**Exhibit 13.01**

 

***Nestor Partners***

 

*FinancialStatements for the Years Ended December 31, 2005, 2004 and 2003 and Reportof Independent Registered Public Accounting Firm*

 

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**NESTOR PARTNERS**

 

**TABLE OF CONTENTS**

 
| ** **                                                                                             | **Page**   |
|--------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                             | ** ** |
| AFFIRMATION OF MILLBURN RIDGEFIELD CORPORATION                                                         |       |
|                                                                                                   |       |
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                                | 1          |
|                                                                                                   |       |
| FINANCIAL STATEMENTS:                                                                                  |       |
|                                                                                                   |       |
| Statements  of Financial Condition at December 31, 2005 and 2004                                       | 2          |
|                                                                                                   |       |
| Condensed  Schedules of Investments at December 31, 2005 and 2004                                      | 3-6        |
|                                                                                                   |       |
| Statements  of Operations for the Years Ended December 31, 2005, 2004 and 2003                         | 7          |
|                                                                                                   |       |
| Statements  of Changes in Partners’ Capital for the Years Ended December 31, 2005, 2004  and 2003 | 8          |
|                                                                                                   |       |
| Statements  of Financial Highlights for the Years Ended December 31, 2005, 2004 and 2003               | 9          |
|                                                                                                   |       |
| Notes  to Financial Statements for the Years Ended December 31, 2005, 2004 and 2003                    | 10-15      |

 

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**AFFIRMATION OF MILLBURNRIDGEFIELD CORPORATION**

** **

Incompliance with the Commodity Futures Trading Commission’s regulations, Ihereby affirm that to the best of my knowledge and belief, the informationcontained in the statements of financial condition of Nestor Partners atDecember 31, 2005 and 2004, including the condensed schedules ofinvestments, and the related statements of operations, changes in partners’capital and financial highlights for the years ended December 31, 2005,2004 and 2003 are complete and accurate.

 

 

GeorgeE. Crapple, Co-Chief Executive OfficerMillburn Ridgefield CorporationGeneral Partner of Nestor Partners

 

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

** **

To thePartners of Nestor Partners:

 

Wehave audited the accompanying statements of financial condition of NestorPartners (the ”Partnership”) as of December 31, 2005 and 2004,including the condensed schedules of investments, and the related statements ofoperations, changes in partners’ capital and financial highlights for the yearsthen ended. These financial statements and financial highlights are theresponsibility of the Partnership’s management. Our responsibility is toexpress an opinion on these financial statements and financial highlights basedon our audits. The financial statements and financial highlights for the yearended December 31, 2003 were audited by other auditors whose report datedFebruary 17, 2004 expressed an unqualified opinion on those statements.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements and financial highlights are free of materialmisstatement. The Partnership is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our auditsincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of thePartnership’s internal control over financial reporting. Accordingly, weexpress no such opinion. An audit also includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements andfinancial highlights, assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

In ouropinion, the financial statements and financial highlights referred to abovepresent fairly, in all material respects, the financial position of NestorPartners at December 31, 2005 and 2004, and the results of its operations,changes in partners’ capital and financial highlights for the years then endedin conformity with accounting principles generally accepted in the UnitedStates of America.

 

Deloitte& Touche LLP

NewYork, New York

February27, 2006

 

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**NESTOR PARTNERS**

** **

**STATEMENTS OF FINANCIAL CONDITION**

**AT DECEMBER 31, 2005 AND 2004**

 
| ** **                                                                                              | ** ** | **2005**    | ** **  | **2004**    | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
| **ASSETS**                                                                                              | ** ** | ** **  | ** **  | ** **  | ** ** |
|                                                                                                    |       |        |        |        |       |
| EQUITY IN  TRADING ACCOUNTS:                                                                            |       |        |        |        |       |
| Investments in  U.S. Treasury notes—at market value (amortized cost $63,348,239 and  $46,930,539)  |       | $           | 63,181,691  |        | $          | 46,848,072 |   |
| Net unrealized  appreciation/depreciation on open futures and forward currency contracts                |       | (1,371,678  | )           | 4,523,726   |       |
| Due from brokers                                                                                        |       | 3,923,683   |        | 6,193,636   |       |
| Cash denominated  in foreign currencies (cost $2,589,356 and $2,129,278)                                |       | 2,553,075   |        | 2,169,971   |       |
|                                                                                                    |       |        |        |        |       |
| Total equity in  trading accounts                                                                       |       | 68,286,771  |        | 59,735,405  |       |
|                                                                                                    |       |        |        |        |       |
| INVESTMENTS IN  U.S. TREASURY NOTES—at market value (amortized cost $96,770,338 and  $133,147,061) |       | 96,642,066  |        | 133,032,588 |       |
|                                                                                                    |       |        |        |        |       |
| CASH AND CASH  EQUIVALENTS                                                                              |       | 15,359,071  |        | 16,278,049  |       |
|                                                                                                    |       |        |        |        |       |
| ACCRUED INTEREST  RECEIVABLE                                                                            |       | 677,070     |        | 472,441     |       |
|                                                                                                    |       |        |        |        |       |
| TOTAL                                                                                                   |       | $           | 180,964,978 |        | $          | 209,518,483 |   |
|                                                                                                    |       |        |        |        |       |
| **LIABILITIES  AND PARTNERS’ CAPITAL**                                                             | ** ** | ** **  | ** **  | ** **  | ** ** |
|                                                                                                    |       |        |        |        |       |
| LIABILITIES:                                                                                            |       |        |        |        |       |
| Capital  contributions received in advance                                                              |       | $           | 3,987,000   |        | $          | 2,165,900 |   |
| Accrued  brokerage fees                                                                                 |       | 389,427     |        | 475,296     |       |
| Accrued expenses                                                                                        |       | 373,843     |        | 305,683     |       |
| Capital  withdrawals payable                                                                            |       | 5,187,787   |        | 12,993,466  |       |
| Other  liabilities                                                                                      |       | 75,000      |        | —      |       |
|                                                                                                    |       |        |        |        |       |
| Total  liabilities                                                                                      |       | 10,013,057  |        | 15,940,345  |       |
|                                                                                                    |       |        |        |        |       |
| PARTNERS’  CAPITAL                                                                                 |       | 170,951,921 |        | 193,578,138 |       |
|                                                                                                    |       |        |        |        |       |
| TOTAL                                                                                                   |       | $           | 180,964,978 |        | $          | 209,518,483 |   |

