SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2005
Commission File Number 0-17555
THE EVEREST FUND, L.P.
(Exact name of registrant as specified in its charter)
Iowa 42-1318186
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 North 4th Street, Suite 143, Fairfield, Iowa 52556
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (641) 472-5500
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
Indicate by check mark whether the registrant is a Shell Company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Following are (Unaudited) Financial Statements for the fiscal quarter ending
September 30, 2005
Fiscal Quarter Year to Date Fiscal Year Fiscal Quarter Year to Date
Ended 9/30/05 to 9/30/05 Ended 12/31/04 Ended 9/30/04 to 9/30/04
------------- ------------ -------------- -------------- ------------
Statements of
Financial Condition X X
Statements of
Operations X X X X
Statement of Changes
in Partners' Capital X
Schedule of Investments X
Notes to Financial
Statements X
2
THE EVEREST FUND, L.P.
(AN IOWA LIMITED PARTNERSHIP)
STATEMENTS OF FINANCIAL CONDITION
UNAUDITED
September 30, 2005 Dec 31, 2004
------------------ ------------
ASSETS
$27,740,281 $24,898,966
Cash and cash equivalents
Equity in Refco. trading accounts:
Cash 7,547,761 9,890,324
Net unrealized trading gains on open contracts 2,211,483 2,213,429
Interest receivable 147,453 122,859
----------- -----------
TOTAL ASSETS $37,646,979 $37,125,578
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Redemptions payable $ 785,710 $ 483,500
Commissions payable 152,354 141,451
Advisor's management fee payable 61,805 59,145
Advisor's incentive fee payable 0 85,111
Accrued expenses 29,324 47,319
----------- -----------
TOTAL LIABILITIES 1,029,193 816,526
----------- -----------
PARTNERS' CAPITAL:
General partner, I shares (0 and 12.32 units outstanding) - 30,360
Limited partners, A Shares (13,850.27 and 13,715.42 units
outstanding) 32,910,462 33,356,576
Limited partners, I Shares (1,504.02 and 1,185.94 units
outstanding) 3,707,324 2,922,116
----------- -----------
TOTAL PARTNERS' CAPITAL 36,617,786 36,309,052
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $37,646,979 $37,125,578
=========== ===========
See accompanying notes to financial statements.
3
THE EVEREST FUND, L.P.
(AN IOWA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
UNAUDITED
FOR THE PERIOD JANUARY 1, 2005 THROUGH SEPTEMBER 30, 2005
JULY 1, 2005 JAN 1, 2005 JULY 1, 2004 JAN 1, 2004
THROUGH THROUGH THROUGH THROUGH
SEPTEMBER 30, 2005 SEPTEMBER 30, 2005 SEPTEMBER 30, 2004 SEPTEMBER 30, 2004
------------------ ------------------ ------------------ ------------------
TRADING INCOME:
Net realized trading gain (loss)
on closed contracts $ 1,848,789 $ 702,883 $ (635,812) $ (1,924,288)
Change in net unrealized trading gain
(loss) on open contracts (609,144) 14,578 2,865,776 839,400
Net foreign currency translation gain (loss) (12,399) (57,221) (45,723) (20,786)
Brokerage Commissions and fees (515,768) (1,498,617) (438,312) (1,435,570)
------------ ------------ ------------ --------------
NET TRADING INCOME 711,478 (838,377) 1,745,929 (2,541,244)
Interest income, net of cash management fees 285,826 741,479 113,600 322,293
------------ ------------ ------------ --------------
TOTAL INCOME (LOSS) 997,304 (96,898) 1,859,529 (2,218,951)
------------ ------------ ------------ --------------
EXPENSES:
Management fees 182,092 522,333 149,360 478,608
Incentive fees 0 0 0 155,050
Administrative expenses 13,822 47,646 20,361 50,451
------------ ------------ ------------ --------------
TOTAL EXPENSES 195,914 569,979 169,721 684,109
------------ ------------ ------------ --------------
NET INCOME (LOSS) $ 801,389 $ (666,878) $ 1,689,808 $ (2,903,060)
============ ============ ============ ==============
NET INCOME (LOSS) PER UNIT OF PARTNER-
SHIP INTEREST A SHARES, OUTSTANDING
ENTIRE PERIOD $ 49.22 $ (55.89) $ 113.60 $ (186.26)
============ ============ ============ ==============
NET INCOME (LOSS) PER UNIT OF PARTNER- Since Inception June 4, 2004
SHIP INTEREST I SHARES, OUTSTANDING
ENTIRE PERIOD $ 69.81 $ 0.98 $ 129.94 $ (7.81)
============ ============ ============ ==============
See accompanying notes to financial statements.
