10-Q 1 t301161.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended: June 30, 2004 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 0-26932 THE MILLBURN WORLD RESOURCE TRUST (Exact name of registrant as specified in its charter) Delaware 06-6415583 ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) c/o MILLBURN RIDGEFIELD CORPORATION 411 West Putnam Avenue Greenwich, Connecticut 06830 (Address of principal executive offices) Registrant's telephone number, including area code: (203) 625-7554 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant Units of Beneficial Interest to Section 12(g) of the Act: (Title of Class) Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Part I - Financial Information Financial statements: For the three and six months ended June 30, 2004 and 2003 (unaudited) Statements of Financial Condition (a) 1 Condensed Schedules of Investments (a) 2 Statements of Operations (b) 6 Statements of Changes in Trust Capital (c) 8 Statements of Financial Highlights (b) 10 Notes to the Financial Statements 12 Part II - Other information 13 (a) At June 30, 2004 (unaudited) and December 31, 2003 (b) For the three and six months ended June 30, 2004 and 2003 (c) For the six months ended June 30, 2004 and 2003 ITEM 1: FINANCIAL STATEMENTS

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-10- NOTES TO FINANCIAL STATEMENTS The accompanying financial statements are unaudited but, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Trust's financial condition at June 30, 2004 (unaudited) and December 31, 2003 and the results of its operations for the three and six month periods ended June 30, 2004 and 2003 (unaudited). These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. It is suggested that these financial statements be read in conjunction with the financial statements and notes included in the Trust's annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2003. The December 31, 2003 information has been derived from the audited financial statements as of December 31, 2003. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to Item 1, "Financial Statements". The information contained therein is essential to, and should be read in connection with, the following analysis. OPERATIONAL OVERVIEW Due to the nature of the Trust's business, its results of operations depend on the Managing Owner's ability to recognize and capitalize on trends and other profit opportunities in different sectors of the global capital and commodity markets. The Managing Owner's trading methods are confidential, so that substantially the only information that can be furnished regarding the Trust's results of operations is contained in the performance record of its trading. Unlike operating businesses, general economic or seasonal conditions do not directly affect the profit potential of the Trust, and its past performance is not necessarily indicative of future results. The Managing Owner believes, however, that there are certain market conditions, for example, markets with strong price trends, in which the Trust has a better likelihood of being profitable than in others. LIQUIDITY AND CAPITAL RESOURCES The Trust does not intend to raise any additional capital as it has not, and does not intend to, register additional units for sale. The Trust does not engage in borrowing. The Trust trades futures, options and forward contracts on interest rates, commodities, currencies, metals, energy and stock indices. Due to the nature of the Trust's business, substantially all its assets are represented by cash and United States government obligations, while the Trust maintains its market exposure through open futures and forward contract positions. The Trust's assets are generally held as cash, cash equivalents or U.S. Government obligations which are used to margin or collateralize the Trust's futures and forward currency positions and are withdrawn, as necessary, to pay redemptions and expenses. Other than potential market-imposed limitations on liquidity, due, for example, to daily price fluctuation limits, which are inherent in the Trust's futures and forward trading, the Trust's assets are highly liquid and are expected to remain so. During its operations through the three and six month periods ending June 30, 2004, the Trust experienced no meaningful periods of illiquidity in any of the numerous markets traded by the Managing Owner. -11- There have been no material changes with respect to the Trust's critical accounting policies, off-balance sheet arrangements or disclosure of contractual obligations as reported in the Trust's Annual Report on Form 10-K for fiscal year 2003. RESULTS OF OPERATIONS 30-Jun-04 31-Mar-04 ------------- ------------- Ending Equity $ 9,420,395 $ 14,742,830 Due to the nature of commodity trading, the results of operations for the interim period presented should not be considered indicative of the results that may be expected for the entire year. The Trust's net assets decreased 36.10% during the three months ended June 30, 2004. This decrease was attributable