ........... 14 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ................................... 14 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 were 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 the 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. 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, ($13,931) in 1993, ($16,633) in 1994, $55,743 in 1995, $56,599 in 1996 and $101,863 in 1997, this investment totaled $458,401 as of December 31, 1997. Pursuant to a Customer Agreement, Morgan Stanley & Co. Incorporated (the "Currency Dealer") acts as the primary currency dealer for the Trading Company. The Trading Company also executes currency trades with other currency dealers when their prices are advantageous to the Partnership. The Trading Company 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 the Trading Company'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. 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, 1997 approximates the net assets of the Partnership. 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, 1997 the Trading Company had made no such distributions. The Trading Company's assets are either invested in a money market account or deposited with the Currency Dealer in United States Treasury bills. As a result, the Trading Company, for the benefit of 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. 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, 1997, there were 210 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, 1997, 1996, 1995, 1994 and 1993.
For the Year For the Year For the Year For the Year For the Year Ended 12/31/97 Ended 12/31/96 Ended 12/31/95 Ended 12/31/94 Ended 12/31/93 ---------------- ---------------- ---------------- ---------------- ---------------- Revenue: Net realized and unrealized trading gain (loss), net of brokerage commissions of $162,296, $498,741, $678,093, $772,866, $1,217,730 and $1,330,581 in 1997, 1996, 1995, 1994 and 1993, respectively 350,548 112,269 241,232 (1,372,856) (2,642,184) Unrealized appreciation (depreciation) on STRIPS --- (134,525) 126,813 (649,559) 66,594 Accrued interest on STRIPS --- 246,964 479,358 544,878 587,251 Net realized gains on STRIPS transactions --- 20,090 15,885 26,520 88,513 Other interest income 130,936 119,825 30,845 16,191 173,495 ---------------- ---------------- ---------------- ---------------- ---------------- Total income (loss) $ 481,484 $ 364,623 $ 894,113 $ (1,434,826) $ (1,726,331) ---------------- ---------------- ---------------- ---------------- ---------------- Expenses: Profit share -0- -0- -0- -0- -0- Organizational and offering costs -0- -0- -0- -0- -0- Administrative expenses 24,572 53,676 66,242 87,886 104,735 ---------------- ---------------- ---------------- ---------------- ---------------- Total expenses $ 24,572 $ 53,676 $ 66,242 $ 87,886 $ 104,735 ---------------- ---------------- ---------------- ---------------- ---------------- Net income (loss) $ 456,912 $ 310,947 $ 827,891 $ (1,522,712) $ (1,831,066) ================ ================ ================ ================ ================ Total assets $ 2,263,838 $ 2,524,307 $ 6,516,573 $ 7,320,125 $ 11,129,341 Total limited partners' capital $ 1,722,984 $ 1,886,615 $ 5,759,049 $ 6,414,677 $ 9,397,260 Net asset value per Unit $ 121.94 $ 102.77 $ 95.30 $ 85.48 $ 102.47 Redemption value per Unit* $ 121.94 $ 102.77 $ 93.74 $ 85.39 $ 96.19 Increase (decrease) in net asset value per Unit $ 19.17 $ 7.47 $ 9.82 $ (16.99) $ (14.21) Increase (decrease) in redemption value per Unit $ 19.17 $ 7.47 $ 8.35 $ (10.80) $ (15.76) * 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, 1994 and 1993 due to fluctuations in market interest rates.
