**Exhibit 13.01**

 

***Nestor Partners***

*** ***

*Financial Statements forthe Years Ended December 31, 2008, 2007 and 2006 and Report of IndependentRegistered 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                        |       | 2          |
|                                                     |       |       |
| Condensed Schedules of Investments                       |       | 3-6        |
|                                                     |       |       |
| Statements of Operations                                 |       | 7          |
|                                                     |       |       |
| Statements of Changes in Partners’ Capital          |       | 8          |
|                                                     |       |       |
| Statements of Financial Highlights                       |       | 9          |
|                                                     |       |       |
| Notes to Financial Statements                            |       | 10-17      |

 

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**AFFIRMATIONOF MILLBURN RIDGEFIELD 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, including the condensedschedules of investments, of Nestor Partners as of December 31, 2008 and2007, and the related statements of operations, changes in partners’ capital,and financial highlights for each of the three years in the period ended December 31,2008, are complete and accurate.

 

HarveyBeker, 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”), including the condensed schedules of investments,as of December 31, 2008 and 2007 and the related statements of operations,changes in partners’ capital, and financial highlights for each of the threeyears in the period ended December 31, 2008. These financial statementsand financial highlights are the responsibility of the Partnership’smanagement. Our responsibility is to express an opinion on these financialstatements and financial highlights based on our audits.

 

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, such financial statements and financial highlights present fairly, inall material respects, the financial position of Nestor Partners at December 31,2008 and 2007, and the results of its operations, changes in partners’ capital,and financial highlights for each of the three years in the period ended December 31,2008, in conformity with accounting principles generally accepted in the UnitedStates of America.

 

Deloitte& Touche LLP

NewYork, New York

February 27, 2009

 

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**NESTORPARTNERS**

 

**STATEMENTS OF FINANCIAL CONDITION**

**AS OF DECEMBER 31, 2008 AND 2007**

 
| ** **                                                                                              | ** ** | **2008**    | ** **  | **2007**    | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
|                                                                                                    |       |        |        |        |       |
| **ASSETS**                                                                                              | ** ** | ** **  | ** **  | ** **  | ** ** |
|                                                                                                    |       |        |        |        |       |
| EQUITY IN  TRADING ACCOUNTS:                                                                            |       |        |        |        |       |
| Investments in  U.S. Treasury notes—at market value (amortized cost $10,919,463 and  $40,392,047)  |       | $           | 11,026,888  |        | $          | 40,599,095 |   |
| Net unrealized  appreciation on open futures and forward currency contracts                             |       | 1,502,774   |        | 3,362,537   |       |
| Due from brokers                                                                                        |       | 501,514     |        | 3,413,463   |       |
| Cash denominated  in foreign currencies (cost $117,799 and $2,232,905)                                  |       | 123,751     |        | 2,222,407   |       |
|                                                                                                    |       |        |        |        |       |
| Total equity in  trading accounts                                                                       |       | 13,154,927  |        | 49,597,502  |       |
|                                                                                                    |       |        |        |        |       |
| INVESTMENTS IN  U.S. TREASURY NOTES—at market value (amortized cost $159,691,001 and  $94,729,231) |       | 160,955,102 |        | 95,111,960  |       |
|                                                                                                    |       |        |        |        |       |
| CASH AND CASH  EQUIVALENTS                                                                              |       | 14,235,694  |        | 13,731,232  |       |
|                                                                                                    |       |        |        |        |       |
| ACCRUED INTEREST  RECEIVABLE                                                                            |       | 1,593,509   |        | 1,142,553   |       |
|                                                                                                    |       |        |        |        |       |
| TOTAL                                                                                                   |       | $           | 189,939,232 |        | $          | 159,583,247 |   |
|                                                                                                    |       |        |        |        |       |
| **LIABILITIES  AND PARTNERS’ CAPITAL**                                                             | ** ** | ** **  | ** **  | ** **  | ** ** |
|                                                                                                    |       |        |        |        |       |
| LIABILITIES:                                                                                            |       |        |        |        |       |
| Capital  contributions received in advance                                                              |       | $           | 537,222     |        | $          | 2,120,500 |   |
| Net unrealized  depreciation on open forward currency contracts                                         |       | 722,949     |        | 318,479     |       |
| Accrued  brokerage fees                                                                                 |       | 340,177     |        | 292,980     |       |
| Due to brokers                                                                                          |       | 782,717     |        | —      |       |
| Cash denominated  in foreign currencies (cost $-437,052 and 0)                                          |       | 426,586     |        | —      |       |
| Due to General  Partner                                                                                 |       | 2,071       |        | —      |       |
| Accrued expenses                                                                                        |       | 302,592     |        | 287,840     |       |
| Capital  withdrawals payable                                                                            |       | 19,505,497  |        | 4,527,184   |       |
|                                                                                                    |       |        |        |        |       |
| Total  liabilities                                                                                      |       | 22,619,811  |        | 7,546,983   |       |
|                                                                                                    |       |        |        |        |       |
| PARTNERS’  CAPITAL                                                                                 |       | 167,319,421 |        | 152,036,264 |       |
|                                                                                                    |       |        |        |        |       |
| TOTAL                                                                                                   |       | $           | 189,939,232 |        | $          | 159,583,247 |   |

 

See notes tofinancial statements.

