SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
| For the quarterly period | Commission File Number |
| ended September 30, 2016 | 0-17555 |
The Everest Fund, L.P.
(Exact name of registrant as specified in its charter)
| Iowa | 42-1318186 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
1100 North 4th Street, Suite 232, Fairfield, Iowa 52556
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:
(641) 472-5500
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)
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.
Yesx No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filero | Accelerated filero | |
| Non-accelerated filero | Small Reporting Company Filerx |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o Nox
Table of Contents
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Following are Financial Statements for the three months ended September 30, 2016
EVEREST FUND, L.P.
(An Iowa Limited Partnership)
STATEMENTS OF FINANCIAL CONDITION
September 30, 2016 (UNAUDITED) AND DECEMBER 31, 2015 (AUDITED)
| UNAUDITED | AUDITED | |||||||
| SEPTEMBER 30, 2016 | DECEMBER 31, 2015 | |||||||
| ASSETS | ||||||||
| Equity in broker trading accounts: | ||||||||
| Cash and investments in marketable securities | 10,483 | 13,442 | ||||||
| Cash in broker trading accounts | 4,468,402 | 5,543,020 | ||||||
| Net unrealized trading gains(losses) on open contracts | 126,043 | 157,585 | ||||||
| Other Assets | 4,604,928 | 5,714,047 | ||||||
| Interest receivable | 790 | 461 | ||||||
| TOTAL ASSETS | $ | 4,605,718 | $ | 5,714,508 | ||||
| LIABILITIES AND PARTNERS’ CAPITAL | ||||||||
| LIABILITIES: | ||||||||
| Management fee payable | $ | 7,579 | $ | 9,501 | ||||
| General partner fees payable | 20,736 | 24,935 | ||||||
| Redemptions payable | 9,416 | 8,209 | ||||||
| Incentive fee payable | 0 | 0 | ||||||
| Accounts payable & accrued expenses | 37,430 | 42,597 | ||||||
| TOTAL LIABILITIES | 75,160 | 85,242 | ||||||
| PARTNERS’ CAPITAL (Net Assets) | ||||||||
| Limited partners, A Shares (2,253.51619 and 2,491.8149 units outstanding) | 4,530,557 | 5,629,265 | ||||||
| TOTAL PARTNERS’ CAPITAL | 4,530,557 | 5,629,265 | ||||||
| TOTAL LIABILITIES AND PARTNERS’ CAPITAL | $ | 4,605,718 | $ | 5,714,508 | ||||
The accompanying notes are an integral part of this statement.
| 3 |
EVEREST FUND, L.P.
(AN IOWA LIMITED PARTNERSHIP)
CONDENSED SCHEDULE OF INVESTMENTS
September 30, 2016
UNAUDITED
| EXPIRATION | NUMBER OF | MARKET | % OF PARTNERS’ | |||||||||||||
| DATES | CONTRACTS | VALUE (OTE) | CAPITAL | |||||||||||||
| LONG POSITIONS: | ||||||||||||||||
| FUTURES POSITIONS | ||||||||||||||||
| Interest rates | Oct 16-Dec 17 | 376 | $ | 38,918 | 0.86 | % | ||||||||||
| Metals | Dec 16 | 27 | -4,722 | -0.10 | % | |||||||||||
| Agriculture | Nov 16 – Mar 17 | 45 | 74,466 | 1.64 | % | |||||||||||
| Currencies | Dec 16 – Jun 18 | 48 | 18,330 | 0.40 | % | |||||||||||
| Indices | Dec 16 | 34 | -7,394 | -0.16 | % | |||||||||||
| 119,598 | 2.64 | % | ||||||||||||||
| Total long positions | 119,598 | 2.64 | % | |||||||||||||
| SHORT POSITIONS: | ||||||||||||||||
| FUTURES POSITIONS | ||||||||||||||||
| Interest rates | Oct 16-Sep 17 | 26 | -10,411 | -0.23 | % | |||||||||||
| Metals | Dec 16 | 1 | -14,575 | -0.32 | % | |||||||||||
| Energy | Nov 16 | 9 | -17,195 | -0.38 | % | |||||||||||
| Agriculture | Nov 16 – Jan 17 | 58 | 53,694 | 1.19 | % | |||||||||||
| Currencies | Dec 16 | 46 | 4,073 | 0.09 | % | |||||||||||
| Indices | Dec 16 | 6 | -9,141 | -0.20 | % | |||||||||||
| 6,445 | 0.14 | % | ||||||||||||||
| Total short positions | 6,445 | 0.14 | % | |||||||||||||
| TOTAL OPEN CONTRACTS | 126,043 | 2.78 | % | |||||||||||||
The accompanying notes are an integral part of these financial statements.
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EVEREST FUND, L.P.