to redemptions of $3,064,108 and net loss from operations of $2,258,327. Brokerage fees are calculated on the net asset value on the last day of each month and are affected by trading performance and redemptions. Brokerage fees for the three months ended June 30, 2004 decreased $210,314, relative to the corresponding period in 2003. Interest income is derived from cash and U.S. Treasury instruments held at the Trust's brokers. Interest income for the three months ended June 30, 2004 decreased $32,658, relative to the corresponding period in 2003. This decrease was attributable to a reduction in the Trust's net assets (via redemptions and trading losses) as well as a decrease in short-term Treasury yields. During the three months ended June 30, 2004, the Trust experienced net realized and unrealized losses of $2,016,908 from its trading operations (including foreign exchange translations and Treasury obligations). Brokerage fees of $248,007, administrative expenses of $25,000 and custody fees of $286 were incurred. Interest income of $31,874 partially offset the Trust's expenses, resulting in net loss of $2,258,327. An analysis of the trading gain (loss) by sector is as follows: -12- Sector % Gain (Loss) -------- ------------- Currencies (3.53)% Energies 1.68% Grains (1.56)% Interest rates (5.58)% Metals (2.60)% Softs 0.24% Stock indices (3.19)% ------------- Total (14.54)% April 1, 2004 to June 30, 2004 ----------------------------------- The Trust's net asset value per unit dropped 16.52% during the quarter. Trend reversals followed by non-directional and volatile range-trading characterized a broad spread of markets during the period. As a result sizable losses were sustained in five of the six sectors in the portfolio: interest rates, currencies, stock indices, and agricultural commodities. Energy was moderately profitable for the quarter, but even there an uptrend seemed to peter out near the end of the quarter. Surprisingly strong U.S. employment reports beginning in April, and official moves in China to slow its booming economy caused abrupt price trend reversals in most of the markets comprising the Trust's portfolio. For example, as the quarter began, the Trust held long positions across a broad range of US and European interest rate futures. These positions had been quite profitable in prior weeks and reflected declining interest rate trends that were in large measure a response to the so-called "jobless recovery" in the U.S. However, in the wake of strong employment data, interest rates rose sharply worldwide and bond market sentiment seemed to turn negative on a dime. As a result, the Trust sustained sizable losses on its long bond futures positions. Thereafter, interest rates vacillated and failed to sustain a trend. At the start of the period, the Trust also held long positions in a number of Asian currencies including, the yen, Korean won and Singapore dollar. Long commodity currency positions (Australian dollar, New Zealand dollar, and South African rand) were also held in the Trust. Market participants, intuiting that any slowdown in Chinese growth would be negative for Asia and for industrial commodities, sold the Asian and commodity currencies, producing declines. Once again, subsequent trading in the quarter was largely non-directional. Gold and copper prices, which were trending upward early in the year, fell markedly due to the altered growth prospects in China and a strengthening US currency, resulting in losses from long positions. Stock markets were also unsettled by the changing prospects for growth, interest rates and monetary policies throughout the world. Hence, trading in German, U.S., and Hong Kong index futures resulted in losses. An upward trend in energy prices led to gains from long positions in unleaded gasoline, London gas oil, crude oil, and heating oil. Natural gas, on the other hand, was quite volatile and produced a loss for the quarter. -13- Finally, with volatility in corn prices, losses were registered on both long and short positions. January 1, 2004 to March 31, 2004 ----------------------------------- The Trust's NAV per unit advanced 5.00% during the quarter. A large profit derived from trading interest rate futures combined with small gains from stock index, energy, metals and agricultural commodity futures trading more than outweighed a sizable loss that was produced trading in foreign exchange markets. Long positions in U.S., European and Japanese interest rate futures were profitable. Questions about the strength and sustainability of U.S. growth, given the lack of employment expansion, speculation about a possible European Central Bank rate cut to spur lagging economic activity and persistent purchases of U.S. treasuries by Asian Central Banks following massive foreign exchange intervention pushed rates lower across the maturity spectrum. A long copper position, benefiting from the China inspired global demand for base metals, was very profitable, while a long gold position lost marginally. Increased worldwide demand for grains led