MILLS MUSIC TRUST - Annual Report: 2008 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended DECEMBER 31, 2008

Commission file number: 2-22997

MILLS MUSIC TRUST

(Exact name of registrant as specified in its charter)

c/o HSBC BANK USA, N.A., Corporate Trust Issuer Services, 425 Fifth Avenue, New York, NY 10018

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 212-525-1349

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ¨  Yes    x  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     ¨  Yes    x  No

Indicate by check mark whether the registrant (1) has 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.    x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    ¨  Yes    x  No

The aggregate market value of voting Trust Units held by non-affiliates as of March 18, 2009 (based upon the closing price of $21.00 per Voting Trust as quoted on the New York Stock Exchange), was approximately $5,832,000.

Total Trust Units outstanding as of March 18, 2009 was 277,712.

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DOCUMENTS INCORPORATED BY REFERENCE

NONE

PART I

Mills Music Trust (the “Trust”) was created, by a Declaration of Trust dated December 3, 1964, for the purpose of acquiring, from Mills Music, Inc. (“Old Mills”), the rights to receive payment of a deferred contingent purchase price obligation payable to Old Mills. The purchase price obligation arose as the result of the sale by Old Mills of its musical copyright catalogue to a newly formed company (“New Mills”) pursuant to an Asset Purchase Agreement.

In payment for the aforementioned catalogue, New Mills agreed in the Asset Purchase Agreement to make quarterly payments to Old Mills (the “Contingent Portion”) measured by the royalty income generated from the catalogue and, subject to certain limitations and conditions, from any copyrights thereafter acquired by New Mills.

The Contingent Portion payable for each quarterly period to and including the last quarter of 2009 is to be an amount equal to the excess, if any, of (a) the gross royalty income from the exploitation of the purchased copyrights during such period (whether received by New Mills, its affiliated companies or any other party) over (b) the sum of (i) the greater of (x) 25% of such gross royalty income or (y) the lesser of $87,500 (as adjusted for inflation by reflecting changes in average weekly earnings of employees in the printing, publishing and allied industries since 1964) or 30% of such gross royalty income; and (ii) royalties required to be paid to composers, authors and others with respect to the existing copyrights. If the Contingent Portion as so computed is less than $167,500, then the Contingent Portion will be computed on the basis of the gross royalty income and related expense of New Mills, its affiliated companies and their successors and assigns during such period not only from the exploitation of purchased copyrights, but also from any copyrights originated or acquired by New Mills and its affiliated companies subsequent to December 5, 1964 (with the deductions referred to in (i) and (ii) above) except that, when computed in this manner, the Contingent Portion cannot exceed $167,500. In addition, for any quarterly period in which the Contingent Portion as calculated above exceeds $250,000, the percentage specified in (x) above is increased to as high as 35% based upon gross royalties for the quarter.

Commencing with the first quarter of the year 2010, the Contingent Portion payable for each quarterly period is to be an amount equal to 75% of the gross royalty income of New Mills and/or its affiliated companies and their successors and assigns from the exploitation of the existing copyrights for such period, less the related royalty expense.

The Asset Purchase Agreement provides that the obligation to make payments will terminate on the last day of the year in which the last purchased copyright, or a renewal thereof, expires and cannot be renewed. When the existing copyrights begin to expire, the size of each payment through the year 2009 will become increasingly dependent on the success in which New Mills has in acquiring and exploiting new copyrights.

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The composition of Old Mills Catalogue is estimated to be in excess of 25,000 titles of which approximately 1,500 are at present producing royalty income. The majority of the royalty income generated by the catalogue in recent years, however, was produced by a relatively small number of well-known songs, many of which have remained popular and have generated substantial royalty income over a long period of time.

The Declaration of Trust prohibits the Trust from engaging in any business; the Trust’s sole activity is the receipt of the periodic installments of the purchase price and the distribution thereof (after payment of administrative expenses of the Trust) to the owners of units of beneficial interest in the Trust.