(AN IOWA LIMITED PARTNERSHIP)
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2015
Audited
Expiration | Number | Market | % of Partners’ | |||||||||||||
| Long U.S. Futures Contracts | ||||||||||||||||
| Interest rates | Mar 16–Mar 17 | 100 | -0.77 | % | ($ | 43,148 | ) | |||||||||
| Metals | Mar 16 | 7 | 0.05 | % | 2,863 | |||||||||||
| Agriculture | Mar 16 | 39 | -0.19 | % | (10,842 | ) | ||||||||||
| Currencies | Mar 16 | 8 | 0.14 | % | 8,100 | |||||||||||
| Indices | Mar 16 | 100 | -0.02 | % | (1,333 | ) | ||||||||||
| Total Long Futures Contracts | -0.79 | % | ($ | 44,360 | ) | |||||||||||
| Forward Positions | ||||||||||||||||
| Currencies | 0.00 | % | 0 | |||||||||||||
| Total Long Positions | -0.79 | % | ($ | 44,360 | ) | |||||||||||
| Short U.S. Futures Contracts | ||||||||||||||||
| Interest Rates | Mar 16-Dec 16 | 289 | -0.33 | % | ($ | 18,847 | ) | |||||||||
| Metals | Mar 16-Apr 16 | 30 | 0.25 | % | 14,202 | |||||||||||
| Energy | Feb 16-Mar 16 | 22 | 0.80 | % | 45,036 | |||||||||||
| Agriculture | Feb 16-Mar 16 | 89 | 1.00 | % | 56,446 | |||||||||||
| Currencies | Mar 16-Sep 17 | 160 | 1.98 | % | 111,628 | |||||||||||
| Indices | Jan 16-Mar 16 | 11 | -0.12 | % | (6,519 | ) | ||||||||||
| Total Short Futures Contracts | 3.59 | % | $ | 201,945 | ||||||||||||
| Forward Positions | ||||||||||||||||
| Currencies | 0.00 | % | 0 | |||||||||||||
| Total Short Positions | 3.59 | % | $ | 201,945 | ||||||||||||
| Total Contracts | 2.80 | % | $ | 157,585 | ||||||||||||
The accompanying notes are an integral part of these statements.
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EVEREST FUND, L.P.
(AN IOWA LIMITED PARTNERSHIP)
FOR THE THREE MONTHS ENDED September 30, 2016 AND 2015
UNAUDITED
| THREE MONTHS ENDED | THREE MONTHS ENDED | |||||||
| September 30, 2016 | September 30, 2015 | |||||||
| TRADING INCOME (LOSS) | ||||||||
| Net realized trading gain (loss) | $ | -137,292 | $ | 80,292 | ||||
| Change in net unrealized trading gain (loss) | -56,977 | 276,943 | ||||||
| Net foreign currency translation loss | -737 | -463 | ||||||
| Brokerage Commissions | -5,739 | -6,873 | ||||||
| NET TRADING INCOME (LOSS) | -200,746 | 349,889 | ||||||
| Interest income, net of cash management fees | 2,468 | 251 | ||||||
| TOTAL INCOME | -198,278 | 350,140 | ||||||
| EXPENSES: | ||||||||
| General partner management fees | 66,291 | 81,002 | ||||||
| Advisor Management fees | 23,529 | 29,702 | ||||||
| Incentive fees | 0 | 0 | ||||||
| Professional fees | 22,509 | 21,074 | ||||||
| Administrative expenses | 1,646 | 2,157 | ||||||
| TOTAL EXPENSES | 113,975 | 133,935 | ||||||
| NET INCOME | $ | -312,253 | $ | 216,206 | ||||
| NET INCOME (LOSS) PER UNIT OF PARTNERSHIP INTEREST | $ | -138.56 | $ | 86.64 | ||||
The accompanying notes are an integral part of these statements.
| 6 |
EVEREST FUND, L.P.
(AN IOWA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED September 30, 2016 AND 2015
UNAUDITED
| NINE MONTHS ENDED | NINE MONTHS ENDED | |||||||
| SEPTEMBER 30, 2016 | SEPTEMBER 30, 2015 | |||||||
| TRADING INCOME (LOSS) | ||||||||
| Net realized trading gain (loss) | $ | -89,104 | $ | 459,918 | ||||
| Change in net unrealized trading gain (loss) | -27,822 | -93,193 | ||||||
| Net foreign currency translation loss | -11,611 | -11,448 | ||||||
| Brokerage Commissions | -22,948 | -17,805 | ||||||
| NET TRADING INCOME (LOSS) | -151,484 | 337,472 | ||||||
| Interest income, net of cash management fees | 7,399 | 474 | ||||||
| TOTAL INCOME | -144,085 | 337,947 | ||||||
| EXPENSES: | ||||||||
| General partner management fees | 212,766 | 269,903 | ||||||
| Advisor Management fees | 77,858 | 95,897 | ||||||
| Incentive fees | 0 | 0 | ||||||
| Professional fees | 66,175 | 64,265 | ||||||
| Administrative expenses | 5,011 | 7,400 | ||||||
| TOTAL EXPENSES | 361,810 | 437,465 | ||||||
| NET INCOME | $ | -505,895 | $ | -99,518 | ||||
| NET INCOME (LOSS) PER UNIT OF PARTNERSHIP INTEREST | $ | -224.49 | $ | -39.88 | ||||
The accompanying notes are an integral part of these statements.
| 7 |
EVEREST FUND, L.P.
