**Exhibit 13.01**

 

***Nestor Partners***

 

*Financial StatementsYears Ended December 31, 2004, 2003 and 2002Report of Independent Registered Public Accounting Firm*

 

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**NESTOR PARTNERS**

 

**TABLE OF CONTENTS**

 
| AFFIRMATION  OF MILLBURN RIDGEFIELD CORPORATION                             |   |
|-----------------------------------------------------------------------------|--------|
|                                                                        |   |
| REPORT  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                    |   |
|                                                                        |   |
| FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER  31, 2004, 2003 and 2002: |   |
|                                                                        |   |
| Statements of  Financial Condition                                          |   |
|                                                                        |   |
| Condensed Schedules  of Investments                                         |   |
|                                                                        |   |
| Statements of Operations                                                    |   |
|                                                                        |   |
| Statements  of Changes in Partners’ Capital                            |   |
|                                                                        |   |
| Statements of  Financial Highlights                                         |   |
|                                                                        |   |
| Notes to Financial  Statements                                              |   |

 

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**NESTOR PARTNERSAFFIRMATION 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, 2004 and 2003, including the condensed schedules of investments,and the related statements of operations, changes in partners’ capital andfinancial highlights for the years ended December 31, 2004, 2003 and 2002are complete and accurate.

 

 

George E. Crapple,Co-Chief Executive Officer

Millburn RidgefieldCorporation

General Partner of NestorPartners

 

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**REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

 

 

To thePartners of Nestor Partners

 

Wehave audited the accompanying statement of financial condition of NestorPartners (the “Partnership”) as of December 31, 2004, including the condensedschedule of investments, and the related statements of operations, changes inpartners’ capital and financial highlights for the year then ended. Thesefinancial statements and financial highlights are the responsibility of thePartnership’s management. Our responsibility is to express an opinion on thesefinancial statements and financial highlights based on our audit.  The financial statements and financialhighlights for the years ended December 31, 2003 and 2002, including thecondensed schedule of investments for 2003, were audited by other auditorswhose report dated February 17, 2004, expressed an unqualified opinion on thosestatements.

 

Weconducted our audit 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. An audit includes consideration of internal control overfinancial reporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Partnership’s internal control overfinancial 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 audit provides 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, 2004, and the results of its operations, changes inpartners’ capital and financial highlights for the year then ended inconformity with accounting principles generally accepted in the United Statesof America.

 

Deloitte& Touche LLP

NewYork, New York

February18, 2005

 