 

See notes tofinancial statements.

 

2

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**NESTOR PARTNERS**

 

**CONDENSED SCHEDULE OF INVESTMENTS**

**AT DECEMBER 31, 2005**

 
| ** **                                                | ** ** | **Net Unrealized**         | ** ** | ** **         | ** ** |
|-----------------------------------------------------------|------------|---------------------------------|------------|--------------------|------------|
| ** **                                                | ** ** | **Appreciation**                | ** ** | **Net**            | ** ** |
| ** **                                                | ** ** | **(Depreciation)**              | ** ** | **Unrealized**     | ** ** |
| ** **                                                | ** ** | **as a % of**         | ** ** | **Appreciation**   | ** ** |
| ** **                                                | ** ** | **Partners’ Capital** | ** ** | **(Depreciation)** | ** ** |
|                                                      |       |                            |       |               |       |
| **FUTURES  AND FORWARD CURRENCY CONTRACTS**               | ** ** | ** **                      | ** ** | ** **         | ** ** |
| ** **                                                | ** ** | ** **                      | ** ** | ** **         | ** ** |
| FUTURES  CONTRACTS:                                       | ** ** | ** **                      | ** ** | ** **         | ** ** |
| LONG FUTURES  CONTRACTS:                                  |       |                            |       |               |       |
| Energies                                                  |       | 0.03                            | %          | $                  | 57,335     |   |
| Grains                                                    |       | 0.12                            |       | 206,573            |       |
| Interest rates                                            |       | 0.22                            |       | 379,281            |       |
| Livestock                                                 |       | (0.02                           | )          | (33,020            | )          |
| Metals                                                    |       | 1.07                            |       | 1,833,136          |       |
| Softs                                                     |       | 0.89                            |       | 1,527,165          |       |
| Stock indices                                             |       | 0.59                            |       | 986,160            |       |
|                                                      |       |                            |       |               |       |
| Total long  futures contracts                             |       | 2.90                            |       | 4,956,630          |       |
|                                                      |       |                            |       |               |       |
| SHORT FUTURES  CONTRACTS:                                 |       |                            |       |               |       |
| Grains                                                    |       | (0.31                           | )          | (530,337           | )          |
| Interest rates                                            |       | 0.41                            |       | 703,356            |       |
| Metals                                                    |       | 0.01                            |       | 18,590             |       |
| Softs                                                     |       | (0.18                           | )          | (307,159           | )          |
|                                                      |       |                            |       |               |       |
| Total short  futures contracts                            |       | (0.07                           | )          | (115,550           | )          |
|                                                      |       |                            |       |               |       |
| TOTAL  INVESTMENTS IN FUTURES CONTRACTS—Net          |       | 2.83                            |       | 4,841,080          |       |
|                                                      |       |                            |       |               |       |
| FORWARD CURRENCY  CONTRACTS:                              |       |                            |       |               |       |
| TOTAL LONG  FORWARD CURRENCY CONTRACTS                    |       | (2.65                           | )          | (4,536,349         | )          |
| TOTAL SHORT  FORWARD CURRENCY CONTRACTS                   |       | (0.98                           | )          | (1,676,409         | )          |
|                                                      |       |                            |       |               |       |
| TOTAL  INVESTMENTS IN FORWARD CURRENCY CONTRACTS—Net |       | (3.63                           | )          | (6,212,758         | )          |
|                                                      |       |                            |       |               |       |
| TOTAL                                                     |       | (0.80                           | )%         | $                  | (1,371,678 | ) |

 
|   | (Continued) |
|--------|-------------|

 

3

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**NESTOR PARTNERS**

 

**CONDENSED SCHEDULE OF INVESTMENTS**

**AT DECEMBER 31, 2005**

 