(An Iowa Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS’ CAPITAL
FOR THE NINE MONTHS ENDED September 30, 2016
UNAUDITED
| UNITS | LIMITED PTRS | |||||||||||
| A SHARES | A SHARES | TOTAL | ||||||||||
| BALANCES, January 1, 2016 | $ | 2,491.815 | $ | 5,629,266 | $ | 5,629,266 | ||||||
| Additional Units Sold | 0 | 0 | 0 | |||||||||
| Redemptions | -238.299 | -592,813 | -592,813 | |||||||||
| Less Offering Costs | — | 0 | 0 | |||||||||
| Net profit (Loss) | — | -505,895 | -505,895 | |||||||||
| BALANCES, September 30, 2016 | $ | 2,253,516 | $ | 4,530,557 | $ | 4,530,557 | ||||||
| Net asset value per unit January 1, 2016 | $ | 2,259.10 | ||||||||||
| Net profit (loss) per unit | -248.66 | |||||||||||
| Net asset value per unit September 30, 2016 | $ | 2,010.44 | ||||||||||
The accompanying notes are an integral part of these statements.
| 8 |
EVEREST FUND, L.P.
(An Iowa Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS’ CAPITAL
FOR THE NINE MONTHS ENDED September 30, 2015
UNAUDITED
| UNITS | LIMITED PTRS | |||||||||||
| A SHARES | A SHARES | TOTAL | ||||||||||
| BALANCES, January 1, 2015 | $ | 2,797.984 | $ | 6,810,207 | $ | 6,810,207 | ||||||
| Additional Units Sold | 0 | 0 | 0 | |||||||||
| Redemptions | -302.536 | -734,637 | -734,637 | |||||||||
| Less Offering Costs | — | 0 | 0 | |||||||||
| Net profit (Loss) | — | -99,518 | -99,518 | |||||||||
| BALANCES, September 30, 2015 | $ | 2,495.448 | $ | 5,976,052 | $ | 5,976,052 | ||||||
| Net asset value per unit January 1, 2015 | $ | 2,433.97 | ||||||||||
| Net profit (loss) per unit | -39.19 | |||||||||||
| Net asset value per unit September 30, 2015 | $ | 2,394.78 | ||||||||||
The accompanying notes are an integral part of these statements.
| 9 |
EVEREST FUND, L.P.
(An Iowa Limited Partnership)
FOR THE NINE MONTHS ENDED September 30, 2016 AND 2015 UNAUDITED
| NINE MONTHS ENDED | NINE MONTHS ENDED | |||||||
| September 30, 2016 | September 30, 2015 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | -505,895 | $ | -99,518 | ||||
| Net changes to reconcile net income(loss) to net cash provided (used) by operating activities: | ||||||||
| Unrealized gain (loss) on open contracts | 31,542 | 98,081 | ||||||
| Interest receivable | -329 | 21 | ||||||
| Incentive fees payable | 0 | 0 | ||||||
| General partner fees payable | -4,199 | -5,110 | ||||||
| Redemption Payable | 1,207 | 0 | ||||||
| Management fees payable | -1,922 | -1,393 | ||||||
| Accounts payable & accrued expenses | -5,168 | -7,653 | ||||||
| Net cash provided (used) in operating activities | -484,764 | -15,572 | ||||||
| Cash flows from (for) financing activities: | ||||||||
| Cash Redemptions paid | -592,813 | -734,638 | ||||||
| Partner addition of units, net of offering costs | 0 | 0 | ||||||
| Net cash provided (used) by financing activities | -592,813 | -734,638 | ||||||
| Net increase (decrease) in cash and cash equivalents -1,077,577 | -750,210 | |||||||
| Cash and cash equivalents | ||||||||
| Beginning of period | 5,556,462 | 6,581,368 | ||||||
| End of Period | 4,478,885 | 5,831,158 | ||||||
| End of period cash and cash equivalents consist of: | ||||||||
| Cash in Banks | 10,483 | 16,616 | ||||||
| Cash in broker trading accounts | 4,468,402 | 5,814,542 | ||||||
| Cash and cash equivalents | 0 | 0 | ||||||
| CASH AND CASH EQUIVALENTS, at end of period | $ | 4,478,885 | $ | 5,831,158 | ||||
The accompanying notes are an integral part of these statements.