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**NESTORPARTNERS**

** **

**STATEMENTS OF FINANCIAL CONDITION**

**YEARS ENDEDDECEMBER 31, 2004 AND 2003**

 
| ** **                                                                                               | ** ** | **2004**    | ** **  | **2003**    | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
| **ASSETS**                                                                                               |       |        |        |        |       |
|                                                                                                     |       |        |        |        |       |
| EQUITY IN  TRADING ACCOUNTS:                                                                             |       |        |        |        |       |
| Investments in  U.S. Treasury notes—at market value (amortized cost $46,930,539 and  $69,762,758)   |       | $           | 46,848,072  |        | $          | 69,779,438 |   |
| Net unrealized  appreciation on open futures and forward currency contracts                              |       | 4,523,726   |        | 9,750,763   |       |
| Due from brokers                                                                                         |       | 6,193,636   |        | 3,114,869   |       |
| Cash denominated  in foreign currencies (cost $2,129,278 and $851,372)                                   |       | 2,169,971   |        | 885,274     |       |
|                                                                                                     |       |        |        |        |       |
| Total equity in  trading accounts                                                                        |       | 59,735,405  |        | 83,530,344  |       |
|                                                                                                     |       |        |        |        |       |
| INVESTMENTS IN  U.S. TREASURY NOTES—at market value (amortized cost $133,147,061 and  $109,375,528) |       | 133,032,588 |        | 109,392,119 |       |
|                                                                                                     |       |        |        |        |       |
| CASH AND CASH  EQUIVALENTS                                                                               |       | 16,278,049  |        | 19,727,500  |       |
|                                                                                                     |       |        |        |        |       |
| ACCRUED INTEREST  RECEIVABLE                                                                             |       | 472,441     |        | 1,836,774   |       |
|                                                                                                     |       |        |        |        |       |
| TOTAL                                                                                                    |       | $           | 209,518,483 |        | $          | 214,486,737 |   |
|                                                                                                     |       |        |        |        |       |
| **LIABILITIES  AND PARTNERS’ CAPITAL**                                                              |       |        |        |        |       |
|                                                                                                     |       |        |        |        |       |
| LIABILITIES:                                                                                             |       |        |        |        |       |
| Capital  contributions received in advance                                                               |       | $           | 2,165,900   |        | $          | 2,393,300 |   |
| Due to brokers                                                                                           |       | —      |        | 631,451     |       |
| Accrued  brokerage fees                                                                                  |       | 475,296     |        | 465,695     |       |
| Accrued expenses                                                                                         |       | 305,683     |        | 332,093     |       |
| Capital  withdrawals payable                                                                             |       | 12,993,466  |        | —      |       |
|                                                                                                     |       |        |        |        |       |
| Total  liabilities                                                                                       |       | 15,940,345  |        | 3,822,539   |       |
|                                                                                                     |       |        |        |        |       |
| PARTNERS’  CAPITAL                                                                                  |       | 193,578,138 |        | 210,664,198 |       |
|                                                                                                     |       |        |        |        |       |
| TOTAL                                                                                                    |       | $           | 209,518,483 |        | $          | 214,486,737 |   |

 

2

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**NESTORPARTNERS**

 

**CONDENSED SCHEDULE OF INVESTMENTS**

**DECEMBER31, 2004**

 
| ** **                                                | ** ** | **Net Unrealized**         | ** ** | ** **         | ** ** |
|-----------------------------------------------------------|------------|----------------------------|------------|--------------------|------------|
| ** **                                                | ** ** | **Appreciation**           | ** ** | **Net**            | ** ** |
| ** **                                                | ** ** | **(Depreciation)**         | ** ** | **Unrealized**     | ** ** |
| ** **                                                | ** ** | **as a % of**              | ** ** | **Appreciation**   | ** ** |
| **Futures and Forward Currency  Contracts**               | ** ** | **Partners’ Capital** | ** ** | **(Depreciation)** | ** ** |
|                                                      |       |                       |       |               |       |
| 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          |       |
|                                                      |       |                       |       |               |       |
| 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  |   |

 

**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 |   |
|            |            |                                                                          |                                          |                      |            |            |             |  |  |

 

See notes to financialstatements.

 

3

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**NESTORPARTNERS**

 

**CONDENSEDSCHEDULE OF INVESTMENTS**

**DECEMBER31, 2003**

 
| ** **                                                | ** ** | **Net Unrealized**         | ** ** | ** **         | ** ** |
|-----------------------------------------------------------|------------|----------------------------|------------|--------------------|------------|
| ** **                                                | ** ** | **Appreciation**           | ** ** | **Net**            | ** ** |
| ** **                                                | ** ** | **(Depreciation)**         | ** ** | **Unrealized**     | ** ** |
| ** **                                                | ** ** | **as a % of**              | ** ** | **Appreciation**   | ** ** |
| **Futures and Forward Currency  Contracts**               | ** ** | **Partners’ Capital** | ** ** | **(Depreciation)** | ** ** |
|                                                      |       |                       |       |               |       |
| LONG FUTURES  CONTRACTS:                                  |       |                       |       |               |       |
| Energies                                                  |       | (0.75                      | )%         | $                  | (1,569,867 | ) |
| Interest rates                                            |       | 0.04                       |       | 77,990             |       |
| Metals                                                    |       | 0.93                       |       | 1,966,898          |       |
| Softs                                                     |       | (0.05                      | )          | (111,075           | )          |
| Stock indices                                             |       | 0.48                       |       | 1,012,623          |       |
|                                                      |       |                       |       |               |       |
| Total long  futures contracts                             |       | 0.65                       |       | 1,376,569          |       |
|                                                      |       |                       |       |               |       |
| SHORT FUTURES  CONTRACTS:                                 |       |                       |       |               |       |
| Grains                                                    |       | 0.00                       |       | (300               | )          |
| Interest rates                                            |       | (0.02                      | )          | (50,447            | )          |
|                                                      |       |                       |       |               |       |
| Total short  futures contracts                            |       | (0.02                      | )          | (50,747            | )          |
|                                                      |       |                       |       |               |       |
| TOTAL  INVESTMENTS IN FUTURES CONTRACTS—Net          |       | 0.63                       |       | 1,325,822          |       |
|                                                      |       |                       |       |               |       |
| TOTAL LONG  FORWARD CURRENCY CONTRACTS                    |       | 5.65                       |       | 11,893,473         |       |
|                                                      |       |                       |       |               |       |
| TOTAL SHORT  FORWARD CURRENCY CONTRACTS                   |       | (1.65                      | )          | (3,468,532         | )          |
|                                                      |       |                       |       |               |       |
| TOTAL  INVESTMENTS IN FORWARD CURRENCY CONTRACTS—Net |       | 4.00                       |       | 8,424,941          |       |
|                                                      |       |                       |       |               |       |
| TOTAL                                                     |       | 4.63                       | %          | $                  | 9,750,763  |   |