**U.S. TREASURY NOTES**

 
| ** ** | ** ** | ** **                                | ** **                            | **Value as a % of** | ** ** | ** ** | ** **  |
|------------|------------|-------------------------------------------|---------------------------------------|------------------------------------|------------|------------|-------------|
| **Face**   | ** ** | ** **                                | ** **                            | **Partners’**                 | ** ** | ** ** | ** **  |
| **Amount** | ** ** | **Description**                           | ** **                            | **Capital**                        | ** ** | **Value**  | ** **  |
| ** ** | ** ** | ** **                                | ** **                            | ** **                         | ** ** | ** ** | ** **  |
| $          | 34,055,000 |                                      | U.S. Treasury notes, 1.625%, 02/28/06 |                               | 19.85      | %          | $           | 33,927,294 |   |
| 44,680,000 |       | U.S. Treasury notes, 2.500%, 05/31/06     |                                  | 25.94                              |       | 44,344,900 |        |
| 28,230,000 |       | U.S. Treasury notes, 2.375%, 08/15/06     |                                  | 16.31                              |       | 27,877,125 |        |
| 54,440,000 |       | U.S. Treasury notes, 2.875%, 11/30/06     |                                  | 31.39                              |       | 53,674,438 |        |
|       |       |                                      |                                  |                               |       |       |        |
|       |       | Total  investments in U.S. Treasury notes |                                  |                               |       |       |        |
|       |       | (amortized cost  $160,118,577)            |                                  | 93.49                              | %          | $          | 159,823,757 |   |
|            |            |                                           |                                       |                                    |            |            |             |  |  |

 
|   | (Concluded) |
|--------|-------------|

 

See notes to financial statements.

 

4

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**NESTOR PARTNERS**

 

**CONDENSED SCHEDULE OF INVESTMENTS**

**AT DECEMBER 31, 2004**

 
| ** **                                                | ** ** | **Net Unrealized**         | ** ** | ** **         | ** ** |
|-----------------------------------------------------------|------------|---------------------------------|------------|--------------------|------------|
| ** **                                                | ** ** | **Appreciation**                | ** ** | **Net**            | ** ** |
| ** **                                                | ** ** | **(Depreciation)**              | ** ** | **Unrealized**     | ** ** |
| ** **                                                | ** ** | **as a % of**         | ** ** | **Appreciation**   | ** ** |
| ** **                                                | ** ** | **Partners’ Capital** | ** ** | **(Depreciation)** | ** ** |
| ** **                                                | ** ** | ** **                      | ** ** | ** **         | ** ** |
| **FUTURES  AND FORWARD CURRENCY CONTRACTS**               | ** ** | ** **                      | ** ** | ** **         | ** ** |
| ** **                                                | ** ** | ** **                      | ** ** | ** **         | ** ** |
| FUTURES  CONTRACTS:                                       | ** ** | ** **                      | ** ** | ** **         | ** ** |
| LONG FUTURES  CONTRACTS:                                  |       |                            |       |               |       |
| Energies                                                  |       | (0.23                           | )%         | $                  | (453,238   | ) |
| Interest rates                                            |       | 0.01                            |       | 20,112             |       |
| Livestock                                                 |       | 0.02                            |       | 36,230             |       |
| Metals                                                    |       | 0.06                            |       | 128,996            |       |
| Softs                                                     |       | 0.08                            |       | 153,181            |       |
| Stock indices                                             |       | 0.82                            |       | 1,588,752          |       |
|                                                      |       |                            |       |               |       |
| Total long  futures contracts                             |       | 0.76                            |       | 1,474,033          |       |
|                                                      |       |                            |       |               |       |
| SHORT FUTURES  CONTRACTS:                                 |       |                            |       |               |       |
| Energies                                                  |       | 0.20                            |       | 369,720            |       |
| Grains                                                    |       | 0.15                            |       | 283,181            |       |
| Interest rates                                            |       | 0.01                            |       | 17,599             |       |
| Metals                                                    |       | 0.03                            |       | 64,779             |       |
| Softs                                                     |       | (0.04                           | )          | (67,820            | )          |
|                                                      |       |                            |       |               |       |
| Total short  futures contracts                            |       | 0.35                            |       | 667,459            |       |
|                                                      |       |                            |       |               |       |
| TOTAL  INVESTMENTS IN FUTURES CONTRACTS—Net          |       | 1.11                            |       | 2,141,492          |       |
|                                                      |       |                            |       |               |       |
| FORWARD CURRENCY  CONTRACTS:                              |       |                            |       |               |       |
| TOTAL LONG  FORWARD CURRENCY CONTRACTS                    |       | 3.55                            |       | 6,865,386          |       |
| TOTAL SHORT  FORWARD CURRENCY CONTRACTS                   |       | (2.32                           | )          | (4,483,152         | )          |
|                                                      |       |                            |       |               |       |
| TOTAL  INVESTMENTS IN FORWARD CURRENCY CONTRACTS—Net |       | 1.23                            |       | 2,382,234          |       |
|                                                      |       |                            |       |               |       |
| TOTAL                                                     |       | 2.34                            | %          | $                  | 4,523,726  |   |

 
|   | (Continued) |
|--------|-------------|

 

5

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**NESTOR PARTNERS**

 

**CONDENSED SCHEDULE OF INVESTMENTS**

**AT DECEMBER 31, 2004**

 