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 the over-the-counter markets. The General Partner has procedures in place to control market risk, although there can be no assurance that they will, in fact, succeed in doing so. These procedures primarily focus on (1) 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 30% 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 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 may have open positions with the Currency Dealer or Societe Generale AG 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 with held with the same counterparty; net positions are then settled by entering into offsetting positions and by cash payments. Liquidity Prior to November 15, 1996, when the Partnership's STRIPS matured most if not all of the Partnership's assets, other that 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 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. The Trading Company's assets are either deposited in cash or United States Treasury bills with the Currency Dealer 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 the Trading Company'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 positions are in currency forward contracts. Forward contracts are not traded on a commodity exchange. The Trading Company 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 may not be able to execute forward contract trades at favorable prices if little trading in the contracts it holds is taking place. Other than these limitations on liquidity, which are inherent in the Partnership's currency trading operations, the Partnership's assets are highly liquid and are expected to remain so. Generally, forward contracts can be offset at the discretion of the General Partner. However, if the market is not liquid, it could prevent the timely closeout of an unfavorable position until the delivery date, regardless of the changes in their value or the General Partner's investment strategies. Results of Operations Operating results show a profit for the fiscal years ended December 31, 1997, 1996 and 1995, and a loss for the fiscal years ended December 31, 1994 and December 31, 1993. Total Partnership capital as of December 31, 1997, 1996, 1995, 1994 and 1993, equaled $2,181,385, $2,243,153, $6,058,988, $6,658,873 and $9,658,089, respectively. The net asset value per Unit as of December 31, 1997 was $121.94, an increase in value for 1997 of 18.7%, as of December 31, 1996 was $102.77, an increase in value for 1996 of 7.8%, as of December 31, 1995 was $95.30, an increase in value for the fiscal year of 1995 of 11.5%, as of December 31, 1994 was $85.48, a decrease in value for fiscal year 1994 of 16.6% and as of December 31, 1993 was $102.47, a decrease in value for fiscal year 1993 of 12.2%. The increase (decrease) in value is calculated based on net asset value per Unit as of the previous December 31. 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. A substantial portion of the Partnership's profits in fiscal year 1995 was due to accrued or earned interest income of $479,358 on its STRIPS. The Trading Company's currency trading in fiscal year 1995 also showed a profit as gross trading gains of $919,325 exceeded brokerage fees of $678,093 for a net trading gain of $241,232. Gain due to appreciation in value of the Partnership's STRIPS equaled $126,813, while the Partnership showed a net gain on transactions in the STRIPS of $15,885. The Partnership also accrued or earned $30,845 in interest income on its other assets. A large majority of the Partnership's losses in fiscal year 1994 resulted from the Trading Company's currency trading. Such trading showed gross trading losses of $599,990, less brokerage fees of $772,866 for a net trading loss of $1,372,856. Such trading losses were offset in part by interest income of $544,878 on the Partnership's STRIPS and $16,191 on its other assets. Loss due to depreciation in value of the Partnership's STRIPS equalled $649,559, while the Partnership showed a net gain on transactions in the STRIPS of $26,520. The Partnership's losses in fiscal year 1993 also resulted from the Trading Company's currency trading. Such trading showed gross trading losses of $1,424,454, less brokerage fees of $1,217,730 for a net trading loss of $2,642,184. Such trading losses were offset in part by interest income of $587,251 on the Partnership's STRIPS and $173,495 on its other assets. Gain due to appreciation in value of the Partnership's STRIPS equalled $66,594, while the Partnership showed a net gain on transactions in the STRIPS of $88,513. 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 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 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. During fiscal year 1995, the Trading Company traded profitably. A dollar decline early in 1995, and a subsequent dollar rally in late summer resulted in trading profits. Trading in the yen/U.S. dollar exchange rate produced the largest gains, and profits were also made trading the dollar against a number of European currencies, especially the German mark. Cross rate trading was positive in 1995. The mark/lire, mark/yen and yen/Canadian dollar currency prices contributed to gains in this area. Trading in the British pound, Spanish peseta and ECU produced negative results. During 1995's second and fourth quarters, losses were sustained as trend reversals were followed by volatile patterns lacking direction. During fiscal 1994, the Trading Company experienced erratic periods of profitability and unprofitability due primarily to volatility of the currency markets. Losses in the first two months of the year on the reversal of the U.S. Dollar downtrend followed by continuing U.S. Dollar weakness was partially offset by small gains in cross-rate trading and gains in the third month on the continuing U.S. Dollar downtrend. Another rally of the U.S. Dollar