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The Everest Fund, L.P.
(an Iowa Limited Partnership)
Notes to the Financial Statements
SEPTEMBER 30, 2016
(1) GENERAL INFORMATION AND SUMMARY
The Everest Fund, L.P., formerly Everest Futures Fund, L.P. (an Iowa Limited Partnership), (the “Partnership”) is a limited partnership organized in June 1988, under the Iowa Uniform Limited Partnership Act (the “Act”) for the purpose of engaging in the speculative trading of commodity futures and options thereon and forward contracts (collectively referred to as “Commodity Interests”). The sole General Partner of the Partnership is Everest Asset Management, Inc. (the “General Partner”).
On July 1, 1995, the Partnership recommenced its offering under a Regulation D, Rule 506 private placement. The private placement offering is continuing at a gross subscription price per unit equal to net asset value (NAV) per unit, plus an organization and offering cost reimbursement fee payable to the General Partner, and an ongoing compensation fee equal to 3% of the net asset value of Class A Units sold. The Class A Units (retail shares) continue to be charged an initial 1% Offering and Organization fee as a reduction to capital.
Currently, R.J. O’Brien and Associates, LLC (“RJO”), 222 South Riverside Plaza, Suite 900, Chicago, Illinois 60606, serves as the Fund’s clearing broker to execute and clear Fund’s futures and equities transactions and provide other brokerage-related services. RJO Professional FX is a division of RJO. RJO Professional FX may execute foreign exchange or other over the counter transaction with the Fund as principal. RJO is a subsidiary of R.J. O’Brien Holdings Corporation. RJO is registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a Futures Commission Merchant (“FCM”) and is a member of the National Futures Association (“NFA”) in several capacities, including as a Forex Dealer Member (“FDM”) and is a member of certain principal U.S. contracts markets. RJO is a full clearing member of the CME Group, the Intercontinental Exchange, NYSE Liffe U.C., and the CBOE Futures Exchange (“CFE”).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Commodity futures contracts, forward contracts, physical commodities, and related options are recorded on the trade-date basis and realized gains or losses are recognized when contracts are liquidated. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized gains or losses on open contracts (the difference between contract trade price and market price) are reported in the statement of financial condition as a net unrealized gain or loss, as there exists a right of offset of unrealized gains or losses in accordance with the Financial Accounting Standards Board Interpretation No. 39 - “Offsetting of Amounts Related to Certain Contracts.” Any change in net unrealized gain or loss from the preceding period is reported in the statement of operations. Fair value of exchange-traded contracts is based upon exchange settlement prices.
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Fair value of non-exchange-traded contracts is based on third party quoted dealer values on the Interbank market.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash equivalents represent short-term highly liquid investments with maturities of 90 days or less at the date of acquisition. The Partnership maintains deposits with high quality financial institutions in amounts that are in excess of federally insured limits; however, the Partnership does not believe it is exposed to any significant credit risk.
Redemptions Payable
Pursuant to the provisions of FASB ASC 480, Distinguishing Liabilities from Equity, redemptions approved by the General Partner prior to month end with a fixed effective date and fixed amount are recorded as redemptions payable as of month end.
Fair Value of Financial Instruments
The financial instruments held by the Company are reported in the statements of financial condition at fair value, or at carrying amounts that approximate fair value, due to their highly liquid nature and short-term maturity.
Foreign Currency Translation The Partnership’s functional currency is the U.S. dollar, however, it transacts business in currencies other than the U.S. dollar. Assets and liabilities denominated in foreign currencies are translated at the prevailing exchange rates as of the date of the statement of financial conditions. Gains and losses on investment activity are translated at the prevailing exchange rate on the date of each respective transaction while period end balances are translated at the period end currency rates. Realized and unrealized foreign exchange gains or losses are included in trading income or loss in the statements of operations.
Income Taxes
No provision for income taxes has been made in the accompanying financial statements as each partner is responsible for reporting income (loss) based upon the pro rata share of the profits or losses of the Partnership.
The Partnership files U.S. federal and state tax returns.
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Financial Accounting Standards Board has defined a hierarchy for fair value measurements. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1. Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
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Level 2. Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly; and fair value is determined through the use of models or other valuation methodologies. A significant adjustment to a Level 2 input could result in the Level 2 measurement becoming a Level 3 measurement.
Level 3. Inputs are unobservable for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. The inputs into the determination of fair value are based upon the best information in the circumstances and may require significant management judgment or estimation.