**U.S. TREASURY NOTES**

 
| ** ** | ** ** | ** **                                | ** **                              | **Value as a % of** | ** ** | ** ** | ** **  |
|------------|------------|-------------------------------------------|-----------------------------------------|------------------------------------|------------|------------|-------------|
| **Face**   | ** ** | ** **                                | ** **                              | **Partners’**                 | ** ** | ** ** | ** **  |
| **Amount** | ** ** | **Description**                           | ** **                              | **Capital**                        | ** ** | **Value**  | ** **  |
| ** ** | ** ** | ** **                                | ** **                              | ** **                         | ** ** | ** ** | ** **  |
| $          | 60,230,000 |                                      | U.S. Treasury notes, 1.500%, 02/28/2005 |                               | 31.09      | %          | $           | 60,192,357 |   |
| 60,230,000 |       | U.S. Treasury notes, 1.250%, 05/31/2005   |                                    | 30.96                              |       | 59,928,850 |        |
| 60,230,000 |       | U.S. Treasury notes, 1.875%, 11/30/2005   |                                    | 30.87                              |       | 59,759,453 |        |
|       |       |                                      |                                    |                               |       |       |        |
|       |       | Total  investments in U.S. Treasury notes |                                    |                               |       |       |        |
|       |       | (amortized cost  $180,077,600)            |                                    | 92.92                              | %          | $          | 179,880,660 |   |
|            |            |                                           |                                         |                                    |            |            |             |  |  |

 
|   | (Concluded) |
|--------|-------------|

 

See notes to financial statements.

 

6

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**NESTOR PARTNERS**

** **

**STATEMENTSOF OPERATIONS**

**FOR THEYEARS ENDED DECEMBER 31, 2005, 2004 AND 2003**

 
| ** **                                               | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|----------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
|                                                     |       |       |       |       |       |       |       |
| INVESTMENT  INCOME:                                      |       |       |       |       |       |       |       |
| Interest income                                          |       | $          | 4,819,054  |       | $          | 2,406,435  |       | $ | 2,061,312 |   |
|                                                     |       |       |       |       |       |       |       |
| EXPENSES:                                                |       |       |       |       |       |       |       |
| Brokerage fees                                           |       | 4,802,240  |       | 5,497,025  |       | 5,378,592  |       |
| Administrative  expenses                                 |       | 434,264    |       | 499,091    |       | 434,300    |       |
| Custody fees                                             |       | 26,346     |       | 29,493     |       | 22,573     |       |
|                                                     |       |       |       |       |       |       |       |
| Total expenses                                           |       | 5,262,850  |       | 6,025,609  |       | 5,835,465  |       |
|                                                     |       |       |       |       |       |       |       |
| NET INVESTMENT  LOSS                                     |       | (443,796   | )          | (3,619,174 | )          | (3,774,153 | )          |
|                                                     |       |       |       |       |       |       |       |
| NET REALIZED AND  UNREALIZED GAINS (LOSSES):             |       |       |       |       |       |       |       |
| Net realized  gains (losses) on closed positions:        |       |       |       |       |       |       |       |
| Futures and  forward currency contracts                  |       | 15,906,728 |       | 4,721,012  |       | 4,326,292  |       |
| Foreign exchange  translation                            |       | (159,844   | )          | 219,374    |       | (17,386    | )          |
| Net change in  unrealized appreciation/depreciation:     |       |       |       |       |       |       |       |
| Futures and  forward currency contracts                  |       | (5,895,404 | )          | (5,227,037 | )          | 2,455,746  |       |
| Foreign exchange  translation                            |       | (76,974    | )          | 6,791      |       | 61,335     |       |
| Net losses from  U.S. Treasury notes:                    |       |       |       |       |       |       |       |
| Net change in  unrealized appreciation/depreciation      |       | (97,880    | )          | (230,211   | )          | (78,226    | )          |
|                                                     |       |       |       |       |       |       |       |
| Total net realized  and unrealized gains (losses)        |       | 9,676,626  |       | (510,071   | )          | 6,747,761  |       |
|                                                     |       |       |       |       |       |       |       |
| NET INCOME  (LOSS)                                       |       | 9,232,830  |       | (4,129,245 | )          | 2,973,608  |       |
|                                                     |       |       |       |       |       |       |       |
| LESS PROFIT  SHARE TO GENERAL PARTNER                    |       | 1,140,619  |       | 484,760    |       | 668,526    |       |
|                                                     |       |       |       |       |       |       |       |
| NET INCOME  (LOSS) AFTER PROFIT SHARE TO GENERAL PARTNER |       | $          | 8,092,211  |       | $          | (4,614,005 | )          | $ | 2,305,082 |   |

 

See notes tofinancial statements.

 