4
THE EVEREST FUND, L.P.
(AN IOWA LIMITED PARTNERSHIP)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD JANUARY 1, 2005 THROUGH SEPTEMBER 30, 2005
UNAUDITED
UNITS LIMITED PTRS UNITS LIMITED PTRS GENERAL PTR
A SHARES A SHARES I SHARES I SHARES I SHARES TOTAL
------------ ------------ --------- ------------ ----------- -----------
Partners' capital at Jan 1, 2005 13,715.42 33,356,576 1,198.26 2,922,116 $ 30,360 $36,309,052
Additional Units Sold 2,222.31 5,049,017 344.34 828,035 5,877,052
Redemptions (2,087.46) (4,763,759) (38.58) (58,236) (27,328) (4,849,323)
Less Organizational and Offering Costs (49,990) (2122) (5) (52,117)
Net profit (loss) (681,382) 17,531 (3,027) (666,878)
------------ ------------ --------- ---------- --------- -----------
Partners' capital at September 30, 2005 13,850.27 $32,910,462 1,504.02 $3,707,324 $ 0 $36,617,786
============ ============ ========= ========== ========= ===========
Net asset value per unit
Jan 1, 2005 $ 2,432.05 $ 2,463.97 $2,463.97
Net profit (loss) per unit (55.89) 0.98 (246.07)
----------- ---------- ---------
Net asset value per unit
September 30, 2005 or at redemption for GP $ 2,376.16 $ 2,464.94 $2,217.90
See accompanying notes to financial statements.
5
EVEREST FUTURES FUND, L.P
(AN IOWA LIMITED
PARTNERSHIP)
UNAUDITED
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2005
% OF
PARTNERS'
EXPIRATION DATES NUMBER OF CONTRACTS MARKET VALUE (OTE) CAPITAL
------------------- ------------------ -----------
LONG POSITIONS:
FUTURES POSITIONS
Dec 05 - Jun
Interest rates 06 200 $ (202,692) -0.55%
Metals Dec 05 131 192,070 0.52%
Nov 05 - Jan
Energy 06 127 768,778 2.10%
Dec 05 - Mar
Agriculture 06 162 49,247 0.13%
Indices Dec 05 84 347,865 0.95%
-------------- ---------
1,155,268 3.15%
FORWARD POSITIONS
Currencies Dec 05 (593,586) -1.62%
-------------- ---------
Total long positions $ 561,682 1.53%
============== =========
SHORT POSITIONS:
FUTURES POSITIONS
Dec 05 - Jun
Interest rates 06 299 $ 29,659.49 0.08%
Nov 05 - Dec
Agriculture 05 358 $ 422,314 1.15%
Currencies Sep 06 96 20,774 0.06%
-------------- ---------
472,747 1.29%
FORWARD POSITIONS
Currencies Dec 05 1,177,053 3.21%
-------------- ---------
Total short positions $ 1,649,801 4.51%
============== =========
TOTAL OPEN CONTRACTS 2,211,483 6.04%
CASH AND CASH EQUIVALENTS 27,740,281 75.76%
CASH ON DEPOSIT WITH BROKERS 7,547,761 20.61%
LESS LIABILITIES IN EXCESS OF OTHER ASSETS (881,740) -2.41%
-------------- ---------
NET ASSETS $ 36,617,786 100.00%
============== =========
See accompanying notes to financial statements.