 

**U.S. Treasury Notes**
| ** ** | ** ** | ** **                                                               | ** **                               | **Value as a  % of** | ** ** | ** ** | ** **  |
|------------|------------|--------------------------------------------------------------------------|------------------------------------------|----------------------|------------|------------|-------------|
| **Face**   | ** ** | ** **                                                               | ** **                               | **Partners’**   | ** ** | ** ** | ** **  |
| **Amount** | ** ** | **Description**                                                          | ** **                               | **Capital**          | ** ** | **Value**  | ** **  |
| ** ** |       | ** **                                                               |                                     | ** **           |       | ** ** |        |
| $          | 60,800,000 |                                                                     | U.S. Treasury notes,  4.750%, 02/15/2004 |                 | 28.64      | %          | $           | 60,342,850 |   |
| 61,580,000 |       | U.S. Treasury notes,  3.375%, 04/30/2004                                 |                                     | 29.46                |       | 62,061,094 |        |
| 56,380,000 |       | U.S. Treasury notes,  2.125%, 08/31/2004                                 |                                     | 26.95                |       | 56,767,613 |        |
|       |       |                                                                     |                                     |                 |       |       |        |
|       |       | Total  investments in U.S. Treasury notes  (amortized cost $179,138,286) |                                     | 85.05                | %          | $          | 179,171,557 |   |
|            |            |                                                                          |                                          |                      |            |            |             |  |  |

 

See notes to financial statements.

 

4

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**NESTOR PARTNERS**

 