 

2

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**NESTOR PARTNERS**

 

**CONDENSED SCHEDULE OF INVESTMENTS**

**AT DECEMBER 31, 2008**

 
| ** **                                                | ** ** | **Net Unrealized**         | ** ** | ** **         | ** ** |
|-----------------------------------------------------------|------------|----------------------------|------------|--------------------|------------|
| ** **                                                | ** ** | **Appreciation**           | ** ** | **Net**            | ** ** |
| ** **                                                | ** ** | **(Depreciation)**         | ** ** | **Unrealized**     | ** ** |
| ** **                                                | ** ** | **as a % of**              | ** ** | **Appreciation**   | ** ** |
| ** **                                                | ** ** | **Partners’ Capital** | ** ** | **(Depreciation)** | ** ** |
| ** **                                                | ** ** | ** **                 | ** ** | ** **         | ** ** |
| **FUTURES  AND FORWARD CURRENCY CONTRACTS**               | ** ** | ** **                 | ** ** | ** **         | ** ** |
| ** **                                                | ** ** | ** **                 | ** ** | ** **         | ** ** |
| LONG FUTURES  CONTRACTS:                                  |       |                       |       |               |       |
| Energies                                                  |       | 0.03                       | %          | $                  | 42,915     |   |
| Grains                                                    |       | 0.06                       |       | 104,350            |       |
| Interest rates                                            |       | 1.03                       |       | 1,717,510          |       |
| Metals                                                    |       | (0.13                      | )          | (218,641           | )          |
| Softs                                                     |       | 0.00                       |       | 7,101              |       |
|                                                      |       |                       |       |               |       |
| Total long  futures contracts                             |       | 0.99                       |       | 1,653,235          |       |
|                                                      |       |                       |       |               |       |
| SHORT FUTURES  CONTRACTS:                                 |       |                       |       |               |       |
| Energies                                                  |       | 0.22                       |       | 360,617            |       |
| Grains                                                    |       | (0.33                      | )          | (559,689           | )          |
| Interest rates                                            |       | (0.11                      | )          | (177,109           | )          |
| Livestock                                                 |       | 0.06                       |       | 97,260             |       |
| Metals                                                    |       | 0.21                       |       | 351,967            |       |
| Softs                                                     |       | (0.07                      | )          | (119,636           | )          |
| Stock indices                                             |       | (0.07                      | )          | (112,804           | )          |
|                                                      |       |                       |       |               |       |
| Total short  futures contracts                            |       | (0.09                      | )          | (159,394           | )          |
|                                                      |       |                       |       |               |       |
| TOTAL  INVESTMENTS IN FUTURES CONTRACTS—Net          |       | 0.90                       |       | 1,493,841          |       |
|                                                      |       |                       |       |               |       |
| FORWARD CURRENCY  CONTRACTS:                              |       |                       |       |               |       |
| Total long  forward currency contracts                    |       | 0.16                       |       | 271,304            |       |
| Total short  forward currency contracts                   |       | (0.59                      | )          | (985,320           | )          |
|                                                      |       |                       |       |               |       |
| TOTAL  INVESTMENTS IN FORWARD CURRENCY CONTRACTS—Net |       | (0.43                      | )          | (714,016           | )          |
|                                                      |       |                       |       |               |       |
| TOTAL                                                     |       | 0.47                       | %          | $                  | 779,825    |   |

 

(Continued)

 

3

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**NESTOR PARTNERS**

 

**CONDENSED SCHEDULE OF INVESTMENTS**

**AT DECEMBER 31, 2008**

 

**U.S. TREASURY NOTES**

 

| ** ** | ** ** | ** **                                                               | ** **                              | **Value as a % of** | ** ** | ** ** | ** **  |
|------------|------------|--------------------------------------------------------------------------|-----------------------------------------|---------------------|------------|------------|-------------|
| **Face**   | ** ** | ** **                                                               | ** **                              | **Partners’**  | ** ** | ** ** | ** **  |
| **Amount** | ** ** | **Description**                                                          | ** **                              | **Capital**         | ** ** | **Value**  | ** **  |
|       |       |                                                                     |                                    |                |       |       |        |
| $          | 18,000,000 |                                                                     | U.S. Treasury notes, 4.000%, 03/31/2009 |                | 10.87      | %          | $           | 18,194,063 |   |
| 44,890,000 |       | U.S. Treasury notes, 3.875%, 05/15/2009                                  |                                    | 27.19               |       | 45,500,224 |        |
| 41,440,000 |       | U.S. Treasury notes, 3.625%, 07/15/2009                                  |                                    | 25.21               |       | 42,184,625 |        |
| 64,540,000 |       | U.S. Treasury notes, 3.375%, 10/15/2009                                  |                                    | 39.52               |       | 66,103,078 |        |
|       |       |                                                                     |                                    |                |       |       |        |
|       |       | Total investments  in U.S. Treasury notes  (amortized cost $170,610,464) |                                    | 102.79              | %          | $          | 171,981,990 |   |
|            |            |                                                                          |                                         |                     |            |            |             |  |  |

 

(Concluded)

 

See notes to financial statements.

 

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**NESTOR PARTNERS**

 

