SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K
Annual report pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the fiscal year ended
Commission File Number 0-17555
December 31, 2006
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 143, Fairfield, Iowa 52556
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(641) 472-5500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No X
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
Note Checking the box above will not relieve any registrant
required to file reports pursuant to Section 13 or 15(d) of
the Exchange Act from their obligations under those Sections.
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.
Yes X No __
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation SK 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 Form 10K or any
amendment to this Form 10-K: [ X ]
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 filer Accelerated filer
Non-accelerated filer X
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Act).
Yes No X
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to
the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of the
last business day of the registrant s most recently completed
second fiscal quarter. $27,118,803
Note If a determination as to whether a particular person or
entity is an affiliate cannot be made without involving
unreasonable effort and expense, the aggregate market value of
the common stock held by non-affiliates may be calculated on
the basis of assumptions reasonable under the circumstances,
provided that the assumptions are set forth in this Form.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13
or15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court.
Yes No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the
registrant s classes of common stock, as of the latest
practicable date.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by
reference and the Part of the Form 10-K (e.g., Part I, Part
II, etc.) into which the document is incorporated: (1) Any
annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant
to Rule 424(b) or (c) under the Securities Act of 1933. The
listed documents should be clearly described for
identification purposes (e.g., annual report to security
holders for fiscal year ended December 24, 1980). None
Part I
Item 1. Business
The Everest Fund, L.P. (the "Partnership") is a limited
partnership organized on June 20, 1988 under the Iowa Uniform
Limited Partnership Act. The business of the Partnership is
the speculative trading of commodity futures contracts and
other commodity interests, including forward contracts on
foreign currencies (Commodity Interests) either directly or
through investing in other, including subsidiary,
partnerships, funds or other limited liability entities. The
Partnership commenced its trading operations on February 1,
1989. Its General Partner is Everest Asset Management, Inc.
(the "General Partner") a Delaware corporation organized in
December, 1987.
The Partnership was initially organized on June 20, 1988
under the name Everest Energy Futures Fund, L.P. On September
12, 1991, the Partnership changed its name to "Everest
Futures Fund, L.P." The Partnership thereafter has traded
futures contracts and options on futures contracts on a
diversified portfolio of financial instruments and precious
metals as well as forward contracts on currencies. In
November 2003 the Partnership changed its name to its present
form.
During its operation, the Partnership has had various
advisors. In December 1990, John W. Henry & Company, Inc.
(JWH) began trading for the Partnership as one of the
Partnership s trading advisors. In May 1994, JWH became the
sole advisor to the Partnership. In March 1996, the
Partnership transferred all of its assets to, and became the
sole limited partner of, Everest Futures Fund II, L.P.
(Everest II) and JWH began trading for Everest II.
On September 13, 1996 the Commission accepted a voluntary
filing by the Partnership of a Form 10 - General Form for
Registration of Securities, and public reporting of Units of
the Partnership sold as a private placement commenced at that
time and has continued to the present.
In July 2000, the Partnership redeemed approximately 50% of
its assets from Everest II and allocated them to Trilogy
Capital Management, LLC s (Trilogy) Barclay Futures Index
Program (BFIP). The Partnership instructed Trilogy to trade
its account using twice the leverage of Trilogy s un-
leveraged portfolio to attempt to achieve a return greater
than the return of the Index before fees and expenses.
Effective as of the close of business August 31, 2000, the
Partnership liquidated the balance of its investment in
Everest II and opened a trading account directly with JWH.
JWH has used its Financial and Metals Portfolio while trading
for Everest II and the Partnership through June 30, 2001.
Beginning July 1, 2001, JWH began trading its Strategic
Allocation Program for the Partnership with a trading
allocation of $40 million. Trilogy was terminated as trading
advisor June 30, 2001. Effective September 1, 2001, Mount
Lucas Management Corporation (MLM) was added as trading
advisor with an initial allocation of $10 million. This
allocation represented notional funding for the Partnership.
Effective June 12, 2003 JWH began trading its
GlobalAnalyticsR Family of Programs, Worldwide Bond Program
and Currency Strategic Allocation Programs for the
Partnership. Mount Lucas Management was terminated as
trading advisor on October 31, 2003. Effective June 4, 2004,
the Partnership introduced a new share category, Class I
Units, or Institutional Units which have an ongoing Offering
and Organization fee of 1/12 of 0.10% of the NAV per unit per
month. The Class A Units, (retail shares) continue to be
charged an initial 1% Offering and Organization fee as a
reduction to capital.
Effective January 1, 2007 the Fund has allocated 75% of its
assets to the JWH Global Analytics Program ( GAP ) and 25%
to the Worldwide Bond Program ( WBP ). The Currency Strategic
Allocation Program ( CSAP ) was eliminated as a trading
program for the Fund.
Prior to September 2005, the partnership cleared its futures
trades through Cargill Investor Services, Inc ( CIS ) and its
foreign currency trades through CIS Financial Services, Inc.
(CISFS), an affiliate of CIS. Between September 1, 2005 and
mid October, 2005 the Partnership cleared all of its futures
trades through Refco, LLC (RL) and all of its foreign
currency trading through Refco Capital Markets, Ltd. (RCM).
Subsequent to the purchase of Cargill Investor Services
( CIS ) by Refco, Inc. ( RI ) and the replacement of CIS by RL
as the Fund s futures clearing broker on September 1, 2005,
RI, the parent company of RL, announced (on October 10, 2005)
that it had discovered through an internal review an
accounting issue involving a receivable owed to Refco, Inc. by
an entity controlled by Philip R. Bennett, the then Chief
Executive Officer and Chairman of the Board of Directors of
RI. The amount at issue was approximately $430 million and
was repaid by Mr. Bennett on October 11, 2005. Mr. Bennett
was subsequently relieved of his duties and has been charged
with securities fraud in connection with this matter. In
addition, various legal actions have been filed against RI in
this regard.
On October 13, 2005, RI announced that liquidity within
another of its operating subsidiaries, RCM, was no longer
sufficient to continue operations and that RCM was imposing a
fifteen day moratorium on all of its activities in an attempt
to protect the value of that business. As of such date RCM
was the Fund s acting foreign currency broker, and the fund
had approximately 20% (approximately $7,500,000) of its total
assets on deposit in the accounts at that firm, which amount
became frozen at that time.
On October 17, 2005, RI and certain subsidiaries (including
RCM) filed for bankruptcy protection in the State of New York.
Although RL was not involved in this filing, the Fund
nevertheless terminated RL as its futures clearing broker and
RCM as its foreign currency broker and replaced them with
Calyon Financial, Inc. (CFI) and Calyon Financial, SNC, (CFS),
respectively.
Effective October 31, 2005 The Partnership created Classes AA
and II of shares and transferred to such classes the value of
Partnership assets held in RCM as of October 17, 2005 together
with a reserve for the estimated expenses of collection and
related matters. The amount of such assets which will become
available to the Partnership, if any, is dependent on several
matters associated with the bankruptcy of RCM. Depending on
the disposition of these matters, the final net asset value
may differ materially from the preliminary amounts which the
Partnership has published since October 31, 2005. Until the
final net asset value can be determined, redemptions and
certain fees will be calculated and paid on a preliminary
basis using the net asset value of Class A and Class I units
only, thus excluding the assets held by RCM and the reserve
established in connection with the RCM legal proceedings. The
Fund described the foregoing events in more detail in a
general letter to Limited Partners October 20, 2005 (the
Letter ). The Letter appears as an attachment to a filing on
Form 8-K by the Fund on October 21, 2005. Both the substance
of the Form 8-K and its attached letter exhibit have been
incorporated into this Form 10-K by reference.
Mr. Lamoureux was appointed by the U.S. Trustee s Office as a
member of the Official Committee of Unsecured Creditors in the
Refco bankruptcy on October 28,2005.
Refco, Inc. filed a plan under Chapter 11 (the Plan ) and a
Disclosure Document with the Bankruptcy Court. The Plan was
confirmed by the Bankruptcy Court, and became effective
December 26, 2006. Based on the estimated recovery amounts
contained in the schedules of the Plan and Disclosure Document
the General Partner as of October 31, 2006 (but effective
September 30, 2006) reduced the value of the Class AA and
Class II assets to 40% of the amounts at which such assets
held at Refco were valued as of October 17, 2005. In
accordance with Generally Accepted Accounting Principles and
in particular rule FAS 5-3 paragraph 105, the write down was
taken at September 30, 2006. As of October 17, 2005 the assets
were valued at $7,482,332. The adjustment is $4,489,399 with a
remaining asset balance of $2,992,933.This write down is only
an estimate and was reflected in the statement of operations
at September 30, 2006. Everest has not included litigation
recoveries, if any, in the write down, because the success of
such actions cannot be estimated at this time. No assurances
can be made that there will be any further recoveries for
Everest from these efforts.
The write down amount was determined after the issuance of
Everest s September 30, 2006 investor account statements, and
therefore the October investor statements that were issued in
November reflected the revised Net Asset Values for September
30, 2006.
The Fund described the foregoing events in more detail in a
general letter that appears as an attachment to a filing on
Form 8-K by the Fund on November 6, 2006 The Form 8-K has
been incorporated into this Form 10-K by reference.
On December 28, 2006, The Everest Fund, L.P. received the
first in a series of anticipated distributions in the Refco
matter. Of the approximately $7,500,000 that became
inaccessible in October 2005, the Fund has received
$1,365,525.51. That represents an amount equal to
approximately 18% of the frozen assets. The December 2006
statement reflected a prorata decrease in the number of AA and
II shares, and a corresponding increase in the A units or I
units to reflect their pro rata share of the distribution for
investors who have been in the Fund since October 12, 2005.
For investors who were in the Fund on October 12, 2005 and
have since redeemed, the Partnership redeemed a portion of
their AA and II shares effective December 31,2006 and sent out
checks for their pro rata share of the distribution in January
2007. These changes do not apply to those who have come into
the Fund after October 2005.
Upon fifteen days written notice, a Class A Limited Partner
may require the Partnership to redeem all or part of his
Units effective as of the close of business (as determined by
the General Partner) on the last day of any month at the Net
Asset Value thereof on such date. Upon forty-five days
written notice, a Class I Limited Partner may require the
Partnership to redeem all or part of his Units effective as
of the close of business of the last day of any quarter at
the Net Asset Value thereof on such date. Notwithstanding
the above, pursuant to the Amended and Restated Agreement of
Limited Partnership, the General Partner may, in its sole
discretion, and on ten days' notice, require a Limited
Partner to redeem all or part of his Units in the Partnership
as of the end of any month. There are no additional charges
to the Limited Partner at redemption. The Partnership's
Amended and Restated Agreement of Limited Partnership
contains a full description of redemption and distribution
procedures.
Since commencing trading operations, the Partnership has
engaged in the speculative trading of Commodity Interests and
will continue to do so until its dissolution and liquidation,
which will occur on the earlier of December 31, 2020 or the
occurrence of any of the events set forth in Paragraph 4(a)
of the Agreement of Limited Partnership. Such events are (i)
an election to dissolve the Partnership made by over 50% of
the Limited Partnership Units at least 90 days prior to
dissolution, (ii) withdrawal, insolvency, or dissolution of
the General Partner (unless a new general partner is
substituted), (iii) decline in the Net Asset Value of the
Partnership at the close of any business day to less than
$300,000, or (iv) any event which will make it unlawful for
the existence of the Partnership to be continued or requiring
termination of the Partnership.
The address of the General Partner and the Partnership is
1100 North 4th Street, Suite 143, Fairfield, Iowa 52556, and
the telephone number is (641) 472-5500. The General Partner
changed its name as of March 1, 1994 and amended its
Certificate of Incorporation, with no other changes,
accordingly. In accordance with the provisions of the
Commodity Exchange Act and the rules of the National Futures
Association (NFA), the General Partner is registered as a
commodity pool operator and a commodity trading advisor, JWH
is registered as a commodity trading advisor and the
Commodity Broker is registered as a futures commission
merchant, each subject to regulation by the Commodity Futures
Trading Commission (CFTC). Each is also a member of the NFA
in such capacity.
The General Partner, to the exclusion of the limited partners
of the Partnership (the "Limited Partners"), manages and
conducts the business of the Partnership. Thus the General
Partner (i) selects and monitors the independent commodity
trading advisor(s) and the Commodity Broker; (ii) allocates
and/or reallocates assets of the Partnership to or from JWH
and/or the advisor(s); (iii) determines if an advisor or
commodity broker should be removed or replaced; (iv)
negotiates management fees, incentive fees and brokerage
commissions; (v) determines its own compensation with respect
to management and administrative fees; and (vi) performs such
other services as the Partnership may from time to time
request, except that all trading decisions are made by JWH
and not the General Partner. In addition, the General Partner
selects the commodity broker(s) that will clear trades for
the advisor(s). Calyon Financial, Inc. currently acts as
Everest s commodity broker and Calyon Financial, SNC, an
affiliate of Calyon Financial Inc., acts as Everest s
currency dealer.
The General Partner is responsible for the preparation of
monthly and annual reports to the Limited Partners; filing
reports required by the CFTC, the NFA, the SEC and any other
federal or state agencies having jurisdiction over the
Partnership s operations; calculation of the Net Asset Value
(meaning the total assets less total liabilities of the
Partnership {for a more precise definition, see the Exhibit
"Form 10 - General Form for Registration of Securities"
incorporated by reference hereto}) and directing payment of
the management and incentive fees payable to JWH or the
advisor(s)under an advisory agreement(s) entered into with the
commodity trading advisor(s).
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 May 2002 through October 2003, the General Partner
charged the Partnership a monthly management fee of either
0.5104% or 0.5156%, depending on the total amount which the
Partnership had allocated to trading, including notional
funding. Prior to May 2002, the General Partner charged the
Partnership a monthly management fee equal to 0.5052% of the
Partnership beginning-of-month net asset value, as defined.
Prior to September 1, 2001, the monthly management fee was
0.5%. The General Partner pays a portion of its fees for
actual commission charges to its Clearing Broker.
Effective June 2004, the General Partner charges the
Partnership a monthly management fee equal to 0.229% of the
Partnership s Class I beginning-of-month net asset value. From
this amount 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.
In addition, the Partnership reimburses the General Partner
for the actual organization and offering expenses advanced by
it, not to exceed one percent of the Class A Net Asset Value
of Units sold. The Partnership reimburses the General Partner
for the actual organization and offering expenses advanced by
it, not to exceed one tenth of one percent of the Class I Net
Asset Value of Units sold annually. Organization and offering
expenses shall mean all expenses incurred by the Partnership
or the General Partner in connection with and in preparation
to offer and distribute the Units to investors, including,
but not limited to, expenses for traveling, printing,
engraving, mailing, salaries of employees while engaged in
sales activity, charges of transfer agents, registrars,
trustees, escrow holder, depositories, experts, expenses of
qualification of the sales of its securities under state law,
including taxes and fees and accountants' and attorneys'
fees.
Everest pays John W. Henry & Company, Inc., its current
commodity trading advisor, a monthly management fee equal to
0.167% (approximately 2% annually) of Everest s month-end
Allocated Assets, as defined, and a quarterly incentive fee
equal to 20% of Everest s trading profits allocable to its
trading exclusive of interest income on Allocated Assets, as
defined. The incentive fee is retained by JWH 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 Everest.
MLM received a monthly management fee of 0.0625% (0.75%
annually) of the Partnership s month-end allocated assets as
defined. As MLM used the MLM Index-Unleveraged, they did not
receive an incentive fee. Effective February 2003, the
management fee was reduced to 0.04167% (0.50% annually).
Trilogy received a monthly management fee equal to 0.075%
(approximately 0.90% annually) of Everest s month-end
allocated assets, as defined. Trilogy did not receive an
incentive fee.
The Commodity Broker has agreed to pay Everest interest on
95% of Everest assets (including open trade equity) deposited
with it during a month at the average of 91-day U.S. Treasury
Bills purchased by the Commodity Broker during each month.
The Commodity Broker will retain all excess interest, if any,
earned on the Everest assets, above the amount of interest
paid to Everest. The interest rate to be paid by the
Commodity Broker to Everest is a negotiated rate which has
been negotiated between the Commodity Broker and the General
Partner. The actual interest income on Everest's assets
earned by the Commodity Broker may be greater than or less
than the negotiated rate to be paid by the Commodity Broker
to Everest. The Commodity Broker will also be responsible
for execution and clearance of futures contracts (and
possibly certain other Commodity Interests).
The Partnership pays no selling commission but does pay an
ongoing compensation fee equal to 3% of the Net Asset Value
of Class A Units sold, unless waived in whole or in part by
the General Partner, to the selling agents in connection with
the sale of the Units. The Partnership pays no selling
commission but does pay an ongoing compensation fee equal to
1% of the Net Asset Value of Class I Units sold, unless
waived in whole or in part by the General Partner, to the
selling agents in connection with the sale of the Units. The
General Partner may pay up to 100% of the funds it receives
to the selling agents as additional selling commission. The
Partnership is obligated to pay its periodic operating
expenses and extraordinary expenses. Although those expenses
will vary depending on the Partnership's size, it is
estimated that the periodic operating expenses will be
approximately $80,000 annually. Extraordinary expenses for
these purposes include expenses associated with significant
non-recurring litigation including, but not limited to, class
action suits and suits involving the indemnification
provisions of the Agreement of Limited Partnership or any
other agreement to which the Partnership is a party. By
their nature, the dollar amount of extraordinary expenses
cannot be estimated. With respect to Class AA and II,
extraordinary expenses paid or accrued were $$25,260,
exclusive of the write-off of bad debt from RCM for the year
ended 12/31/06. All expenses shall be billed directly and
paid for by the Partnership. The Partnership's operating
expenses for the years 2002-2006 can be found in the table in
Item 6 below.
The Partnership has no Employees. As of December 31, 2006,
the General Partner had 3 employees. Further, the General
Partner, in its capacity as a CFTC-regulated commodity pool
operator, contracts certain services of research,
administration, client support and management information
systems and analysis to Capital Management Partners, Inc.
(Capital). Capital is a CFTC-regulated introducing broker,
and an NFA member. Capital is also registered with the
National Association of Securities Dealers (NASD) as a broker
dealer. As of December 31, 2006 Capital had 11 employees.
The Partnership's business constitutes only one segment for
financial reporting purposes; and the purpose of this limited
partnership is to trade, buy, sell, spread or otherwise
acquire, hold or dispose of Commodity Interests including
futures contracts, forward contracts, physical commodities
and related options thereon. The objective of the
Partnership's business is appreciation of its assets through
speculative trading in such Commodity Interests. Financial
information about the Partnership's business, as of December
31, 2006 is set forth under Items 6 and 7 herein.
For a description of commodity trading and its regulation, see
the Prospectus filed on Form S-18 and the Confidential Private
Placement Memorandum filed as part of the Form 10 and included
in the exhibits hereto.
The Current Offering
On July 1, 1995 the Partnership reopened for investment as a
Regulation D, Rule 506 private placement offering an
unlimited amount of limited partnership interests. On
September 19, 1996 the Commission accepted a Form 10 -
General Form for Registration of Securities submitted by the
Partnership thereby making the Partnership a public reporting
private placement offering. It also qualified the
Partnership as a "publicly offered security" as defined in
the Employee Retirement Income Security Act of 1974 (ERISA)
rules permitting it to accept investment of an unlimited
amount of plan assets as defined in ERISA. Hitherto, as a
private placement the Partnership could accept ERISA plan
assets representing no more than 25% of the total investment
in the Partnership. The limited partnership interests are
offered by the Selling Agent and additional selling agents
with a Class A minimum subscription amount of $25,000. (The
Class A minimum subscription amount for employee benefit
plans and individual retirement accounts is $10,000). Class I
minimum subscription amount is $1,000,000, subject to the
discretion of the General Partner to accept subscriptions of
lesser amounts.
Competition
JWH and any other advisor(s) of the Partnership, its or their
respective principals, affiliates and employees are free to
trade for their own accounts and to manage other commodity
accounts during the term of the Advisory Agreement and to use
the same information and trading strategy which JWH obtains,
produces or utilizes in the performance of services for the
Partnership through its investment in Everest. To the extent
that JWH recommends similar or identical trades to the
Partnership and other accounts which it manages, the
Partnership may compete with those accounts for the execution
of the same or similar trades.