to rising corn prices and a gain on a long corn position. In the energy sector, a long position in unleaded gasoline and a long position in crude oil were fractionally profitable, while long heating oil, London gas oil and natural gas positions generated small losses. Low interest rates and an improving economic environment provided some lift to Japanese stock markets, and long positions in the NIKKEI and TOPIX index futures were profitable. On the other hand, political uncertainties in Hong Kong and growth concerns in Germany produced marginal losses on stock futures trades for those two countries. On the other hand, trading of foreign exchange rates, which were volatile but non-directional for much of the period, generated sizable losses. Hence, aside from modest gains from long positions in commodity currencies (Australian and New Zealand dollars), a long sterling position relative to the euro, and a long euro trade against the Norwegian krone, losses were widespread. April 1, 2003 to June 30, 2003 ----------------------------------- The Trust's net assets increased 0.32% in the second quarter of 2003. This increase was attributable to net income from operations of $804,220, which was partially offset by redemptions of $739,270. Brokerage commissions are calculated on the net asset value on the last day of each month and are affected by trading performance and redemptions. Brokerage commissions for the three months ended June 30, 2003 decreased by $43,990 relative to the corresponding period in 2002. The Trust's NAV per unit increased 3.77% during the second quarter, as profits in the April-May period outweighed losses in June. Trading of interest rate futures, currency forwards and equity futures, was profitable, while trading of non-financial futures (energy, metals, and agricultural commodities) produced losses. -14- Medium-term and long-term interest rates in Europe, the U.S. and Japan resumed their decline during April and May. Hence, long positions in 5-year, 10-year and 30-year interest rate futures contracts for U.S., European and Japanese instruments were very profitable. By mid-June, however, amid signs of nascent growth, interest rates started to rise significantly and there were some losses sustained on these same positions, which were subsequently reversed to short futures contract positions. A similar pattern of profits in April and May followed by losses in June was exhibited in the currency sector. Short U.S. dollar positions against the euro, other European currencies, the Australian, New Zealand and Singapore dollars, and the South African rand produced sizable gains early in the quarter. Later, however, as the U.S. dollar rebounded against the European bloc of currencies, there were losses on many of these short foreign dollar positions, although the short dollar positions versus the Aussie, New Zealand, South African and Singaporean currencies were still fractionally profitable. Meanwhile, the dollar/yen exchange rate was quite volatile and losses were registered on both long and short dollar positions throughout the quarter. Finally, long euro positions vis-a-vis the yen, Norwegian krone, and pound sterling, and a long sterling position relative to the yen were profitable. Trading of stock index futures was fractionally positive. Long positions in German, Japanese, and the Nasdaq stock indices were profitable, while a short S&P index trade was somewhat unprofitable. An up-trend in natural gas reversed and spiked sharply downward in June, resulting in a marked loss on a long position. Trading elsewhere in the energy sector had a slight negative impact on performance. In the agricultural sector, corn futures prices were quite volatile and, hence, losses were experienced on both long and short positions. Trading of other soft and agricultural commodities was slightly negative for performance. Long gold and copper positions generated a small quarterly loss. January 1, 2003 to March 31, 2003 ----------------------------------- The Trust's net assets decreased 2.40% in the first quarter of 2003. This decrease was attributable to redemptions of $887,628 which was partially offset by net income from operations of $386,280. Brokerage commissions are calculated on the net asset value on the last day of each month and are affected by trading performance and redemptions. Brokerage commissions for the three months ended March 31, 2003 decreased by $61,130 relative to the corresponding period in 2002. The Trust's NAV per unit increased 1.43% during the three months ended March 31, 2003. A number of well-defined trends, especially in the energy and interest rate sectors, persisted during the first two months of the year and generated profits. However, as war with Iraq approached in early March, these trends halted and reversed abruptly, producing losses that largely offset the quarter's earlier gains. On balance for the period, profits from trading energy and interest rate futures were mostly counterbalanced by the losses sustained from trading currency, stock index and