**CONDENSED SCHEDULE OF INVESTMENTS**

**AT DECEMBER 31, 2007**

 
| ** **                                                | ** ** | **Net Unrealized  Appreciation  (Depreciation)  as a % of  Partners’ Capital** | ** ** | **Net  Unrealized  Appreciation  (Depreciation)** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                | ** ** | ** **                                                                          | ** ** | ** **                                        | ** ** |
| **FUTURES  AND FORWARD CURRENCY CONTRACTS**               | ** ** | ** **                                                                          | ** ** | ** **                                        | ** ** |
| ** **                                                | ** ** | ** **                                                                          | ** ** | ** **                                        | ** ** |
| LONG FUTURES  CONTRACTS:                                  |       |                                                                                |       |                                              |       |
| Energies                                                  |       | 0.45                                                                                | %          | $                                                 | 691,028    |   |
| Grains                                                    |       | 1.04                                                                                |       | 1,588,727                                         |       |
| Interest rates                                            |       | (0.18                                                                               | )          | (278,280                                          | )          |
| Metals                                                    |       | 0.04                                                                                |       | 63,836                                            |       |
| Softs                                                     |       | 0.09                                                                                |       | 136,331                                           |       |
| Stock indices                                             |       | 0.16                                                                                |       | 225,186                                           |       |
|                                                      |       |                                                                                |       |                                              |       |
| Total long  futures contracts                             |       | 1.60                                                                                |       | 2,426,828                                         |       |
|                                                      |       |                                                                                |       |                                              |       |
| SHORT FUTURES  CONTRACTS:                                 |       |                                                                                |       |                                              |       |
| Energies                                                  |       | (0.03                                                                               | )          | (40,850                                           | )          |
| Interest rates                                            |       | 0.40                                                                                |       | 613,247                                           |       |
| Livestock                                                 |       | 0.10                                                                                |       | 152,100                                           |       |
| Metals                                                    |       | 0.07                                                                                |       | 102,133                                           |       |
| Softs                                                     |       | (0.07                                                                               | )          | (111,978                                          | )          |
| Stock indices                                             |       | 0.10                                                                                |       | 153,914                                           |       |
|                                                      |       |                                                                                |       |                                              |       |
| Total short  futures contracts                            |       | 0.57                                                                                |       | 868,566                                           |       |
|                                                      |       |                                                                                |       |                                              |       |
| TOTAL  INVESTMENTS IN FUTURES CONTRACTS—Net          |       | 2.17                                                                                |       | 3,295,394                                         |       |
|                                                      |       |                                                                                |       |                                              |       |
| FORWARD CURRENCY  CONTRACTS:                              |       |                                                                                |       |                                              |       |
| Total long  forward currency contracts                    |       | 0.03                                                                                |       | 40,033                                            |       |
| Total short  forward currency contracts                   |       | (0.20                                                                               | )          | (291,369                                          | )          |
|                                                      |       |                                                                                |       |                                              |       |
| TOTAL  INVESTMENTS IN FORWARD CURRENCY CONTRACTS—Net |       | (0.17                                                                               | )          | (251,336                                          | )          |
|                                                      |       |                                                                                |       |                                              |       |
| TOTAL                                                     |       | 2.00                                                                                | %          | $                                                 | 3,044,058  |   |

 

(Continued)

 

5

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**NESTOR PARTNERS**

 

**CONDENSED SCHEDULE OF INVESTMENTS**

**AT DECEMBER 31, 2007**

 

**U.S. TREASURY NOTES**

 
| ** ** | ** ** | ** **                                                               | ** **                               | **Value as a % of** | ** ** | ** ** | ** **  |
|------------|------------|--------------------------------------------------------------------------|------------------------------------------|---------------------|------------|------------|-------------|
| **Face**   | ** ** | ** **                                                               | ** **                               | **Partners’**  | ** ** | ** ** | ** **  |
| **Amount** | ** ** | **Description**                                                          | ** **                               | **Capital**         | ** ** | **Value**  | ** **  |
|       |       |                                                                     |                                     |                |       |       |        |
| $          | 34,640,000 |                                                                     | U.S. Treasury  notes, 3.000%, 02/15/2008 |                | 22.78      | %          | $           | 34,634,588 |   |
| 34,640,000 |       | U.S. Treasury  notes, 2.625%, 05/15/2008                                 |                                     | 22.73               |       | 34,553,400 |        |
| 33,685,000 |       | U.S. Treasury  notes, 3.250%, 08/15/2008                                 |                                     | 22.15               |       | 33,674,473 |        |
| 32,900,000 |       | U.S. Treasury  notes, 3.125%, 10/15/2008                                 |                                     | 21.60               |       | 32,848,594 |        |
|       |       |                                                                     |                                     |                |       |       |        |
|       |       | Total  investments in U.S. Treasury notes  (amortized cost $135,121,278) |                                     | 89.26               | %          | $          | 135,711,055 |   |
|            |            |                                                                          |                                          |                     |            |            |             |  |  |

 

(Concluded)

 

See notes to financial statements.

 

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**NESTOR PARTNERS**

 