Other trading advisors who are not affiliated with the
Partnership may utilize trading methods which are similar in
some respects to those methods used by JWH, or any other
future Partnership's advisor(s). These other trading advisors
could also be competing with the Partnership for the same or
similar trades as requested by the Partnership's advisor(s).
Item 1A. Risk Factors
GENERAL
Trading in Commodity Interests Is Speculative. Commodity
interest prices are highly volatile. Price movements for
futures contracts, for example, which may fluctuate
substantially during a short period of time, are influenced by
numerous factors that affect the commodities markets,
including, but not limited to: changing supply and demand
relationships, government programs and policies, national and
international political and economic events, and changes in
interest rates. See, Risk Factors -- Commodity Interests
Trading May Be Illiquid.
Commodity Interests Trading Is Highly Leveraged. The low
margin deposits normally required in trading commodity
interests permit an extremely high degree of leverage.
Accordingly, a relatively small price movement in a commodity
interest may result in an immediate and substantial loss to
the investor. For example, if at the time of purchase 5% of
the price of a futures contract is deposited as margin, a 5%
decrease in the price of the futures contract would, if the
contract were then closed out, result in a total loss of the
margin deposit (brokerage commission expense would also be
incurred). Like other leveraged investments, any commodity
interest trade may result in losses in excess of the amount
invested. Although more than the initial margin can be lost
on a trade, the Partnership, and not investors personally,
will be subject to margin calls.
The Partnership s Trading Account Will Be Leveraged. The
use of notional funds by the Partnership in its trading
account with JWH will result in increased trading leverage.
The Fund is currently trading approximately $1.08 for every
$1.00 in Class A and Class I, combined. The general partner
may, in its sole discretion, periodically adjust the size of
the trading account with JWH by increasing or decreasing the
cash, other assets or notional funds allocated to it (and thus
the amount by which the Partnership s assets are leveraged).
Because the trading account will be leveraged, (i) the
Partnership will incur greater risk since the Partnership may
experience greater losses, as measured by a percentage of
assets actually allocated to JWH, due to the notional funds
component; (ii) the Partnership s returns may experience
greater volatility compared to the returns which the
Partnership would have achieved on a non-leveraged basis; and
(iii) the Partnership may receive more frequent and larger
margin calls.
Commodity Interests Trading May Be Illiquid. Most U.S.
commodity futures exchanges impose daily limits regulating the
maximum amount above or below the previous day s settlement
price which a futures contract price may fluctuate during a
single day. During a single trading day no trades may be
executed at prices beyond the daily limit. Once the price of
a particular futures contract has increased or decreased to
the limit point, it may be difficult, costly or impossible to
liquidate a position. Futures prices in particular contracts
have occasionally moved the daily limit for several
consecutive days with little or no trading. If this occurs,
the Partnership might be prevented from promptly liquidating
unfavorable positions, which could result in substantial
losses. Those losses could significantly exceed the margin
initially committed to the trades involved. In addition, even
if prices have not moved the daily limit or there are no
limits for the contracts traded, trades might not be able to
be executed at favorable prices if little trading in the
contracts is taking place. It is also possible that an
exchange or the Commodity Futures Trading Commission (CFTC)
may suspend trading in a particular contract, order immediate
settlement of a contract, or order the liquidation of open
positions only.
Exchange for Physical. JWH may make use of a trading
technique referred to as exchange for physical in which a
cash or spot market position (which may be a forward contract)
is exchanged, often outside of regular trading hours, for a
comparable futures position. The CFTC has released a study of
the exchange for physical market that recommended that a
number of new regulatory restrictions be applied to it. If
these recommendations or restrictions are adopted, the ability
of JWH to use this market may be curtailed.
Trading Decisions Based on Technical Analysis. JWH uses
trading programs that employ technical factors in
identifying price moves. The success of technical analysis
depends upon the occurrence in the future of price movements.
Technical systems will not be profitable, and may in fact
produce losses, if there are no market moves of the kind the
system seeks to follow. Any factor that would make it more
difficult to execute the trades identified, such as a
reduction of liquidity, also would reduce profitability.
There is no assurance that the trading systems of JWH will
generate profits under all or any market conditions.
Possible Effects of Other Similar Systems. Commodity
trading systems, which use market data like JWH uses, are not
new. If many traders follow similar systems, these systems
may generate similar buy and sell orders at the same time.
Depending on the liquidity of a market, this could cause
difficulty in executing orders. Everest believes that,
although there has been an increase in the number of trading
systems in recent years, there also has been an increase in
the overall trading volume and liquidity in the futures
markets. Any increase in the proportion of funds traded using
trend-following systems could alter trading patterns or affect
execution of trades to the detriment of the Partnership.
No Assurance of JWH S Continued Services. JWH has
exclusive responsibility for trading commodity interests
allocated to it. JWH is dependent on the services of certain
key persons. The loss of the services of such persons would
make it difficult or impossible for JWH to continue to provide
services to the Partnership. In addition, the advisory
contract between the Partnership and JWH may be terminated by
either party on sixty (60) days written notice.
Changes in Trading Strategies. The trading strategies of
most trading advisors are continually developing. JWH is free
to make any changes in trading strategies. Changes in
commodity interests traded or leverage used are not considered
changes in trading strategy.
Possible Effects of Speculative Position Limits. The
CFTC and U.S. exchanges have established speculative position
limits. These limits control the number of net long or net
short speculative futures or options (on futures) positions
any person may hold or control in futures or options contracts
traded on U.S. exchanges. JWH controls the commodity trading
of other accounts. All positions and accounts owned or
controlled by JWH and its principals are combined with the
Partnership s positions established by JWH for position limit
purposes. In order to avoid exceeding position limits, it is
possible that JWH will have to modify its trading
instructions, and that positions held by the Partnership will
have to be liquidated. That could have a negative effect on
the operations of the Partnership and its profitability. See,
Risk Factors Increase in Amount of Funds Managed. In
addition, all commodity accounts of the General Partner and
its affiliates may also be combined with the Partnership for
position limit purposes.
Increase in Amount of Funds Managed. JWH expects to
manage additional funds in the future. It is not known if
managing additional funds, including funds raised in this
offering, will have any effect on its performance or trading
strategies. In many cases, the rates of return achieved by an
advisor deteriorate as assets under management increase.
Increases in funds managed may affect the number of futures or
options positions an advisor would otherwise hold for each
account it manages because of speculative position limits
imposed by U.S. exchanges. There is no assurance that changes
in strategies, if any, in response to increased funds will be
successful. There can be no guarantee that the investment
results of that portion of the assets allocated to JWH will be
similar to those achieved by it in the past in its other
accounts.
Changes in the Number of Available Futures Contracts and
Related Options. U.S. and foreign exchanges have established
new futures and options contracts in the past few years. This
trend could continue. If JWH trades these contracts in the
future, there is no assurance that its trading strategies will
produce profits.
Past Performance Is Not Necessarily Indicative of Future
Results. Although some of the client accounts of JWH have
been profitable in the past, you should take seriously the
warning the CFTC and the National Futures Association (NFA)
require. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF
FUTURE RESULTS. AN INVESTMENT IN THE PARTNERSHIP IS
SPECULATIVE AND INVOLVES A SUBSTANTIAL RISK OF LOSS.
Horizon Cash Management, L.L.C. A substantial portion of
the Partnership s assets is held in an omnibus custody account
on behalf of the Partnership at The Northern Trust Company in
the name of the Partnership. The Partnership has entered into
an advisory contract with Horizon pursuant to which Horizon
manages such assets in an attempt to maximize their yield
through investment in various short-term interest bearing
instruments including U.S. Treasury Securities, U.S.
Government Agencies Securities, Bankers Acceptances,
Certificates of Deposit, Time Deposits, Commercial Paper, Loan
Participation Notes and Repurchase Agreements U.S. Treasury
Securities and U.S. Government Agencies Securities. As a
result, the Partnership s assets managed by Horizon are
subject to potential loss resulting from interest rate
fluctuations and default.
JWH PROGRAMS
Effects of Trading Multiple Investment Programs. JWH
makes trading decisions for each of its investment programs
independently of trading decisions for the other JWH
investment programs. Because the CSAP Program which JWH
employs in trading the Partnership s assets uses multiple JWH
investment programs, it could hold opposite positions in the
same or similar contracts at or about the same time or during
the same period of time, with no net change in holdings.
In addition, due to similarities among JWH s investment
programs, the potential diversification benefits of trading
CSAP may be less than would be the case with multiple trading
programs offered by independent managers. The Partnership
loses risk control benefits of market diversification during
these periods when an investment program s positions are
concentrated in a limited number of markets.
The CSAP Program Is Discretionary. CSAP employs
discretionary, judgmental asset allocation decisions among the
JWH investment programs and currency trading models. The
investment programs and models themselves are primarily
technical and systematic in character. Since CSAP s
discretion relates to allocations, not trading, reliance on
judgment and discretion may, over time, produce less
consistent results than implementing a systematic allocation
approach. JWH has more experience implementing systematic
methodologies as opposed to discretionary strategies. The
Partnership may incur losses due to JWH's relative
inexperience in implementing this discretionary strategy.
The CSAP Program May Under Perform Individual Programs.
Even if individual JWH investment programs are successful,
there can be no assurance that CSAP will be successful. The
active allocation among the investment programs makes it
possible for the program to incur losses even during periods
in which a number of the individual investment programs are
profitable.
Mandatory Closing Out of Offsetting Positions. CFTC
rules require offsetting positions taken by JWH for clients be
closed out. This means that positions taken pursuant to
different investment programs included in CSAP must be closed
out, even though the positions are taken in different
investment programs. JWH does not believe that the
requirement of liquidating offsetting positions for CSAP by
the different investment programs will, at this point, impede
the operation of CSAP. It is possible under certain
circumstances that the requirement to close out offsetting
positions could adversely affect the performance of the
Partnership s account.
Swap Transactions. JWH may periodically enter into
transactions which are characterized as swap transactions and
which may involve interest rates, currencies, securities
interests, commodities, and other items. Swap contracts are
not traded on exchanges and are not regulated by the CFTC.
Swap transactions are individually negotiated, non-
standardized agreements between two parties to exchange cash
flows measured by different interest rates, exchange rates or
prices, with payments calculated by reference to a principal
amount or quantity. As a result, the Partnership will not
receive the protection afforded by the Commodity Exchange Act
in connection with this trading activity by JWH. The absence
of regulation could expose the Partnership to significant
losses in the event of trading abuses or financial failure by
participants in the swap markets. JWH has not previously
traded swaps and has no experience in that market.
Transactions in these markets also present certain risks
similar to those in the futures, forward and options markets.
Only the accounts of eligible swap participants as defined
in Part 35 of CFTC Regulations, may engage in swaps.
Options Transactions. JWH may engage in the trading of
options (both puts and calls) on futures on behalf of the
Partnership. The value of an option depends largely upon the
likelihood of favorable price movements in the underlying
futures contract in relationship to the exercise (or strike)
price during the life of the option. Therefore many of the
risks applicable to trading the underlying futures contract
are also applicable to options trading. In addition, there are
a number of other risks associated with the trading of
options. For example, the purchaser of an option runs the risk
of loss of his/her entire investment (the premium he pays).
Similarly, the uncovered writer of an option is subject to
an adverse price movement in the underlying futures position,
any such movement may exceed the premium income from the
option transaction. Spread positions using options are subject
to the same risks involved in the purchase and writing of
options. In addition, in the event the Partnership were to
write uncovered options as one part of a spread position and
such option were exercised by the purchasing party, the
Partnership would be required to purchase and deliver the
underlying futures contract in accordance with the terms of
the option. Finally, an options trader runs the risk of market
illiquidity preventing offsetting positions for any particular
option. (See Commodity Trading May Be Illiquid above.)
Business Interruption Risk. During both 2004 and 2005,
the operations of JWH at its Boca Raton, Florida, offices were
disrupted by hurricanes which required recovery periods to re-
establish communications and other utilities. JWH continued
its trading operations during those periods without
interruption from back up locations. Any future business
interruption events, whether weather-related or otherwise,
that affect the south Florida area could similarly disrupt the
trading operations of JWH, despite the back up precautions it
has established. JWH has a business continuity plan, but it
cannot guarantee that business interruption events will not
have an impact on its operations.
Electronic Trading and Order Routing Systems. JWH may from
time to time trade on electronic trading and order routing
systems, which differ from traditional open outcry pit trading
and manual order routing methods. Transactions using an
electronic system are subject to the rules and regulations of
the exchanges offering the system or listing the contract.
Characteristics of electronic trading and order routing
systems vary widely among the different electronic systems
with respect to order matching procedures, opening and closing
procedures and prices, error trade policies and trading
limitations or requirements. There are also differences
regarding qualifications for access and grounds for
termination and limitations on the types of orders that may be
entered into the system. Each of these matters may present
different risk factors with respect to the trading on or using
a particular system. Each system may also present risks
related to system access, varying response times and security.
In the case of internet-based systems, there may be additional
risks related to service providers and the receipt and
monitoring of electronic mail.
Trading through an electronic trading or order routing
system is also subject to risks associated with system or
component failure. In the event of system or component
failure, it is possible that for a certain time period, it
might not be possible to enter new orders, execute existing
orders or modify or cancel orders that were previously
entered. System or component failure may also result in loss
of orders or order priority. Some contracts offered on an
electronic trading system may be traded electronically and
through open outcry during the same trading hours. Exchanges
offering an electronic trading or order routing system and
listing the contract may have adopted rules to limit their
liability, the liability of futures brokers and software and
communication system vendors and the amount that may be
collected for system failures and delays. These limitation of
liability provisions vary among the exchanges.
Reliance on Timely and Accurate Market Data. JWH s
ability to detect market trends and trade them profitably
depends on its access to timely and accurate market price data
throughout the trend identification and trading processes. If
price data is not available or is delayed, JWH would be unable
to trade for client accounts until reliable data sources have
been restored. Data reconciliation procedures are applied
each day to confirm accurate price quotations, and on the
subsequent day prices that were employed in the JWH systems
are re-reconciled in an attempt to identify changes from
previously posted prices. JWH s traders are required to
confirm a price from multiple sources before executing a
trade, and, during volatile market conditions, traders request
confirmation of high and low prices from the floor before
placing a trade. Inaccurate information may be generated by a
data vendor, or an exchange may transmit inaccurate prices
that a vendor then distributes to JWH, but which are later
cancelled or amended by the exchange. In addition, JWH may
obtain from third parties, such as clearing firms, information
about price or about contract specifications and changes to
them. Inaccurate price information may cause JWH to enter or
close trades that it would not otherwise have entered or
closed, to trade or fail to trade at times that would have
been indicated by accurate data, or to be completely unable to
place a trade. Communications or technical failure may also
cause an electronic trading tool to fail, which could cause
JWH to fail to act when a trading stop is reached. As a
result of such potential data problems, client accounts may be
unable to exit positions or miss the opportunity to establish
new positions. JWH receives price data electronically. Data
providers typically make no representations or warranties
about the accuracy or timeliness of the data they provide, and
assume no financial liability for lost profits, trading losses
or other consequential damages. Data providers also disclaim
any responsibility for events of force majeure, as well as for
actions (or inaction) of third party information, hardware and
software providers, and for interruption of means of
communication. Because all of the data required for JWH s
trading is provided from third parties, JWH, cannot, despite
its employment of the precautions described above, make any
assurances that its efforts will detect erroneous or
incomplete data, or prevent client accounts from incurring
losses or missing profit opportunities.
PARTNERSHIP ISSUES
Substantial Charges to Partnership. The Partnership pays
substantial fees and charges and has substantial operating
costs. As a result, it must make substantial profits for your
units to increase in value. These include an incentive fee to
JWH that is based on, among other things, unrealized
appreciation in open commodity interest positions. The
incentive fee is paid (and retained by JWH) even if that
portion of the Partnership s assets traded by it experience
subsequent losses or the appreciation is never realized. It
is therefore possible that the Partnership may pay an
incentive fee in years in which the Partnership breaks even or
experiences losses.
Possible Misallocation of Incentive Fees. The
Partnership pays quarterly incentive fees on trading profits,
if any, earned by JWH. Trading profits are calculated on the
overall profits earned by JWH on its allocated assets and not
just on increases in the Net Asset Value of each unit. As a
result, the Partnership might pay incentive fees even if
Partnership units decline in value. In addition, if, at the
time limited partners purchase units, there is an accrued
incentive fee expense, that accrued expense will reduce the
purchase price of their units. If the accrual is reversed
because of later losses, the incentive fee will be
misallocated because the reversal of the accrued incentive fee
expense will be allocated equally to all outstanding units
rather than only to those outstanding during the period when
the incentive fee expense accrued. Similarly, if you buy
units after an incentive fee has been paid and after a later
loss attributable to JWH, your units will not be assessed an
incentive fee until there are new trading profits, even if
your units have increased in value.
There Is No Intrinsic Value to the Partnership s
Investments. The Partnership must be profitable for it to
provide beneficial diversification to a limited partner s
portfolio. Trading in commodity interests is a zero-sum
activity in which for every gain there is an equal and
offsetting loss (disregarding transaction costs). This
differs from a typical securities investment, in which there
is an expectation of consistent yields (in the case of bonds)
or participation over time in general economic growth (in the
case of stocks). The Partnership could lose money while stock
and bond prices rise. Stocks and bonds (except penny stocks)
generally have some intrinsic value. Limited partners
generally can realize some value for their stocks or bonds
even if they sell in a down market. In trading commodity
interests, on the other hand, investors risk losing all of
their investment if prices move against them. In general,
performance statistics do not reflect the different risk
profiles or tax treatment of traditional and managed commodity
interest investments. See, Risk Factors Limited Partners
Will Be Taxed on Profits whether or Not Distributed or
Realized.
Fund Trading Is Not Transparent. JWH Advisor makes all
of the trading decisions for the portion of the Partnership s
assets allocated to it. While the General Partner receives
daily trade confirmations from the commodity broker, only the
monthly performance of the Partnership is reported to limited
partners. Accordingly, an investment in the Partnership does
not offer limited partners the same transparency, i.e., an
ability to review all investment positions daily that a
personal trading account offers.
Non-Correlated, Not Negatively Correlated, Performance
Objective. Historically, managed futures have been generally
non-correlated to the performance of other asset classes such
as stocks and bonds. Non-correlation means that there is no
statistically valid relationship between the past performance
of futures and forward contracts on the one hand and stocks or
bonds on the other hand (as opposed to negative correlation,
where the performance would be exactly opposite between two
asset classes). Because of this non-correlation, the
Partnership cannot be expected to be automatically profitable
during unfavorable periods for the stock market, or vice
versa. The futures and forward markets are fundamentally
different from the securities markets in that for every gain
in futures and forward trading, there is an equal and
offsetting loss. If the Partnership s investments do not
perform in a manner non-correlated with the general financial
markets, or do not perform successfully, limited partners will
obtain no diversification benefits by investing in the units
and the Partnership may have no gains to offset their losses
from other investments.
Limited Partners Will Not Participate in Management.
Limited Partners will not participate in the management of the
Partnership. Under principles of limited partnership law,
limited partners participation in the Partnership s
management could result in unlimited liability for them. The
limited partnership agreement provides that certain actions
may be taken, or approved, by the vote of limited partners
owning more than 50% of the units, but their role in the
Partnership is passive and the profitability of their
investment depends entirely on the efforts of others.
Indemnification of Partnership by Limited Partners. If
someone signs the subscription agreement and the General
Partner accepts their subscription, they will become a limited
partner. Under the agreement, they will be required to
indemnify the Partnership for any liability that it incurs as
a result of their actions.
LIQUIDITY
Limited Ability to Liquidate Investment in Units.
Limited partners cannot immediately liquidate their units.
There is no market for the units and none is likely to
develop. They may, however, redeem their Class A units,
without penalty, on the last day of any month on fifteen (15)
days prior written notice to the General Partner or such
lesser time as is acceptable to the General Partner. For
Class I, they may redeem on the last day of any quarter on
forty-five (45) days prior written notice to the General
Partner or such lesser time as is acceptable to the General
Partner. Because of the time delay between your Class A notice
to the General Partner and the end of the month (or for your
Class I notice, the end of the quarter) when their investment
is redeemed, the value of their investment on the date of
redemption may be substantially less than at the time they
notify the General Partner of their request to redeem.