7

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**NESTOR PARTNERS**

** **

**STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL**

**FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003**

 
| ** **                                              | ** ** | ** **   | ** **  | **Special**  | ** ** | **New Profit** | ** ** | ** **  | ** ** | ** **  | ** ** |
|---------------------------------------------------------|------------|--------------|-------------|--------------|------------|---------------------|------------|-------------|------------|-------------|------------|
| ** **                                              | ** ** | **Limited**  | ** **  | **Limited**  | ** ** | **Memo**            | ** ** | **General** | ** ** | ** **  | ** ** |
| ** **                                              | ** ** | **Partners** | ** **  | **Partners** | ** ** | **Account**         | ** ** | **Partner** | ** ** | **Total**   | ** ** |
|                                                    |       |         |        |         |       |                |       |        |       |        |       |
| PARTNERS’  CAPITAL—  January 1, 2003          |       | $            | 83,293,288  |         | $          | 50,699,984          |       | $           | —     |        | $          | 6,963,561 |   | $ | 140,956,833 |   |
|                                                    |       |         |        |         |       |                |       |        |       |        |       |
| Contributions                                           |       | 91,034,716   |        | 948,664      |       | —              |       | —      |       | 91,983,380  |       |
| Withdrawals                                             |       | (14,681,027  | )           | (7,009,160   | )          | —              |       | (3,559,436  | )          | (25,249,623 | )          |
| Net income  (loss)                                      |       | (427,451     | )           | 3,189,282    |       | (11,126             | )          | 222,903     |       | 2,973,608   |       |
| General  Partner’s allocation—profit share    |       | (668,526     | )           | —       |       | 668,526             |       | —      |       | —      |       |
| Transfer of New  Profit Memo Account to General Partner |       | —       |        | —       |       | (657,400            | )          | 657,400     |       | —      |       |
|                                                    |       |         |        |         |       |                |       |        |       |        |       |
| PARTNERS’  CAPITAL—  December 31, 2003        |       | 158,551,000  |        | 47,828,770   |       | —              |       | 4,284,428   |       | 210,664,198 |       |
|                                                    |       |         |        |         |       |                |       |        |       |        |       |
| Contributions                                           |       | 47,947,926   |        | 1,205,657    |       | —              |       | —      |       | 49,153,583  |       |
| Withdrawals                                             |       | (48,474,692  | )           | (12,528,306  | )          | —              |       | (1,107,400  | )          | (62,110,398 | )          |
| Net income  (loss)                                      |       | (5,215,301   | )           | 1,036,942    |       | (1,047              | )          | 50,161      |       | (4,129,245  | )          |
| General  Partner’s allocation—profit share    |       | (484,760     | )           | —       |       | 484,760             |       | —      |       | —      |       |
| Transfer of New  Profit Memo Account to General Partner |       | —       |        | —       |       | (483,713            | )          | 483,713     |       | —      |       |
|                                                    |       |         |        |         |       |                |       |        |       |        |       |
| PARTNERS’  CAPITAL—  December 31, 2004        |       | 152,324,173  |        | 37,543,063   |       | —              |       | 3,710,902   |       | 193,578,138 |       |
|                                                    |       |         |        |         |       |                |       |        |       |        |       |
| Contributions                                           |       | 12,748,963   |        | 2,007,151    |       | —              |       | —      |       | 14,756,114  |       |
| Withdrawals                                             |       | (43,567,219  | )           | (1,422,830   | )          | —              |       | (1,625,112  | )          | (46,615,161 | )          |
| Net income                                              |       | 5,221,311    |        | 3,700,476    |       | 779                 |       | 310,264     |       | 9,232,830   |       |
| General  Partner’s allocation—profit share    |       | (1,140,619   | )           | —       |       | 1,140,619           |       | —      |       | —      |       |
| Transfer of New  Profit Memo Account to General Partner |       | —       |        | —       |       | (1,141,398          | )          | 1,141,398   |       | —      |       |
|                                                    |       |         |        |         |       |                |       |        |       |        |       |
| PARTNERS’  CAPITAL—  December 31, 2005        |       | $            | 125,586,609 |         | $          | 41,827,860          |       | $           | —     |        | $          | 3,537,452 |   | $ | 170,951,921 |   |

 

See notes tofinancial statements.

 

8

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**NESTOR PARTNERS**

** **

**STATEMENTS OF FINANCIAL HIGHLIGHTS**

**FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003**

 
| ** **                                   | ** ** | ** **   | ** ** | **Special**  | ** ** |
|----------------------------------------------|------------|--------------|------------|--------------|------------|
| ** **                                   | ** ** | **Limited**  | ** ** | **Limited**  | ** ** |
| ** **                                   | ** ** | **Partners** | ** ** | **Partners** | ** ** |
| YEAR ENDED  DECEMBER 31, 2005:               |       |         |       |         |       |
| Ratios to  average capital—             |       |         |       |         |       |
| Net investment  income (loss)                |       | (1.03        | )%         | 2.24         | %          |
|                                         |       |         |       |         |       |
| Total expenses                               |       | 3.81         |       | 0.57         |       |
| Profit share  allocation                     |       | 0.85         |       | —       |       |
|                                         |       |         |       |         |       |
| Total expenses  and profit share allocation  |       | 4.66         |       | 0.57         |       |
|                                         |       |         |       |         |       |
| Total return  before profit share allocation |       | 6.13         |       | 9.61         |       |
| Profit share  allocation                     |       | (0.90        | )          | —       |       |
|                                         |       |         |       |         |       |
| TOTAL RETURN  AFTER PROFIT SHARE ALLOCATION  |       | 5.23         | %          | 9.61         | %          |
|                                         |       |         |       |         |       |
| YEAR ENDED  DECEMBER 31, 2004:               |       |         |       |         |       |
| Ratios to  average capital—             |       |         |       |         |       |
| Net investment  income (loss)                |       | (2.43        | )%         | 0.52         | %          |
|                                         |       |         |       |         |       |
| Total expenses                               |       | 3.65         |       | 0.67         |       |
| Profit share  allocation                     |       | 0.31         |       | —       |       |
|                                         |       |         |       |         |       |
| Total expenses  and profit share allocation  |       | 3.96         |       | 0.67         |       |
|                                         |       |         |       |         |       |
| Total return  before profit share allocation |       | (1.63        | )          | 1.38         |       |
| Profit share  allocation                     |       | (0.28        | )          | —       |       |
|                                         |       |         |       |         |       |
| TOTAL RETURN  AFTER PROFIT SHARE ALLOCATION  |       | (1.91        | )%         | 1.38         | %          |
|                                         |       |         |       |         |       |
| YEAR ENDED  DECEMBER 31, 2003:               |       |         |       |         |       |
| Ratios to  average capital—             |       |         |       |         |       |
| Net investment  income (loss)                |       | (3.50        | )%         | 0.52         | %          |
|                                         |       |         |       |         |       |
| Total expenses                               |       | 4.71         |       | 0.69         |       |
| Profit share  allocation                     |       | 0.58         |       | —       |       |
|                                         |       |         |       |         |       |
| Total expenses  and profit share allocation  |       | 5.29         |       | 0.69         |       |
|                                         |       |         |       |         |       |
| Total return  before profit share allocation |       | 2.42         |       | 6.55         |       |
| Profit share  allocation                     |       | (0.77        | )          | —       |       |
|                                         |       |         |       |         |       |
| TOTAL RETURN  AFTER PROFIT SHARE ALLOCATION  |       | 1.65         | %          | 6.55         | %          |