The table below demonstrates the Partnership’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of September 30, 2016 and September 30, 2015:
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets at September 30, 2016: | ||||||||||||
| Open positions in futures and option contracts | $ | 126,043 | — | — | ||||||||
| Total assets at fair value | $ | 126,043 | $ | 0 | $ | 0 | ||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets at September 30, 2015: | ||||||||||||
| Open positions in futures and option contracts | $ | 218,276 | — | — | ||||||||
| Total assets at fair value | $ | 218,276 | $ | 0 | $ | 0 | ||||||
(4) LIMITED PARTNERSHIP AGREEMENT
The Limited Partners and General Partner share in the profits and losses of the Partnership in proportion to the number of units or unit equivalents held by each. However, no Limited Partner is liable for obligations of the Partnership in excess of their capital contribution and profits, if any, and such other amounts as they may be liable for pursuant to the Act. Distributions of profits are made solely at the discretion of the General Partner.
Responsibility for managing the Partnership is vested solely in the General Partner. The General Partner has delegated complete trading authority to an unrelated party (seeNote 5).
Although the Agreement does not permit redemptions for the first six months following a Limited Partner’s admission to the Partnership, the Agreement does permit the Partnership to declare additional regular redemption dates.
The Partnership will be dissolved on December 31, 2020, or upon the occurrence of certain events, as specified in the Limited Partnership agreement.
(5) AGREEMENTS AND RELATED PARTY TRANSACTIONS
EMC Capital Management, Inc. (EMC), 2201 Waukegan Road, Suite West 240, Bannockburn, IL 60015; telephone: 847-267-8700, serves as the Partnership’s Commodity Trading Advisor (CTA).
EMC receives a monthly management fee equal to 0.167% (2% annually) of the Partnership’s month-end net asset value, (as defined),and a quarterly incentive fee of 20% of the Partnership’s new net trading profits. The incentive fee is retained by EMC even though trading losses may occur in subsequent quarters; however, no further incentive fees are payable until any such trading losses (other than losses attributable to redeemed units and losses attributable to assets reallocated to another advisor) are recouped by the Partnership.
Effective November 2003, the General Partner charges the Partnership a monthly management fee equal to 0.50% of the Partnership’s Class A beginning-of-month net asset value.
From the monthly management fee the General Partner deducts the round turn trading costs and related exchange fees (between $5.80 to $10.70 per round turn trade on domestic exchanges, and higher for foreign exchanges) and pays the selling agents and certain other parties, if any, up to 50% of the fee retained by the General Partner. The General Partner may replace or add trading advisors at any time.
| 13 |
The clearing agreements with the clearing brokers provide that the clearing brokers charge the Partnership brokerage commissions at the rate of between $5.80 to $10.70 per round-turn trade, plus applicable exchange, give up fees and National Futures Association fees for futures contracts and options on futures contracts executed on domestic exchanges and over the counter markets. For trades on certain foreign exchanges, the rates may be higher.
The Partnership also reimburses the clearing brokers for all delivery, insurance, storage or other charges incidental to trading and paid to third parties.
The Partnership earns interest on 78% of the Partnership’s average monthly cash balance on deposit with its clearing brokers at a rate equal to the average 91-day Treasury Bill rate during that month.
A substantial portion of the Partnership’s assets are held in a cash account a Everest’s futures broker R.J. O’Brien, the FCM. As is standard in the industry Everest receives 90% of the 3 month T-bill rate on its cash that is unused for trading. The Partnership’s assets at RJO cash account are subject to potential loss resulting from interest rate fluctuations and default.
(6) DERIVATIVE INSTRUMENTS
In the normal course of business, the Partnership engages in trading derivatives by purchasing and selling futures contracts and options on future contracts for its own account. All such trading is effectuated as speculative as opposed to hedging. Effective January 1, 2009, the Partnership adopted the provisions of Accounting Standards Codification 815, Derivatives & Hedging, which requires enhanced disclosures about the objectives and strategies for using derivatives and quantitative disclosures about the fair value amounts, and gains and losses on derivatives.
See below for such disclosures.