Possible Effect of Redemptions on Unit Values. The
Partnership will lose money if it has to sell positions at a
loss in order to raise capital so that the Partnership can pay
substantial redemptions. If a large number of redemptions
occur simultaneously, the need to liquidate positions could
continue even after the redemption date. The Partnership
would have fewer assets to trade after a high level of
redemptions. This might make it more difficult for it to
recover losses or generate trading profits. Market
illiquidity could make it difficult to liquidate positions on
favorable terms, and may also result in losses and thus a
decline in the value of Partnership units.
Automatic Trading Suspension. Limited Partners should
buy units only if you are looking for a long-term investment.
If the net asset value per unit declines as of the close of
business on any day to a trading suspension level (50% of the
highest prior month-end net asset value per unit, after
adjustment for prior distributions), the Partnership will
liquidate its open positions and notify limited partners. The
Partnership cannot assure limited partners that it can
liquidate its investments without incurring substantial
additional losses or that limited partner will receive any
specific value for the units they own. See, Risk Factors
Commodity Interest Trading May Be Illiquid.
Counterparty Creditworthiness -- U.S. Markets. Commodity
exchanges provide centralized market facilities for trading in
futures contracts relating to specified commodities. Each of
the commodity exchanges in the United States has an associated
clearinghouse. Once trades made between members of an
exchange have been confirmed, the clearing house becomes
substituted for the clearing member acting on behalf of each
buyer and each seller of contracts traded on the exchange and
in effect becomes the other party to the trade. Thereafter,
each clearing member firm party to the trade looks only to the
clearinghouse for performance. Clearinghouses do not deal
with customers, but only with member firms, and the
guarantee of performance under open positions provided by
the clearing house does not run to customers. If a customer s
commodity broker becomes bankrupt or insolvent, or otherwise
defaults on such broker s obligations to such customer, the
customer in question may not receive all amounts owing to such
customer in respect of his or her trading, despite the
clearing house fully discharging all of its obligations.
A substantial portion of the Partnership s assets are
held in a custodial account and managed by Horizon. Failure
of this firm might result in losses to the Partnership.
FOREIGN INSTRUMENTS
Counterparty Creditworthiness -- Non-U.S. Markets. JWH
may trade commodity interests on foreign exchanges and in the
over-the-counter markets. Unlike U.S. exchange traded futures
contracts where the exchange clearing corporation acts as the
counterparty to each customer transaction, the over-the-
counter markets and some foreign markets are principals
markets. This means that the performance of the contract is
the responsibility only of the individual firm or member on
the other side of the trade and not of any exchange or
clearing corporation. In those transactions, the Partnership
will be subject to the risk of the inability of, or refusal
by, the counterparty to perform.
Trading on Foreign Exchanges and Currency Exchange Rate
Fluctuations. Neither existing CFTC regulations nor
regulations of any other U.S. governmental agency apply to
transactions on foreign markets. If a foreign clearinghouse
default or bankruptcy occurs, the Partnership s rights and
responsibilities are likely to differ from those existing on
U.S. exchanges. The Partnership is at risk for fluctuations
in the exchange rate between the currencies in which the
commodity interest is traded and U.S. dollars. It also is
possible that in the future, U.S. or foreign governments could
impose exchange controls. There is no restriction on how much
of the Partnership s trading can be conducted on foreign
markets. The Partnership may pay brokerage commissions in
foreign currencies. If the exchange rate of those currencies
and the U.S. dollar fluctuates, the commission rate paid for
those trades might increase (decrease).
Possibility of Forward and Cash Trading. The Partnership
might make spot and forward contracts for certain commodities,
primarily currencies with U.S. or foreign banks or dealers. A
forward contract is a contractual right to purchase or sell a
commodity, such as a currency, at or before a specific date in
the future at a specific price. Because forward contracts are
not traded on exchanges, there is no regulatory protection
provided by any exchange or the CFTC. There is no limit on
daily price moves for forward contracts. Banks and dealers
are not required to continue to make markets in any commodity.
In the past, there have been times when certain banks have
refused to quote prices for forward contracts or have quoted
prices with an unusually wide spread between the price at
which the bank is prepared to buy and that at which it is
prepared to sell. There is a risk that the banks or dealers
through which the Partnership trades could fail or refuse to
perform.
The CFTC is studying questions about the regulation of
off-exchange instruments such as forward contracts. A
number of the major U.S. commodity exchanges have also
expressed concerns about these instruments. The CFTC has
indicated that it would regard marketing of forward contracts
on a retail basis to the U.S. public at large as a violation
of the CEAct. The CFTC might, in the future, prohibit the
Partnership from trading in the forward markets.
TAX AND REGULATORY ISSUES
Possibility of Taxation as a Corporation. Everest
believes that under current federal income tax law and
regulations the Partnership will be classified as a
partnership and not as an association taxable as a
corporation. The General Partner will not obtain a ruling
from the Internal Revenue Service (IRS) or an opinion of
counsel to confirm its belief. If the Partnership is taxed as
a corporation for federal income tax purposes in any taxable
year, its income or losses will not be passed through to you,
and the Partnership will be subject to tax on its income at
the corporate tax rate. In addition, any distributions made
to you could be taxable to you as dividend or capital gain
income, and those distributions will not be deductible in
computing taxable income.
Possible Legislative Tax Changes. All of the statements
in this Memorandum about taxes are based upon the current
Internal Revenue Code (the Code). Congress and the IRS
regularly revise the Code and the regulations. Those
revisions could materially affect you and the Partnership.
Unrelated Business Taxable Income (UBTI) for Employee
Benefit Plans. If the Partnership were a publicly-traded
partnership and limited partners are a tax-exempt entity, or if
they are a tax-exempt entity and debt finance their investment,
their share of gross income less Partnership deductions is
treated as UBTI, and subject to tax. The General Partner does
not believe that the Partnership is publicly-traded for this
purpose. However, if it were decided that the Partnership is
publicly-traded, it may not be an appropriate investment for
employee benefit plans, including individual retirement
accounts (IRAs). In addition, if investing in commodity
interests results in UBTI, each partner that is a tax-exempt
entity would take into account its share of the Partnership s
UBTI and the deductions attributable to that income (including
a $1,000 deduction against UBTI which is generally available to
all tax-exempt entities) in computing its tax liability.
Benefit plan investors should consult with their own legal and
financial advisers about the tax consequences of plan
investments in the Partnership.
Limited Partners Will Be Taxed on Profits whether or Not
Distributed or Realized. The Partnership is not required, and
the General Partner does not intend, to distribute profits.
If the Partnership has taxable income for a fiscal year, the
income will be taxable to them based on their distributive
share of Partnership profit even if no profits have been
distributed. As a result, limited partners might owe taxes on
undistributed profits. It is also possible that those profits
could be lost by the Partnership after the end of its fiscal
year, so that limited partners might never receive the profits
on which they are taxed. However, they may redeem units to
pay taxes, but this would result in a reduction in their
interest in the Partnership s future profits (if any).
Foreign Limited Partners. If limited partners are not
citizens or residents of the U.S. and are not otherwise
engaged in a trade or business in the U.S., they will
generally not be required to pay U.S. income tax on capital
gains from commodity interest trading. Interest income will
be taxable to them, if they are a foreign investor, unless
there is an exemption from tax in an appropriate tax treaty.
If the law requires the General Partner to withhold a portion
of the income they earn because they are a foreign limited
partner, the General Partner may redeem their units to pay the
U.S. Department of Treasury taxes they owe. If a limited
partner believes amounts were improperly withheld, they must
deal directly with the U.S. Department of Treasury.
Failure of Commodity Brokerage Firms. Futures commission
merchants must maintain the Partnership s assets in a
segregated account. If CFI becomes bankrupt, the Partnership
could lose money. In addition, even if CFI adequately
segregates the assets of the Partnership, the Partnership may
be able to recover only a pro rata share of the property
available for distribution to all of CFI s customers.
Forex Trading Counterparty Creditworthiness. The
Partnership will enter into an agreement with CFS which will
result in CFS acting as the counter-party to the Partnership s
foreign currency transactions. That is, CFS will be the
seller of all forex instruments purchased by the Partnership
and the buyer of all forex instruments sold by the
Partnership. CFS s financial benefit from entering into these
transactions with the Partnership is derived from its ability
to participate in the foreign exchange interbank markets,
which are only available to large institutional investors.
CFS s compensation will be derived from a mark-up on the
bid/ask spread price quoted to the Partnership on each
transaction, and CFS s ability to offset these transactions in
the foreign exchange interbank market. In the event that CFS
is unable to successfully participate in this market, the
ability of CFS to enter into transactions with the Partnership
may be interrupted. In addition, CFS has entered into similar
agreements with other persons, and thus acts as the counter-
party in transactions effected by these other persons.
Because CFS acts as counter-party in these transactions, the
Partnership is subject to the additional risk that CFS will be
unable to fulfill its obligations to the Partnership.
Moreover, in the event of a bankruptcy of CFS, the Partnership
may be unable to recover assets held at CFS, even if such
assets are directly traceable to the Partnership. In the
event of CFS's bankruptcy, there is no equivalent of the
Securities Investors Protection Corporation insurance as
applicable in the case of securities broker dealers'
bankruptcies.
A substantial portion of the Partnership s assets are
held in a custodial account and managed by Horizon. Failure
of this firm might result in losses to the Partnership.
Possibility of Tax Audit. The IRS might audit the tax
returns of the Partnership, or adjustments to its returns
might be made as a result of an audit. Uncertainty regarding
the federal income tax treatment of certain management and
incentive fees paid by the Partnership, or ongoing fees paid
to others, may increase the likelihood of an audit. If an
audit results in an adjustment, limited partners may be
required to pay additional taxes, interest and penalties and
may be subject to audit. The IRS is currently authorized to
impose an interest penalty on tax deficiencies based on
prevailing private sector interest rates.
Risk that Units Will Not Be Considered "Publicly-Offered
Securities" under the Employee Retirement Income Security Act
of 1974 (ERISA). Everest believes that it is reasonable to
take the position that the units qualify as publicly-offered
securities under Title I of ERISA, and that the underlying
assets of the Partnership will therefore not be considered for
any purposes of ERISA or Section 4975 of the Code to be assets
of employee benefit plans and IRAs that purchase units.
However, this position is not binding on the Department of
Labor (DOL) and, therefore, there is no certainty that the
units qualify. If the units are determined not to qualify as
such publicly-offered securities, The General Partner
intends to redeem units held by certain limited partners that
are employee benefit plans or IRAs to the extent necessary to
prevent the underlying assets of the Partnership from
thereafter being considered for purposes of Title I of ERISA
or Section 4975 of the Code to be assets of such employee
benefit plans or IRAs. However, for any period that the
underlying assets of the Partnership are considered to be
assets of employee benefit plans or IRAs, the provisions of
Title I of ERISA and Section 4975 of the Code would apply to
the operation of the Partnership and could adversely affect
the Partnership s investments and activities.
Absence of Regulation Applicable to Investment Companies.
The Partnership is not registered as a securities investment
company or mutual fund. Therefore, the SEC does not regulate
it under the Investment Company Act of 1940 (the 1940 Act).
Although the Partnership has the right to invest in
securities, limited partners are not protected by the 1940
Act. Everest is, however, registered with the CFTC as
commodity pool operator (CPO), JWH is registered with the
CFTC as a CTA and CFI is registered with the CFTC as a
futures commission merchant (FCM).
Item 2. Properties
The Partnership does not utilize any physical properties in
the conduct of its business. The General Partner uses its
offices to perform its administrative functions.
Item 3. Legal Proceedings
The Partnership is a creditor of RCM in the bankruptcy case
filed in the United States Bankruptcy Court, Southern
District of New York, captioned In re Refco Inc., et al.,
case number 05-60006 (RDD). Based on information provided to
the Partnership by RCM, the Partnership has cash and open
trade equity in neutral currency positions of approximately
$7,500,000 remaining at RCM. The amount of such assets which
the Partnership will ultimately recover, if any, is unknown
at this time.
In October 2000, there was a discrepancy between the
performance of the Barclay Futures Index Program (BFIP) as
traded for the Partnership and the Barclay Futures Index
(BFI). Certain transactions executed by Trilogy on behalf of
the Partnership resulted in a loss of approximately $520,000
that was recorded in the statement of operations. The General
Partner believes that these transactions were not executed in
accordance with the provisions of BFIP and has demanded that
Trilogy reimburse the Partnership for the loss. The parties are
currently attempting to resolve the issue.
Until a final resolution is reached, the parties have agreed
that the management fees otherwise payable to Trilogy under
its advisory contract would be applied as a credit to offset
the losses. The offset is not in settlement, partial
settlement, or indemnification of any kind and is without
prejudice to any rights or claims by either side. Beginning
in November 2000, and until approximately July 1, 2001, at
which time Trilogy was terminated, all of the management fees
that would otherwise be paid to Trilogy were deposited into a
separate account for the benefit of those limited partners
that were limited partners on November 1, 2000 and to cover
the expenses associated with the collection of the losses. The
separate account is not included in the financial statements
of the Partnership. After its termination, Trilogy demanded
that such fees be returned to it. The General Partner
rejected Trilogy s demand and is assessing its options for
collection.
A demand for arbitration was filed with the NFA on October 3,
2002. Trilogy has responded to the demand for arbitration and
has counterclaimed for the amount of $130,210, together with
attorney s fees, interest and costs of suit. That figure
represents the amount of management fees, otherwise payable to
Trilogy under its advisory contract, that both parties agreed
would be held as a credit to the Partnership to offset the
losses. The General Partner has a letter to that effect which
was signed by the president of Trilogy on January 29, 2001.
The General Partner anticipates a hearing in front of an NFA
arbitration panel in the coming months, but no date has been
set for the hearing. At the present time, the General Partner
is unable to determine whether any of the losses will be
recovered.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities.
(a) There is no established public market for the
Units and none is expected to develop.
(b) As of December 31, 2006, there were 7,712.69
Class A Units held by Limited Partners. There were 932.14
Class I Units held by Limited Partners and 0 units held by
the General partner. There were 1,786.21 Class AA Units and
193.97 Class II Units held by Limited partners. A total of
3,139.34 Units were redeemed by Class A Limited Partners
during 2006. During this same period, there were 246.40
Units redeemed by Class I Limited Partners, 460.17 units
redeemed by Class AA Limited Partners and 36.73 units
redeemed by Class II Limited Partners. Additionally, there
were 762.22 Units transferred from Class AA to A and 96.01
Units transferred from Class II to I. The Seventh Amended
and Restated Agreement of Limited Partnership for the
Partnership contains a full description of redemption and
distribution procedures.
(c) To date no distributions have been made from the Class A
or Class I units to partners of the Partnership.
The Agreement of Limited Partnership does not provide for
regular or periodic cash distributions, but gives the General
Partner sole discretion in determining what distributions, if
any, the Partnership will make to its partners. The General
Partner has not declared any such distributions to date, and
does not currently intend to declare any such distributions.
Item 6. Selected Financial Data
2002 2003 2004 2005 2006
------- ------- ------- ------- --------
(In thousands, except amounts per Unit)
1. Operating Revenues * $14,528 $ 8,24 $ 5,098 $ 165 $ -1,117
2. Income (Loss) from
Continuing Operations 8,454 4,846 2,466 -2,302 -7,206
3. Income (Loss)
Per Unit: A Shares 405.48 184.01 175.60 -193.95 -321.57
I Shares 365.10 -122.38 -270.57
AA Shares -7.77 -1,396.40
II Shares -8.08
4. Total Assets 43,174 34,590 37,126 33,192 19,769
5. Long Term Obligations 0 0 0 0 0
6. Cash Dividend per Unit 0 0 0 0 0
* Certain prior year amounts have beenreclassified to confirm
to the current year presentation.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
Most U.S. commodity exchanges limit by regulations the amount
of fluctuation in commodity futures contract prices during a
single trading day. These regulations specify what are
referred to as "daily price fluctuation limits" or "daily
limits". The daily limits establish the maximum amount the
price of a futures contract may vary either up or down from
the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a
particular commodity, no trades may be made at a price beyond
the limit. Positions in the commodity could then be taken or
liquidated only if traders are willing to effect trades at or
within the limit during the period from trading on such day.
Because the "daily limit" rule only governs price movement for
a particular trading day, it does not limit losses. In the
past, futures prices have moved the daily limit for numerous
consecutive trading days and thereby prevented prompt
liquidation of futures positions on one side of the market,
subjecting commodity futures traders holding such positions to
substantial losses for those days.
It is also possible for an exchange or the CFTC to suspend
trading in a particular contract, order immediate settlement
of a particular contract, or direct that trading in a
particular contract be for liquidation only.
For the year ended December 31, 2006, Limited Partners
redeemed a total of
3139.34 Class A Units for $6,866,488. Limited Partners
redeemed a total of 246.40 Class I Units for $554,414.
Limited Partners redeemed a total of 460.17 Class AA Units
for $461,886 and Limited Partners redeemed a total of 36.73
units for $38,343. Additionally, there were 762.22 Units
representing $765,050 transferred from Class AA to Class A
and 96.01 Units representing $100,236 transferred from Class
II to Class I.
For the year ended December 31, 2005, Limited Partners
redeemed a total of 2,722.22 Class A Units for $6,248,050 and
transferred 337.06 Units worth $786,719 from Class A to Class
I. The General Partner redeemed a total of 12.32 Class I
Units for $27,328 and Limited Partners redeemed a total of
117.93 Class I Units for $252,522. Additionally, there were
3,008.60 Units transferred from Class A to Class AA and
326.71 Units transferred from Class I to Class II.
During 2006, investors purchased 573.14 Class A Units for
1,239,000. 32.17 Class I Units were purchased by Limited
Partners for $75,000.
The Partnership trades on recognized global futures
exchanges. In addition, the Partnership trades over the
counter contracts in the form of forward foreign currency
transactions. As of December 31,2006, the Partnership had
$2,402,303 on deposit at CFS.
See Footnote 4 of the Financial Statements for procedures
established by the General Partner to monitor and minimize
market and credit risks for the Partnership. The General
Partner of the Partnership reviews on a daily basis reports
of the performance of the Partnership, including monitoring
the daily net asset value of the Partnership. The financial
situation of the Commodity Broker is monitored on a monthly
basis to monitor specific credit risks. The Commodity Broker
does not engage in proprietary trading and thus has no direct
market exposure which provides the General Partner with
assurance that the Partnership, will not suffer trading
losses through the Commodity Broker.
Results of Operations
Calendar Year 2006
At December 31, 2006 the Partnership had approximately $14.8
million in Class A assets and approximately $1.9 million in
Class I assets. The JWH allocation was approximately $18.0
million which includes $ 1.3 million of notional funding.
The Partnership recorded a loss of $7,206,352 or $321.07 per
Class A unit, for the year 2006. That represents a loss of
14.35% for the year. The Partnership recorded a loss of
$270.57 per Class I Unit, which represents a loss of 11.56%
for the year.
First Quarter 2006
The Partnership recorded a loss of $767,181 or $70.29 per
Unit of Class A Units ($55.42 for Class I Units, $2.03 for
Class AA Units and $2.11 for Class II Units) for the fiscal
quarter ended March 31, 2006. This compares to a loss of
$3,249,420 or $218.23 per Unit of Class A Units ($202.84 for
Class I Units) for the fiscal quarter ended March 31, 2005.
The quarter ended March 31, 2006 showed a loss of 3.14%
(total return) for the Class A Units of the fund (-2.37% for
the Class I Units, 0.09% for Class AA Units and 0.09% for
Class II Units).
The Partnership continued to employ John W. Henry & Company,
Inc. s (JWH) GlobalAnalyticsR Family of Programs, Worldwide
Bond Program and Currency Strategic Allocation Program.
Class A Units were negative 2.71% in January 2006 resulting in
a Net Asset Value per unit of $2,177.48 as of January 31,
2006.
Class I Units were negative 2.45% resulting in a Net Asset
Value of $2,284.32 as of January 31, 2006.