6
EVEREST FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(1) GENERAL INFORMATION AND SUMMARY
Everest Fund, L.P. (the "Partnership" or the "Fund") is a limited partnership
organized on June 20, 1988 under the Iowa Uniform Limited Partnership Act (the
Act). The business of the Partnership is the speculative trading of futures
contracts and other 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 and 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 and trades forward contracts on
currencies. In November 2003 the Partnership changed its name to its present
form.
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.
The Partnership clears all of its futures and options on futures trades through
Calyon Financial, Inc., its clearing broker, and all of its foreign currency
trading through Calyon Financial, SNC. Prior to mid October, 2005 the
Partnership cleared all of its futures trades through Refco, LLC and all of its
foreign currency trading through Refco Capital Markets, Ltd.
Subsequent to the purchase of Cargill Investor Services ("CIS") by Refco, Inc.
("RI") and the replacement of CIS by Refco, LLC (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, 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. 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.
7
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. and Calyon Financial, SNC, respectively, and is in the process of
transferring assets previously held with RL to these new firms.
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-Q by reference.
On September 13, 1996 the Securities and Exchange Commission accepted for filing
a Form 10 -- Registration of Securities for the Partnership. Public reporting of
Units of the Partnership sold as a private placement commenced at that time and
has continued to the present.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 for 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.
The Partnership earns interest on 95% of the Partnership's average monthly cash
balance on deposit with the Brokers at a rate equal to the average 91-day
Treasury bill rate for U. S. Treasury bills issued during that month.
8
Net Income (Loss) Per Unit of Partnership Interest
Net income (loss) per unit of partnership interest is the difference between the
net asset value per unit at the beginning and end of each period for both Class
A and Class I Units.
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, because of their highly liquid nature and short-term
maturity.
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 (loss) in the statements of operations.
Income Taxes
No provision for income taxes has been made in the accompanying financial
statements as each partner is responsible for reporting income (loss) based upon
the pro rata share of the profits or losses of the Partnership.
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.
(3) THE 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 (note 4).
Class A Limited Partners may cause any or all of their Units to be redeemed as
of the end of any month at net asset value on fifteen days' prior written notice
to the Partnership, 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
9
Partnership, the Agreement does permit the Partnership to declare additional
regular redemption dates. Class I Limited Partners may cause any or all of their
Units to be redeemed as of the end of any quarter on 45 days' prior written
notice to the Partnership or such lesser period as is acceptable to the
Partnership. The Partnership will be dissolved at December 31, 2020, or upon the
occurrence of certain events, as specified in the Limited Partnership Agreement.
(4) CONTRACTS AND AGREEMENTS
Prior to August 1, 2000, the Partnership's trading advisor was John W. Henry &
Company, Inc. (JWH). Beginning July 1, 2001 JWH began trading its Strategic
Allocation Program with a trading allocation of $40 million. Previously JWH
traded its Financial and Metals program. 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, John W. Henry & Company, Inc. ("JWH") began trading JWH
Global Analytics Program ("GAP"); Currency Strategic Allocation Program ("CSAP")
and Worldwide Bond Program ("WBP") with a trading allocation of $27 million.
Effective November 2003, the General Partner charges the Partnership a monthly
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 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 fee equal to 0.5052% of the Partnership beginning-of-month net asset
value, as defined. Prior to September 1, 2001, the monthly fee was 0.5%. The
General Partner retains a management fee of approximately 83% of this fee.
Effective June 2004, the General Partner charges the Partnership a monthly 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.
As of September 30, 2005, the Partnership had approximately $36.6 million in net
assets. As of September 30, 2005, JWH's allocation was approximately $36.6
million. The General Partner may replace or add trading advisors at any time.
A substantial portion of assets are deposited with a commercial bank and
invested under the direction of Horizon Cash Management, Inc. (Horizon). Horizon
will receive 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.
10
(5) TRADING ACTIVITIES AND RELATED RISKS
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
(CEAct) requires an FCM to segregate all customer transactions and assets from
the FCM's proprietary activities. A customer's cash and other property such as
U. S. Treasury Bills, deposited with an FCM are considered commingled with all
other customer funds subject to the FCM's segregation requirements. In the event
of an FCM's insolvency, recovery may be limited to a pro rata share of
segregated funds available. It is possible that the recovered amount could be
less than the total of cash and other property deposited.