**STATEMENTS OF OPERATIONS**

**YEARS ENDEDDECEMBER 31, 2004, 2003 AND 2002**

 
| ** **                                               | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|----------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
|                                                     |       |       |       |       |       |       |       |
| INVESTMENT  INCOME:                                      |       |       |       |       |       |       |       |
| Interest income                                          |       | $          | 2,406,435  |       | $          | 2,061,312  |       | $ | 2,985,561 |   |
|                                                     |       |       |       |       |       |       |       |
| EXPENSES:                                                |       |       |       |       |       |       |       |
| Brokerage fees                                           |       | 5,497,025  |       | 5,378,592  |       | 4,580,773  |       |
| Administrative  expenses                                 |       | 499,091    |       | 434,300    |       | 393,610    |       |
| Custody fees                                             |       | 29,493     |       | 22,573     |       | —     |       |
|                                                     |       |       |       |       |       |       |       |
| Total expenses                                           |       | 6,025,609  |       | 5,835,465  |       | 4,974,383  |       |
|                                                     |       |       |       |       |       |       |       |
| NET INVESTMENT  LOSS                                     |       | (3,619,174 | )          | (3,774,153 | )          | (1,988,822 | )          |
|                                                     |       |       |       |       |       |       |       |
| NET REALIZED AND  UNREALIZED GAINS (LOSSES):             |       |       |       |       |       |       |       |
| Net realized  gains (losses) on closed positions:        |       |       |       |       |       |       |       |
| Futures and  forward currency contracts                  |       | 4,721,012  |       | 4,326,292  |       | 38,730,144 |       |
| Foreign exchange  translation                            |       | 219,374    |       | (17,386    | )          | 186,668    |       |
| Net change in  unrealized appreciation (depreciation):   |       |       |       |       |       |       |       |
| Futures and  forward currency contracts                  |       | (5,227,037 | )          | 2,455,746  |       | 306,168    |       |
| Foreign exchange  translation                            |       | 6,791      |       | 61,335     |       | (35,984    | )          |
| Net losses from  U.S. Treasury notes:                    |       |       |       |       |       |       |       |
| Net change in  unrealized depreciation                   |       | (230,211   | )          | (78,226    | )          | (352,212   | )          |
|                                                     |       |       |       |       |       |       |       |
| Total net  realized and unrealized gains (losses)        |       | (510,071   | )          | 6,747,761  |       | 38,834,784 |       |
|                                                     |       |       |       |       |       |       |       |
| NET INCOME  (LOSS)                                       |       | (4,129,245 | )          | 2,973,608  |       | 36,845,962 |       |
|                                                     |       |       |       |       |       |       |       |
| LESS PROFIT  SHARE TO GENERAL PARTNER                    |       | 484,760    |       | 668,526    |       | 3,393,398  |       |
|                                                     |       |       |       |       |       |       |       |
| NET INCOME  (LOSS) AFTER PROFIT SHARE TO GENERAL PARTNER |       | $          | (4,614,005 | )          | $          | 2,305,082  |       | $ | 33,452,564 |   |

 

See notes to financialstatements.

 

5

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**NESTORPARTNERS**

 

**STATEMENTSOF CHANGES IN PARTNERS’ CAPITAL**

**YEARS ENDED DECEMBER 31, 2004, 2003AND 2002**

 
| ** **                                              | ** ** | ** **   | ** **  | **Special**  | ** ** | **New Profit** | ** ** | ** **  | ** ** | ** **  | ** ** |
|---------------------------------------------------------|------------|--------------|-------------|--------------|------------|----------------|------------|-------------|------------|-------------|------------|
| ** **                                              | ** ** | **Limited**  | ** **  | **Limited**  | ** ** | **Memo**       | ** ** | **General** | ** ** | ** **  | ** ** |
| ** **                                              | ** ** | **Partners** | ** **  | **Partners** | ** ** | **Account**    | ** ** | **Partner** | ** ** | **Total**   | ** ** |
|                                                    |       |         |        |         |       |           |       |        |       |        |       |
| PARTNERS’  CAPITAL—  January 1, 2002          |       | $            | 107,926,503 |         | $          | 42,528,256     |       | $           | 60,789     |        | $          | 3,065,692 |   | $ | 153,581,240 |   |
| Contributions                                           |       | 15,479,029   |        | 500,000      |       | —         |       | —      |       | 15,979,029  |       |
| Withdrawals                                             |       | (59,131,342  | )           | (5,718,056   | )          | —         |       | (600,000    | )          | (65,449,398 | )          |
| Net income (loss)                                       |       | 22,412,496   |        | 13,389,784   |       | 105,249        |       | 938,433     |       | 36,845,962  |       |
| General  Partner’s allocation—  Profit Share  |       | (3,393,398   | )           | —       |       | 3,393,398      |       | —      |       | —      |       |
| Transfer of New  Profit Memo Account to General Partner |       | —       |        | —       |       | (3,559,436     | )          | 3,559,436   |       | —      |       |
|                                                    |       |         |        |         |       |           |       |        |       |        |       |
| PARTNERS’  CAPITAL—  December 31, 2002        |       | 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 |   |

 

See notes to financial statements.