The Fund ' s overall return was negative for the month of
January as losses in the interest rate, currency and energy
sectors outweighed the gains achieved in the other sectors.
The interest rate sector led the Fund ' s losses on increased
speculation of rising global interest rates. The metals sector
led the positive performing sectors along with more moderate
gains achieved in both indices and agriculture. Metals
benefited from gold rising to a 25-year high as investors
sought a " safe haven " in the precious metal. This was due to
increased fears about Iran's nuclear program and a Hamas led-
Palestinian government.
The fixed income sector was the Fund ' s worst performing
sector as the fixed income markets in the U.S., Europe and
Japan sold-off over fears of their respective central banks
raising interest rates. The currency sector also suffered
losses as the U.S. dollar posted its biggest monthly decline
against the euro since November 2004. The dollar also
suffered losses against the Swiss franc, Japanese yen and the
euro as investors no longer expected interest rate
differentials to benefit the dollar as the spread narrowed
between the U.S. and both European and Japanese interest
rates. The Fund ' s energy sector underperformed as
volatility within the sector increased as oil and natural gas
are now being used as " geopolitical weapons " by Iran,
Russia, Venezuela and militants in Bolivia. Crude oil, which
is up 41 percent from a year ago and 11 percent for the month,
helped to limit losses in this sector despite the increased
volatility. However, the gains were not enough to offset the
losses incurred in natural gas, which for the first time in
almost 6 months dropped below $8 in New York. Natural gas fell
17 percent for the month as mild weather in the largest U.S.
consuming regions cut demand which limited the need for
utilities to pull from reserves stored in underground aquifers
and caverns.
The metals sector was the best performing sector for the
month. Gold extended its surge to a 25-year high, and silver
climbed to its highest level since March 1984. Gold's increase
occurred on concerns that the dollar may weaken because of
higher oil prices, increasing the metal's appeal as a hedge
against further declines in the U.S. currency. Global Stock
Indices were positive for the month as European stock indices
had their best January rally in eight years as energy stocks
along with miners and steelmakers gained on expectations
earnings would benefit from higher commodity prices. The
agriculture sector was also positive on the month as sugar
reached a 16-year high in London and a 25-year high in New
York. The record highs were a result of the surging cost of
crude oil which increased the demand for ethanol, a sugar cane
by-product. Brazil, the biggest producer and exporter of
sugar, is converting more of its cane crop to ethanol to cope
with record
gasoline prices.
In conclusion, the Fund finished negative for the month as the
fixed income, currency and energy sectors suffered losses.
Although the Fund underperformed, we remain confident that our
trend following approach will withstand the recent market
volatility and remain poised to take advantage of new
opportunities as they present themselves.
Update on the RCM recovery efforts
The Official Committee of Creditors in the Refco case has
posted a website for information and updates. It has a summary
of events in October, November and December 05; a calendar of
events for January and February of 06; a bankruptcy basics
primer; FAQs; and a section to ask questions. The site is at:
www.refcocommittee.com. This may be too much information in
too legal a format, and it is not specific to the recovery
efforts of any one investment fund, but at least something has
been organized. The questions and the FAQ section may be more
common sense based and have less legal terminology.
The next issue to be determined by the court is a decision on
whether Refco Capital Markets (RCM) was acting as a
stockbroker. If so, RCM would go into a Chapter 7
liquidation. The Everest Fund has filed a motion objecting to
the conversion, as we do not believe that RCM was acting as a
stockbroker. The arguments are scheduled to be heard on
February 14th. Everest Asset Management, Inc. remains
available to answer any questions specific to the Everest
Fund. The Fund's offering documents have been updated and we
have taken in investor money for January and February.
Class A Units were negative 5.91% in February 2006 resulting
in a Net Asset Value per unit of $2,048.72 as of February 28,
2006.
Class I Units were negative 5.65% resulting in a Net Asset
Value of $2,155.24 as of February 28, 2006.
The Fund's performance was negative for the month as listless
markets continued to hamper the Fund's long-term trend
following approach. The majority of the losses were realized
in the currency sector. Currency markets gyrated over
speculation surrounding potential global interest rate moves.
The energy sector incurred losses on concerns over
geopolitical events. While the market continued to be
apprehensive over the situation in Iran and Iraq, attacks in
Nigeria and Saudi Arabia added to the market's trepidation.
Limiting losses in this sector was natural gas, as prices fell
to their lowest level in almost nine months. The metals sector
was also negative for the month as volatility hurt
performance. Global Stock indices did not perform well for
the month as Asian stocks posted their first monthly decline
since October 2005 and the Nasdaq dropped 1.1 percent. Market
instability was also a factor in the indices sector as U.S.
stocks suffered their biggest loss in five weeks on the last
day of trading in February. The interest rate sector was
slightly positive for the month as performance in various
markets counterbalanced each other. Performance in the
agriculture sector was slightly negative for the month as
trading in N.Y coffee and N.Y. sugar hindered returns, while
trading in CBOT wheat limited losses.
Update on the RCM recovery efforts
The Official Committee of Creditors in the Refco case has
posted a website for information and updates. It has a
summary of events in October 05 through February 06; a
calendar of events for March 06; a bankruptcy basics primer;
FAQs; and a section to ask questions. The site is at:
www.refcocommittee.com. This may be too much information in
too legal a format, and it is not specific to the recovery
efforts of any one investment fund, but at least something has
been organized. The questions and the FAQ section may be more
common sense based and have less legal terminology.
The issue on whether the Refco Capital Markets (RCM) case
should be converted to Chapter 7 liquidation was heard by the
courts during February and early March. Closing arguments
will be heard on Tuesday, March 14th. Everest Asset
Management, Inc., the Official Committee of Unsecured
Creditors, and the debtors (Refco) object to the conversion.
We may know the Judge ' s ruling on Tuesday the 14th, or
shortly thereafter. Everest Asset Management, Inc. remains
available to answer any questions specific to the Everest
Fund. The Fund's offering documents have been updated and we
have had new investments for January, February and March.
Class A Units were positive 5.81% in March 2006 resulting in a
Net Asset Value per unit of $2,167.80 as of March 31, 2006.
Class I Units were positive 6.08% resulting in a Net Asset
Value per unit of $2,286.17 as of March 31, 2006.
The fixed income sector led performance with robust gains as
the Fund ' s systematic trend-following approach enabled it to
profit from rising global interest rates. The indices and
metal sectors also added to the positive performance as silver
continued to trend higher, and the indices sector benefited
from stronger economic data in Europe. The indices sector also
profited from the continued strength of commodity stocks on
the back of global growth in China. Limiting the Fund ' s
gains for the month was the currency sector, which continued
to suffer from range-bound trading, along with
underperformance in both the energy and agriculture sectors.
The fixed income sector was the Fund ' s strongest performer
for month as Japanese, German and U.S. government debt endured
stronger than expected consumer confidence and rising
inflationary fears. The indices sector was also positive for
the month as Asian stocks approached a 16-year high on surging
demand for metals and oil, and the Nikkei 225 climbed above
17,000 for the first time in more than five years. The metals
sector was also profitable for the month as silver reached
$11.66 on March 30th, the highest intraday price since
September 1983.
The energy sector was the Fund ' s worst performer as
geopolitical induced volatility limited gains within the
sector. Performance in the currency sector was also negative
for the month as range-bound trading continued to negatively
affect the Fund ' s long term trend following approach.
Although some currencies had directional moves during the
month, they were then accompanied by strong reversals. The
agriculture sector also underperformed for the month as gains
made in London sugar were not enough to offset the
underperformance caused by the weakness in CBOT wheat and
corn.
Update on the RCM recovery effort
The Official Committee of Creditors in the Refco case has
posted a website for information and updates. It has a
summary of events in October 05 through February 06; a
calendar of events for March 06; a bankruptcy basics primer;
FAQs; and a section to ask questions. The site is at:
www.refcocommittee.com. This may be too much information in
too legal a format, and it is not specific to the recovery
efforts of any one investment fund, but at least something has
been organized. The questions and the FAQ section may be more
common sense based and have less legal terminology. On March
14th the Judge tentatively ruled that Refco Capital Markets
(RCM) should be converted to a Chapter 7, but he agreed to
give the parties 45 days in order to try to work out a
consensual plan for reorganizing RCM and distributing the
assets on hand. Everest Asset Management, Inc. remains
available to answer any questions specific to the Everest
Fund. The Fund ' s offering documents have been updated and we
have had new investments for January, February and March.
During the reporting period, fiscal quarter ended March 31,
2006, additional Units sold consisted of 264.9 limited
partnership Units; there were zero general partnership Units
sold during the period. Additional Units sold during the
period represented a total of $575,000. Investors redeemed a
total of 637.11 Units during the period and the General
Partner redeemed zero Units. At the end of the period there
were 13,940.87 Units outstanding (including zero Units owned
by the General Partner).
As of March 31, 2006 the estimated Class AA NAV per unit was
$2,348.31 and Class II NAV per unit was $2,442.49.
During the fiscal quarter ended March 31, 2006, the
Partnership was exposed to credit risk in connection with the
bankruptcy filing by RCM, the Partnership ' s former foreign
currency broker. See Note 1 of the Notes to Financial
Statements above for additional information.
Second Quarter 2006
The Partnership recorded a loss of $420,650 or $77.87 per Unit
of Class A Units ($64.19 for Class I Units, $0.80 for Class AA
Units and $0.84 for Class II Units) for the fiscal quarter
ended June 30, 2006. This compares to a gain of $1,781,153 or
$113.12 per Unit of Class A Units ($134.00 for Class I Units)
for the fiscal quarter ended June 30, 2005. The quarter
ended June 30, 2006 showed a loss of 3.59%( total return) for
the Class A Units of the fund (2.81% for the Class I Units,
0.03% for Class AA Units and 0.03% for Class II Units).
The Partnership continued to employ John W. Henry & Company,
Inc. s (JWH) GlobalAnalyticsR Family of Programs, Worldwide
Bond Program and Currency Strategic Allocation Program.
Class A Units were positive 13.63% in April 2006 resulting in
a Net Asset Value per unit of $2,463.35 as of April 30, 2006.
Class I Units were positive 13.50% resulting in a Net Asset
Value of $2,594.70 as of April 30, 2006.
The interest rate sector led performance with strong gains as
the Fund s systematic trend-following approach enabled it to
profit from higher global interest rates. The metal and
currency sectors also added to performance as both gold and
silver continued to trend higher on inflationary fears and
increased demand, while currencies benefited from a weakening
U.S. dollar. The energy sector had gains due to increased
concerns over Iran's nuclear program. The indices sectors had
more modest gains, while the agriculture sector incurred
losses as performance within these sectors was hampered by
volatility.
The fixed-income sector was the Fund's strongest performing
sector as European, Japanese and U.S. fixed income markets
sold off. The metals sector was also profitable as all
components were positive for the month. Gold climbed above
$650/oz for the first time in 25-years after Iran failed to
meet an April 28th deadline to cooperate with United Nations
inspectors who are trying to determine if the country is
enriching uranium for military purposes. Also adding to
performance was silver which rallied on speculation investor
demand will grow as Barclays Bank PLC began offering an
exchange-traded fund backed by the metal. Silver has rallied
51 percent this year, and rose 17% this month alone. The
currency sector was also positive on the month as the U.S.
dollar fell on expectations of narrowing interest rate
differentials. The dollar fell 4.1 percent against the euro,
the biggest monthly decline since December 2003 and the
British pound gained against the dollar for a fourth week, its
longest winning streak in a year. The largest gain in this
sector was the euro, while the largest loss was in the
Japanese yen. Keeping with the prevailing theme performance
in the energy sector was also positive during the month.
Concerns that the UN Security Council will impose sanctions
that could lead Iran, the fourth-largest oil producer, to cut
shipments drove crude oil for June delivery to a new high of
$75.35 a barrel on April 21st and 24th. Crude oil for June
delivery ended up 7.8% this month. The global stock indices
sector was slightly positive for the month as the Fund's
performance was hindered by increased geopolitical instability
in the global stock markets, as well as a volatile interest
rate environment.
The agriculture sector was the Fund's worst performing sector
for the month as volatility hurt performance. Cotton limited
the sectors losses, with the largest loss occurring in N.Y.
coffee as growers in Latin America and Africa took advantage
of a recent rally to sell beans.
Update on the RCM recovery efforts
The Official Committee of Creditors in the Refco case has
posted a website for information and updates. It has a
summary of events in October 05 through February 06; a
calendar of events for March 06; a bankruptcy basics primer;
FAQs; and a section to ask questions. The site is at:
www.refcocommittee.com. This may be too much information in
too legal a format, and it is not specific to the recovery
efforts of any one investment fund, but at least something has
been organized. The questions and the FAQ section may be more
common sense based and have less legal terminology.
The Committee has been successful in bringing money into the
various Refco estates during the last month, with two legal
actions settled or pending settlement. In addition, on May
2nd, the Judge in the case granted the two RCM groups two more
weeks to work out a consensual plan which would allow the case
to remain in a Chapter 11. The general partner remains
available to answer any questions specific to the Everest
Fund.
Class A Units were negative 3.85% in May 2006 resulting in a
Net Asset Value per unit of $2,368.52 as of May 31, 2006.
Class I Units were negative 3.24% resulting in a Net Asset
Value of $2,510.69 as of May 31, 2006.
The Fund's performance was negative in May as the interest
rate, metal, agriculture and stock indices sectors suffered
from large market corrections during the second half of the
month. Increased inflationary fears and concerns over the
global economy led investors to take profits and reduce risk
exposure. A major catalyst for the reversal was the news that
the Federal Reserve on May 10th signaled that "further policy
firming may yet be needed" instead of signaling a possible
"pause" at it's next meeting at the end of June. This caught
the market by surprise causing equity markets, which had been
near or at record highs, to fall in response. This news also
eventually caused a "contagion effect" in the metal and
currency sectors.
The currency sector was positive for the month despite the
extreme volatility that dominated the sector. The fixed
income sector was the Fund's worst performing sector as
uncertainty surrounding inflation prospects and global growth
led to increased volatility. Performance in the energy sector
was also negative for the month as petroleum products
retreated from record or near record highs during the month.
The metal sector was also negative for the month as precious
metals fell from record highs set towards the beginning of the
month. Gold fell 12% after reaching a 26-year high of $732 an
ounce on May 12th. The largest loss in this sector occurred
in silver. Global Stock Indices also underperformed for the
month. Attributing to the underperformance of the sector was
the Federal Reserve's uncertainty about inflation, which took
the markets by surprise, and the lackluster U.S. consumer
confidence report. The agriculture sector was also negative
for the month as London and New York sugar hindered
performance. Sugar, whose demand has increased on its ability
to be made into ethanol, fell as energy prices dropped during
the month.
Update on the RCM recovery efforts
* The ongoing dispute at the Refco Capital Markets (RCM)
between the securities customers and the FX customers
(Everest) has been resolved after much negotiation. This
should greatly facilitate the distribution of assets at hand
and the distribution of future recoveries. This agreement
should avoid much costly litigation and time delays.
* The 'bar date' for the filing of all claims against RCM has
been set for July 17th. Everest has already filed it's claim.
It may take six to eight weeks to process and verify all
claims. Although there could be further delays, it is
possible that we will see a distribution of the assets on hand
at RCM by the fourth quarter of this year, maybe as early as
October.
* The Bankruptcy court approved a settlement whereby the
Sphinx entities have agreed to pay back $262 million to the
Refco estates.
* The Austrian Bank BAWAG settled with the creditors committee
and the Department of Justice (DOJ) and agreed to pay up to
$675 million. Please keep in mind that a portion of the BAWAG
settlement goes to the DOJ and some to the Refco estate, not
directly to the Refco Capital Markets. However, most of the
other bankrupt Refco entities owe RCM money so there should be
benefits coming down to the RCM level, which is where Everest
money is frozen.
The agreement between parties at RCM and the two substantial
recoveries of assets are some of the most significant steps of
progress in the recovery of our assets since the events of
October 2005. The Committee (and Peter Lamoureux, president
of the Fund's general partner, as a member of the Committee)
is continuing to work hard to recover assets in a timely
manner.
Class A Units were negative 11.76% in June 2006 resulting in a
Net Asset Value per unit of $2,089.94 as of June 30, 2006.
Class I Units were negative 11.50% resulting in a Net Asset
Value of $2,221.98 as of June 30, 2006.
The Fund's performance was negative for the month of June. All
six sectors were negative with the currency sector, and to a
lesser extent the interest rate sector, responsible for the
majority of the Fund's losses. These sectors were affected by
trend-reversing markets caused by anticipated, but unrealized,
fears that the Federal Reserve would not only raise rates at
its June 29th meeting, but also reinforce expectations for
further rate increases to curb inflation.
Currencies were the Fund's worst performing sector as the U.S.
dollar spent the majority of the month strengthening against
most major currencies. The interest rate sector was also
unprofitable for the month as U.S. 10-year and 30-year
treasury bonds led the sector's
decline. The interest rate speculation that dominated the
currency markets also affected the U.S. treasury markets. The
metals sector was also negative for the month as precious
metals continued to retreat from highs set in May. Gold fell
to a three month low of $542.45 an ounce on June 14th after
reaching a 26-year high of $732 an ounce on May 12th. The
dramatic sell-off was caused by the combination of a stronger
dollar, as investors bought dollars as an alternative to gold,
and increased speculation that the Federal Reserve could hike
interest rates as much as 50 basis points. Despite the recent
weakness in the precious metal, gold is up 18 percent for the
year. All components of this sector were negative with the
largest loss coming from gold. The agriculture sector also
underperformed during the month as weather conditions had
severe affects on various crops in the U.S. and around the
world. Global Stock Indices were slightly negative for the
month as speculation over the outcome of the June 29th Federal
Reserve meeting caused severe market fluctuations. The energy
sector was also slightly negative for the month as choppy
market conditions hindered performance. All of the petroleum
based products were negative for the month.
The combined losses in the currency and interest rate sectors
drove the Fund's negative performance. Comments from the
Federal Reserve combined with stronger than expected economic
data caused speculation that the Federal Reserve might raise
interest rates 50 basis points instead of previously expected
25 at the June 29th meeting. The possibility of a larger than
expected interest rate move sent the U.S. dollar and U.S.
treasury yields higher. However, the markets reversed
themselves upon the announcement that the Federal Reserve had
raised rates by 25 basis points, and signaled to the markets
that they have possibly reached the end of the rate hiking
cycle. The resulting increase in uncertainty
and speculation led to volatility in the markets and caused
several reversals making it difficult for our disciplined
systematic investment style to capitalize on longer-term
trends. As always, then Fund stands ready to potentially take
advantage from any continuing or new trends that may emerge.
Update on the RCM recovery efforts
An agreement among securities customers and general unsecured
creditors of RCM was filed with the courts on June 30. A
motion was filed seeking bankruptcy court approval of the
agreement. The terms of the agreement are complex, to say the
least. It is a settlement between certain parties claiming to
be 'securities' customers of RCM and certain parties
purporting to be foreign exchange customers/general unsecured
creditors of RCM. Everest would fall into the latter camp.
The agreement defers attempts to convert the current RCM
Chapter 11 case to a case in Chapter 7, but if a global
consensus settlement in
Chapter 11 fails, a conversion to Chapter 7 would be on a more
efficient pre-planned basis. The agreement defines a process
for allocating the assets on hand at RCM, provides a mechanism
for determining who is a securities customer and who is an
FX/unsecured customer, and sets a schedule for distributions
of other expected RCM assets such as intercompany claims and
third party (litigation) recoveries.
Although this agreement is a major step toward recovering
Everest's assets, keep in mind that it is contingent upon a
number of things such as Bankruptcy Court approval and the
Rogers Raw Material Fund becoming a party to the agreement.
We will know more about the contingencies being met by the
next court date of August 10th.
The Official Committee of Creditors in the Refco case has
posted a website for information and updates. It has a
summary of events in October 05 through June 06; a calendar of
events for July 06; a bankruptcy basics primer; FAQs; and a
section to ask questions. The site is at:
www.refcocommittee.com
During the reporting period, fiscal quarter ended June 30,
2006, additional Units sold consisted of 156.72 limited
partnership Units; there were zero general partnership
Units sold during the period. Additional Units sold during the
period represented a total of $350,495. Investors redeemed a
total of 1,550.34 Units during the period and the General
Partner redeemed zero Units. At the end of the period there
were 12,547.25 Units outstanding (including zero Units owned
by the General Partner).