Fair Value of Derivative Instruments
| 2016 | 2015 | |||||||||
| Speculative Instruments | Location- Statement of Financial Condition | Fair Value | Fair Value | |||||||
| Futures Contracts | Net unrealized gain (loss) on open contracts | $ | 126,043 | $ | 218,276 | |||||
| 2016 | 2015 | |||||||||
| Speculative Instruments | Location- Statement of Operations | Fair Value | Fair Value | |||||||
| Futures Contracts | Net realized trading gains (losses) | $ | -89,104 | $ | 459,918 | |||||
| Futures Contracts | Change in unrealized gains (losses) | $ | -27,822 | $ | -93,193 | |||||
| Asset Derivatives | ||||||||
| Balance Sheet Location | Fair Value | # of contracts | ||||||
| Agricultural | ||||||||
| Net unrealized trading gains on open contracts | 74,466 | 45 | ||||||
| Currencies | ||||||||
| Net unrealized trading gains on open contracts | 18,330 | 48 | ||||||
| Metals | ||||||||
| Net unrealized trading gains on open contracts | -4,722 | 27 | ||||||
| Interest rates | ||||||||
| Net unrealized trading gains on open contracts | 38,918 | 376 | ||||||
| Indices | ||||||||
| Net unrealized trading gains on open contracts | -7,394 | 34 | ||||||
| 119,598 | 530 | |||||||
| 14 |
| Liability Derivatives | ||||||||||||
| Balance Sheet Location | Fair Value | # of contracts | Net | |||||||||
| Agricultural | ||||||||||||
| Net unrealized trading gains on open contracts | 53,694 | 58 | 128,160 | |||||||||
| Currencies | ||||||||||||
| Net unrealized trading gains on open contracts | 4,073 | 46 | 22,403 | |||||||||
| Energy | ||||||||||||
| Net unrealized trading gains on open contracts | -17,195 | 9 | -17,195 | |||||||||
| Metals | ||||||||||||
| Net unrealized trading gains on open contracts | -14,575 | 1 | -19,297 | |||||||||
| Interest rates | ||||||||||||
| Net unrealized trading gains on open contracts | -10,411 | 26 | 28,507 | |||||||||
| Indices | ||||||||||||
| Net unrealized trading gains on open contracts | -9,141 | 6 | -16,535 | |||||||||
| 6,445 | 146 | 126,043 | ||||||||||
| Trading Revenue for the Nine Months Ended September 30, 2016 | ||||
| Line Item in Income Statement | ||||
| Realized | $ | -123,663 | ||
| Change in unrealized | $ | -27,822 | ||
| $ | -151,484 | |||
| Trading Revenue for the Nine Months Ended September 30, 2015 | ||||
| Line Item in Income Statement | ||||
| Realized | $ | 430,666 | ||
| Change in unrealized | $ | -93,193 | ||
| $ | 337,472 | |||
| Includes net foreign currency translation gain (loss) | ||||
| Total average of futures contracts bought and sold | ||||
| Nine months ended September 30, 2016 | ||||
| Total | $ | -123,663 | ||
| 9 month average | $ | -13,740 | ||
Total average of futures contracts bought and sold Nine months ended September 30, 2015 | ||||
| Total | $ | 430,666 | ||
| 9 month average | $ | 47,852 | ||
For the nine months ended September 30, 2016, the monthly average of futures contracts bought and sold was approximately $-13,740.
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(7) FINANCIAL INSTRUMENTS, OFF-BALANCE SHEET RISKS AND CONTINGENCIES
The Partnership engages in the speculative trading of U.S. and foreign futures contracts, options on U.S. and foreign futures contracts, and forward contracts (“collectively derivatives”). These derivatives include both financial and non-financial contracts held as part of a diversified trading strategy. The Partnership is exposed to both market risk, the risk arising from changes in the market value of the contracts; and credit risk, the risk of failure by another party to perform according to the terms of a contract.
The purchase and sale of futures and options on futures contracts requires margin deposits with a Futures Commission Merchant (“FCM”). Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act requires an FCM to segregate all customer transactions and assets from the FCM’s proprietary activities. A customer’s cash and other property such as U.S. Treasury Bills, deposited with an FCM are considered commingled with all other customer funds subject to the FCM’s segregation requirements. In the event of an FCM’s insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than the total of cash and other property deposited.
For derivatives, risks arise from changes in the market value of the contracts. Theoretically, the Partnership is exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short. As both a buyer and seller of options, the Partnership pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option.
In the case of forward contracts, over-the-counter options contracts or swap contracts, which are traded on the interbank or other institutional market rather than on exchanges, the counterparty is generally a single bank or other financial institution, rather than a clearinghouse backed by a group of financial institutions; thus, there likely will be greater counterparty credit risk. The Partnership trades only with those counterparties that it believes to be creditworthy. All positions of the Partnership are valued each day on a mark-to-market basis. There can be no assurance that any clearing member, clearinghouse or other counterparty will be able to meet its obligations to the Partnership.
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(8) FINANCIAL HIGHLIGHTS
The following financial highlights show the Partnership’s financial performance for the nine months ended September 30, 2016 and September 30, 2015.