 

6

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**NESTORPARTNERS**

 

**STATEMENTS OF FINANCIAL HIGHLIGHTS**

**YEARS ENDEDDECEMBER 31, 2004, 2003 AND 2002**

 
| ** **                                                     | ** ** | ** **   | ** ** | **Special**  | ** ** |
|----------------------------------------------------------------|------------|--------------|------------|--------------|------------|
| ** **                                                     | ** ** | **Limited**  | ** ** | **Limited**  | ** ** |
| ** **                                                     | ** ** | **Partners** | ** ** | **Partners** | ** ** |
| 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         | %          |
|                                                           |       |         |       |         |       |
| YEAR ENDED  DECEMBER 31, 2002:                                 |       |         |       |         |       |
| Ratios to  average capital—  Net investment income (loss) |       | (2.60        | )%         | 1.23         | %          |
|                                                           |       |         |       |         |       |
| Total expenses                                                 |       | 4.59         |       | 0.74         |       |
| Profit share  allocation                                       |       | 3.38         |       | —       |       |
| Total expenses  and profit share allocation                    |       | 7.97         |       | 0.74         |       |
|                                                           |       |         |       |         |       |
| Total return  before profit share allocation                   |       | 28.07        |       | 33.11        |       |
| Profit share  allocation                                       |       | (4.31        | )          | —       |       |
|                                                           |       |         |       |         |       |
| TOTAL RETURN  AFTER PROFIT SHARE ALLOCATION                    |       | 23.76        | %          | 33.11        | %          |

 

See notes to financialstatements.

 

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**NESTOR PARTNERS**

 

**NOTESTO FINANCIAL STATEMENTS**

**YEARS ENDED DECEMBER 31,2004, 2003 AND 2002**

 

**1.**                      ORGANIZATION OF THE PARTNERSHIP

** **

Nestor Partners (the “Partnership”) is a limitedpartnership, which was organized in 1976 under the New Jersey Uniform LimitedPartnership Act. The Limited Partnership Agreement (the “Agreement”) wasamended and restated as of April 5, 2004. The Partnership engages in thespeculative trading of futures and forward currency contracts. The instrumentsthat are traded by the Partnership are volatile and involve a high degree ofmarket risk.

 

The General Partner of the Partnership is MillburnRidgefield Corporation (the “General Partner”). Principals, employees, formeremployees and other affiliates of the General Partner have invested in thePartnership as special limited partners.

 

The Agreement provides that subject to certainlimitations, the General Partner shall conduct and manage the business of thePartnership. The General Partner has the right to make all investment decisionsregarding the Partnership, authorize the payments of distributions to partners,enter into customer agreements with brokers and take such other actions, as itdeems necessary or desirable, to manage the business of the Partnership.

 

The limited partners, special limited partners, NewProfit Memo Account and the General Partner share in the profits and losses ofthe Partnership, which are determined before brokerage commissions(Note 2) and profit share allocations on the basis of their proportionateinterests of Partnership capital (Note 3). No limited partner or speciallimited partner shall be liable for Partnership obligations in excess of theircapital contribution plus profits allocated to their capital accounts, if any.Subject to certain conditions, a partner may withdraw/redeem part or all of hiscapital contribution and undistributed profits, if any, from the Partnership asof the end of any month.

 

The General Partner, subject to Commodity FuturesTrading Commission requirements, may (at its discretion) sell additionalLimited Partnership Interests to persons desiring to become limited partners.

 

The Partnership will terminate on October 31, 2017 orin the event of certain other circumstances, as defined in the Agreement.

 

At December 31, 2003, the number of partners in thePartnership exceeded 500. As a result, pursuant to the requirements of Section12(g) of the Securities Exchange Act of 1934 (the “Act”), the Partnership fileda registration statement on Form 10 with the Securities and Exchange Commissionon April 29, 2004 and became subject to the periodic reporting requirements ofthe Act.

 

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**2.**                      SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

** **

***Investments—***The Partnership records its transactionsin futures and forward currency contracts, including related income andexpenses, on a trade date basis.

 

Open futures contracts are valued at market value andopen forward currency contracts are valued at fair value which is based onpricing models that consider the time value of money and the current market andcontractual prices of the underlying financial instruments. Realized gains(losses) and changes in unrealized appreciation (depreciation) on futures andforward currency contracts are recognized in the periods in which the contractsare closed or the changes occur, and are included in net realized andunrealized gains (losses) in the statements of operations.