 

See notes tofinancial statements.

 

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**NESTOR PARTNERS**

** **

**NOTES TO FINANCIAL STATEMENTS**

**YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003**

** **

**1.**                      ORGANIZATION OF THE PARTNERSHIP

** **

Nestor Partners (the “Partnership”)is a limited partnership, which was organized in 1976 under the New JerseyUniform Limited Partnership Act. The Limited Partnership Agreement (the “Agreement”)was amended and restated as of April 5, 2004. The Partnership engages inthe speculative trading of futures and forward currency contracts. Theinstruments that are traded by the Partnership are volatile and involve a highdegree of market risk.

 

The General Partner ofthe Partnership is Millburn Ridgefield Corporation (the “General Partner”).Principals, employees, former employees, and other affiliates of the GeneralPartner have invested in the Partnership as special limited partners.

 

The Agreement providesthat subject to certain limitations, the General Partner shall conduct andmanage the business of the Partnership. The General Partner has the right tomake all investment decisions regarding the Partnership, authorize the paymentsof distributions to partners, enter into customer agreements with brokers, andtake such other actions, as it deems necessary or desirable, to manage thebusiness of the Partnership.

 

The limited partners,special limited partners, New Profit Memo Account, and the General Partnershare in the profits and losses of the Partnership, which are determined beforebrokerage fees (Note 2) and profit share allocations on the basis of theirproportionate interests of Partnership capital (Note 3). No limitedpartner or special limited partner shall be liable for Partnership obligationsin excess of their capital contribution plus profits allocated to their capitalaccounts, if any. Subject to certain conditions, a partner may withdraw/redeempart or all of his capital contribution and undistributed profits, if any, fromthe Partnership as of the end of any month.

 

The General Partner,subject to Commodity Futures Trading Commission requirements, may (at itsdiscretion) sell additional Limited Partnership Interests to persons desiringto become limited partners.

 

The Partnership willterminate on October 31, 2017, or in the event of certain othercircumstances, as defined in the Agreement.

 

At December 31,2003, the number of partners in the Partnership exceeded 500. As a result,pursuant to the requirements of Section 12(g) of the Securities Exchange Act of1934 (the “Act”), the Partnership filed a registration statement onForm 10 with the Securities and Exchange Commission on April 29,2004, and became subject to the periodic reporting requirements of the Act.

 

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**2.**                      SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

** **

***Investments—***The Partnership records its transactions in futuresand forward currency contracts, including related income and expenses, on atrade-date basis.

 

Open futures contractsare valued at market value and open forward currency contracts are valued atfair value which is based on pricing models that consider the time value ofmoney and the current market and contractual prices of the underlying financialinstruments. Realized gains (losses) and changes in unrealized appreciation(depreciation) on futures and forward currency contracts are recognized in theperiods in which the contracts are closed or the changes occur, and areincluded in net realized and unrealized gains (losses) in the statements ofoperations.

 

Investments in U.S.Treasury notes are valued at the market value based on bid quotations reporteddaily in The Wall Street Journal. The Partnership amortizes premiums andaccretes discounts on U.S. Treasury notes using the effective interest method.Such securities are normally on deposit with financial institutions ascollateral for performance of the Partnership’s trading obligations withrespect to derivative contracts and are held for safekeeping in a custodyaccount.

 

***Foreign Currency Translation—***Assets and liabilities denominated inforeign currencies are translated at quoted prices of such currencies.Purchases and sales of investments are translated at the exchange rateprevailing when such transactions occurred.

 

***Brokerage Fees—***The Agreement provides that the Partnership shallcharge the limited partners’ capital accounts and pay the General Partnerbrokerage fees at a fixed rate of 0.542% per month of net asset value (6.5% perannum) of limited partnership interests. Effective July 1, 2003, theGeneral Partner reduced the brokerage fee rate to 0.458% per month of net assetvalue (5.5% per annum). The General Partner retains the right to charge lessthan the annual brokerage rate except as specified in the Agreement. TheGeneral Partner bears all commission and clearing charges due to third-partybrokers.