| September 30, 2016 | September 30, 2015 | |||||||
| Class A | Class A | |||||||
| Total return before distributions* | -11.01 | % | -1.61 | % | ||||
| Ratio to average net assets: | ||||||||
| Net investment Income (loss)** | -9.14 | % | -9.17 | % | ||||
| Management fees | 5.49 | % | 5.67 | % | ||||
| Incentive fees | 0 | % | 0.00 | % | ||||
| Other expenses | 3.85 | % | 3.52 | % | ||||
Total expenses** | 9.34 | % | 9.18 | % | ||||
*Not annualized | ||||||||
| **Annualized | ||||||||
Interim Financial Statements
The statements of financial condition, including the consolidated schedule of investments, as of September 30, 2016, the statements of operations for the three and nine months ended September 30, 2016 and 2015, the statements of cash flows and changes in partners’ capital (net asset value) for the nine months ended September 30, 2016 and 2015 and the accompanying notes to the financial statements are unaudited.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles may be omitted pursuant to such rules and regulations. In the opinion of management, such financial statements and accompanying disclosures reflect all adjustments, which were of a normal and recurring nature, necessary for a fair presentation of financial position as of September 30, 2016, results of operations for the nine months ended September 30, 2016 and 2015, cash flows and changes in partners’ capital (net asset value) for the three months ended September 30, 2016 and 2015. The results of operations for the full nine months ended September 30, 2016 and 2015 are not necessarily indicative of the results to be expected for the full year or any other period. These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in our form 10-k as filed with the Securities and Exchange Commission.
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operation |
Each month ended September 30, 2016 compared to each month ended September 30, 2015.
Class A Units were positive 8.23% in January 2016 resulting in a Net Asset Value per unit of $2,445.12 as of January 31, 2016.
Class A Units were positive 3.44% in January 2015 resulting in a Net Asset Value per unit of $2,517.72 as of January 31, 2015.
Large gains came from trends in interest rates (both directions, at different times of the month), energies and stock indices. Much smaller losses came from grains and softs.
The great start for the New Year for the Fund more than erased the loss from last year’s trading. It also came during a month of considerable stress on the equity markets, with the S&P 500 losing 3.24% despite the stock market recovery at the end of the month.
Class A Units were positive 4.89% in February 2016 resulting in a Net Asset Value per unit of $2,564.60 as of February 29, 2016.
Class A Units were negative 2.33% in February 2015 resulting in a Net Asset Value per unit of $2,459.13 as of February 28, 2015.
The gains came mostly from interest rate positions, with smaller gains in softs, grains and global stock indices. Losses were posted in currencies.
After fluctuating up and down for most of the month, our energy and metals positions were essentially flat for the month for the month of February.
Class A Units were negative 7.98% in March 2016 resulting in a Net Asset Value per unit of $2,359.86 as of March 31, 2016.
Class A Units were negative 0.11% in March 2015 resulting in a Net Asset Value per unit of $2,456.35 as of March 31, 2015.
The Fund was negatively correlated with the S&P 500 which was +6.6% in March. The Fund was +4.46% YTD through the end of March with the S&P 500 +0.77% for the same period.
The losses came across the board from interest rates, currencies, softs, global stock indices, energies, grains, metals and meats. Trends that were established and very profitable for the Fund in January and February abruptly reversed in March for the largest one month decline since EMC took over the trading for the Fund in December of 2012.
Class A Units were negative 7.81% in April 2016 resulting in a Net Asset Value per unit of $2,175.61 as of April 30, 2016.
Class A Units were negative 0.68% in April 2015 resulting in a Net Asset Value per unit of $2,439.66 as of April 30, 2015.
The Everest Fund had a loss of -7.81% in April. Gains in currencies, meats and grains were not enough to offset losses in stock indices, softs, interest rates, energies and metals.
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April was another volatile month of fluctuating trendless price action. These kinds of market conditions wreak havoc for technical trend following systems like EMC.
Class A Units were negative 3.21% in May 2016 resulting in a Net Asset Value per unit of $2,105.82 as of May 31, 2016.
Class A Units were negative 0.02% in May 2015 resulting in a Net Asset Value per unit of $2,439.23 as of May 31, 2015.
The Everest Fund had a loss of -3.21% in May. Another month of abrupt price swings saw losses in metals, currencies, softs, stock indices and short financials. Smaller gains were posted in grains and to a lesser extent long financials and energies.
May was another month of unfavorable conditions for trend followers like EMC. We look forward to the possibility of a return to trending, and therefore tradeable, markets.
Class A Units were positive 2.04% in June 2016 resulting in a Net Asset Value per unit of $2,148.71 as of June 30, 2016.
Class A Units were negative 5.36% in June 2015 resulting in a Net Asset Value per unit of $2,308.49 as of June 30, 2015.
The Everest Fund’s gains came mostly in interest rates with smaller gains from softs and energies. Smaller overall losses came in stock indices and grains.
Brexit was the main driver of markets for the month of June. The Fund suffered losses in anticipation of the U.K. vote, and then made up the losses plus 2% after the Brexit vote to leave the EU. We were impressed by the risk management at EMC, especially after the vote took place.
Class A Units were positive 1.57% in July 31, 2016 resulting in a Net Asset Value per unit of $2,182.45 as of July 31, 2016.
Class A Units were positive 3.98% in July 31, 2015 resulting in a Net Asset Value per unit of $2,400.32 as of July 31, 2015.