**STATEMENTSOF OPERATIONS**

**YEARSENDED DECEMBER 31, 2008, 2007 AND 2006**

 
| ** **                                        | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|---------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
|                                              |       |       |       |       |       |       |       |
| INVESTMENT  INCOME:                               |       |       |       |       |       |       |       |
| Interest income                                   |       | $          | 4,703,091  |       | $          | 7,278,769  |       | $ | 8,039,516 |   |
|                                              |       |       |       |       |       |       |       |
| EXPENSES:                                         |       |       |       |       |       |       |       |
| Brokerage fees                                    |       | 3,779,342  |       | 3,533,293  |       | 4,317,248  |       |
| Administrative  expenses                          |       | 420,720    |       | 385,059    |       | 448,912    |       |
| Custody fees                                      |       | 29,717     |       | 22,648     |       | 26,883     |       |
|                                              |       |       |       |       |       |       |       |
| Total expenses                                    |       | 4,229,779  |       | 3,941,000  |       | 4,793,043  |       |
|                                              |       |       |       |       |       |       |       |
| NET INVESTMENT  INCOME                            |       | 473,312    |       | 3,337,769  |       | 3,246,473  |       |
|                                              |       |       |       |       |       |       |       |
| NET REALIZED AND  UNREALIZED GAINS (LOSSES):      |       |       |       |       |       |       |       |
| Net realized  gains (losses) on closed positions: |       |       |       |       |       |       |       |
| Futures and  forward currency contracts           |       | 43,916,606 |       | 27,664,175 |       | 3,165,360  |       |
| Foreign exchange  translation                     |       | (188,851   | )          | 60,753     |       | (204,576   | )          |
| Net change in  unrealized:                        |       |       |       |       |       |       |       |
| Futures and  forward currency contracts           |       | (2,264,233 | )          | (6,196,790 | )          | 10,612,526 |       |
| Foreign exchange  translation                     |       | 26,916     |       | (15,970    | )          | 41,753     |       |
| Net gains from  U.S. Treasury notes:              |       |       |       |       |       |       |       |
| Net change in  unrealized                         |       | 781,749    |       | 636,845    |       | 247,752    |       |
|                                              |       |       |       |       |       |       |       |
| Total net  realized and unrealized gains          |       | 42,272,187 |       | 22,149,013 |       | 13,862,815 |       |
|                                              |       |       |       |       |       |       |       |
| NET INCOME                                        |       | 42,745,499 |       | 25,486,782 |       | 17,109,288 |       |
|                                              |       |       |       |       |       |       |       |
| LESS PROFIT  SHARE TO GENERAL PARTNER             |       | 5,129,390  |       | 3,048,112  |       | 2,092,010  |       |
|                                              |       |       |       |       |       |       |       |
| NET INCOME AFTER  PROFIT SHARE TO GENERAL PARTNER |       | $          | 37,616,109 |       | $          | 22,438,670 |       | $ | 15,017,278 |   |

 

See notes tofinancial statements.

 

7

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**NESTOR PARTNERS**

 

**STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL**

**YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006**

 
| ** **                                           | ** ** | ** **   | ** **  | **Special**  | ** ** | **New Profit** | ** ** | ** **  | ** ** | ** **  | ** ** |
|------------------------------------------------------|------------|--------------|-------------|--------------|------------|----------------|------------|-------------|------------|-------------|------------|
| ** **                                           | ** ** | **Limited**  | ** **  | **Limited**  | ** ** | **Memo**       | ** ** | **General** | ** ** | ** **  | ** ** |
| ** **                                           | ** ** | **Partners** | ** **  | **Partners** | ** ** | **Account**    | ** ** | **Partner** | ** ** | **Total**   | ** ** |
|                                                 |       |         |        |         |       |           |       |        |       |        |       |
| PARTNERS’  CAPITAL—January 1, 2006    |       | $            | 125,586,609 |         | $          | 41,827,860     |       | $           | —     |        | $          | 3,537,452 |   | $ | 170,951,921 |   |
| Contributions                                        |       | 16,121,682   |        | 3,138,546    |       | —         |       | —      |       | 19,260,228  |       |
| Withdrawals                                          |       | (56,887,936  | )           | (631,001     | )          | —         |       | (2,100,659  | )          | (59,619,596 | )          |
| Net income                                           |       | 10,668,416   |        | 5,935,379    |       | 8,650          |       | 496,843     |       | 17,109,288  |       |
| General  Partner’s allocation—profit share |       | (2,043,240   | )           | (48,770      | )          | 2,092,010      |       | —      |       | —      |       |
| Transfer of New  Profit Memo                         |       |         |        |         |       |           |       |        |       |        |       |
| Account to  General Partner                          |       | —       |        | —       |       | (2,100,660     | )          | 2,100,660   |       | —      |       |
|                                                 |       |         |        |         |       |           |       |        |       |        |       |
| PARTNERS’  CAPITAL—December 31, 2006  |       | 93,445,531   |        | 50,222,014   |       | —         |       | 4,034,296   |       | 147,701,841 |       |
| Contributions                                        |       | 2,540,000    |        | 261,412      |       | —         |       | —      |       | 2,801,412   |       |
| Withdrawals                                          |       | (19,245,185  | )           | (1,347,475   | )          | —         |       | (3,361,111  | )          | (23,953,771 | )          |
| Net income                                           |       | 14,528,281   |        | 10,109,532   |       | 12,999         |       | 835,970     |       | 25,486,782  |       |
| General  Partner’s allocation—profit share |       | (2,868,410   | )           | (179,702     | )          | 3,048,112      |       | —      |       | —      |       |
| Transfer of New  Profit Memo                         |       |         |        |         |       |           |       |        |       |        |       |
| Account to  General Partner                          |       | —       |        | —       |       | (3,061,111     | )          | 3,061,111   |       | —      |       |
|                                                 |       |         |        |         |       |           |       |        |       |        |       |
| PARTNERS’  CAPITAL—December 31, 2007  |       | 88,400,217   |        | 59,065,781   |       | —         |       | 4,570,266   |       | 152,036,264 |       |
| Contributions                                        |       | 6,597,665    |        | 618,974      |       | —         |       | —      |       | 7,216,639   |       |
| Withdrawals                                          |       | (15,507,617  | )           | (12,112,661  | )          | —         |       | (7,058,703  | )          | (34,678,981 | )          |
| Transfers                                            |       | (378,101     | )           | 378,101      |       | —         |       | —      |       | —      |       |
| Net income                                           |       | 23,584,533   |        | 17,851,343   |       | 29,313         |       | 1,280,310   |       | 42,745,499  |       |
| General  Partner’s allocation—profit share |       | (4,705,978   | )           | (423,412     | )          | 5,129,390      |       | —      |       | —      |       |
| Transfer of New  Profit Memo                         |       |         |        |         |       |           |       |        |       |        |       |
| Account to  General Partner                          |       | —       |        | —       |       | (5,158,703     | )          | 5,158,703   |       | —      |       |
|                                                 |       |         |        |         |       |           |       |        |       |        |       |
| PARTNERS’  CAPITAL—December 31, 2008  |       | $            | 97,990,719  |         | $          | 65,378,126     |       | $           | —     |        | $          | 3,950,576 |   | $ | 167,319,421 |   |

 

See notes to financial statements.