 

***Administrative Expenses—***The Partnership bears expenses, including periodiclegal, accounting and filing fees, up to an amount equal to 1⁄4 of 1% per annum ofthe average net assets of the Partnership. The General Partner bears any excessover such amounts. The Partnership will pay any extraordinary expensesapplicable to it.

 

The Partnership’sadministrative expenses included $317,619, $263,807 and $321,361 in 2005, 2004and 2003, respectively, which relates to legal and accounting services providedto the Partnership by an affiliate of the General Partner.

 

***Income Taxes—***Income taxes have not been provided, as partners areindividually liable for the taxes, if any, on their share of the Partnership’sincome and expenses.

 

***Fair Value of Financial Instruments—***The fair value of the Partnership’sassets and liabilities, which qualify as financial instruments under Statementof Financial Accounting Standards (“SFAS”) No. 107, *Disclosures about Fair Value of Financial Instruments*,approximates the carrying amounts presented in the statements of financialcondition.

 

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***Estimates—***The preparation of financial statements in conformitywith accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the amounts anddisclosures reported in the financial statements. Actual results could differfrom these estimates.

 

***Right of Offset—***The customer agreements between the Partnership andits brokers give the Partnership the legal right to net unrealized gains andlosses. Unrealized gains and losses related to offsetting transactions withthese brokers are reflected on a net basis in the equity in trading accounts inthe statements of financial condition.

 

**3.**                      PROFIT SHARE ALLOCATION

** **

The Agreement providesthat the General Partner’s profit share equal to 20% of Trading Profits (asdefined in the Agreement) at the end of each year is charged to the limitedpartners’ capital accounts. However, for limited partners’ withdrawals duringthe year, the profit share calculation shall be computed as though thewithdrawal date was at year end.

 

Any profit share chargedis added to the General Partner’s capital account to the extent net taxablecapital gains are allocated to the General Partner, and the remainder, if any,of such profit share is added to the New Profit Memo Account. The GeneralPartner may not make any withdrawal from the balance in the New Profit MemoAccount. If, at the end of a subsequent year, net taxable gains are allocatedto the General Partner in excess of such year’s profit share, a correspondingamount is transferred from the New Profit memo account to the General Partner’scapital account.

 

**4.**                      DUE FROM/TO BROKERS

** **

At December 31, 2005and 2004, the due from brokers balance in the statements of financial conditionincludes cash receivable from brokers.

 

**5.**                      TRADING ACTIVITIES

** **

The Partnership conductsits trading activities with various brokers acting either as a broker orcounterparty to various transactions. At December 31, 2005 and 2004, cash,due from brokers and Treasury notes aggregating $69,658,449, and $55,211,679,respectively, included in the Partnership’s equity in trading accounts, wereheld by such brokers in segregated accounts as collateral as required by U.S.Commodity Futures Trading Commission’s regulations or by the counterparty bankor broker. Such collateral can be sold or repledged by the counterparties, attheir discretion.

 

ThePartnership enters into contracts with various financial institutions thatcontain a variety of indemnifications. The Partnership’s maximum exposure underthese arrangements is unknown. However, the Partnership has not had priorclaims or losses pursuant to these contracts and expects the risk of loss to beremote.

 

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**6.**                      DERIVATIVE INSTRUMENTS

** **

The Partnership is partyto derivative financial instruments in the normal course of its business. Thesefinancial instruments include futures and forward currency contracts which maybe traded on an exchange (“exchange-traded contracts”) or over-the-counter (“OTCcontracts”).

 

The Partnership recordsits derivative activities on a mark-to-market basis as described inNote 2. For OTC contracts, the Partnership enters into master nettingagreements with its counterparties. Therefore, assets represent the Partnership’sunrealized gains, less unrealized losses for OTC contracts in which thePartnership has a master netting agreement. Similarly, liabilities representnet amounts owed to counterparties on OTC contracts.

 

Futures contracts areagreements to buy or sell an underlying asset or index for a set price in thefuture. Initial margin deposits are made upon entering into futures contractsand can be either in cash or treasury securities. Open futures contracts arerevalued on a daily basis to reflect the market value of the contracts at theend of each trading day. Variation margin payments are received or made,depending upon whether unrealized gains or losses are incurred. When thecontract is closed, the Partnership records a realized gain or loss equal tothe difference between the value of the contract at the time it was opened andthe time it was closed. The Partnership bears the market risk that arises fromchanges in the value of these financial instruments.

 

Forward currencycontracts entered into by the Partnership represent a firm commitment to buy orsell an underlying currency at a specified value and point in time based uponan agreed or contracted quantity. The ultimate gain or loss is equal to thedifference between the value of the contract at the onset and the value of thecontract at settlement date.

 

Each of these financialinstruments is subject to various risks similar to those related to theunderlying financial instruments, including market risk, credit risk,concentration risk, and sovereign risk.

 

Market risk is thepotential change in the value of the instruments traded by the Partnership dueto market changes, including interest and foreign exchange rate movements andfluctuations in futures or security prices. Market risk is directly impacted bythe volatility and liquidity in the markets in which the related underlyingassets are traded. The financial instruments traded by the Partnership containvarying degrees of off-balance sheet risk whereby changes in the market valuesof the futures and forward currency contracts underlying the financial instrumentsor the Partnership’s satisfaction of the obligations may exceed the amountrecognized in the statements of financial condition.