The administrative office of the Mills Music Trust is at HSBC Bank, USA, National Association, Corporate Trust Issuer Services, and 452 Fifth Avenue, New York, New York 10018. No expense is being charged or paid for the office space and office equipment that is being utilized by the Trust.

None.

None.

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PART II

The following selected financial data for the years ended December 31, 2008 through 2004 are derived from the Trust’s audited financial statements. The data set forth below should be read in conjunction with financial statements of the Trust and the notes thereto and management discussions and analysis appearing elsewhere herein.

The Trust’s receipts are derived principally from copyrights established prior to 1964 and such receipts fluctuate based upon public interest in the “nostalgia” appeal of older copyrighted songs.

The Trust’s contingent fee income over the last three years has averaged approximately $1,151,000 per year. In addition to the above, there are a number of factors, which create uncertainties with respect to the ability of the Trust to continue to generate that level of income on a continuing, long-term basis. Those factors include the effect that foreign and domestic copyright laws and any changes therein have or will have on both licensing fees and renewal rights ultimately, copyright expirations under such laws and the effect of electronic copying of materials without permission.

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In 1976, the copyright law was changed for works that were within renewal terms between December 31, 1976 and December 31, 1978 to add an extension of 19 years to the 28-year renewal term. The original copyright term is 28 years. That amendment made the copyright term 75 years. The Copyright Act of 1976 provided for a single term of life plus 70 years after author’s death (with some variations in different circumstances) for works created after January 1, 1978. The 1976 act provided that the writer and his heirs could terminate a transfer or license of the renewal copyright that was executed before 1978, so long as the termination was effected in a five-year period following the end of the initial 56-year period.

The copyright laws were modified by the Sonny Bono 1998 Copyright Term Extension Act (the “Act”), which generally provided an additional 20 years of copyright protection. For works created by identified natural persons the term now lasts from creation until 70 years after the author’s death. For anonymous works, pseudonymous works, and works made for hire, the term is 95 years from publication or 120 years from creation whichever expires first. For works published before 1978 with existing copyrights as of the effective date of the Act, the Act extends the term to 95 years from publication. In January 2003, the U.S. Supreme Court upheld the constitutionality of the Act in the Eldred v. Ashcroft decision, which affirmed a 2001 decision of the U.S. Court of Appeals for the District of Columbia Circuit.

The copyright laws provide that renewals vest in any person who is entitled under the rules of statutory succession to the renewal and extension of the copyright at the time the application to renew is made. If no renewal is made, renewals vest in any person entitled under the rules of statutory extension as of the last day of the original term of copyright to the renewal and extension of copyright. The writer (and not the publisher to whom the copyright was originally assigned) owns the renewal right. The laws name specified classes of persons (the writer’s wife, his children, etc.) who will succeed to the renewal right if the writer dies before the end of the original term. The Act does not distinguish between composers and lyricists. However, if the composer and lyricist are not the same, each owns a portion of the renewal rights. The composer and the lyricist may, assign their respective interests in the renewal rights to a publisher at the time of the assignment of the original copyright term. Such an assignment of the renewal term is effective, however, only if the assignor survives the original term. If he does not, his heirs will succeed to his share of the renewal rights; and, in such event, these heirs are not obligated by the assignment of the rights to the publisher to whom the original assignment was made unless they joined in the assignment. In addition, the 1998 Copyright Extension Act allows writers (or their heirs) to elect, after either a 35 or 40-year period as specified in the statute, to terminate a transfer of license or renewal within five years of the expiration.

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A listing received in 2009 from EMI (the current owner and administrative entity for the copyright materials) of the top 50 money earning songs of the subject copyrighted songs, with the original copyright dates shown, indicates that the copyright dates range from 1922 to 1960. The listing indicates that the copyright of one song has expired and is in “public domain”. The gross royalties EMI received for this song aggregated less than 2% of the gross income of the top 50 earning songs. EMI continues to administer this song for the copyright owner.

No copyrights of the balance of the top 50 songs will reach the 95-year expiration within the next five years. However, in 2010 EMI will lose the U.S. rights to one song, amounting to approximately 1% of the gross income of the top 50 earning songs, but will continue to administer this song on behalf of the copyright owner.