As of June 30, 2006 the estimated Class AA NAV per unit was
$2,347.50 and Class II NAV per unit was $2,441.65.
During the fiscal quarter ended June 30, 2006, the Partnership
was exposed to credit risk in connection with the bankruptcy
filing by RCM, the Partnership ' s former foreign currency
broker. See Note 1 of the Notes to Financial Statements above
for additional information.
Third Quarter 2006
The Partnership recorded a loss of $4,750,979 or $ (26.08)
per Unit of Class A Units ($ (10.28) for Class I Units,
$1,340.82 for Class AA Units and $1,394.52 for Class II
Units) for the fiscal quarter ended September 30, 2006. This
compares to a gain of $801,389 or $49.22 per Unit of Class A
Units ($69.81 for Class I Units) for the fiscal quarter ended
September 30, 2005. The quarter ended September 30, 2006
showed a loss of 1.25 %( total return) for the Class A Units
of the fund (a loss of 0.46% for the Class I Units, 57.09% for
Class AA Units and 57.09% for Class II Units).
The Partnership continued to employ John W. Henry & Company,
Inc. s (JWH) GlobalAnalyticsR Family of Programs, Worldwide
Bond Program and Currency Strategic Allocation Program.
Class A Units were negative 11.06% in July 2006 resulting in
a Net Asset Value per unit of $1,858.73 as of July 31, 2006.
Class I Units were negative 10.80% resulting in a Net Asset
Value of $1,982.00 as of July 31, 2006.
The Fund s performance was negative for the month of July.
All six sectors traded were negative, with the interest rate,
agriculture and currency sectors responsible for the majority
of the Fund s losses. While some markets had strong
directional moves, the overall trading environment was
unfavorable for the Fund s long-term trend following
approach. Geopolitical events, extreme weather conditions, and
speculation over U.S. interest rate policy caused harmful
spikes in volatility within the sectors traded by the Fund.
The interest rate sector was the Fund s worst performing
sector as speculation of a slowing U.S. economy and the crisis
in the Middle East attracted investors to the perceived safety
in fixed-income markets. The agriculture sector was also
negative for the month. The currency sector also
underperformed for the month as fighting between Israel and
Hezbollah caused a sharp reversal in the weakening U.S. dollar
trend. Performance in the energy sector was negative for the
month as geopolitical events and a record-breaking heat wave
in the Midwest and Northeastern U.S. caused volatility
throughout the entire energy sector. The metals sector was
also negative for the month as increased volatility in gold
hurt the sector s performance. Gold was up 5
percent in July after dropping 5.1 percent in June. The
indices sector was only slightly negative for the month as the
Nasdaq slumped about 3.7 percent.
In conclusion, performance was negative for the month as
volatility affected trends throughout markets traded by the
Fund. Concern surrounding the U.S. economy continued to keep
the markets speculating about the Federal Reserve s next
move, causing uncertainty within the interest rate, currency
and indices sectors. Meanwhile, the eruption of violence in
the Middle East added to the Fund s losses as investors fled
from equities into safe haven investments such as gold and
treasuries. Finally, the Fund also suffered as a heat wave
swept across the nation driving energy and agricultural prices
suddenly higher. As a result, short-term market moving events
increased volatility and induced strong reversals making it
difficult for JWH s disciplined systematic investment style
to capitalize on longer-term trends.
Update on the RCM recovery efforts
* On June 30th the two groups of creditors at Refco Capital
Markets (RCM) entered into a Settlement Agreement. This
concluded months of negotiating between the Securities
Customers and the FX/General Unsecured Creditors of RCM,
Everest being in the second group.
* On July 24th the Rogers funds agreed to become parties to
the Settlement Agreement.
* Immediately thereafter the Official Committee of
Unsecured Creditors began to attempt to reach a global
consensual settlement agreement with the other Refco bankrupt
entities. Everest's claims at Refco are at the RCM level,
however there are 23 other bankrupt entities. Most of the
parties to the case are attempting to reach a global consensus
involving all the Refco estates.
* The RCM Settlement Agreement, if approved by the Judge,
provides for a schedule of payments to be made from the assets
on hand at RCM, and it provides a formula for sharing the
anticipated intercompany receivables and finally the third
party recoveries. Everest is still hopeful for an initial
distribution of the assets on hand by the end of the 4th
quarter of this year, but many things may impact that time
frame.
The Official Committee of Creditors in the Refco case has
posted a website for information and updates. It has a
summary of events in October 05 through July 06; a calendar of
events for August 06; a bankruptcy basics primer; FAQs; and a
section to ask questions. The site is at:
www.refcocommittee.com
Class A Units were positive 7.63% in August 2006 resulting in
a Net Asset Value per unit of $2,000.56 as of August 31, 2006.
Class I Units were positive 7.89% resulting in a Net Asset
Value of $2,138.44 as of August 31, 2006.
The Fund s performance was positive in August as four out of
the six sectors traded were profitable for the month. The
fixed-income sector led performance with robust gains as U.S.,
Japanese, and European bond markets trended higher on signs
that inflationary pressures in the world s largest economies
are receding. The currency sector also added to the Fund s
positive performance as the Japanese yen weakened against the
U.S. dollar and euro on speculation that Japan s central
bank wouldn t raise interest rates again this year. The Fund
s performance was further enhanced by more modest gains in the
metals and agriculture sectors, while the Fund suffered small
loses in the indices and energy sectors.
The fixed-income sector was the Fund s strongest performer
as Japanese government bonds (JGBs), German bunds, and the
U.S. benchmark 10-year bond all rallied for the month. The
currency sector was the Fund s other solid performer for the
month, as the Japanese yen fell against the U.S. dollar and
euro on increased speculation that the BOJ would keep interest
rates at their current level. The metals sector was also
profitable for the month as silver futures for December
delivery reached $13 an ounce, the highest price since May
30th. The precious metal has gained 90 percent in the past
year. Silver s rally is due to increased demand throughout
the world, and expectations of continued economic expansion in
developing nations. The largest gain in this sector was
achieved in silver, while the only loss occurred in gold as
geopolitical tension in the Middle East, due to Iran s
continued pursuit of uranium enrichment, kept the metal
vulnerable to price fluctuations. The agriculture sector was
also positive for the month as losses in CBOT wheat were
offset by gains made in London and New York sugar. Sugar
prices in London have dropped almost 25 percent in the past
three months after rising to a record $497 a metric ton on May
12th. The global stock indices sector was slightly negative
for the month as global equity markets reversed the recent
losing trend and rallied on decreased fears of inflation. The
energy sector was the Fund s worst performing sector as
higher price trends at the beginning of the month experienced
strong reversals. Natural gas soared on August 2nd in New
York on concern s that Tropical Storm Chris could strengthen
into the season s first hurricane and track towards the Gulf
of Mexico where about a quarter of the United States gas
supply is produced. However by August 31st, natural gas
closed at a six-week low in New York as Tropical Storm Chris
was a non-event and mild weather across the central and
eastern U.S. reduced demand for the fuel to be sent to power
stations.
In conclusion, the Fund was positive for the month, with the
fixed income sector leading performance as Japanese, German
and U.S. fixed income markets trended higher on contained
inflation fears. The currency sector also helped
profitability as the Japanese yen weakened on speculation that
interest rates in Japan will remain at their current level. As
always, the Fund stands ready to potentially take advantage
from any continuing or new trends that may emerge.
Update on the RCM recovery efforts
There has been a substantial development in the Refco case.
After weeks of intensive efforts, on September 14, 2006 Refco,
Inc. and all of its subsidiaries and affiliates who are the
Debtors, filed a plan of Chapter 11 ( the Plan ) and a
Disclosure Document with the bankruptcy Court. The Plan has
the support of the Creditor Committees, the Debtors, the RCM
Trustee and has signatures of a 'supermajority' of creditors
at the RCM level.A hearing for approval of the Disclosure
Statement is scheduled for October 16, 2006, at which time any
objections will be heard. It cannot be determined in advance
whether any objections will become an obstacle, or whether the
Court will approve the Plan. If it moves forward, the Plan is
slated to be confirmed by the Court on or before December 15,
2006, and it should become effective on or before December 31,
2006 (Effective Date). Although I am hopeful that getting
distributions will be an expedited process, we do not yet have
a timetable for distributions to be made. One thing that
could impact the timeliness of distributions is that the
processing of claims and the objections to claims have not
been completed. To the extent that the process continues
beyond the Effective Date, it could either delay distributions
or cause distributions to be diluted due to the need to
reserve amounts equal to any disputed claims.
The schedules show initial distributions of assets on hand at
RCM for creditors like Everest who had margin money for the
purposes of foreign exchange trading at RCM/FX will be in the
range of 26 cents on the dollar. An exact figure is difficult
to determine as all the claims have not been processed yet and
all the legal fees are not calculated yet. The Plan calls for
a second level of recovery for the intercompany receivables
that are owed to RCM by the other Refco entities. It is
anticipated that this second distribution will bring the
Everest recovery to the range of 36 to 40 cents on the dollar,
again subject to the total claims allowed. Looking beyond
those two distributions, we anticipate additional recoveries
from litigation proceeds against various parties. The amount
of those recoveries is obviously dependent on the success of
the litigation. In either case the amount cannot be determined
at this time.
It is Everest s belief that the Court will approve the Plan or
a plan that is close to the current draft. We remain
available to answer any questions that you may have.
During the reporting period, fiscal quarter ended September
30, 2006, additional Units sold consisted of 70.08 limited
partnership Units; there were zero general partnership Units
sold during the period. Additional Units sold during the
period represented a total of $150,505. Investors redeemed a
total of 374.02 Units during the period and the General
Partner redeemed zero Units. At the end of the period there
were 12,243.312 Units outstanding (including zero Units owned
by the General Partner).
As of September 30, 2006 the estimated Class AA NAV per unit
was $1,006.76 and Class II NAV per unit was $1,047.13.
During the fiscal quarter ended September 30, 2006, the
Partnership was exposed to credit risk in connection with the
bankruptcy filing by RCM, the Partnership ' s former foreign
currency broker. See Note 1 of the Notes to Financial
Statements above for additional information.
Fourth Quarter 2006
The Partnership recorded a loss of $1,267,541 or $ 146.82 per
Unit of Class A Units ($140.68 for Class I Units), $3.03 for
Class AA Units and $ 3.15 for Class II Units) for the fiscal
quarter ended December 31, 2006. This compares to a loss of
$1,634,747 or $138.06 per Class A Unit for the fiscal quarter
ending December 31, 2005, ($123.35 for Class I Units). The
quarter ended December 31, 2006 showed a loss of 7.11% (total
return) for the Class A Units of the fund; a loss of 6.36%
(total return) for the Class I Units, and 0.01% for Class
AA and II Units.
Class A Units were a negative 5.53% in October 2006 resulting
in a Net Asset Value of $1,949.77.
Class I Units were a negative 5.27% resulting in a Net Asset
Value of $2095.25 as of October 31, 2006.
The Fund s performance was negative for the month of October.
Three of the six sectors traded had positive performance.
However, the gains made in the energy, indices and agriculture
sectors were not able to offset the combined losses of the
remaining sectors. The underperforming sectors were affected
by trend-reversing markets caused by shifting expectations
about global inflationary fears, as well as the health of the
U.S. economy.
The fixed income sector was the Fund s worst performing
sector for the month as U.S., European, and Japanese debt
markets suffered similar reversals over speculation
surrounding potential global interest rate moves. The
currency sector was negative for the month. The economic data
and speculation about future interest rates which led to the
losses in the fixed-income sector also caused underperformance
within this sector, as the U.S. dollar suffered a strong
reversal at the end of the month. The largest sector loss
occurred in the euro. Performance in the metals sector was
also negative for the month.
The energy sector was the Fund s strongest performer for
the month of October. Crude oil plunged 25 percent since
reaching a record $78.40 a barrel on July 14th, amid concern
that fighting in Lebanon would spread through the Middle East.
Since July 14th, three factors have caused prices to drop; a
cease fire between Israel and Lebanon has been achieved, crude
oil inventories have risen, and there has been a calm Atlantic
hurricane season. The stock indices sector was also positive
for the month. Asian stocks climbed, for their best month
since April. Also advancing were the U.S. benchmark indices,
as earlier optimism that U.S. households would sustain
economic growth pushed the Dow industrials to a record high
during the month and sent the S&P 500 to its highest level
since November 2000. Performance in the agriculture sector
was also positive during the month as corn and CBOT wheat were
the sectors best performers.
In conclusion, the Fund was negative for the month as an
unexpected shift in the global interest rate environment
shocked the markets and resulted in sharp reversals in the
fixed-income and currency markets. While gains in energy,
indices and agriculture sectors helped to limit losses, they
were not enough to offset the combined losses from the fixed-
income and currency markets. As always, the Fund stands ready
to potentially profit from any new trends that may emerge.
Update on the RCM Recovery Efforts / Write Down of RCM Receivable
Refco, Inc. filed a plan under Chapter 11 (the Plan ) and a
Disclosure Document with the Bankruptcy Court. The Plan was
confirmed by the Bankruptcy Court and became effective
December 26, 2006.
Based on the estimated recovery amounts contained in the
schedules of the Plan and Disclosure Document which the
Bankruptcy Court is being asked to approve in the Refco case,
the General Partner as of October 31, 2006 (but effective
September 30, 2006) reduced the value of the Class AA and
Class II assets to 40% of the amounts at which such assets
held at Refco were valued as of October 17, 2005. As of
October 17, 2005 the assets were valued at $7,482,332. The
adjustment is $4,489,399 with a remaining asset balance of
$2,992,933. This is a preliminary adjustment and could be
negatively impacted if the Plan is not confirmed by the
Bankruptcy Court on December 15, 2006. The estimate could
also be adjusted depending upon the outcome of the processing
of valid claims in the bankruptcy litigation and certain other
factors.
Looking beyond the recovery estimates described above, there
is the potential for further recoveries through litigation
efforts. A Litigation Trust is being established and funded.
A Litigation Trust Committee has been formed and a Litigation
Trustee is being appointed to pursue claims against a targeted
list of parties who may have acted fraudulently or with
negligence in the conduct of Refco business. We have not
included litigation recoveries, if any, in the write down,
because the success of such actions cannot be estimated at
this time. No assurances can be made that there will be any
further recoveries for Everest from these efforts.
In accordance with Generally Accepted Accounting Principles
the write down was reflected in the statement of operations at
September 30, 2006. The estimate was determined after the
issuance of our September 30, 2006 investor account
statements, and therefore the October investor statements that
were issued in November reflected the revised Net Asset Values
for September 30, 2006.
Class A Units showed a gain of 6.38% in November 2006
resulting in a Net Asset Value of $ 2074.23.
Class I Units showed a gain of 6.65% resulting in a Net Asset
Value of $ 2234.50.
The Fund was positive 6.38% for November. The currency sector led
performance with strong gains as the Fund s systematic trend
following approach enabled it to profit from a weakening U.S.
dollar. The agricultural and interest rate sectors also added
to the positive performance as corn continued to trend higher
on increased export demand and U.S. treasuries rallied as
signs of slowing economic growth bolstered speculation that
the Federal Reserve (Fed) will cut interest rates. The metal
sector was also positive on the strength of silver while the
energy and indices sectors incurred losses as performance
within these sectors was hampered by trend reversals towards
the end of the month.
December s results cannot be predicted, and we are hopeful for
a positive year. Under market conditions that favor JWH s
systematic trading system, this manager has shown the ability
to recover quickly in the past. However, the Fund is down for
the year at the end of November and we have had a number of
questions regarding potential tax advantages from a negative
year that could be used to offset gains in other investments.
Although your clients should consult with their own tax
advisors, we would like to remind everyone that it is not
necessary to redeem the investment in order to trigger the tax
advantage, if there is one. The Fund s results are recognized
for tax purposes in each year of trading and will be reported
on the K-1.
We appreciate your patience during what has been a
disappointing period of performance in the managed futures
industry and by our manager, John W. Henry & Company, Inc.
(JWH). By their very nature, uncorrelated asset classes can
produce different results, which may lead to better combined
returns over time. A 10% Everest 90% S&P 500 allocation had
higher total returns with lower standard deviation than a 100%
S&P 500 investment for the last 5 year, 7 year and 10 year
periods ending with the 3rd quarter of 2006 (rebalancing
quarterly). In the last three years that has not been the
case. At Everest, we have always tried to look at the long
term results, and we encourage investors to do the same. We
have seen no fundamental change in management or style of
investing at JWH which have caused under performance, and we
look forward to the potential return of markets that are more
favorable to JWH s systematic trading system. We continue to
review the allocation to three programs at JWH.
For investors who have been in the Fund since October
2005, we anticipate getting a number of distributions from the
frozen assets at Refco over the next few months which should
equate to most of the assets on hand at RCM being paid out by
June of 2007. In addition, the Litigation Trust will be
pursuing actions against a targeted list of individuals and
firms with the hope of further recoveries. Obviously, the
success of that litigation cannot be determined at this time,
nor can we predetermine a time frame for results.
In summary, we are reviewing our allocation to the JWH
programs and winding down the Refco issues. We wish everyone
a Joyous Holiday Season and a Healthy and Prosperous New Year.
Class A Units showed a loss of 7.58% in December 2006,
resulting in a Net Asset Value of $ 1,917.03.
Class I Units showed a loss of 7.32% resulting in a Net Asset
Value of $ 2071.02.
The Fund s performance was negative for the month of December.
Four out of six sectors traded were negative, with the
interest rate sector responsible for the majority of the
Fund s losses. Speculation over the future of the U.S.
Federal Reserve s (FED), European Central Bank s (ECB), and
the Bank of Japan s (BOJ) interest rate policies caused
harmful and sharp reversals in global fixed income markets.
The same uncertainty surrounding the future direction of world
interest rates also hurt performance in the Fund s currency
sector, as fluctuating interest rate expectations caused
excessive volatility in global currency markets. The health
of U.S., European, and Japanese economies continued to keep
markets speculating about the direction of global interest
rates, causing uncertainty within the fixed income, currency,
and metal sectors. As a consequence, short-term market moving
events resulted in strong reversals or trend-less markets
making it difficult for JWH s disciplined systematic
investment style to capitalize on longer-term trends.
The poor performance in December ensured a losing year
for the Fund. We have decided to make a change in allocation
to the JWH programs. Since June of 2003 the Fund has been
allocated to three JWH programs in approximately the following
amounts: 50% to the JWH Global Analytics Program (GA), 25%
Worldwide Bond Program (WWB), and 25% Currency Strategic
Allocation Program (CSAP). Effective January 3rd, 2007 we have
dropped the CSAP and increased GA to 75% while keeping WWB at
25%. We still have exposure to currency trading within the
Global Analytics Program. For the past three years CSAP has
underperformed both GA and WWB Programs, and we believe this
change will help improve the results of our trading with JWH.
Refco Summary for Investors in the Fund October 2005
On December 28, 2006, The Everest Fund, L.P. received the
first in a series of anticipated distributions in the Refco
matter. Of the approximately $7,500,000 that became
inaccessible in October 2005, we have now received
$1,365,525.51. That represents an amount equal to
approximately 18% of the frozen assets. We have increased the
Class A units for each investor in the Fund by their pro rata
share of the distribution, and lowered the Class AA units.
This will be seen as an increase in the Class A (or Class
I ) units on the December 2006 client statements and a
decrease in the Class AA (or Class II units). Checks were
mailed in the middle of January 2006 for the benefit of any
investors who have redeemed.
There is approximately 26.5 cents on the dollar on hand
at Refco for FX clients like Everest. Subject to the claims
processing, we anticipate receiving additional distributions
that may bring us to that level of recovery within the first
half of 2007. The Disclosure Document filed with the Court in
October 2006 estimates on page 8 that the Everest Fund s
category of recovery (FX unsecured creditors) could come to
37.5 cents on the dollar subject to a number of contingencies.