and a subsequent reversal in the beginning of the second quarter resulted in losses, while cross-rate trading was flat during such period. The continuing decline of the U.S. Dollar and profitable cross-rate trading resulted in gains at the end of the second quarter. Reversals of the U.S. Dollar downtrend led to losses in the beginning of the third quarter, while losses in cross-rate trading contributed to unprofitability during this period. The Trading Company profited on the weakness of the U.S. Dollar at the end of the third quarter and the beginning of the fourth quarter, but these gains were lost at year-end as the U.S. Dollar rallied and then continued its decline. Cross-rate trading was flat or moderately unprofitable in the fourth quarter. During fiscal 1993, the Trading Company experienced erratic periods of profitability and unprofitability due to the excessive volatility of the currency markets. The first four months showed alternating losses and gains on the weakness of the U.S. Dollar and the strength of the Japanese Yen. The Trading Company suffered substantial losses due to the reversal of the U.S. Dollar downtrend against a number of European currencies and the reversal of the subsequent U.S. Dollar uptrend verses the European currencies. Losses were also suffered as a result of a reversal of the Japanese Yen downtrend against the U.S. Dollar. Profits on non-dollar cross rate trades and long Deutschemark and Swiss Franc positions did not fully offset these losses. Narrow profitability and unprofitability in both trading and non-dollar cross rate trading closed out the year. Inflation is not a significant factor in the Partnership's profitability. The Year 2000 Computer Issue Many computer applications currently in use were designed and developed using two digits to identify the year. These programs were implemented without considering the impact of the change in the century. Consequently, these computer applications could fail or create erroneous results if not corrected. The General Partner is currently in the process of ensuring that its computer systems are Year 200 compliant and anticipates Year 200 compliance by early 1999. The cost of addressing the Year 2000 issue will be borne by the General Partner, not the Partnership, and is expected to have no material impact on the General Partner's ability to conduct its affairs or those of the Partnership. However, failure of exchanges, clearing organizations, banks, brokers, regulators or other third parties to resolve their own processing issues in a timely manner could result in a material financial risk. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable. Item 8. Financial Statements and Supplementary Data Financial statements required by this item are included at pages F-1 to F-8 of 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 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 quantitative, systematic techniques since 1971. The principals and senior officers of Millburn Ridgefield Corporation as of December 31, 1997 are as follows: Harvey Beker, age 44. Mr. Beker is President, Co-Chief Executive Officer and a Director 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 53. Mr. Crapple is Co-Chief Executive Officer, Vice-Chairman and a Director of Millburn Ridgefield, Vice-Chairman 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 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. Mark B. Fitzsimmons, age 50. Mr. Fitzsimmons is a Senior Vice-President of Millburn Ridgefield 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 Millburn Ridgefield 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 40. Mr. Goodman is Senior Vice-President, Director of Trading and Co-Director of Research of Millburn Ridgefield 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 Millburn Ridgefield in 1982 as Assistant Director of Trading. Dennis B. Newton, age 46. 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 46. Mr. Smith is Senior Vice-President and Co-Director of Research of Millburn Ridgefield 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 Millburn Ridgefield in 1975. Malcolm H. Wiener, age 62. Mr. Wiener is the founder and non-executive Chairman of Millburn Ridgefield, The Millburn Corporation and ShareInVest Research L.P., serves as an adviser to these entities and is a major investor in funds managed by Millburn Ridgefield and ShareInVest 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 is also a Director of Millburn Ridgefield and The Millburn Corporation. 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. 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 officers 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, other than the General Partner, 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 Company's currency trading. The General Partner's general partnership interest was valued at $458,401 as of December 31, 1997, 21.01% of the Partnership's total equity, the equivalent of 3,759.234 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 $121.94. (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 $162,296, $498,741, $678,093, $772,866 and $1,217,730 in brokerage commissions and $0, $0, $0, $0 and $0 in profit share for fiscal years 1997, 1996, 1995, 1994 and 1993, respectively. The General Partner's general partnership interest showed an allocation of, gain (loss) of $101,863, $56,599, $55,743, $(16,633) and $(13,931) in fiscal years 1997, 1996, 1995, 1994 and 1993, respectively. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(1) Financial Statements The following financial statements are included herewith as exhibit 13.01. Page Report of Independent Accountants ...................... F-1 Statements of Financial Condition as of December 31, 1997 and 1996 .......................... F-2 Statements of Operations for the years ended December 31, 1997, 1996 and 1995 .................... F-3 Statements of Changes in Partners' Capital for the years ended December 31, 1997, 1996 and 1995 ........ F-4 Notes to Financial Statements .......................... F-5 (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 statements or the notes thereto. (a)(3) Exhibits as required by Item 601 of Regulation S-K Designation Description 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. 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 1997 Report of Independent Accountants 27.01 Financial Data Schedule (b) Reports on Form 8-K No report on Form 8-K was filed by the Partnership during the quarter ended December 31, 1995. 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 New York and State of New York on the 27th day of March, 1998. 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 _______________________ Chairman and Director March __, 1998 Malcolm H. Wiener /s/ Harvey Beker President, Co-Chief March 27, 1998 Harvey Beker Executive Officer and Director (Principal Financial and Accounting Officer) /s/ George E. Crapple Vice-Chairman, Co-Chief March 27, 1998 George E. Crapple Executive Officer and Director (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 General Partner of March 27, 1998 Registrant By /s/ Harvey Beker Harvey Beker President Exhibit 13.01 Coopers & Lybrand L.L.P. a professional services firm REPORT of INDEPENDENT ACCOUNTANTS To the Partners of The Millburn Currency Fund II, L.P.: We have audited the accompanying statements of financial condition of THE MILLBURN CURRENCY FUND II, L.P. (a Limited Partnership) as of December 31, 1997 and 1996, and the related statements of operations and changes in partners' capital for the years ended December 31, 1997, 1996 and 1995. These financial statements are the responsibility of management of the General Partner. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Millburn Currency Fund II, L.P. as of December 31, 1997 and 1996, and the results of its operations for the years ended December 31, 1997, 1996 and 1995, in conformity with generally accepted accounting principles. New York, New York January 26, 1998 F-1 THE MILLBURN CURRENCY FUND II, L.P. (a Limited Partnership) Statements of Financial Condition As of December 31, 1997 and 1996
ASSETS: 1997 1996 -------------- -------------- Equity in trading accounts: Investments in U.S. Treasury bills - at value (amortized cost $1,757,480 at December 31, 1997 and $1,260,941 at December 31,1996) (Note 2) $ 1,757,480 $ 1,260,941 Options owned, at market value (cost $5,638 at December 31, 1997 and $41,534 at December 31, 1996) 8,000 67,938 Cash 60,578 96,141 Net unrealized appreciation on open contracts 19,299 121,334 -------------- -------------- 1,845,357 1,546,354 -------------- -------------- Money market fund 418,481 977,953 -------------- -------------- Total assets $ 2,263,838 $ 2,524,307 ============== ============== LIABILITIES and PARTNERS' CAPITAL: Accounts payable and accrued expenses $ 11,983 $ 72,493 Redemptions payable to limited partners, net (Note 7) 58,531 194,830 Accrued brokerage commissions (Note 3) 11,939 13,831 -------------- -------------- Total liabilities 82,453 281,154 -------------- -------------- Partners' capital (Note 3, 7 and 8): General Partner 458,401 356,538 Limited Partners, 14,130 and 18,358 Limited Partnership Units outstanding in 1997 and 1996, respectively 1,722,984 1,886,615 -------------- -------------- Total partners' capital 2,181,385 2,243,153 -------------- -------------- Total liabilities and partners' capital $ 2,263,838 $ 2,524,307 ============== ============== See accompanying notes to financial statements.
F-2 THE MILLBURN CURRENCY FUND II, L.P. (a Limited Partnership) Statements of Operations For the years ended December 31, 1997, 1996 and 1995
1997 1996 1995 -------------- -------------- -------------- Income (Note 1): Net gains on trading of currency contracts: Realized gains (losses) on closed positions Futures and forwards $ 603,549 $ 295,667 $ 802,221 Options 35,372 (14,326) 46,060 -------------- -------------- -------------- 638,921 281,341 848,281 -------------- -------------- -------------- Change in unrealized appreciation (depreciation) Futures and forwards (102,035) 282,702 49,934 Options (24,042) 46,967 21,110 -------------- -------------- -------------- (126,077) 329,669 71,044 -------------- -------------- -------------- 512,844 611,010 919,325 Less, Brokerage fees (Note 3) 162,296 498,741 678,093 -------------- -------------- -------------- Net realized and unrealized gains on trading of currency contracts and options 350,548 112,269 241,232 Net realized gains on sale of U.S. Treasury Stripped Notes -- 20,090 15,885 Change in unrealized appreciation (depreciation) on U.S. Treasury Stripped Notes -- (134,525) 126,813 Accrued interest income on U.S. Treasury Stripped Notes -- 246,964 479,358 Other interest income 130,936 119,825 30,845 -------------- -------------- -------------- Total income 481,484 364,623 894,133 Administrative expenses 24,572 53,676 66,242 -------------- -------------- -------------- Net income $ 456,912 $ 310,947 $ 827,891 ============== ============== ============== Net income per Limited Partnership Unit (Note 8) $ 19.17 $ 7.47 $ 9.82 ============== ============== ============== See accompanying notes to financial statements.
F-3 THE MILLBURN CURRENCY FUND II, L.P. (a Limited Partnership) Statements of Changes in Partners' Capital For the years ended December 31, 1997, 1996 and 1995
Limited Partners General Partner Total ---------------- ---------------- ---------------- Partners' capital at December 31, 1994 $ 6,414,677 244,196 6,658,873 Net income 772,148 55,743 827,891 Redemptions (14,613 Limited Partnership Units) (1,427,776) -- (1,427,776) ---------------- ---------------- ---------------- 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 See accompanying notes to financial statements.