Seven of the top 50 songs account for approximately 65% of the earnings attributable to the 50 songs. The earliest expiration of the copyrights for these seven songs is 2024.

The Trust cannot determine EMI’s ability to secure renewals of the copyrighted material; however, under the trust agreement, EMI must use its best efforts to do so.

In connection with the distribution received by the Trust in December 2006, EMI charged the Trust with an adjustment of additional royalties paid by EMI in connection with an audit and settlement by the royalty recipient, in an aggregate amount of $427,000 relating to prior years. Those claimed adjustments, which the trust is reviewing for accuracy and appropriateness, among other things, resulted in EMI paying the Trust the $167,500 minimum in December 2006. In a statement accompanying its distribution to the Trust in March 2007, EMI continued to characterize the minimum payment made in December 2006 as an advance, and had deducted that amount from its March 2007 distribution.

In subsequent discussions, EMI has agreed that the minimum payment of $167,500 is a minimum entitlement to the Trust and not an advance. Accordingly, subsequent accountings by EMI have been restated. No additional amounts were owing to the Trust as a result of the restatements.

EMI and the Trust agreed to continue efforts to settle the pending disputes without litigation. In furtherance of those efforts, on October 4, 2007, EMI and the Trust executed a Tolling Agreement. Pursuant to the Tolling Agreement, the parties agreed to suspend recognition of the passage of time for purposes of any relevant statue of limitations defenses to claims under the agreement governing the payment of royalties and not to commence litigation while the Tolling Agreement is in force. The Tolling Agreement, which was scheduled to expire on April 1, 2008, has been extended by mutual written consent to April 26, 2009.

The Auditors’ reports and financial statements begin on page 7 of this report.

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Certified Public Accountants

Report of Independent Registered Public Accounting Firm

The Trustees and Unit Owners

    Mills Music Trust

We have audited the accompanying statements of cash receipts and disbursements of Mills Music Trust as at December 31, 2008 and 2007. This financial statement is the responsibility of the Trust’s management. Our responsibility is to express an opinion on this financial statement based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (U.S.). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As described in Note 1, this financial statement was prepared on the basis of cash receipts and disbursements, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.

In our opinion, the financial statement referred to above presents fairly, in all material respects, the cash receipts and disbursements of Mills Music Trust as at December 31, 2008 and 2007, on the basis of accounting described in Note 1.

New York, New York

April 13, 2009

825 Third Avenue New York, NY 10022-9524  212 557-3900  Fax 212 557-3936

50 Charles Lindbergh Boulevard Uniondale, NY 11553-3600  516 542-9030  Fax 516 542-9035

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MILLS MUSIC TRUST

STATEMENT OF CASH RECEIPTS AND DISBURSEMENTS

TWO YEARS ENDED DECEMBER 31, 2008

The Trust does not prepare a balance sheet or a statement of cash flows.

See accompanying Notes to Statement of Cash Receipts and Disbursements.

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MILLS MUSIC TRUST

NOTES TO STATEMENT OF CASH RECEIPTS AND DISBURSEMENTS

TWO YEARS ENDED DECEMBER 31, 2008

NOTE 1. ACCOUNTING POLICIES AND GENERAL INFORMATION

Mills Music Trust (the “Trust”) was created in 1964 for the purpose of acquiring the rights to receive payment of a deferred contingent purchase price contract obligation payable by Mills Music, Inc. (“Mills”). The contingent payments are determined quarterly and are based on a formula which takes into account gross royalty income paid to composers, authors and others, and less amounts deducted by Mills in accordance with contract terms.

Payments from Mills to the Trust are due in March, June, September and December and include net royalty income received during the preceding calendar quarter. The payments received are accounted for on a cash basis, as are expenses. The Declaration of Trust requires the distribution of all funds received by the Trust to the unit holders after payment of expenses. As of December 31, 2008 there were approximately $1,731 of unpaid bills for services rendered to the Trust to be paid from the proceeds of subsequent royalty receipts.