In order to approach the 37.5 % recovery, a number of entities
involved in Refco need to be liquidated, further transfers
need to be effected between Refco entities, and some appeals
need to be heard by the courts. It is difficult to estimate
the length of time to complete this process or the degree of
success in approaching the 37.5 % recovery level. Peter
Lamoureux is a member of the Plan Administration Committee and
will endeavor to communicate any results in a timely fashion.
As mentioned before, there is the possibility of further
recoveries through litigation against certain parties who are
being targeted by the Litigation Trust Committee. At this
time no assurance can be made that the litigation efforts will
result in further recoveries for the Fund.
During the reporting period, fiscal quarter ended December 31,
2006, additional Units sold consisted of 113.61 limited
partnership Units; there were no general partnership
Units sold during the period. Additional Units sold during
the period represented a total of $ 238,000. Investors
redeemed a total of 824.27 Class A Units, 460.17 Class AA
Units and 36.73 Class II Units during the period.
Additionally, there were 762.22 Units transferred from Class
AA to Class A 96.01 Units transferred from Class II to Class
I. At the end of the period there were 10,625.001 Units
outstanding (including no Units owned by the General Partner).
As of December 31, 2006 the estimated Class AA NAV was
$1,003.73 and the estimated Class II NAV was $1,043.98.
See Footnote 4 of the Financial Statements for procedures
established by the General Partner to monitor and minimize
market and credit risks for the Partnership. In addition to
the procedures set out in Footnote 4, the General Partner
reviews on a daily basis reports of the Partnership's
performance, including monitoring of the daily net asset value
of the Partnership. The General Partner also reviews the
financial situation of the Partnership's Clearing Broker on a
monthly basis. The General Partner relies on the policies of
the Clearing Broker to monitor specific credit risks. The
Clearing Broker does not engage in proprietary trading and
thus has no direct market exposure, which provides the General
Partner assurance that the Partnership will not suffer trading
losses through the Clearing Broker.
During the fiscal quarter ended December 31, 2006, the
Partnership was exposed to credit risk in connection with the
bankruptcy filing by RCM, the Partnership s former foreign
currency broker. See Items 1 and 3 above for additional
information.
Inflation
Inflation does have an effect on commodity prices and the
volatility of commodity markets; however, inflation is not
expected to have an adverse effect on the Partnership's
operations or assets.
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
Introduction
Past Results Are Not Necessarily Indicative of Future
Performance
The Partnership is a speculative commodity pool. The market
sensitive instruments held by it are acquired for speculative
trading purposes, and all or substantially all of the
Partnership's assets are subject to the risk of trading loss.
Unlike an operating company, the risk of market sensitive
instruments is integral, not incidental, to the main line of
business of the Partnership.
Market movements result in frequent changes in the fair
market value of the open positions of the Partnership and,
consequently, in its earnings and cash flow. The market risk
of the Partnership is influenced by a wide variety of
factors, including the level and volatility of interest
rates, exchange rates, equity price levels, the market value
of financial instruments, the diversification effects among
the open positions of the Partnership and the liquidity of
the markets in which it trades.
The Partnership can acquire and/or liquidate both long and
short positions in a wide range of different financial and
metals markets. Consequently, it is not possible to predict
how a particular future market scenario will affect
performance, and the past performance of the Partnership is
not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the
Partnership could reasonably be expected to lose in a given
market sector. However, the inherent uncertainty of the
Partnership's speculative trading and the recurrence in the
markets traded by the Partnership of market movements far
exceeding expectations could result in actual trading or non-
trading losses far beyond the indicated Value at Risk or the
experience of the Partnership to date (i.e., "risk of ruin").
In light of the foregoing as well as the risks and
uncertainties intrinsic to all future projections, the
inclusion of the quantification included in this section
should not be considered to constitute any assurance or
representation that the losses of the Partnership in any
market sector will be limited to Value at Risk or by the
attempts of the Partnership to manage its market risk.
Standard of Materiality
Materiality as used in this section, "Qualitative and
Quantitative Disclosures About Market Risk," is based on an
assessment of reasonably possible market movements and the
potential losses caused by such movements, taking into
account the leverage, optionality and multiplier features of
the market sensitive instruments of the Partnership.
Quantifying the Trading Value at Risk of the Partnership
Qualitative Forward-Looking Statements
The following quantitative disclosures regarding the market
risk exposures of the Partnership contain "forward-looking
statements" within the meaning of the safe harbor from civil
liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in
Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934). All quantitative
disclosures in this section are deemed to be forward-looking
statements for purposes of the safe harbor, except for
statements of historical fact.
The risk exposure of the Partnership in the various market
sectors traded by the commodity trading advisor is quantified
below in terms of Value at Risk. Due to the mark-to-market
accounting of the Partnership, any loss in the fair value of
the Partnership's open positions is directly reflected in the
earnings (realized or unrealized) of the Partnership and cash
flow (at least in the case of exchange-traded contracts in
which profits and losses on open positions are settled daily
through variation margin).
Exchange maintenance margin requirements have been used by
the Partnership as the measure of its Value at Risk.
Maintenance margin requirements are set by exchanges to equal
or exceed the maximum losses reasonably expected to be
incurred in the fair value of any given contract in 95%-99%
of any one-day intervals. The maintenance margin levels are
established by dealers and exchanges using historical price
studies as well as an assessment of current market volatility
(including the implied volatility of the options on a given
futures contract) and economic fundamentals to provide a
probabilistic estimate of the maximum expected near-term one-
day price fluctuation. Maintenance margin has been used
rather than the more generally available initial margin,
because initial margin includes a credit risk component which
is not relevant to Value at Risk.
In the case of market sensitive instruments which are not
exchange traded (almost exclusively currencies in the case of
the Partnership), the margin requirements for the equivalent
futures positions have been used as Value at Risk. In those
rare cases in which a futures-equivalent margin is not
available, margins of the dealers have been used.
In quantifying the Value at Risk of the Partnership, 100%
positive correlation in the different positions held in each
market risk category has been assumed. Consequently, the
margin requirements applicable to the open contracts have
simply been aggregated to determine the aggregate Value at
Risk for each trading category. The diversification effects
resulting from the fact that the positions of the Partnership
are rarely, if ever, 100% positively correlated have not been
reflected.
The Trading Value at Risk in Different Market Sectors of the
Partnership
The following table indicates the trading Value at Risk
associated with the open positions of the Partnership by
market category as of December 31, 2006. All open position
trading risk exposures of the Partnership have been included
in calculating the figures set forth below. As of December
31, 2006, the total capitalization of the Partnership was
approximately $18,711,298. Excluding Class AA and Class
II the capitalization was approximately $16,715,933.
December 31, 2006
Market Sector Value at Risk % of Total Capitalization
Commodities 0.21 1.10%
Energies 0.45 2.43%
Financial Stock Indices 0.28 1.49%
Interest Rates 0.76 4.07%
Metals 0.14 0.76%
Currencies 2.43 12.99%
Total 4.27 million 22.85%
Material Limitations on Value at Risk as an Assessment of
Market
Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable
maintenance margin requirement (maintenance margin
requirements generally ranging between approximately 1% and
10% of contract face value) as well as many times the
capitalization of the Partnership. The magnitude of the open
positions of the Partnership creates a "risk of ruin" not
typically found in most other investment vehicles. Because
of the size of its positions, certain market conditions that
are unusual, but historically recurring from time to time,
could cause the Partnership to incur severe losses over a
short period of time. The foregoing Value at Risk table, as
well as the past performance of the Partnership, give no
indication of this "risk of ruin."
Non-Trading Risk
The Partnership has non-trading market risk on its foreign
cash balances not needed for margin. However, these balances
(as well as any market risk they represent) are immaterial.
The Partnership holds a portion of its assets in cash on
deposit with CFI
and CFS with substantially all of the remainder on deposit
with Horizon Cash Management, LLC. (Horizon) in short term,
highly liquid investments. The Partnership has cash flow risk
on these cash deposits because if interest
rates decline, so will the interest paid out by CFI and CFS
at the 91-day
Treasury bill rate. In addition, should short term interest
rates decline, so will the interest earnings for assets on
deposit with Horizon. The Partnership assets managed by
Horizon are deposited in an account in the custodial
department of the Northern Trust Company, and invested in
U.S. government securities and other interest-bearing
obligations at the direction of Horizon. Horizon is
responsible for the investment management of the assets of
the Partnership not deposited with CFI and CFS as margin
monies or held in Partnership operating accounts. Horizon is
registered with the Securities and Exchange Commission (SEC)
as an investment adviser. Horizon may invest in U.S.
government securities and other instruments as permitted by
the Agreement. Horizon receives an annual fee of 0.25%
payable monthly on the assets it manages. However, Horizon
only receives its service fee if the accrued monthly interest
income earned on the assets of the Partnership managed by
Horizon exceeds the 91-day U.S. Treasury Bill rate. As of
December 31, 200 6, the Partnership had approximately $19.7
million in cash on deposit with CFI, CFS, RCM and Horizon,
including approximately $1.6 million at Refco Capital
Markets, Ltd.
Qualitative Disclosures Regarding Primary Trading Risk
Exposures
The following qualitative disclosures regarding the market
risk exposures of the Partnership, except for (i) those
disclosures that are statements of historical fact and (ii)
the descriptions of how the Partnership and the Trading
Advisor manage the primary market risk exposures of the
Partnership, constitute forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E
of the Securities Exchange Act. The primary market risk
exposures of the Partnership as well as the strategies used
and to be used by the Trading Advisor for managing such
exposures are subject to numerous uncertainties,
contingencies and risks, any one of which could cause the
actual results of the risk controls of the Partnership to
differ materially from the objectives of such strategies.
Government interventions, defaults and expropriations,
illiquid markets, the emergence of dominant fundamental
factors, political upheavals, changes in historical price
relationships, an influx of new market participants,
increased regulation and many other factors could result in
material losses as well as in material changes to the risk
exposures and the risk management strategies of the
Partnership. There can be no assurance that the current
market exposure and/or risk management strategies of the
Partnership will not change materially or that any such
strategies will be effective in either the short- or long-
term. Investors must be prepared to lose all or
substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of the
Partnership as of December 31,2006, by market sector.
Interest Rates. Interest rate risk is a major market
exposure of the Partnership. Interest rate movements
directly affect the price of the sovereign bond positions
held by the Partnership and indirectly the value of its stock
index and currency positions. Interest rate movements in one
country as well as relative interest rate movements between
countries materially impact the profitability of the
Partnership. The primary interest rate exposure of the
Partnership is to interest rate fluctuations in the United
States and the other G-7 countries. However, the Partnership
also takes positions in the government debt of smaller
nations - e.g., Australia. The General Partner anticipates
that G-7 interest rates will remain the primary market
exposure of the Partnership for the foreseeable future. The
changes in interest rates which have the most effect on the
Partnership are changes in long-term, as opposed to short-
term, rates. Most of the speculative positions held by the
Partnership are in medium to long-term instruments. However,
since February 2000, the JWH program added a European short
rate, the Euribor, which is closely tied to the actions of
the European Central Bank. This was done to add short term
interest rate diversification.
Currencies. The currency exposure of the Partnership is to
exchange rate fluctuations, primarily fluctuations which
disrupt historical pricing relationships between different
currencies and currency pairs. These fluctuations are
influenced by interest rate changes as well as political and
general economic conditions. The Partnership trades in a
large number of currencies, including cross-rates - i.e.,
positions between two currencies other than the U.S. dollar.
However, the Partnership's major exposures have typically
been in the dollar/yen, dollar/Euro, dollar/Swiss franc,
dollar/Australian dollar and dollar/pound positions. The
General Partner does not anticipate that the risk profile of
the Partnership's currency sector will change significantly
in the future. The currency trading Value at Risk figure
includes foreign margin amounts converted into U.S. dollars
with an incremental adjustment to reflect the exchange rate
risk inherent to the dollar-based Partnership in expressing
Value at Risk in a functional currency other than dollars.
Stock Indices. The primary equity exposure of the
Partnership is to equity price risk in the G-7 countries.
The stock index futures traded by the Partnership are by law
limited to futures on broadly based indices. Ordinarily the
primary exposures are in the FTSE (England), Nikkei (Japan)
and All Ordinaries (Australia) stock indices. However, in
February 2000, the JWH firm added the German DAX Index
Futures. The General Partner anticipates little trading in
non-G-7 stock indices. The Partnership is primarily exposed
to the risk of adverse price trends or static markets in the
major U.S., European and Japanese indices. (Static markets
would not cause major market changes but would make it
difficult for the Partnership to avoid being "whipsawed" into
numerous small losses.)
Metals. The metals market exposure of the Partnership is to
fluctuations in the price of gold and silver (precious
metals) and the base metals of copper, aluminum, zinc, and
nickel at JWH.
Commodities. The exposure to commodities of the Partnership
from JWH GAP includes corn, soybeans, soybean meal, soybean
oil, wheat, and the softs of coffee, cotton, and sugar, as
well as a full complement of other agricultural commodities.
Energy. The exposure of the Partnership to energy contracts
in the JWH GAP is heating oil, unleaded gasoline, crude oil
natural gas and others.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the
Partnership as of December 31, 2006.
Foreign Currency Balances. The primary foreign currency
balances of the Partnership are in Japanese yen, Euros,
British pounds and Australian dollars. The Partnership
controls the non-trading risk of these balances by regularly
converting these balances back into dollars (no less
frequently than twice a month).
Cash Position. The Partnership holds a portion of its assets
in cash at CFI and CFS. 95% of these assets earn interest at
the average rate paid on 91-day U.S. Treasury Bills purchased
during the month. Substantially all of remainder is held at
Horizon in short term liquid investments.
Qualitative Disclosures Regarding Means of Managing Risk
Exposure
The General Partner monitors the performance of the
Partnership and the concentration of its open positions, and
consults with the commodity trading advisor concerning the
overall risk profile of the Partnership. If the General
Partner felt it necessary to do so, the General Partner could
require the commodity trading advisor to close out individual
positions as well as entire programs traded on behalf of the
Partnership. However, any such intervention would be a
highly unusual event. The General Partner primarily relies
on the commodity trading advisor's own risk control policies
while maintaining a general supervisory overview of the
Partnership's market risk exposures.
Risk Management
JWH attempts to control risk in all aspects of the investment
Process - from confirmation of a trend to determining the
optimal exposure in a given market, and to money management
issues such as the startup or upgrade of investor accounts.
JWH double checks the accuracy of market data, and will not
trade a market without multiple price sources for analytical
input. In constructing a portfolio, JWH seeks to control
overall risk as well as the risk of any one position, and JWH
trades only markets that have been identified as having
positive performance characteristics. Trading discipline
requires plans for the exit of a market as well as for entry.
JWH factors the point of exit into the decision to enter
(stop loss). The size of the JWH positions in a particular
market is not a matter of how large a return can be generated
but of how much risk it is willing to take relative to that
expected return.
To attempt to reduce the risk of volatility while maintaining
the potential for excellent performance, proprietary research
is conducted on an ongoing basis to refine the JWH investment
strategies. Research may suggest substitution of alternative
investment methodologies with respect to particular
contracts; this may occur, for example, when the testing of a
new methodology has indicated that its use might have
resulted in different historical performance. In addition,
risk management research and analysis may suggest
modifications regarding the relative weighting among various
contracts, the addition or deletion of particular contracts
from a program, or a change in position size in relation to
account equity. The weighting of capital committed to
various markets in the investment programs is dynamic, and
JWH may vary the weighting at its discretion as market
conditions, liquidity, position limit considerations and
other factors warrant.
JWH may determine that risks arise when markets are illiquid
or erratic, such as may occur cyclically during holiday
seasons, or on the basis of irregularly occurring market
events. In such cases, JWH at its sole discretion may
override computer-generated signals and may at times use
discretion in the application of its quantitative models,
which may affect performance positively or negatively.
Adjustments in position size in relation to account equity
have been and continue to be an integral part of the JWH
investment strategy. At its discretion, JWH may adjust the
size of a position in relation to equity in certain markets
or entire programs. Such adjustments may be made at certain
times for some programs but not for others. Factors which
may affect the decision to adjust the size of a position in
relation to account equity include ongoing research, program
volatility, assessments of current market volatility and risk
exposure, subjective judgment, and evaluation of these and
other general market conditions.
Item 8. Financial Statements and Supplementary Data
Reference is made to the financial statements and the notes
thereto attached to this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
As of December 31, 2006, the General Partner carried out an
evaluation, under the supervision and with the participation
of the General Partner's management, including its principal
executive officer and principal financial officer, of the
effectiveness of the design and operation of the Partnership's
disclosure controls and procedures as contemplated by Rule
13a-15 of the Securities Exchange Act of 1934, as amended.
Based on and as of the date of that evaluation, the General
Partner's principal executive officer and principal financial
officer concluded that the Partnership's disclosure controls
and procedures are effective, in all material respects, in
timely alerting him to material information relating to the
Partnership required to be included in the reports required to
be filed or submitted by the Partnership with the SEC under
the Exchange Act.
There was no change in the Partnership's internal control
over financial reporting in the 12 months ended December 31,
2006 that has materially affected, or is reasonably likely to
materially affect, the Partnership's internal control over
financial reporting.
Item 9B. Other Information.
None
Part III
Item 10. Directors and Executive Officers of the Registrant.
The General Partner, Everest Asset Management, Inc., is the
sole General Partner and commodity pool operator of the
Partnership. It is a Delaware corporation incorporated in
1987, is and has been registered with the CFTC as a commodity
pool operator since July 1, 1988 and is and has been a member
of the National Futures Association since that date. Its
address is 1100 North 4th Street, Suite 143, Fairfield, Iowa
52556 and its telephone number is (641) 472-5500.
The officers and directors of the General Partner as of
December 31, 2006 are listed below:
Peter Lamoureux. Mr. Lamoureux, (born in 1950), has been
President, Treasurer and Secretary of the General Partner
since November 1996. He joined the General Partner and
Capital Management Partners, Inc., a selling agent and
affiliate of the Partnership at that time, in 1991 and has had
primary responsibility for Partnership syndication since
October 1994. Prior to joining the General Partner, Mr.
Lamoureux was Manager of Refined Products with United Fuels
International, Inc., an energy brokerage firm in Waltham,
Massachusetts. He received his B.S. in Education from Rhode
Island College, R.I.
The General Partner does not trade commodities for its own
account but its principals may. Because of their
confidential nature, records of such trading will not be
available to Limited Partners for inspection.
There have been no material criminal, civil or administrative
actions during the preceding five years or ever against the
General Partner or its principals.
Audit Committee Financial Expert
The Board of Directors of Everest Asset Management, Inc. has
determined that Peter Lamoureux, President, Treasurer and
Secretary of the General Partner, qualifies as an audit
committee financial expert in accordance with the applicable
rules and regulations of the U.S. Securities and Exchange
Commission. Mr. Lamoureux is not independent as that term
is defined in Item 7(a)(3)(iv) of Schedule 14A under the
Exchange Act.
Code of Ethics
The General Partner has adopted a code of ethics for its chief
executive officer and persons performing similar functions. A
copy of the General Partner s code of ethics may be obtained
at no charge by written request to Everest Asset Management,
Inc., 1100 North 4th Street, Suite 143, Fairfield, Iowa 52356
or by calling 641-472-5500.
Item 11. Executive Compensation.
The Partnership has no directors or executive officers. As a
limited partnership, the business of the Partnership is
managed by its General Partner which is responsible for the
administration of the business affairs of the Partnership and
receives the compensation described in Item 1 "Business"
hereof. The officers and directors of the General Partner
receive no compensation from the Partnership for acting in
their respective capacities with the General Partner.
Item 12. Security Ownership of Certain Owners and Management
and Related Stockholder Matters.