The Fund had profits in metals, energies, interest rates and softs. Smaller overall losses came in stock indices, grains and currencies.
The gain was about one half the gain of the S&P 500 for the month but it does illustrate the non-correlated aspect of the Fund. Although many of our investors look to the Fund for negative correlation to equity markets, a ‘hedge’ against stock market declines, the fund is actually non correlated over time and has the potential to post profits during up periods for equity markets as we see this month and last month.
Administrative note: Change of Auditors
On July 7, 2016 The Everest Fund, L.P. has dismissed its independent registered accounting firm, Donahue Associates, LLC. On August 9, 2016 they were replaced with Horwich Coleman Levin, LLC (HCL), 125 South Wacker Drive, Suite 1500, Chicago, IL 60606. Donahue Associates, LLC was the Company’s auditor for years 2009 through June 2016. HCL is a larger firm with the higher status of PCAOB (Public Company Accounting Oversight Board), which we need in order to continue our yearly and quarterly filings with the SEC. We will not incur any additional expenses in going with new firm. The decision to change accountants was recommended and approved by the board of directors.
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During two most recent years and subsequent interim period before Donahue Associates, LLC were dismissed there were no disagreements on any matter of accounting principles or practices, financial statement disclosure, auditing scope or procedures or compliance with the applicable rules of the Commission. There were no reportable events under 304 (a) (1) (v) of Regulation SK. Donahue Associates, LLC reports on the Everest Fund, L.P.’s financial statements for fiscal years 2014 and 2015, did not contain any adverse opinion, disclaimer or opinion or qualification.
Class A Units were negative 6.15% in August 31, 2016 resulting in a Net Asset Value per unit of $2,048.30 as of August 31, 2016.
Class A Units were negative 3.13% in August 31, 2015 resulting in a Net Asset Value per unit of $2,325.20 as of August 31, 2015.
Losses were sustained from choppy markets in metals, energies, currencies, softs and interest rates. The positive performance in global stock indices and grains was not enough to offset the up and down volatility in the other markets.
Everest address update
Please note that we have relocated to new offices, in the same building, from suite 143 to suites 230-232 as of September 1, 2016. Our telephones, fax and e-mails remain the same.
Our new address is as follows: Everest Asset Management, Inc. 1100 North 4th Street, Suite 232, Fairfield, IA 52556
Class A Units were negative 1.85% in September 30, 2016 resulting in a Net Asset Value per unit of $2,010.44 as of September 30, 2016.
Class A Units were positive 2.99% in September 30, 2015 resulting in a Net Asset Value per unit of $2,394.78 as of September 30, 2015.
In another month of non-trending markets, the Fund had gains in meats and softs but larger overall losses in energies, grains, interest rates, currencies and metals.
It remains to be seen how the anticipation for the US Elections next month will affect price trends. We have confidence that EMC will bring professionalism and discipline to the next two months.
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| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
There has been no material change with respect to market risk since the “Quantitative and Qualitative Disclosures About Market Risk” was made in the Form 10K of the Partnership dated December 31, 2015.
| Item 4. | Controls and Procedures |
As of September 30, 2016 an evaluation was performed by the company under the supervision and with the participation of management, including the President of the Company, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the President, concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company that is required to be included in the Company’s period filings with the Securities and Exchange Commission. There have been no significant changes in the company’s internal controls or in other factors that could significantly affect those internal controls subsequent to the date the company carried out its evaluation.
| Item 1. | Legal Proceedings |
Neither the Partnership, nor the General Partner, is party to any pending material legal proceeding.
| Item 1A. | Risk Factors |
There has been no material change with respect to risk factors since the “Risk Factors” were disclosed in the Form 10K of the Partnership dated December 31, 2015.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
RECENT SALES OF UNREGISTERED SECURITIES A UNITS
| Three months | Three months | |||||||
| ended September 30, 2016 | ended September 30, 2015 | |||||||
| Units Sold | 0 | 0 | ||||||
| Value of Units Sold | $ | 0 | $ | 0 | ||||
1% of the proceeds from the above sales were used to pay the Partnership’s Organization and Offering charge. The remaining 99% was invested in the Partnership.
SeePart I, Statement of Changes in Partner’s Capital
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| 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. | Exhibits and Reports on Form 8-K |
| a) | Exhibits |
| Exhibit Number | Description of Document | Page Number | |
| 31 | Certification by Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | E- 1-2 | |
| 32 | Certification by Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | E - 3 |
| b) | Reports on Form 8-K |
| none |
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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 and thereunto duly authorized.
| EVEREST FUND, L.P. | ||
| Date: November 14, 2016 | By: | Everest Asset Management, Inc., |
| its General Partner | ||
| By: | /s/ Peter Lamoureux | |
| Peter Lamoureux | ||
| President | ||
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