The statements of cash receipts and disbursements reflect only cash transactions and do not include transactions that would be recorded in financial statements presented on the accrual basis of accounting, as contemplated by accounting principles generally accepted in the United States of America.

NOTE 2. FEDERAL INCOME TAXES

No provision for income taxes has been made since the liability therefore is that of the unit holders and not the Trust.

NOTE 3. RELATED PARTY TRANSACTIONS

The Declaration of Trust provides that each trustee shall receive annual compensation of $2,500 per year for services as trustee, provided that such aggregate compensation to the trustees as a group may not exceed 3% of the monies received by the Trust in any year, and reimbursement for expenses reasonably incurred in the performance of their duties. The Declaration of Trust further provides for reimbursement to the corporate trustee for its clerical and administrative services to the Trust. Accordingly, HSBC Bank USA, the corporate trustee, also receives reimbursement for such services (including services performed as Registrar and Transfer Agent of the Certificates representing Units).

The Declaration of Trust also provides, that if in the future any trustee performs unusual or extraordinary services, reasonable compensation for such services shall be paid, subject to certain limitations and to prior confirmation by a majority in interest of Trust Certificate holders.

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MILLS MUSIC TRUST

NOTES TO STATEMENT OF CASH RECEIPTS AND DISBURSEMENTS (CONTINUED)

TWO YEARS ENDED DECEMBER 31, 2008

NOTE 3. RELATED PARTY TRANSACTIONS (Continued)

Pursuant to these provisions, disbursements were made as follows for the two years ended December 31:

NOTE 4. ROYALTIES

A listing received in 2009 from EMI (the current owner and administrative entity for the copyright materials) of the top 50 money earning songs of the subject copyrighted songs, with the original copyright dates shown, indicates that the copyright dates range from 1922 to 1960. The listing indicates that the copyright of one song has expired and is in “public domain”. The gross royalties EMI received for this song aggregated less than 2% of the gross income of the top 50 earning songs. EMI continues to administer this song for the copyright owner.

No copyrights of the balance of the top 50 songs will reach the 95-year expiration within the next five years. However, in 2010 EMI will lose the U.S. rights to one song, amounting to approximately 1% of the gross income of the top 50 earning songs, but will continue to administer this song on behalf of the copyright owner.

Seven of the top 50 songs account for approximately 65% of the earnings attributable to the 50 songs. The earliest expiration of the copyrights for these seven songs is 2024.

The Trust cannot determine EMI’s ability to secure renewals of the copyrighted material; however, under the trust agreement, EMI must use its best efforts to do so.

In connection with the distribution received by the Trust in December 2006, EMI charged the Trust with an adjustment of additional royalties paid by EMI in connection with an audit and settlement by the royalty recipient, in an aggregate amount of $427,000 relating to prior years. Those claimed adjustments, which the trust is reviewing for accuracy and appropriateness, among other things,

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resulted in EMI paying the Trust the $167,500 minimum in December 2006. In a statement accompanying its distribution to the Trust in March 2007, EMI characterized the minimum payment made in December 2006 as an advance, and had deducted that amount from its March 2007 distribution.

In subsequent discussions, EMI has agreed that the minimum payment of $167,500 is a minimum entitlement to the Trust and not an advance. Accordingly, subsequent accountings by EMI have been restated. No additional amounts were owing to the Trust as a result of the restatements.

EMI and the Trust agreed to continue efforts to settle the pending disputes without litigation. In furtherance of those efforts, on October 4, 2007, EMI and the Trust executed a Tolling Agreement. Pursuant to the Tolling Agreement, the parties agreed to suspend recognition of the passage of time for purposes of any relevant statue of limitations defenses to claims under the agreement governing the payment of royalties and not to commence litigation while the Tolling Agreement is in force. The Tolling Agreement, which was scheduled to expire on April 1, 2008, has been extended by mutual written consent to April 26, 2009.

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NONE

Management’s Annual Report on Disclosure Controls and Procedures.