 

8

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**NESTOR PARTNERS**

 

**STATEMENTS OF FINANCIAL HIGHLIGHTS**

**YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006**

 
| ** **                                   | ** ** | ** **   | ** ** | **Special**  | ** ** |
|----------------------------------------------|------------|--------------|------------|--------------|------------|
| ** **                                   | ** ** | **Limited**  | ** ** | **Limited**  | ** ** |
| ** **                                   | ** ** | **Partners** | ** ** | **Partners** | ** ** |
| YEAR ENDED  DECEMBER 31, 2008:               |       |         |       |         |       |
| Ratios to  average capital:                  |       |         |       |         |       |
| Net investment  income (loss)                |       | (0.99        | )%         | 1.98         | %          |
| Total expenses                               |       | 3.81         |       | 0.79         |       |
| Profit share  allocation                     |       | 4.87         |       | 0.64         |       |
| Total expenses  and profit share allocation  |       | 8.68         |       | 1.43         |       |
| Returns:                                     |       |         |       |         |       |
| Total return  before profit share allocation |       | 26.76        |       | 30.68        |       |
| Profit share  allocation                     |       | (5.35        | )          | (0.73        | )          |
| Total return  after profit share allocation  |       | 21.41        | %          | 29.95        | %          |
|                                         |       |         |       |         |       |
| YEAR ENDED  DECEMBER 31, 2007:               |       |         |       |         |       |
| Ratios to  average capital:                  |       |         |       |         |       |
| Net investment  income                       |       | 1.07         | %          | 3.82         | %          |
| Total expenses                               |       | 3.71         |       | 0.86         |       |
| Profit share  allocation                     |       | 3.10         |       | 0.32         |       |
| Total expenses  and profit share allocation  |       | 6.81         |       | 1.18         |       |
| Returns:                                     |       |         |       |         |       |
| Total return  before profit share allocation |       | 16.96        |       | 20.27        |       |
| Profit share  allocation                     |       | (3.34        | )          | (0.36        | )          |
| Total return  after profit share allocation  |       | 13.62        | %          | 19.91        | %          |
|                                         |       |         |       |         |       |
| YEAR ENDED  DECEMBER 31, 2006:               |       |         |       |         |       |
| Ratios to  average capital:                  |       |         |       |         |       |
| Net investment  income                       |       | 1.11         | %          | 3.60         | %          |
| Total expenses                               |       | 3.39         |       | 0.88         |       |
| Profit share  allocation                     |       | 1.59         |       | 0.11         |       |
| Total expenses  and profit share allocation  |       | 4.98         |       | 0.99         |       |
| Returns:                                     |       |         |       |         |       |
| Total return before  profit share allocation |       | 10.82        |       | 13.61        |       |
| Profit share  allocation                     |       | (2.02        | )          | (0.11        | )          |
| Total return  after profit share allocation  |       | 8.80         | %          | 13.50        | %          |

 

See notes to financial statements.

 

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**NESTOR PARTNERS**

** **

**NOTES TO FINANCIAL STATEMENTS**

**YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006**

** **

**1.**                      ORGANIZATION OF THE PARTNERSHIP

** **

Nestor Partners (the “Partnership”) is alimited partnership, which was organized in 1976 under the New Jersey UniformLimited 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 of the Partnership isMillburn Ridgefield Corporation (the “General Partner”). Principals, employees,former employees, and other affiliates of the General Partner have invested inthe Partnership as special limited partners.

 

The Agreement provides that subject tocertain limitations, the General Partner shall conduct and manage the businessof the Partnership. The General Partner has the right to make all investmentdecisions regarding the Partnership, authorize the payments of distributions topartners, enter into customer agreements with brokers, and take such otheractions, as it deems necessary or desirable, to manage the business of thePartnership.

 

The limited partners, special limitedpartners, New Profit Memo Account (see Note 3), and the General Partner sharein 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). The GeneralPartner and special limited partners are charged lower brokerage fees thanlimited partners, in accordance with the Agreement. No limited partner orspecial limited partner shall be liable for Partnership obligations in excessof their capital contribution plus profits allocated to their capital accounts,if any.

 

Subject to certain conditions, a partner hasthe right to redeem all or a portion of its partnership capital as of anymonth-end upon fifteen days’ prior written notice to the General Partner. Inits sole discretion, the General Partner may permit redemptions on shorternotice or as of a date other than month-end. Partners who purchased theirinterests through certain selling agents and redeem their partnership capitalprior to the one-year anniversary of their subscription will pay the applicableearly redemption fee. Redemptions will be made as of the last day of the monthfor an amount equal to the net asset value of the portion of a partner’scapital being redeemed; a redeeming partner shall receive such redeemed capitalless the redemption fee, if any.

 

The General Partner, subject to CommodityFutures Trading Commission requirements, may (at its discretion) selladditional Limited Partnership Interests to persons desiring to become limitedpartners.

 

The Partnership will dissolve on October 31,2017, or in the event of certain conditions set forth in the Agreement.

 

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**2.**                      SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

** **

***Investments—***The Partnershiprecords its transactions in futures and forward currency contracts and U.S.Treasury notes, including related income and expenses, on a trade-date basis.

 

Openfutures contracts are valued at market value and open forward currencycontracts are valued at fair value which is based on pricing models thatconsider the time value of money and the current market and contractual pricesof the underlying financial instruments. Realized gains (losses) and changes inunrealized appreciation (depreciation) on futures and forward currencycontracts are recognized in the periods in which the contracts are closed orthe changes occur, and are included in net realized and unrealized gains(losses) in the statements of operations.