 

Investments in U.S. Treasury notes are valued at themarket value based on bid quotations reported daily in The Wall Street Journal.The Partnership amortizes premiums and accretes discounts on U.S. Treasurynotes using the effective interest method. Such securities are normally ondeposit with financial institutions as collateral for performance of thePartnership’s trading obligations with respect to derivative contracts and areheld for safekeeping in a custody account.

 

***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 thePartnership shall charge the limited partners’ capital accounts and pay theGeneral Partner brokerage fees at a fixed rate of 0.542% per month of net assetvalue (6.5% per annum) of limited partnership interests. Effective July 1,2003, the General Partner reduced the brokerage fee rate to 0.458% per month ofnet asset value (5.5% per annum). The General Partner retains the right tocharge less than the annual brokerage rate except as specified in theAgreement. The General Partner bears all commission and clearing charges due tothird party brokers.

 

***Administrative Expenses—***The Partnership bears expenses, includingperiodic legal, accounting and filing fees, up to an amount equal to 1/4of 1% per annum of the average net assets of the Partnership. The GeneralPartner bears any excess over such amounts. The Partnership will pay anyextraordinary expenses applicable to it.

 

The Partnership’s administrative expenses included$263,807, $321,361 and $312,732 in 2004, 2003 and 2002, respectively, whichrelates to legal and accounting services provided to the Partnership by anaffiliate of the General Partner.

 

***Income Taxes—***Income taxes have not been provided, aspartners are individually liable for the taxes, if any, on their share of thePartnership’s income and expenses.

 

***Fair Value of FinancialInstruments—***Thefair value of the Partnership’s assets and liabilities, which qualify asfinancial instruments under Statement of Financial Accounting Standards No.107, *Disclosures about Fair Value of FinancialInstruments*, approximates the carrying amounts presented in thestatements of financial condition.

 

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***Estimates—***The preparation of financial statementsin conformity with accounting principles generally accepted in the UnitedStates requires management to make estimates and assumptions that affect theamounts and disclosures reported in the financial statements. Actual resultscould differ from these estimates.

 

***Right of Offset—***The customer agreements between thePartnership and its brokers give the Partnership the legal right to netunrealized gains and losses. Unrealized gains and losses related to offsettingtransactions with these brokers are reflected on a net basis in the equity intrading accounts in the statements of financial condition.

 

***Reclassifications—***Certain reclassifications have been madeto the prior years’ financial statements to conform to the current yearpresentation.  Such reclassificationshave no impact on the previously reported net income (loss) after profit shareto General Partner.

 

***Accounting Change—***During the year ended December 31, 2004,the Partnership adopted the provisions of the Financial Accounting StandardsBoard issued Statement of Financial Accounting Standard (“SFAS”) No. 150, “Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity”.  Specifically SFAS No. 150changed the requirements for the classification of mandatorily redeemablepartners’ equity.

 

For the Partnership, withdrawals that are made on thefirst of the month must be requested in writing 15 days in advance of suchwithdrawal date.  As a result, withdrawalrequests received 15 days prior to January 1, 2005, the withdrawal date, aredeemed a mandatory request under SFAS No. 150. The Partnership classified thesewithdrawal requests as a liability at December 31, 2004, which are included in “Capitalwithdrawals payable” in the Statements of Financial Condition. This change inaccounting has no impact on the net income (loss) of the Partnership.

 

**3.**                      PROFIT SHARE ALLOCATION

** **

The Agreement provides that the General Partner’sprofit share equal to 20% of Trading Profits (as defined in the Agreement) atthe end of each year is charged to the limited partners’ capital accounts.However, for limited partners’ withdrawals during the year, the profit sharecalculation shall be computed as though the withdrawal date was at year end.

 

Any profit share charged is added to the GeneralPartner’s capital account to the extent net taxable capital gains are allocatedto the General Partner, and the remainder, if any, of such profit share isadded to the New Profit Memo Account. The General Partner may not make anywithdrawal from the balance in the New Profit Memo Account. If, at the end of asubsequent year, net taxable gains are allocated to the General Partner inexcess of such year’s profit share, a corresponding amount is transferred fromthe New Profit memo account to the General Partner’s capital account.