The Trust maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Trust’s report under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Trust’s management, which is comprised of the Trust officer of the corporate trustee and the chief financial individual providing accounting services to the Trust, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Trust’s management has evaluated the effectiveness of the design and operation of the Trust’s disclosure controls and procedures as of December 31, 2008. Based upon that evaluation and subject to the foregoing, the Trust’s management concluded that the design and operation of the Trust’s disclosure controls and procedures provided reasonable assurance that the disclosure controls and procedures are effective to accomplish their objectives.

Management’s Annual Report on Internal Control over Financial Reporting.

Management of the Trust is responsible for establishing and maintaining adequate internal control over financial reporting for the Trust as defined in Rule 13a-15(f) under the Exchange Act. The Trust’s internal control financial reporting is designed to provide reasonable assurance to management regarding the preparation and fair presentation of published financial statements and the reliability of financial reporting.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the Trust’s internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework. Based on management’s assessment, we believe that, as of December 31, 2008, the Trust’s internal control over financial reporting is effective based on those criteria.

This annual report does not include an attestation report of the Trust’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Trust’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Trust to provide only management’s report in this annual report on Form 10-K.

Changes in Internal Control Over Financial Reporting.

There were no changes in the Trust’s internal control over financial reporting in the quarter ended December 31, 2008 that materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting.

None.

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PART III

HSBC Bank USA is the Corporate Trustee of the Trust. The Trustees serve until their removal, resignation, incapacity, or in the case of individual Trustees, their death.

HSBC Bank USA National Association or its predecessor Marine Midland Bank has been the corporate trustee since February 1965 and is a national banking association organized under the laws of the United States.

The Trust has not adopted a code of ethics (as defined in Item 406 of Regulation S-K under the Securities Exchange Act of 1934) governing its principal executive officer and principal financial officer as the Trust is managed by the Corporate Trustee and thus relies on the employees of the Corporate Trustee to abide by the codes of ethics established by the Corporate Trustee or its affiliates.

To the best knowledge of the Trustees, the only persons who beneficially own more than 5% of the Trust Units are as follows:

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Based on statement filed with the SEC pursuant to Section 13 (d) or 13 (g) of the Act.

The present Trustee has no beneficial ownership in the Trust.

The Trustees know of no contractual arrangements, which may result in a change in control of the Trust at a subsequent date.

The Declaration of Trust provides that each trustee shall receive annual compensation of $2,500 per year for his services as trustee, provided that such aggregate compensation to the trustees as a group may not exceed 3% of the monies received by the Trust in any year, and reimbursement for expenses reasonably incurred in the performance of his duties. The Declaration of Trust further provides for reimbursement to the corporate trustee for its clerical and administrative services to the Trust. Accordingly, HSBC Bank USA also receives reimbursement for such services (including services performed as Registrar and Transfer Agent of the Certificates representing Units). The Declaration of Trust further provides that if in the future any trustee performs unusual or extraordinary services, reasonable compensation for such services shall be paid, subject to certain limitations and to prior confirmation by a majority in interest of Trust Certificate holders. During 2008, pursuant to these provisions, HSBC Bank USA National Association received $2,500 as their trustee fee.

Audit Fees

Fees paid to Cornick, Garber & Sandler, LLP for professional services rendered for the audit of the Trust’s statement of cash receipts and disbursements and the review of interim financial statements included in the quarterly reports on Form 10-Q aggregated $15,000 in both 2008 and 2007.

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Audit-Related Fees

NONE

Tax Fees

NONE

All Other Fees

NONE

The Trust is not a corporate entity and thus does not have an Audit Committee. The Trustee has established a pre-approval policy with regard to audit, audit-related and certain non-audit engagements by the Trust of its independent auditors. Under this policy, the Trustee annually pre-approves certain limited, specified recurring services, which may be provided by the Trust’s independent auditors, subject to maximum dollar limitations. All other engagements for services to be performed by the Trust’s independent auditors must be separately pre-approved by the Trustee.

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PART IV

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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