 

Investments in U.S. Treasury notes are valuedat the market value based on the midpoint of bid/ask quotations reported dailyat 3pm EST by Bloomberg. The Partnership amortizes premiums and accretesdiscounts on U.S. Treasury notes. Such securities are normally on deposit withfinancial institutions (see Note 6) as collateral for performance of thePartnership’s trading obligations with respect to derivative contracts and areheld for safekeeping in a custody account at HSBC Bank USA, N.A.

 

***Cash and CashEquivalent******s***— Cash and cash equivalents includes cash andan investment in Dreyfus Treasury Prime Cash Management fund, a short-term U.S.government securities money market fund.

 

***ForeignCurrency Translation—***Assets and liabilities denominated in foreigncurrencies are translated to U.S. Dollars at quoted prices of such currencies.Purchases and sales of investments are translated to U.S. Dollars at theexchange rate prevailing when such transactions occurred.

 

***Brokerage Fees—***The Agreementprovides that the Partnership shall charge the limited partners’ capitalaccounts and pay the General Partner brokerage fees at a fixed rate of 0.542%per month of net asset value (6.5% per annum) of limited partnership interests.Effective July 1, 2003, the General Partner reduced the brokerage fee rateto 0.458% per month of net asset value (5.5% per annum). The General Partnerretains the right to charge less than the annual brokerage rate except asspecified in the Agreement. The General Partner bears all commission andclearing charges due to third-party brokers.

 

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

 

The Partnership’s administrative expensesincluded $272,572, $254,148, and $308,037 in 2008, 2007 and 2006, respectively,which relates to legal and accounting services provided to the Partnership byan affiliate of the General Partner.

 

***Income Taxes—***Income taxeshave not been provided, as partners are individually liable for the taxes, ifany, on their share of the Partnership’s income and expenses.

 

In July 2006, the Financial AccountingStandards Board (“FASB”) issued FASB Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”(“FIN 48”), which clarifies the accounting for uncertainty in taxpositions. FIN 48 requires that the Partnership recognize in its financialstatements the impact of a tax position if that 

 

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position is more likely than not of beingsustained on audit, based on the technical merits of the position. Theprovisions of FIN 48 are effective for fiscal years beginning after December 15,2006, with the cumulative effect of the change in accounting principle recordedas an adjustment to opening partners’ capital. Millburn Ridgefield Corporationas General Partner of the Partnership has evaluated the impact of adopting FIN48 on the financial statements.  Based on a review of the Partnership’s opentax years, 2004 to 2008, for the US Federal jurisdiction, the New York, NewJersey and Connecticut State jurisdictions, and the New York City jurisdiction,FIN 48 did not have an impact on the Partnership. The Partnership is treated asa limited partnership for federal and state income tax reporting purposes and thereforethe limited partners are responsible for the payment of taxes.

 

***Estimates—***The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe amounts and disclosures reported in the financial statements. Actualresults could differ from these estimates.

 

***Right ofOffset—***The customer agreements between the Partnership andits brokers give the Partnership the legal right to net unrealized gains andlosses with each broker. 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.

 

***Fair Value of Financial Instruments******—***The fair valueof the Partnership’s assets and liabilities, which qualify as financialinstruments under Statement of Financial Accounting Standards (“SFAS”) No. 107,*Disclosures about Fair Value of FinancialInstruments*, approximates the carrying amounts presented in thestatements of financial condition. In September 2006, the FASB issued SFASNo. 157, “Fair Value Measurements”, which defines fair value, establishesa framework for measurement of fair value, and expands disclosures about fairvalue measurements. The provisions of SFAS No. 157 were effective forfiscal years beginning after November 15, 2007. The Partnership adoptedthis pronouncement January 1, 2008. The three levels of the fair valuehierarchy under SFAS No. 157 are described below:

 

Level 1: Unadjustedquoted prices in active markets that are accessible at the measurement date foridentical, unrestricted assets or liabilities;

 

Level 2: Quoted pricesin markets that are not active or financial instruments for which allsignificant inputs are observable, either directly or indirectly;

 

Level 3: Prices orvaluations that require inputs that are both significant to the fair valuemeasurement and unobservable.

 

Indetermining fair value, the Partnership separates its investments into twocategories: cash instruments and derivative contracts.

 

CashInstruments. The Partnership’s cash instruments are generally classified withinlevel 1 of the fair value hierarchy because they are typically valued usingquoted market prices. The types of instruments valued based on quoted marketprices in active markets include U.S. government obligations and an investmentin Dreyfus Treasury Prime Cash Management fund, a short-term U.S. governmentsecurities money market fund. The General Partner of the Partnership does notadjust the quoted price for such instruments even in situations where thePartnership holds a large position and a sale could reasonably impact thequoted price.

 

 

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DerivativeContracts. Derivative contracts can be exchange-traded or over-the-counter(OTC). Exchange-traded futures contracts are valued based on quoted closingsettlement prices and typically fall within level 1 of the fair valuehierarchy.

 

OTCderivatives or forward currency contracts are valued based on pricing modelsthat consider the current market prices (“Spot Prices”) plus the time value ofmoney (“Forward Points”) and contractual prices of the underlying financialinstruments. The Forward Points from the quotation service providers aregenerally in periods of one month, two months, three months and six monthsforward while the contractual forward delivery dates for the foreign forwardcurrency contracts traded by the Partnership may be in between these periods.The General Partner’s policy is to calculate the Forward Points for eachcontract being valued by determining the number of days from the date theforward currency contract is being valued to its maturity date and then usingstraight-line interpolation to calculate the valuation of Forward Points forthe applicable forward currency contract. Model inputs can generally beverified and model selection does not involve significant management judgment.Such instruments are typically classified within level 2 of the fair valuehierarchy.