 

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**4.**                      DUE FROM/TO BROKERS

** **

At December 31, 2004 and 2003, the due from brokersand due to brokers balances in the statements of financial condition includecash receivable from and payable to brokers.

 

**5.**                      TRADING ACTIVITIES

** **

The Partnership conducts its trading activities withvarious brokers acting either as a broker or counterparty to varioustransactions. At December 31, 2004 and 2003, cash, due from brokers, due tobrokers and treasury notes aggregating $55,211,679, and $73,148,130,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.

 

The Partnership enters into contracts with variousfinancial institutions that contain a variety of indemnifications. ThePartnership’s maximum exposure under these arrangements is unknown. However,the Partnership has not had prior claims or losses pursuant to these contractsand expects the risk of loss to be remote.

 

**6.**                      DERIVATIVE INSTRUMENTS

** **

The Partnership is party to derivative financialinstruments in the normal course of its business. These financial instrumentsinclude futures and forward currency contracts which may be traded on anexchange (“exchange-traded contracts”) or over-the-counter (“OTC contracts”).

 

The Partnership records its derivative activities on amark-to-market basis as described in Note 2. For OTC contracts, thePartnership enters into master netting agreements with its counterparties.Therefore, assets represent the Partnership’s unrealized gains, less unrealizedlosses for OTC contracts in which the Partnership has a master nettingagreement. Similarly, liabilities represent net amounts owed to counterpartieson OTC contracts.

 

Futures contracts are agreements to buy or sell anunderlying asset or index for a set price in the future. Initial margindeposits are made upon entering into futures contracts and can be either incash or treasury securities. Open futures contracts are revalued on a dailybasis to reflect the market value of the contracts at the end of each tradingday. Variation margin payments are received or made, depending upon whetherunrealized gains or losses are incurred. When the contract is closed, thePartnership records a realized gain or loss equal to the difference between thevalue of the contract at the time it was opened and the time it was closed. ThePartnership bears the market risk that arises from changes in the value ofthese financial instruments.

 

Forward currency contracts entered into by thePartnership represent a firm commitment to buy or sell an underlying currencyat a specified value and point in time based upon an agreed or contractedquantity. The ultimate gain or loss is equal to the difference between thevalue of the contract at the onset and the value of the contract at settlementdate.

 

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Each of these financial instruments is subject tovarious risks similar to those related to the underlying financial instruments,including market risk, credit risk, concentration risk and sovereign risk.

 

Market risk is the potential change in the value ofthe instruments traded by the Partnership due to market changes, includinginterest and foreign exchange rate movements and fluctuations in futures orsecurity prices. Market risk is directly impacted by the volatility andliquidity in the markets in which the related underlying assets are traded. Thefinancial instruments traded by the Partnership contain varying degrees ofoff-balance sheet risk whereby changes in the market values of the futures andforward currency contracts underlying the financial instruments or thePartnership’s satisfaction of the obligations may exceed the amount recognizedin the statements of financial condition.

 

Credit risk is the possibility that a loss may occurdue to the failure of a counterparty to perform according to the terms of acontract. Credit risk is normally reduced to the extent that an exchange orclearing organization acts as a counterparty to futures transactions, sincetypically the collective credit of the members of the exchange is pledged tosupport the financial integrity of the exchange. In the case of OTCtransactions, the Partnership must rely solely on the credit of the individual counterparties.The contract amounts of the forward currency and futures contracts do notrepresent the Partnership’s risk of loss due to counterparty nonperformance.The Partnership’s exposure to credit risk associated with counterpartynonperformance of these contracts is limited to the unrealized gains inherentin such contracts, which are recognized in the statements of financialcondition.

 

Derivative contracts with a net unrealized gain(asset) of $2,382,234 and $8,424,941 at December 31, 2004 and 2003,respectively, are related to forward currency contracts with the remainingunrealized gains related to exchange-traded futures contracts. The primarydifference in the risks associated with OTC contracts and exchange-tradedcontracts is credit risk. The Partnership views its credit exposure to be$7,959,145 and $14,084,183 at December 31, 2004 and 2003, respectively,representing the fair value of OTC contracts in an unrealized gain position.