 

Credit risk is thepossibility that a loss may occur due to the failure of a counterparty toperform according to the terms of a contract. Credit risk is normally reducedto the extent that an exchange or clearing organization acts as a counterpartyto futures transactions, since typically the collective credit of the membersof the exchange is pledged to support the financial integrity of the exchange.In the case of OTC transactions, the Partnership

 

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must rely solely on thecredit of the individual counterparties. The contract amounts of the forwardcurrency and futures contracts do not represent the Partnership’s risk of lossdue to counterparty nonperformance. The Partnership’s exposure to credit riskassociated with counterparty nonperformance of these contracts is limited tothe unrealized gains inherent in such contracts, which are recognized in thestatements of financial condition, plus the value of margin or collateral heldby the counterparty. The amount of such credit risk was $43,906,779 and$35,013,195 at December 31, 2005 and 2004, respectively.

 

The General Partner hasestablished procedures to actively monitor market risk and minimize creditrisk, although there can be no assurance that it will, in fact succeed in doingso. The General Partner’s market risk control procedures includediversification of the Partnership’s portfolio and continuously monitoring theportfolio’s open positions, historical volatility and maximum historical loss.The General Partner seeks to minimize credit risk primarily by depositing andmaintaining the Partnership’s assets at financial institutions and brokerswhich the General Partner believes to be creditworthy. The Partnership’strading activities are primarily with brokers and other financial institutionslocated in North America, Europe and Asia. All futures transactions of the Partnershipare cleared by major securities firms pursuant to customer agreements. For allforward currency transactions, the Partnership utilizes a single clearingbroker which is a major financial institution.

 

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The Partnership issubject to sovereign risk such as the risk of restrictions being imposed byforeign governments on the repatriation of cash and the effects of political oreconomic uncertainties. Net unrealized appreciation (depreciation) on futuresand forward currency contracts are denominated in the functional currency. Cashsettlement of futures and forward currency contracts is made in the localcurrency (settlement currency) and then translated to the functional currency(U.S. Dollar).

 

Net unrealizedappreciation (depreciation) on futures and forward currency contracts bysettlement currency type, denominated in the functional currency, is detailedbelow:

 
| ** **          | ** ** | **December 31,** | ** ** |
|---------------------|------------|-----------------------|------------|
| ** **          | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **          | ** ** | **Total Net**    | ** ** | ** ** | ** ** | **Total Net** | ** ** | ** ** | ** ** |
| ** **          | ** ** | **Unrealized**        | ** ** | ** ** | ** ** | **Unrealized** | ** ** | ** ** | ** ** |
| ** **          | ** ** | **Appreciation**      | ** ** | **Percent of** | ** ** | **Appreciation** | ** ** | **Percent of** | ** ** |
| ** **          | ** ** | **(Depreciation)**    | ** ** | **Total** | ** ** | **(Depreciation)** | ** ** | **Total** | ** ** |
| ** **          | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Currency  Type**  |       |                  |       |   |   |   |   |   |   |
|                |       |                  |       |   |   |   |   |   |   |
| Australian  dollar  |       | $                     | 408,298    |   | (29.77 | )% | $ | 262,023 |   | 5.79 | % |
| British pound       |       | (14,230               | )          | 1.04 |   | (72 | ) | — |   |
| Canadian dollar     |       | 335,830               |       | (24.48 | ) | 87,836 |   | 1.94 |   |
| Euro                |       | 1,424,609             |       | (103.86 | ) | 20,676 |   | 0.46 |   |
| Hong Kong dollar    |       | (239,809              | )          | 17.48 |   | (26,594 | ) | (0.59 | ) |
| Japanese yen        |       | (2,706,149            | )          | 197.29 |   | 317,239 |   | 7.01 |   |
| Norwegian krona     |       | (198,360              | )          | 14.46 |   | (757,572 | ) | (16.75 | ) |
| Polish zloty        |       | 125,813               |       | (9.17 | ) | 292,131 |   | 6.46 |   |
| South African  rand |       | 260,592               |       | (19.00 | ) | 149,247 |   | 3.30 |   |
| Swedish krona       |       | (382                  | )          | 0.03 |   | (144,297 | ) | (3.19 | ) |
| U.S. dollar         |       | (767,890              | )          | 55.98 |   | 4,323,109 |   | 95.57 |   |
|                |       |                  |       |   |   |   |   |   |   |
| Total               |       | $                     | (1,371,678 | ) | 100.00 | % | $ | 4,523,726 |   | 100.00 | % |

 

**7.**                      FINANCIAL HIGHLIGHTS

** **

The ratios are calculatedbased on limited partners’ capital and special limited partners’ capital takenas a whole. The computation of such ratios based on the amount of expenses andprofit share allocation assessed to an individual partner’s capital account mayvary from these ratios based on the timing of capital transactions anddifferences in individual partner’s brokerage fees and profit share allocationarrangements.

 

Returns are calculatedfor limited partners and special limited partners taken as a whole. Anindividual partner’s returns may vary from these returns based on the timing ofcapital transactions and differences in individual partners’ brokerage fees andprofit share allocation arrangements.

 

* * * ** *

 

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