 

Thefollowing table sets forth by level within the fair value hierarchy:

 
| ** **                            | ** ** | **Level 1** | ** **  | **Level 2** | ** ** | **Total**  | ** ** |
|---------------------------------------|------------|-------------|-------------|-------------|------------|------------|------------|
| U.S. Treasury  Notes                  |       | $           | 171,981,990 |        | $          | —     |       | $ | 171,981,990 |   |
| Short-Term Money  Market Fund         |       | 13,935,694  |        | —      |       | 13,935,694 |       |
| Exchange-Traded                       |       |        |        |        |       |       |       |
| Futures  Contracts                    |       | 1,493,841   |        | —      |       | 1,493,841  |       |
| Over-the-Counter                      |       |        |        |        |       |       |       |
| Forward Currency  Contracts           |       | —      |        | (714,016    | )          | (714,016   | )          |
| Total financial  assets at fair value |       | $           | 187,411,525 |        | $          | (714,016   | )          | $ | 186,697,509 |   |

 

***Recently Issued Pronouncements*** — In March 2008,the Financial Accounting Standards Board (FASB) issued Statement of FinancialAccounting Standards No. 161, “Disclosure about Derivative Instruments andHedging Activities — an amendment of FASB Statement No. 133” (FAS161).  FAS 161 establishes, among otherthings, the disclosure requirements for derivative instruments and for hedgingactivities.  FAS 161 is effective forfinancial statements issued for fiscal years and interim periods beginningafter November 15, 2008.  ThePartnership is currently evaluating the impact that FAS 161 will have on itsdisclosures related to derivative instruments.

 

**3.**                      PROFIT SHAREALLOCATION

** **

The Agreement provides that the GeneralPartner’s profit share equal to 20% of Trading Profits at the end of each yearis charged to the limited partners’ capital accounts. New Trading Profitsincludes realized and unrealized trading profits (losses), interest income,brokerage fees, trading-related expenses and administrative expenses. Forlimited partners’ withdrawals during the year, the profit share calculationshall be computed as though the withdrawal date was at year-end. Profit shareattributable to interests redeemed during a year is tentatively credited to anaccount maintained for bookkeeping purposes, called New Profit Memo Account.Because limited partners may purchase their partnership interests at differenttimes, they may recognize different amounts of Trading Profits. Each limitedpartner pays a profit share only on Trading Profits applicable to its partnershipinterest. Limited partners who make multiple investments in the Partnershipreceive separate partnership interests for purposes of tracking the profitshare. Accordingly, in any given year, some limited partners may experience netgains and be charged 

 

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the 20% profit share allocation for all or aportion of their interests where limited partners in the aggregate experiencednet losses.

 

Any profit share charged is added to theGeneral Partner’s capital account to the extent net taxable capital gains areallocated to the General Partner, and the remainder, if any, of such profitshare is added to the New Profit Memo Account. The General Partner may not makeany withdrawal from the balance in the New Profit Memo Account. If, at the endof a subsequent 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.

 

**4.**                      DUE FROM/TOBROKERS

** **

At December 31, 2008 and 2007, the duefrom and due to brokers balances in the statements of financial conditioninclude cash receivable from brokers and cash payable to brokers, respectively.

 

**5.**                      TRADINGACTIVITIES

** **

The Partnership conducts its tradingactivities with various brokers acting either as a broker or counterparty tovarious transactions. At December 31, 2008 and 2007, cash, due frombrokers and Treasury notes aggregating $11,652,153 and $46,234,965, respectively,included in the Partnership’s equity in trading accounts, were held by suchbrokers in segregated accounts as collateral as required by U.S. CommodityFutures Trading Commission’s regulations or by the counterparty bank or broker.

 

The Partnership enters into contracts withvarious financial 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.**                      DERIVATIVEINSTRUMENTS

** **

The Partnership is party to derivativefinancial instruments in the normal course of its business. These financialinstruments include futures and forward currency contracts which may be tradedon an exchange (“exchange-traded contracts”) or over-the-counter (“OTCcontracts”).

 

The Partnership records its derivativeactivities on a mark-to-market basis as described in Note 2. For OTCcontracts, the Partnership enters into master netting agreements with itscounterparties. Therefore, assets represent the Partnership’s unrealized gains,less unrealized losses for OTC contracts in which the Partnership has a masternetting agreement. Similarly, liabilities represent net amounts owed to counterpartieson OTC contracts.

 

Futures contracts are agreements to buy orsell an underlying 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.

 

 

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Forward currency contracts entered into bythe Partnership represent a firm commitment to buy or sell an underlyingcurrency at a specified value and point in time based upon an agreed orcontracted quantity. The ultimate gain or loss is equal to the differencebetween the value of the contract at the onset and the value of the contract atsettlement date.

 

Each of these financial instruments issubject to various risks similar to those related to the underlying financialinstruments, including market risk, credit risk, concentration risk, andsovereign risk.

 

Market risk is the potential change in thevalue of the instruments traded by the Partnership due to market changes,including interest and foreign exchange rate movements and fluctuations infutures or security prices. Market risk is directly impacted by the volatilityand liquidity in the markets in which the related underlying assets are traded.The financial instruments traded by the Partnership contain varying degrees ofoff-balance sheet risk whereby changes in the market values of the futures andforward currency contracts and the Partnership’s satisfaction of itsobligations related to such market value changes may exceed the amountrecognized in the statements of financial condition.