(a) As of December 31, 2006 the following persons were known to
the Partnership to own beneficially more than 5% of the
outstanding Units:
Amount and Nature of Percent of
Title of Class Name Beneficial Ownership Class
- --------------- ---- -------------------- ----------
Class I James H. Henry Family Trust 331.15
P.O. Box 1675, Gastonia, NC 28053 Units,owned directly 35.53%
Class I George F Henry III 203.16
P.O. Box 1675, Gastonia, NC 28053 Units, owned directly 21.79%
Class I William S. Henry 98.76
P.O. Box 1675, Gastonia, NC 28053 Units, owned directly 10.59%
Class I J.W. Quinn Family Trust 242.45
P.O. Box 995, Gastonia, NC 28053 Units, owned directly 26.01%
(b)As of December 31, 2006, management ownership was:
Amount and Nature of Percent of
Title of Class Name Beneficial Ownership Class
- - -------------- ---- -------------------- ----------
Class I Peter Lamoureux (401K) 46.86 Units, owned directly 5.03%
Amount and Nature of Percent of
Title of Class Name Beneficial Ownership Class
- - -------------- ---- -------------------- ----------
Class II James H. Henry Family Trust 51.62
P.O. Box 1675, Gastonia, NC 28053 Units,owned directly 26.61%
Class II George F Henry III 31.67
P.O. Box 1675, Gastonia, NC 28053 Units, owned directly 16.33%
Class II William S. Henry 15.40
P.O. Box 1675, Gastonia, NC 28053 Units, owned directly 7.94%
Class II J.W. Quinn Family Trust 37.80
P.O. Box 995, Gastonia, NC 28053 Units, owned directly 19.49%
Class II Boddie Family Investment, LP 18.44
P.O. Box 1098
Rocky Mount, NC 27802-1908 Units, owned directly 9.50%
Class II Catherine S. Grier 12.84
101 N Tyron St., Ste. 1240
Charlotte, NC 28246 Units, owned directly 6.62%
(b)As of December 31, 2006, management ownership was:
Amount and Nature of Percent of
Title of Class Name Beneficial Ownership Class
- - -------------- ---- -------------------- ----------
Class II Peter Lamoureux (401K) 2.29
Units, owned directly 1.18%
(c) As of December 31, 2006, no arrangements were
known to the Partnership, including no pledge by any person
of Units of the Partnership or shares of the General Partner
or the affiliates of the General Partners, such that a change
in control of the Partnership may occur at a subsequent date.
Item 13. Certain Relationships and Related Transactions.
(a) None other than the compensation
arrangements described herein.
(b) None.
(c) None.
(d) The Partnership filed Registration Statements
on Form S-18 and Form 10, therefore this
information is not required to be included.
Item 14. Principal Accounting Fees and Services
Audit Fees
For the years ended December 31,2006 and 2005 the aggregate
fees billed by Spicer Jeffries LLP for professional services
rendered for the audit of the financial statements included in
this annual report and review of the quarterly 10Q s for the
years ended were $37,000 and $31,500 respectively.
Audit Related Fees
None.
Tax Fees
For the years ended December 31,2006 and 2005 , the aggregate
fees billed by Spicer Jeffries LLP for federal and state tax
return preparation totaled $28,000 and $15,500 respectively.
All Other Fees
None.
Part IV
Item 15. Exhibits, Financial Statement, Schedules.
(a) The following documents are included herein:
(1) Financial Statements:
a. Report of Independent Registered
Public Accounting Firm. (Independent
Auditor s Report)
b. Statements of Financial Condition, December
31, 2006 and 2005 .
c. Schedule of Investments, December 31, 2006
d. Schedule of Investments, December 31, 2005
e. Statements of Operations, Years Ended
December 31,2006 2005 and 2004, .
f. Statements of Changes in Partners' Capital,
Years Ended December 31, 2006, 2005 and 2004,
..
g. Statements of Cash Flows, Years Ended
December 31, 2006 2005 and 2004
h. Notes to Financial Statements.
i. Acknowledgment
(2) All financial statement schedules have been
omitted because the information required by the
schedules is not applicable, or because the information
required is contained in the financial statements
included herein or the notes thereto.
(3) Exhibits:
See the Index to Exhibits annexed hereto.
See form 8-K filed 10.20.2005
See form 8-K filed 11.06.2006
(b) Exhibits:
See The Index to Exhibits annexed hereto.
(c) Financial Statement Schedules
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Partnership has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 29, 2007 The Everest Fund, L.P.
By: Everest Asset Management,
Inc.
(General Partner)
By: /s/ Peter Lamoureux
Peter Lamoureux, President
Secretary, Treasurer, and
Director
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Partnership and in the capacities
and on the date indicated.
Date: March 29, 2007
By: /s/ Peter Lamoureux
Peter Lamoureux, President,
Secretary, Treasurer, and
Director
Index to Exhibits:
Exhibit
No. Description
3.4 Amended and Restated Agreement of Limited
Partnership
dated as of May 1, 1995.
10.5 Advisory Contract between the Partnership, the General
Partner and John W. Henry & Company, Inc. dated
December 1, 1990.
10.6 Amendment to Advisory Contract between the
Partnership,
the General Partner and John W. Henry & Company,
Inc.
dated April 1, 1995.
10.9 Certificate of Limited Partnership for Everest
Futures
Fund II L.P. dated March 15, 1996.
10.10 Limited Partnership Agreement for Everest Futures Fund
II L.P. dated as of March 29, 1996.
28.1 Confidential Private Placement Memorandum and
Disclosure
Document dated August 21, 1996.
Notes to the Exhibits:
Exhibits 3.4, 10.5, 10.6, 10.9, 10.10 and 28.1 are
incorporated by reference to the Partnership's Form 10
accepted on September 19, 1996.
The Exhibits referenced above bear the exhibit numbers
corresponding to those indicated in the Partnership's
Registration Statements.
Number of Attached Exhibits
None.
Form 8-K Date: October 20, 2005
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
THE EVEREST FUND, L.P.
Iowa 0-17555 42-1318186
1100 North 4th Street
Suite 143
Fairfield, Iowa 52556 (641) 472-5500
Item 8.01 Other Events.
On October 13, 2005, Refco Inc. ( Refco ), the parent company
of Refco LLC and Refco Capital Markets, Ltd. ( RCM ) the
futures commission merchant and foreign currency broker,
respectively, for The Everest Fund, L.P. (the Fund ),
announced that liquidity within RCM was no longer sufficient
to continue operations and that it had imposed a 15 day
moratorium on all of its activities to protect the value of
that business. Subsequently, Refco and certain of its
subsidiaries, including RCM, filed for bankruptcy protection.
Attached as Exhibit 99.1 to this Form 8-K, and incorporated
herein by reference, is a Letter to Limited Partners dated
October 20, 2005 discussing these events that was
distributed by the Fund on October 20, 2005.
99.1 Letter to Limited Partners dated
October 20, 2005
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 hereunto duly
authorized.
Date: October 20, 2005
THE EVEREST FUND, L.P.
By: Everest Asset Management, Inc.,
General Partner
By: /s/ Peter Lamoureux
Peter Lamoureux
President, Secretary, Treasurer and
Director
FORM 8-K Date: November 6, 2006
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Date of Report (Date of earliest event reported): October
31, 2006
THE EVEREST FUND, L.P.
Iowa 0-17555 42-1318186
1100 North 4th Street
Suite 143
Fairfield, Iowa 52556) (641) 472-5500
Item 8.01 Other Events.
On September 14, 2006, Refco, Inc. and all of its
subsidiaries and affiliates who are the Debtors in the
Bankruptcy Court proceeding filed a plan under Chapter 11
(the "Plan") and a Disclosure Document with the Bankruptcy
Court. The Plan has the support of the Creditor Committees,
the Debtors, the RCM Trustee and has signatures of a' super
majority' of creditors at the RCM level. The Disclosure
Statement was the subject of a hearing before the Bankruptcy
Court on October 16, 2006, at which time objections were
heard. The Plan is slated to be confirmed by the Bankruptcy
Court on
or before December 15, 2006, and it would then become
effective on or before December 31, 2006 (the "Effective
Date"). Although Everest is hopeful that distributions will
be made on an expedited basis, a timetable for distributions
has yet to be released. The processing of claims and the
objections to claims, which as of the date hereof have not
been completed, could impact the timeliness of
distributions. To the extent that the process continues
beyond the Effective Date, it could either delay
distributions or cause distributions to be diluted due to
the need to reserve amounts equal to any disputed claims.
The schedules filed with the Bankruptcy Court indicate
recoveries at
RCM for creditors like Everest who had margin money for the
purposes of foreign exchange trading at RCM will be in the
range of 37.5 cents on the dollar. An exact figure is
difficult to determine as all the claims have not been
processed yet and all the legal fees are not calculated yet.
Based on the estimated recovery amounts contained in the
schedules of the Plan and Disclosure Document which the
Bankruptcy Court is being asked to approve, the General
Partner as of October 31, 2006 has reduced the value of the
Class AA and Class II assets to 40% of the amounts at which
such assets were valued as of October 17, 2005. As of
October 17,2005 the assets were valued at $7,482,331.68,
resulting in a write down of $4,489,399.01 and a remaining
asset balance of
$2,992,932.67. This write down is only an estimate at this
time and could be adjusted upward or downward in the future.
The write down estimate could be negatively impacted by a
number of things such as, but not limited to, the Plan not
being confirmed by the Court by December 15, 2006 or the
allowed claims exceeding the amounts listed on the schedules
currently.
Looking beyond the initial recovery estimates described
above, there is the potential for further recoveries through
litigation efforts. A Litigation Trust is being established
and funded. A Litigation Trust Committee has been formed and
a Litigation Trustee is being appointed to pursue claims
against a targeted list of parties who may have acted
fraudulently or with negligence in the conduct of Refco
business. We have not included litigation recoveries, if
any, in the write down, because the success of such actions
cannot be estimated at this time. No assurances can be made
that there will be any further recoveries for Everest from
these efforts.
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 hereunto duly
authorized.
Date: November 6, 2006
THE EVEREST FUND, L.P.
By: Everest Asset Management, Inc.,
General Partner
By: /s/ Peter Lamoureux
Peter Lamoureux
President, Secretary, Treasurer and
Director
EVEREST FUND, L.P.
(An Iowa Limited Partnership)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006,
2005 AND 2004
EVEREST FUND, L.P.
(An Iowa Limited Partnership)
TABLE OF CONTENTS
Page
----
Report of Independent Registered Public Accounting Firm 2
Financial Statements and Schedules:
Statements of Financial Condition, December 31, 2006 and 2005 3
Condensed Schedule of Investments, December 31, 2006 4
Condensed Schedule of Investments, December 31, 2005 5
Statements of Operations, Years Ended December 31, 2006, 2005 and 2004 6
Statements of Changes in Partners' Capital, Years Ended December
31, 2006, 2005 and 2004 7
Statements of Cash flows, Years Ended December 31, 2006, 2005 and 2004 8
Notes to Financial Statements 9-15
Acknowledgement 16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of Everest Fund, L.P.
We have audited the accompanying statements of financial condition, including
the condensed schedules of investments, of Everest Fund, L.P.
(An Iowa Limited Partnership), ( the Partnership ) as of December
31 2006 and 2005 and the related statements of
operations, changes in partners capital and cash
flows for the years ended December 31, 2006, 2005 and 2004. These financial
statements are the responsibility of the Partnership s management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the
Everest Fund, L.P. (An Iowa Limited Partnership) as of December
31 2006 and 2005 and the results of its operations and its
cash flows for the years ended December 31, 2006, 2005 and 2004,
in conformity with accounting principles generally accepted in
the United States of America.
/s/ SPICER JEFFRIES LLP
Greenwood Village, Colorado
March 15, 2007
EVEREST FUND, L.P.
(An Iowa Limited Partnership)
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
ASSETS
Cash and cash equivalents $13,513,720 $21,483,743
Equity in commodity trading accounts:
Cash 4,204,891 4,102,121
Net unrealized trading gains on open contracts 328,654 31,920
Receivable from Refco Capital Markets, Ltd. (Note 1) 1,627,407 7,482,332
Interest receivable 94,086 92,364
----------- -----------
TOTAL ASSETS $19,768,758 $33,192,480
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Redemptions payable $ 898,266 $ 426,556
General partner management fee payable 72,484 120,693
Advisor's management fee payable 31,286 48,461
Accrued expenses 55,424 57,519
----------- -----------
TOTAL LIABILITIES 1,057,460 653,229
----------- -----------
PARTNERS' CAPITAL
Limited partners, A Shares (7,712.69 and 9,879.80 units
outstanding) 14,785,460 22,111,952
Limited partners, I Shares (932.14 and 1,097.97 units
outstanding) 1,930,473 2,570,984
Limited partners, AA Shares (1,786.21 and 3,008.60 units
outstanding) 1,572,866 7,059,021
Limited partners, II Shares (193.97 and 326.71 units
outstanding) 202,499 797,294
----------- -----------
TOTAL PARTNERS' CAPITAL 18,711,298 32,539,251
----------- -----------
TOTAL LIABILITIES AND PARTNERS'
CAPITAL $19,768,758 $33,192,480
=========== ===========
The accompanying notes are an integral part of these statements.
3
EVEREST FUND, L.P.
(AN IOWA LIMITED PARTNERSHIP)
CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
NUMBER OF MARKET VALUE % OF PARTNERS'
EXPIRATION DATES CONTRACTS (OTE) CAPITAL
---------------- --------- ------------ --------------
LONG POSITIONS:
FUTURES POSITIONS
Interest rates Mar 07 307 $ (446,882) -2.39%
Agriculture Mar 07 123 148,138 0.79%
Currencies Dec 07 66 (24,750) -0.13%
Indices Mar 07 56 108,409 0.58%
----------- -----
(215,085) -1.15%
FORWARD POSITIONS
Currencies Mar 07 54,606 0.29%
----------- -----
Total long positions (160,479) -0.86%
----------- -----
SHORT POSITIONS:
FUTURES POSITIONS
Interest rates Mar 07 332 111,773 0.60%
Metals Feb 07 -Mar 07 67 (84,040) -0.45%
Energy Mar 07 - Apr 07 79 349,382 1.87%
Agriculture Mar 07 65 11,887 0.06%
----------- -----
389,002 2.08%
FORWARD POSITIONS
Currencies Mar 07 100,131 0.54%
----------- -----
Total short positions 489,133 2.62%
----------- -----
TOTAL OPEN CONTRACTS 328,654 1.56%
CASH AND CASH EQUIVALENTS 13,513,720 72.22%
CASH ON DEPOSIT WITH BROKERS 4,204,891 22.47%
LESS LIABILITIES IN EXCESS OF OTHER ASSETS 664,033 3.55%
----------- -----
NET ASSETS $18,711,298 100%
=========== =====
The accompanying notes are an integral part of this statement.
4
EVEREST FUND, L.P.
(AN IOWA LIMITED PARTNERSHIP)
CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2005
NUMBER OF MARKET VALUE % OF PARTNERS'
EXPIRATION DATES CONTRACTS (OTE) CAPITAL
---------------- --------- ------------ --------------
LONG POSITIONS:
FUTURES POSITIONS
Interest rates Mar 06 40 $ 113,116 0.35%
Metals Feb 06 - Jun 06 136 377,690 1.16%
Energy Mar 06 30 (768,992) -2.36%
Agriculture Mar 06 150 300,388 0.92%
Indices Mar 06 30 25,020 0.08%
----------- -----
47,222 0.15%
FORWARD POSITIONS
Currencies Mar 06 (230,040) -0.71%
----------- -----
Total long positions (182,818) -0.56%
----------- -----
SHORT POSITIONS:
FUTURES POSITIONS
Interest rates Mar 06 - Sep 06 315 25,628 0.08%
Energy Mar 06 18 29,700 0.09%
Agriculture Mar 06 284 (174,678) -0.54%
Currencies Dec 06 27 2,700 0.01%
Indices Mar 06 - Sep 06 203 (102,822) -0.32%
----------- -----
(219,472) -0.67%
FORWARD POSITIONS
Currencies Mar 06 434,210 1.33%
----------- -----
Total short positions 214,738 0.66%
----------- -----
TOTAL OPEN CONTRACTS 31,920 0.10%
CASH AND CASH EQUIVALENTS 21,483,743 66.02%
CASH ON DEPOSIT WITH BROKERS 4,102,121 12.61%
LESS LIABILITIES IN EXCESS OF OTHER ASSETS 6,921,467 21.27%
----------- -----
NET ASSETS $32,539,251 100%
=========== =====
The accompanying notes are an integral part of this statement.
5
EVEREST FUND, L.P.
(AN IOWA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
2006 2005 2004
----------- ---------- -----------
TRADING INCOME (LOSS)
Net realized trading gain (loss)
on closed contracts $(2,229,567) $ 1,646,959 $4,432,830
Change in net unrealized trading gain
(loss) on open contracts 296,734 (2,154,977) 492,388
Net foreign currency translation gain (loss) 18,636 (73,598) (24,707)
Brokerage Commissions (142,742) (241,988) (263,488)
----------- ---------- -----------
NET TRADING INCOME (LOSS) (2,056,939) (823,604) 4,637,023
Interest income, net of cash management fees 939,630 988,314 461,372
----------- ---------- -----------
TOTAL INCOME (1,117,309) 164,710 5,098,395
----------- ---------- -----------
EXPENSES:
General partner management fees 1,026,037 1,686,472 1,664,314
Advisor Management fees 468,353 684,696 655,104
Advisor Incentive fees -- -- 240,161
Administrative expenses 105,253 95,167 72,775
Bad debt expense 4,489,400 -- --
------------ ---------- -----------
TOTAL EXPENSES $ 6,089,043 $2,466,335 $ 2,632,354
----------- ---------- -----------
NET INCOME $(7,206,352) $(2,301,625) $2,466,041
=========== ========== ===========
NET INCOME (LOSS) PER UNIT OF PARTNERSHIP INTEREST
A SHARES, OUTSTANDING ENTIRE PERIOD $(321,07) $(193.95) $173.60
=========== ========== ===========
NET INCOME (LOSS) PER UNIT OF PARTNERSHIP INTEREST Since Inception (June 4, 2004)
I SHARES, OUTSTANDING ENTIRE PERIOD $ (270.57) $ (122.38 ) $365.10
=========== ========== ===========
NET LOSS PER UNIT OF PARTNERSHIP INTEREST
AA SHARES, OUTSTANDING SINCE OCTOBER 31, 2005 $(1,342.55) $(7.77)
=========== =========
NET LOSS PER UNIT OF PARTNERSHIP INTEREST
II SHARES, OUTSTANDING SINCE OCTOBER 31, 2005 $(1,396.40) $(8.08)
=========== =========
The accompanying notes are an integral part of these statements.
6
EVEREST FUND, L.P.