metal futures, and to a lesser extent by losses from agricultural commodities trading. -15- For example, crude oil prices, which climbed from $24 a barrel in early November 2002 to nearly $40 per barrel early in 2003, plunged back to under $28 a barrel in only a few days. Consequently, long crude oil positions were profitable in January and February, but lost money in March. Similar results were experienced in trading other energy contracts. Interest rates, which had been declining broadly for over a year, spiked higher in a flurry of pre-war activity. As a result, long German and U.S. interest rate futures positions produced losses in March, after having been profitable in the first two months of the quarter. A weakening U.S. dollar trend that had been evident since late October 2002 also reversed abruptly during the quarter and was followed by non-directional whipsaw price activity, especially for the Japanese yen. Hence, losses from trading the Asian currencies outweighed gains from long positions in the European currencies and non-dollar cross rate trading. Stock markets were unsettled and trading of U.S., Japanese and Hong Kong equity futures resulted in a loss. Losses from both long and short positions in industrial metals were somewhat larger than the gains from both long and short trades in gold. Trading of agricultural commodity futures was unprofitable. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. The Trust is a small business issuer. ITEM 4. CONTROLS AND PROCEDURES Millburn Ridgefield Corporation, the Managing Owner of the Trust, with the participation of the Managing Owner's Co-Chief Executive Officers and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Trust as of the end of this period covered by this quarterly report, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective. There were no significant changes in the Managing Owner's internal controls with respect to the Trust or in other factors applicable to the Trust that could materially affect these controls subsequent to the date of their evaluation. PART II. OTHER INFORMATION ITEM I. Legal Proceedings - None ITEM 2. Changes in Securities and Use of Proceeds (e) Pursuant to the Trust's Declaration of Trust and Trust Agreement, Unitholders may redeem their Units at the end of each calendar month at the then current month-end Net Asset Value per Unit. The redemption of Units has no impact on the value of Units that remain outstanding, and Units are not reissued once redeemed. -16- The following table summarizes the redemptions by Unitholders during the three months ended June 30, 2004: UNITS NAV PER MONTH REDEEMED UNIT ----------------------------------------------------------------- April 30, 2004 $ 724.539 1,060.36 May 31, 2004 1,976.615 1,039.13 June 30, 2004 242.051 986.40 ----------- TOTAL $ 2,943.205 =========== ITEM 3. Defaults Upon Senior Securities - None ITEM 4. Submission of Matters to a Vote of Security Holders - None ITEM 5. Other Information - None ITEM 6. (a) Exhibits - The following exhibits are incorporated by reference from Amendment No. 1 to the Registration Statement (File No. 33-90756) filed on September 27, 1995 on Form S-1 under the Securities Act of 1933. 3.02 Certificate of Trust of the Trust. 10.01 Form of Subscription Agreement and Power of Attorney. The following exhibits are incorporated by reference from Post-Effective Amendment No. 1 to the Registration Statement (File No. 33-90756) filed on March 1, 1996 on Form S-1 under the Securities Act of 1933. Designation Description ----------------------- 10.02 Selling Agreement among the Trust, the Managing Owner and the Principal Selling Agents (includes a form of Additional Selling Agent and Correspondent Selling Agent Agreement). 10.03(a) Customer Agreement among the Trust, the Managing Owner and a Principal Selling Agent in its capacity as a futures commission merchant. 10.03(b) Customer Agreement among the Trust, the Managing Owner and a Principal Selling Agent in its capacity as a futures commission merchant. 10.04 Escrow Agreement between the Trust and Chemical Bank, N.A. The following exhibit is incorporated by reference from Post-Effective Amendment No. 5 to the Registration Statement (File No. 33-90756) filed February 18, 1997 on Form S-1 under the Securities Act of 1933. The following exhibits are included herewith: 31.01 Rule 13(a)-14(a)/15(d)-14(a) Certification of Co-Chief Executive Officer 31.02 Rule 13(a)-14(a)/15(d)-14(a) Certification of Co-Chief Executive Officer 31.03 Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Financial Officer 32.01 Section 1350 Certification of Co-Chief Executive Officer 32.02 Section 1350 Certification of Co-Chief Executive Officer 32.03 Section 1350 Certification of Chief Financial Officer (b) Reports on Form 8-K - None -17- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. By: Millburn Ridgefield Corporation, Managing Owner Date: August 12, 2004 /s/Tod A. Tanis ---------------- Tod A. Tanis Vice-President (principal accounting officer) -18-

MILLBURN WORLD RESOURCE TRUST 10-Q