 

Credit risk is the possibility that a lossmay occur due to the failure of a counterparty to perform according to theterms of a contract. Credit risk is normally reduced to the extent that anexchange or clearing organization acts as a counterparty to futurestransactions, since typically the collective credit of the members of theexchange is pledged to support the financial integrity of the exchange. In thecase of OTC transactions, the Partnership must rely solely on the credit of theindividual counterparties. The contract amounts of the forward currency andfutures contracts do not represent the Partnership’s risk of loss due tocounterparty 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 held bythe counterparty. The amount of such credit risk was $2,655,012 and $20,413,535at December 31, 2008 and 2007, respectively.

 

The General Partner has establishedprocedures to actively monitor market risk and minimize credit risk, althoughthere can be no assurance that it will, in fact succeed in doing so. TheGeneral Partner’s market risk control procedures include diversification of thePartnership’s portfolio and continuously monitoring the portfolio’s openpositions, historical volatility and 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 activitiesare primarily with brokers and other financial institutions located in NorthAmerica, Europe and Asia. All futures transactions of the Partnership arecleared by major securities firms, pursuant to customer agreements, includingMerrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche BankSecurities Inc. (a wholly owned subsidiary of Deutsche Bank AG) and NewedgeUSA, LLC (a wholly owned subsidiary of Newedge Group, which is owned by SociétéGénérale (50%) and Calyon (50%)).  Forall forward currency transactions, the Trust utilizes two prime brokers,Deutsche Bank AG and Morgan Stanley & Co., Inc.

 

The Partnership is subject to sovereign risksuch as the 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 Partnership’s functional currency (U.S.Dollar). Cash settlement 

 

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of futures and forward currency contracts ismade in the local currency (settlement currency) and then translated to U.S.Dollars.

 

Net unrealized appreciation(depreciation) on futures and forward currency contracts by settlement currencytype, denominated in U.S. Dollars, is detailed below:

 
| ** **          | ** ** | **December 31,**                                    | ** ** |
|---------------------|------------|----------------------------------------------------------|------------|
| ** **          | ** ** | **2008**                                                 | ** ** | **2007** | ** ** |
| ** **          | ** ** | **Total  Net  Unrealized  Appreciation  (Depreciation)** | ** ** | **Percent  of  Total** | ** ** | **Total  Net  Unrealized  Appreciation  (Depreciation)** | ** ** | **Percent  of  Total** | ** ** |
| ** **          | ** ** | ** **                                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Currency  Type**  | ** ** | ** **                                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **          | ** ** | ** **                                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Aussie dollar       |       | $152,519                                                 |       | 19.56 | % | $621,309 |   | 20.41 | % |
| British pound       |       | 215,624                                                  |       | 27.65 |   | 259,328 |   | 8.52 |   |
| Canadian dollar     |       | 248,731                                                  |       | 31.89 |   | 17,603 |   | 0.58 |   |
| Czech koruna        |       | 18,117                                                   |       | 2.32 |   | (43,072 | ) | (1.41 | ) |
| Euro                |       | 133,427                                                  |       | 17.11 |   | (263,139 | ) | (8.64 | ) |
| Hong Kong dollar    |       | (448                                                     | )          | (0.06 | ) | 24,109 |   | 0.79 |   |
| Hungarian forint    |       | —                                                   |       | — |   | (4,111 | ) | (0.14 | ) |
| Icelandic krona     |       | —                                                   |       | — |   | (9,803 | ) | (0.32 | ) |
| Japanese yen        |       | (25,588                                                  | )          | (3.28 | ) | 596,739 |   | 19.60 |   |
| Mexican peso        |       | —                                                   |       | — |   | (14,747 | ) | (0.48 | ) |
| New Zealand  dollar |       | (1,938                                                   | )          | (0.25 | ) | (11,479 | ) | (0.38 | ) |
| Norwegian krone     |       | 120,529                                                  |       | 15.46 |   | — |   | — |   |
| Polish zloty        |       | 24,867                                                   |       | 3.19 |   | 45,536 |   | 1.50 |   |
| Singapore dollar    |       | (12,030                                                  | )          | (1.54 | ) | 7,180 |   | 0.24 |   |
| Slovak koruna       |       | —                                                   |       | — |   | (24,789 | ) | (0.81 | ) |
| South African  rand |       | 6,835                                                    |       | 0.88 |   | 5,904 |   | 0.19 |   |
| Swedish krona       |       | 48,781                                                   |       | 6.25 |   | 25,310 |   | 0.83 |   |
| Swiss franc         |       | 71,664                                                   |       | 9.19 |   | 167,352 |   | 5.50 |   |
| Turkish lira        |       | (4,362                                                   | )          | (0.56 | ) | 75,287 |   | 2.47 |   |
| U.S. dollar         |       | (216,903                                                 | )          | (27.81 | ) | 1,569,541 |   | 51.55 |   |
|                |       |                                                     |       |   |   |   |   |   |   |
| Total               |       | $779,825                                                 |       | 100.00 | % | $3,044,058 |   | 100.00 | % |

 

**7.**                      FINANCIAL HIGHLIGHTS

** **

The ratios are calculated based on limitedpartners’ capital and special limited partners’ capital taken as a whole. Thecomputation of such ratios based on the amount of expenses and profit shareallocation assessed to an individual partner’s capital account may vary fromthese ratios based on the timing of capital transactions and differences inindividual partner’s brokerage fees and profit share allocation arrangements.

 

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

 

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** **

**8.**                      REDEMPTIONPAYABLE TO GENERAL PARTNER

** **

At December 31, 2008, redemption payableof $5,158,703 was related to profit share earned during 2008, allocated to theGeneral Partner at year-end and redeemed.

 

******

 

 

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