F-4 THE MILLBURN CURRENCY FUND II, L.P. (a Limited Partnership) 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. As of December 31, 1997, all of the Partnerships' assets are invested in currency forward and futures contracts and related options. 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 his 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. Accounting Policies: a. Consolidation: The accompanying financial statements include the accounts of the Partnership and the Trading Company on a consolidated basis. All significant intercompany transactions and balances have been eliminated in consolidation. b. Investments: Open options, futures and forward contracts are valued at market value. 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. Continued F-5 THE MILLBURN CURRENCY FUND II, L.P. (a Limited Partnership) Notes to Financial Statements, Continued The original issue discounts on the U.S. Treasury Stripped Notes were amortized over their lives using the interest method. 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 brokerage fee equal to 0.833% of the Partnership's month-end Allocated Assets (as defined in the limited partnership agreement) (a 10% annual rate) was payable to the General Partner. As of November 15, 1996, the brokerage fees were reduced to 0.666% of the Partnership's month end Allocated Assets (an 8% 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. 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. Continued F-6 THE MILLBURN CURRENCY FUND II, L.P. (a Limited Partnership) Notes to Financial Statements, Continued 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 statement of operations. The fair value of the derivative financial instruments at December 31, 1997 and 1996, respectively was $27,299 and $189,272, and the average fair value during the years then ended, calculated on a monthly basis, approximated $80,513 and $331,099, respectively. The Partnership conducts its trading activities with various brokers acting either as a broker or counterparty to various transactions. At December 31, 1997 and 1996, the cash and treasury bills included in the Partnership's equity in trading accounts are held by such brokers in segregated accounts as required by U.S. Commodity Futures Trading Commission regulations. 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. 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. Continued F-7 THE MILLBURN CURRENCY FUND II, L.P. (a Limited Partnership) Notes to Financial Statements, Continued 6. Open Derivative Instruments (Contracts) at December 31, 1997 and 1996: December 31, 1997 December 31, 1996 Notional or Contractual Notional or Contractual Amount of Commitments Amount of Commitments to Purchase to Sell to Purchase to Sell ------------- ------------- ------------- ------------- Currencies* $ 976,000 $ 3,904,000 $ 2,726,000 $ 8,156,000 * 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. Notional or Contractual Amounts of Commitments Unrealized Gain to Purchase to Sell Gross Net ------------- ------------- ----------- ----------- 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 ============= ============= =========== =========== December 31, 1996: Exchange traded $ 68,000 $ -- $ 26,954 $ 26,404 Non-exchange traded 2,658,000 8,156,000 162,557 121,334 ------------- ------------- ----------- ----------- $ 2,726,000 $ 8,156,000 $ 189,511 $ 147,738 ============= ============= =========== ===========
7. Distributions and Redemptions: Distributions of profits, if any, will be made at the sole discretion of the General Partner. Limited Partnership Units ("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. Continued F-8 THE MILLBURN CURRENCY FUND II, L.P. (a Limited Partnership) Notes to Financial Statements, Continued 8. Net Asset Value per Unit: Changes in the net asset value per Unit during the years ended December 31, 1997, 1996 and 1995 were as follows:
1997 1996 1995 ---------- ---------- ---------- Net realized and unrealized gains on trading of currency contracts and options $ 14.71 $ 2.70 $ 1.56 Net realized gains and unrealized appreciation (depreciation) on U.S. Treasury Stripped Notes -- (2.75) 2.16 Interest income 5.49 8.81 7.01 Administrative expense (1.03) (1.29) (0.91) ---------- ---------- ---------- Increase for the year 19.17 7.47 9.82 Net asset value, beginning of year 102.77 95.30 85.48 ---------- ---------- ---------- Net asset value, end of year $ 121.94 $ 102.77 $ 95.30 ========== ========== ========== Redemption value per Unit $ 121.94 $ 102.77 $ 93.74 ========== ========== ==========
F-9 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS OF FINANCIAL CONDITION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 479,059 1,757,480 0 0 0 2,263,838 0 0 2,263,838 82,453 0 0 0 0 2,181,385 2,263,838 0 643,780 0 162,296 24,572 0 0 456,912 0 0 0 0 0 456,912 19.17 19.17
-----END PRIVACY-ENHANCED MESSAGE-----