 

The General Partner has established procedures toactively monitor market risk and minimize credit risk, although there can be noassurance that it will, in fact succeed in doing so.  The General Partner’s market risk controlprocedures include diversification of the Partnership’s portfolio andcontinuously monitoring the portfolio’s open positions, historical volatilityand maximum historical loss.  The GeneralPartner seeks to minimize credit risk primarily by depositing and maintainingthe Partnership’s assets at financial institutions and brokers which theGeneral Partner believes to be creditworthy. The Partnership’s trading activities are primarily with brokers andother financial institutions located 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 is subject to sovereign risk such asthe risk of restrictions being imposed by foreign governments on therepatriation of cash and the effects of political or economic uncertainties.Net unrealized appreciation (depreciation) on futures and forward currencycontracts are denominated in the functional currency. Cash settlement offutures and forward currency contracts is made in the local currency(settlement currency) and then translated to the functional currency (U.S.Dollar).

 

Net unrealized appreciation (depreciation) on futuresand forward currency contracts by settlement currency type, denominated in thefunctional currency, is detailed below:

 
| ** **          | ** ** | **December 31,**   | ** ** |
|---------------------|------------|--------------------|------------|
| ** **          | ** ** | **2004**           | ** ** | **2003** | ** ** |
| ** **          | ** ** | **Total Net**      | ** ** | ** ** | ** ** | **Total Net** | ** ** | ** ** | ** ** |
| ** **          | ** ** | **Unrealized**     | ** ** | ** ** | ** ** | **Unrealized** | ** ** | ** ** | ** ** |
| ** **          | ** ** | **Appreciation**   | ** ** | **Percent of** | ** ** | **Appreciation** | ** ** | **Percent of** | ** ** |
| **Currency Type**   | ** ** | **(Depreciation)** | ** ** | **Total** | ** ** | **(Depreciation)** | ** ** | **Total** | ** ** |
|                |       |               |       |   |   |   |   |   |   |
| Aussie dollar       |       | $                  | 262,023    |   | 5.79 | % | $ | — |   | — | % |
| British pound       |       | (72                | )          | — |   | 21,214 |   | 0.22 |   |
| Canadian dollar     |       | 87,836             |       | 1.94 |   | — |   | — |   |
| Euro                |       | 20,676             |       | 0.46 |   | 856,172 |   | 8.78 |   |
| Hong Kong dollar    |       | (26,594            | )          | (0.59 | ) | 63,159 |   | 0.65 |   |
| Japanese yen        |       | 317,239            |       | 7.01 |   | (403,231 | ) | (4.14 | ) |
| Norwegian krona     |       | (757,572           | )          | (16.75 | ) | (1,355,458 | ) | (13.90 | ) |
| Polish zloty        |       | 292,131            |       | 6.46 |   | — |   | — |   |
| South African  rand |       | 149,247            |       | 3.30 |   | — |   | — |   |
| Swedish krona       |       | (144,297           | )          | (3.19 | ) | — |   | — |   |
| U.S. dollar         |       | 4,323,109          |       | 95.57 |   | 10,568,907 |   | 108.39 |   |
|                |       |               |       |   |   |   |   |   |   |
| Total               |       | $                  | 4,523,726  |   | 100.00 | % | $ | 9,750,763 |   | 100.00 | % |

 

**7.**                      FINANCIAL HIGHLIGHTS

** **

The ratios are calculated based on limited partners’capital and special limited partners’ capital taken as a whole. The computationof such ratios based on the amount of expenses and profit share allocationassessed to an individual partner’s capital account may vary from these ratiosbased on the timing of capital transactions and differences in individualpartner’s brokerage fees and profit share allocation arrangements.

 

Returns are calculated for limited partners andspecial limited partners taken as a whole. An individual partner’s returns mayvary from these returns based on the timing of capital transactions anddifferences in individual partners’ brokerage fees and profit share allocationarrangements.

 

******

 

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