(An Iowa Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 2006, 2005, 2004
GENERAL LIMITED GENERAL
UNITS LIMITED PTRS PTR UNITS PTRS PTR
A SHARES A SHARES A SHARES I SHARES I SHARES I SHARES
---------- ------------ -------- -------- ---------- --------
BALANCES, December 31, 2003 14,828.99 33,459,902 938 -- -- --
Additional Units Sold 3,252.34 7,327,540 -- 35.73 50,000 25,000
Redemptions (3,190.62) (7,020,090) -- -- -- --
Transfers Between Classes (1,175.29) (2,870,615) (1,012) 1,162.53 2,870,615 1,012
Less Offering Costs -- -- -- -- (266) (13)
Net Income -- 2,459,839 74 -- 1,767 4,361
---------- ------------ -------- -------- ---------- --------
BALANCES, December 31, 2004 13,715.42 33,356,576 -- 1,198.26 2,922,116 30,360
Additional Units Sold 2,232.26 5,071,517 -- 18.31 41,315 --
Redemptions (2,722.22) (6,248,050) -- (117.93) (252,522) (27,328)
Transfers Between Classes (3,345.66) (7,869,117) -- (0.67) (13,214) --
Less Offering Costs -- (50,213) -- -- (2,891) (5)
Net Loss -- (2,148,761) -- -- (123,820) (3,027)
---------- ------------ -------- -------- ---------- --------
BALANCES, December 31, 2005 9,879.80 $ 22,111,952 -- 1,097.97 $2,570,984 --
========== ============ ======== ======== ========== ========
Additional Units Sold 573.14 1,239,000 -- 32.17 75,000 --
Redemptions (3,139.34) (6,866,488) -- (246.40) (554,414) --
Transfers Between Classes (399.09) (765,060) -- 48.40 100.236 --
Less Offering Costs -- (12,268) -- -- (2,202) --
Net profit (loss) -- (2,451,796) -- -- (259,131) --
---------- ------------ -------- -------- ---------- --------
BALANCES, December 31, 2005 7,712.69 $ 14,785,460 -- 932.14 $1,930,473 --
========== ============ ======== ======== ========== ========
Net asset value per unit,
January 1, 2006 $ 2,238.10 $ 2,341.59
Net profit (loss) per unit (321.07) (270.57)
------------ ----------
Net asset value per unit
December 31, 2006 $ 1,917.03 $ 2,071.02
============= ==========
UNITS LIMITED UNITS LIMITED
AA PTRS AA II PTRS II
SHARES SHARES SHARES SHARES TOTAL
-------- ---------- ------ --------- ------------
BALANCES, December 31, 2003 -- -- -- -- 33,460,840
-- -- -- -- 7,402,540
Additional Units Sold -- -- -- -- (7,020,090)
Redemptions -- -- -- -- --
Transfers Between Classes -- -- -- -- (279)
Less Offering Costs -- -- -- -- 2,466,041
Net Income -------- ---------- ------ --------- ------------
-- -- -- -- 36,309,052
BALANCES, December 31, 2004 -- -- -- -- 5,112,832
Additional Units Sold -- -- -- -- (6,527,899)
Redemptions 3,008.60 7,082,398 326.71 799,934 --
Transfers Between Classes -- -- -- -- (53,109)
Less Offering Costs -- (23,377) -- (2,640) (2,301,625)
Net Loss -------- ---------- ------ --------- ------------
BALANCES, December 31, 2005 3,008.60 $7,059,021 326.71 $ 797,294 $ 32,539,251
Additional Units Sold -- -- -- -- 1,314,000
Redemptions (460.01) (461,886) (36.73) (38,343) (7,921,131)
Transfers Between Classes (762.22) (765,060) (96.01) (100,236) --
Less Offering Costs -- -- -- -- (14,470)
Net Loss -- (4,039,209) -- (456,216) (7,206,352)
-------- ---------- ------ --------- ------------
BALANCES, December 31, 2006 1,786.21 $1,792,866 193.97 $ 202,499 $ 18,711,298
======== ========== ====== ========= ============
Net asset value per unit,
January 1, 2006 $ 2,346.28 $2,440.38
Net profit (loss) per unit (1,342.55) (1,396.40)
---------- ---------
Net asset value per unit
December 31, 2006 $ 1,003.73 $1,043.98
========== =========
The accompanying notes are an integral part of these statements.
7
EVEREST FUND, L.P.
(An Iowa Limited Partnership)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
JANUARY 1, 2006 JANUARY 1, 2005 JANUARY 1, 2004
THROUGH THROUGH THROUGH
DECEMBER 31, 2006 DECEMBER 31, 2005 DECEMBER 31,2004
----------------- ----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (7,206,352) $ (2,301,625) $ 2,466,041
Adjustments to reconcile net income (loss) to net cash
(used in) operating activities:
Bad debt expense 4,489,400 -- --
Cash (102,770) 5,788,203 (5,409, 641)
Unrealized gain or loss on open commodity futures contracts (296,734) 2,181,509 (543,274)
Decrease (increase) in interest receivable (1,722) 30,495 (78,392)
Increase in receivable from Refco Capital Markets, Ltd. 1,365,526 (7,482,332) --
(Decrease) increase in incentive fees payable -- (85,111) 85,111
(Decrease) increase in management fees payable (17,175) (10,684) 2,962
Decrease in General partner management fees payable (48,209) (20,758) (1,868)
(Decrease) increase in other accrued expenses (2,097) 10,200 16,615
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (1,820,133) (1,890,103) (3,462,446)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of partnership units (7,449,420) (6,584,843) (7,435,360)
Sale of partnership units, net 1,299,530 5,059,723 7,402,260
NET CASH USED IN FINANCING ACTIVITIES (6,149,890) (1,525,120) (33,100)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,970,023) (3,415,223) (3,495,546)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 21,483,743 24,898,966 28,394,512
CASH AND CASH EQUIVALENTS, AT END OF YEAR $13,513,720 $ 21,483,743 $24,898,966
The accompanying notes are an integral part of these statements
8
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
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 on going 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.
Effective June 4, 2004, the Partnership introduced a new share
category, Class I Units or Institutional Units which have an
ongoing Offering and Organization fee of 1/12 of 0.10% of the
NAV per unit (as defined) per month. The private placement
offering is continuing at a gross subscription price per unit
equal to net asset value per unit, plus an organization and
offering cost reimbursement to the General Partner, and an
on going compensation fee equal to 1% of the net asset value
of Class I Units sold.
Receivable from Refco Capital Markets, Ltd.
On October 13, 2005, Refco, Inc. ( Refco ) announced that
liquidity within one of its operating subsidiaries, Refco
Capital Markets, Ltd. ( RCM ), was no longer sufficient to
continue operations and that RCM was imposing a fifteen
day moratorium on all of its activities in an attempt to
protect the value of that business. RCM acted as the
Partnership s foreign currency broker at that time
and as of such date, approximately 20% of the
Partnership s assets were held on deposit in accounts
at RCM.
On October 17, 2005, Refco and certain subsidiaries filed
a bankruptcy petition in New York seeking protection from
creditors under Chapter 11 of the United States Bankruptcy
Code. RCM was included in this filing and as a result,
all of the dealings with RCM are subject to control by
the Bankruptcy Court. In connection with the bankruptcy,
the president of the General Partner was appointed to the
Official Creditors Committee on October 28, 2005. Based
on information provided to the Partnership by RCM, the
Partnership has cash and open trade equity in neutral
currency positions of approximately $7,500,000 remaining at RCM.
Due to the above, effective October 31, 2005, the Partnership
has created Classes AA and II of shares and transferred to
such classes the value of Partnership assets held in RCM as
of October 17, 2005, together with a reserve for the estimated
expenses of collection and related matters. The amount of such
assets which will become available to the Partnership, if any,
is dependent on several matters associated with the bankruptcy
of RCM. Depending on the disposition of these matters, the
final net asset value may differ materially from the preliminary
amounts which the Partnership has published since October
31, 2005. Redemptions of Classes AA and II are restricted
until the final net asset value can be determined. Subsequent
to October 31, 2005, redemptions and certain fees will only
be calculated and paid on the net asset value of Class A and
Class I units, thus segregating the assets held by RCM and
the reserve established in connection with the RCM legal proceedings.
Based on the estimated recovery amounts which the Bankruptcy
Court is being asked to approve, the General Partner as of
October 31, 2006 has reduced the value of the Class AA and
Class II assets to 40% of the amounts at which such assets
being held at Refco were valued as of October 17, 2005.
This write down of $4,489,400 is a preliminary adjustment.
The estimate could also be adjusted depending upon the
outcome of the processing of valid claims in the bankruptcy
litigation. Beyond the initial recovery estimate, there are
expected to be efforts at further recoveries through litigation
against certain parties who have been identified by the
Litigation Trust Committee. No assurance can be made that
the claims processing will not result in a decrease or that
the litigation efforts will result in an increase in the
Class AA and Class II asset values.
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Receivable from Refco Capital Markets, Ltd. (concluded)
On December 28, 2006, The Everest Fund, L.P. received the
first in a series of anticipated distributions in the Refco
matter. Of the approximately $7,500,000 that became
inaccessible in October 2005, the Partnership has
received $1,365,526. That represents an amount equal to
approximately 18% of the frozen assets. The Fund
has increased the Class A units for each investor in the Fund
by their pro rata share of the distribution. Checks
have been mailed for the benefit of any investors who
have redeemed. Based on the estimated recovery amounts that
have been put in front of the Bankruptcy Court, the
partnership s management believes that we will receive
additional distributions in 2007.
Cash and Cash Equivalents
Cash equivalents represent short-term highly liquid investments
with maturities of 90 days or less and include money market
accounts, securities purchased under agreements to resell,
commercial paper, and U.S. Government and agency
obligations with variable rate and demand features that
qualify them as cash equivalents. These cash
equivalents, with the exception of securities purchased under agreement to
resell, are stated at amortized cost, which approximates
fair value. Securities purchased under agreements
to resell, with overnight maturity, are collateralized by U.S.
Government and agency obligations, and are carried
at the amounts at which the securities will subsequently
be resold plus accrued interest.
Reclassifications
Certain prior year amounts have been reclassified
to conform to the current year classifications.
Revenue Recognition
Commodity futures contracts, forward contracts, physical
commodities, and related options are recorded on the
trade-date basis. All such transactions are recorded on
the identified cost basis and marked to market daily.
Unrealized gains and losses on open contracts reflected
in the statements of financial condition represent the
difference between original contract amount and market value
(as determined by exchange settlement prices for
futures contracts and related options and cash dealer
prices at a predetermined time for forward contracts, physical
commodities, and their related options) as of the
last business day of the year or as of the last date
of the financial statements.
Net Income Per Unit of Partnership Interest
Net income per unit of partnership interest is the
difference between the net asset value per unit at
the beginning and end of each period.
Fair Value of Financial Instruments
The financial instruments held by the Company are reported
in the statements of financial condition at market or fair
value, or at carrying amounts that approximate fair value,
due to their highly liquid nature and short-term
maturity. Commodity futures contracts, forward contracts,
physical commodities,
and related options are valued as described above.
The receivable from RCM is valued at management s
best estimate as described above.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies
are translated at the prevailing exchange rates as of
the valuation date. Gains and losses on investment
activity are translated at the prevailing exchange
rate on the date of each respective transaction while
year-end balances are translated at the year-end
currency rates. Realized and unrealized foreign exchange gains or
losses are included in trading income in the statements
of operations.
10
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(concluded)
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.
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States
of America 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.
NOTE 2- 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. See note 3.
Subject to restrictions on the redemption of Series AA
and Series II units by existing investors as mentioned
above, Limited Partners may cause any or all of their
Class A units to be redeemed as of the end of any month
at the month end net asset value on fifteen days prior
written notice to the Partnership, (for Class I Units,
as of the end of any quarter on forty-five days notice),
or such lesser period as is acceptable to
the Partnership.
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 Decemeber 31, 2020 or upon the
occurrence of certain events, as specified in
the Limited Partnership agreement.
NOTE 3- CONTRACTS AND AGREEMENTS
John W. Henry & Company, Inc. (JWH) began trading its
Strategic Allocation Program with a trading
allocation of $40 million on July 1, 2001.
JWH 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,
(as defined). The incentive fee is retained
by JWH 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.
Beginning in June 2003, JWH began trading JWH Global
Analytics Program ( GAP ); Currency Strategic
Allocation Program ( CSAP ) and Worldwide
Bond Program ( WBP ) with a trading allocatio
n of $27 million.
Net brokerage commissions are recorded in the
statements of operations as a reduction of trading income.
11
NOTE 3- CONTRACTS AND AGREEMENTS
(concluded)
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 May
2002 through October 2003, the
General Partner charged the Partnership a monthly
management fee of either 0.5104% or
0.5156%, depending on the total amount which the
Partnership had allocated to trading,
including notional funding. Prior to May 2002,
the General Partner charged the Partnership
a monthly management fee equal to 0.5052% of the
Partnership beginning-of-month net
asset value, as defined. Effective June 2004,
the General Partner charges the Partnership
a monthly management fee equal to 0.229% of the
Partnership s Class I
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.
As of December 31, 2006 and 2005, JWH s
allocation
was approximately $18 and $28.2 million
(including approximately $1.3 million of
notional funding), respectively. The
General Partner may replace or add trading
advisors at any time.
Brokerage Agreement
The Partnership, through August 31, 2005, cleared
all of its futures trades through Cargill
Investor Services, Inc. ( CIS ) and all
of its foreign currency trading activity
through CIS Financial Services, Inc. ( CISFS ),
an affiliate of CIS.
In September 2005, Refco Group Ltd. a
cquired CIS
and CISFS and the clearing and related
services previously performed by CIS were
performed by REFCO, LLC and the foreign
currency trading previously performed by CISFS was
provided by Refco Capital Markets, Ltd.
Beginning in mid-October 2005, the
Partnership engaged Calyon Financial, Inc.
( CFI ) as the Partnership s futures and options
on futures broker, and engaged and Calyon
Financial, SNC ( CFS ) as the Partnership s
foreign currency or forwards currency broker,
(collectively referred to as the
Clearing Brokers ). The agreements 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 NFA
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 95% of the
Partnership ' s average monthly cash balance
on deposit with its Brokers at a rate equal to
the average 91-day Treasury Bill rate for US
Treasury Bills issued during that month.
Excluding amounts held at RCM, approximately 87%
and 98%, respectively of cash and cash
equivalents at December 31, 2006 and 2005 are
funds deposited with a commercial bank and
invested under the direction of Horizon Cash
Management, Inc. (Horizon). Horizon receives
a monthly cash management fee equal
to 1/12 of .25% (.25% annually) of the average
daily assets under management if the
accrued monthly interest income earned on the
Partnership s assets managed by Horizon
exceeds the 91-day U.S. Treasury bill rate.
NOTE 4- 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 ( The CEAct ) requires
an FCM to segregate all customer
transactions and assets from the FCM s
proprietary activities.
12
NOTE 4- FINANCIAL INSTRUMENTS, OFF-BALANCE SHEET RISKS AND CONTINGENCIES
(concluded)
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.
The Partnership has cash and open positions on
deposit in the amount of $2,402,303 as of December
31, 2006 with an interbank market maker
in connection with its trading of forward
contracts. In the event of the interbank
market maker's insolvency, recovery of the
Partnership assets on deposit may be subject
to forfeiture. In the normal course of business,
the Partnership does not require collateral
from such interbank market maker. Because
forward contracts are traded in
unregulated markets between principals, the
Partnership assumes credit risk on its entire
amount on deposit from counter party non-performance.
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.
The Partnership s policy is to continuously monitor
its exposure to market and counterparty risk
through the use of a variety of
financial, position and credit exposure reporting
and control procedures. In
addition, the Partnership has a policy of
reviewing the credit standing of each clearing
broker or counter party with which it conducts business.
The limited partners bear the risk of loss only
to the extent of the net asset value of their
Partnership units.
The Partnership receivable from RCM of $1,627,407
represents the Partnership s receivable from RCM,
who is currently in bankruptcy.
These funds are unavailable to the Partnership
until the bankruptcy proceedings are finalized.
NOTE 5- TRADING DISCREPANCY
Effective August 1, 2000 Trilogy Capital Management,
LLC ( Trilogy ) was added as a trading advisor.
Trilogy was terminated effective June
30, 2001. Trilogy received a monthly management
fee of 0.075% (0.9% annually) of
the Partnership s month-end allocated assets as
defined and did not receive an
incentive fee.
In October 2000, there was a discrepancy between
the
performance of the Barclay Futures Index Program
( BFIP ) as traded for the Partnership
and the Barclay Futures Index (BFI). Certain
transactions executed by Trilogy on
behalf of the Partnership resulted in a loss
of approximately $520,000 that was recorded
in the statement of operations. The General
Partner believes that these transactions
were not executed in accordance with the
provisions of BFIP and has demanded that Trilogy
reimburse the Partnership for the loss.
The parties are currently attempting to
resolve the issue.
Until a final resolution is reached, the parties
have agreed that the management fees otherwise
payable to Trilogy under its advisory
contract would be applied as a credit to offset
the losses. The offset is not in settlement,
partial settlement, or indemnification of any
kind and is without prejudice
to any rights or claims by either side.
Beginning in November 2000, and until
approximately July 1, 2001, at which time
Trilogy was terminated, all of the management
fees that would otherwise be paid to Trilogy
were deposited into a separate account
for the benefit of those limited partners that
were limited partners
on November 1, 2000 and to cover the expenses
associated with the collection of the losses.
The separate account is not included in
the financial statements of the Partnership.
After its termination, Trilogy
demanded that such fees be returned to it.
The General Partner rejected Trilogy s demand
and is assessing its options for collection.
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NOTE 5- TRADING DISCREPANCY
(concluded)
A demand for arbitration was filed with the NFA
on October 3, 2002. Trilogy has responded to the
demand for arbitration and has
counterclaimed for the amount of $130,210, together
with attorney s fees, interest
and costs of suit. That figure represents the
amount of management fees, otherwise
payable to Trilogy under its advisory contract,
that both parties agreed would
be held as a credit to the Partnership to offset
the losses. The General Partner has a
letter to that effect which was signed by the
president of Trilogy on January 29, 2001.
The General Partner anticipates a hearing in front
of an NFA arbitration panel, but no date has been
set for the hearing. At the present
time, the General Partner is unable to determine
whether any of the losses will be recovered.
NOTE 6- FINANCIAL HIGHLIGHTS
The following financial highlights show the
Partnership s financial performance for
the years ended December 31, 2006, 2005, and 2004.
This information has been derived from information
presented in the financial statements.
I SHARES A SHARES II SHARES AA SHARES
2006 2006 2006 2006
--------- --------- --------- ---------
PER UNIT OPERATING PERFORMANCE (1)
Total income $ (162.05) $ (151.93) $ 5.97 $ 5.75
Total expenses (108.52) (169.14) (1,402.37) (1,348.30)
--------- --------- --------- ---------
Net increase in net asset value (270.57) (321.07) (1,396.40) (1,342.55)
Net asset value, beginning of year
(inception for AA,I,II shares) 2,341.59 2,238.10 2,440.38 2,346.28
--------- --------- --------- ---------
Net asset value, end of year $2,071.02 $1,917.03 $1,043.98 $1,003.73
========= ========= ========= =========
SELECTED FINANCIAL STATISTICS AND RATIOS:
Total return (2) (4) (11.55%) (14.35%) (57.22%) (57.22%)
========= ========= ========= =========
Ratio to average net assets:
Trading Income (7.12%) (5.39%) 0.30% 0.30%
Expenses, not including incentive fees (4.85%) (8.09%) (70.85%) (4.85%)
Incentive fees (3) 0.00% 0.00% 0.00% 0.00%
Total expenses (4.85%) (8.09%) (70.85%) (4.85%)
Net income (11.97%) (13.48%) (70.55%) (4.55%)
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I SHARES A SHARES II SHARES AA SHARES I SHARES A SHARES SHARES
2005 2005 2005 2005 2004 2004
--------- --------- --------- --------- --------- ---------
PER UNIT OPERATING PERFORMANCE (1)
Total income $ (66.82) $ (142.31) $ -- $ -- $ 407.73 $ 240.93
Total expenses (55.56) (51.64) (8.08) (7.77) (42.63) (65.33)
--------- --------- --------- --------- --------- ---------
Net increase in net asset value (122.38) (193.95) (8.08) (7.77) 365.10 175.60
Net asset value, beginning of year
(inception for I shares) 2,463.97 2,432.05 2,448.46 2,354.05 2,098.87 2,265.45
--------- --------- --------- --------- --------- ---------
Net asset value, end of year $2,341.59 $2,238.10 $2,440.38 $2,346.28 $2,463.97 $2,432.05
========= ========= ========= ========= ========= =========
SELECTED FINANCIAL STATISTICS AND RATIOS:
Total return (2) (4) (4.97%) (7.97%) (0.33%) (0.33%) 10.05% 7.78%
========= ========= ========= ========= ========= =========
Ratio to average net assets:
Trading Income (2.15%) (4.84%) 0.00% 0.00% 2.16% 10.64%
Expenses, not including incentive fees (2.37%) (2.28%) (0.33%) (0.33%) (1.40%) (2.24%)
Incentive fees (3) 0.00% 0.00% 0.00% 0.00% 0.44% (0.75%)
Total expenses (2.37%) (2.28%) (0.33%) (0.33%) (0.96%) (2.99%)
Net income (4.52%) (7.13%) (0.33%) (0.33%) 1.20% 7.64%
(3)Selected data for a unit of beneficial interest
outstanding throughout the year, or since inception
for I shares.
(2) An individual partner s total returns and ratios
may vary from the above returns based on the timing
of contributions and withdrawals.
(3) Incentive fees accrued on units held as A shares
were reversed due to losses after those units were
transferred to I shares, resulting
in a negative incentive fee for I shares.
(4) I Shares have been annualized for the period
ending December 31, 2004.
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Acknowledgement
To the best of my knowledge and belief, the information
contained here is accurate and complete.
/s/Peter Lamoureux
President
Everest Asset Management, Inc.
General Partner of Everest Fund, L.P.
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