The Partnership has cash on deposit with an interbank market maker in connection
with its trading of forward contracts. In the event of interbank market maker's
insolvency, recovery of the Partnership assets on deposit may be limited. 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 also assumes a credit risk, the risk
of loss 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.
Net trading results from derivatives for the periods presented are reflected in
the statement of operations and equal gains (losses) from trading less brokerage
commissions. Such trading results reflect the net gain arising from the
Partnership's speculative trading of futures contracts, options on futures
contracts, and forward contracts.
The Limited Partners bear the risk of loss only to the extent of the net asset
value of their Partnership units.
(6)FINANCIAL HIGHLIGHTS
The following financial highlights show the Partnership's financial performance
for the nine months ended September 30, 2005. Total return is calculated as the
change in a theoretical limited partner's investment over the entire period. An
individual partner's total returns and ratios may
11
vary from the total return based on the timing of contributions and withdrawals.
- ----------------------------------------------------------------------------------------------------
9/30/05 9/30/04
- ----------------------------------------------------------------------------------------------------
Total return A Shares -2.30% -8.25%
- ----------------------------------------------------------------------------------------------------
I Shares 0.04% -0.37%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ----------------------------------------------------------------------------------------------------
Total income A Shares -2.12% -9.07%
- ----------------------------------------------------------------------------------------------------
I Shares 0.42%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Expenses, excluding incentive fees:
- ----------------------------------------------------------------------------------------------------
A Shares 1.63% 1.65%
- ----------------------------------------------------------------------------------------------------
I Shares 1.66%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Incentive fees: 0.00% 0.48%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Total expenses
- ----------------------------------------------------------------------------------------------------
A Shares 1.63% 2.13%
- ----------------------------------------------------------------------------------------------------
I Shares 1.66%
- ----------------------------------------------------------------------------------------------------
The total income and general and expense ratios are computed based upon the
weighted average net assets for the Partnership for the period ended September
30, 2005.
(7) FINANCIAL STATEMENT PREPARATION
The interim financial statements are unaudited but reflect all adjustments that
are, in the opinion of management, necessary for a fair statement of the results
for the interim periods presented. These adjustments consist primarily of normal
recurring accruals. These interim financial statements should be read in
conjunction with the audited financial statements of the Partnership for the
year ended December 31, 2004, as filed with the Securities and Exchange
Commission on March 31, 2005, as part of its Annual Report on Form 10-K.
The results of operations for interim periods are not necessarily indicative of
the operating results to be expected for the fiscal year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
FISCAL QUARTER ENDED SEPTEMBER 30, 2005
The Partnership recorded a gain of $801,389 or $49.22 per Unit of Class A Units
($69.81 for Class I Units) for the fiscal quarter of 2005. This compares to a
gain of $1,689,808 or $113.60 per unit of Class A Units
12
($129.94 for Class I Units) for the fiscal quarter ended September 30, 2004. The
quarter ended September 30, 2005 showed a loss of 2.30% (total return) for the
Class A Units of the fund (a gain of 0.04% (total return) for the Class I
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 2.18% for the month of July 2005 resulting in a net
asset value per unit of $2,276.28 as of July 31, 2005.
Class I Units were negative 1.92% for July 2005 resulting in a net asset value
per unit of $2,349.25 as of July 31, 2005.
The Fund's performance was negative for the month of July. The Fund's systematic
trading approach enabled it to contain losses caused by volatile market
conditions that resulted from terror attacks in London and a surprise
devaluation of the Chinese yuan. Losses in the interest rate, metal, and
agricultural sectors limited the Fund's overall returns, as stronger economic
conditions in Europe, Japan and the US led to weakening in the global bond
markets. The energy and currency sectors led the positive performing sectors
along with more moderate gains in the indices sector. Currencies benefited from
the continued strength of the US dollar, while energies profited from higher
trending prices.
Currencies were the Fund's strongest performer for the month in the face of
extremely volatile markets. The violent price moves were a reaction to China
ending its long-standing policy of pegging its currency at 8.3 yuan to the US
dollar. China revalued the yuan for the first time in a decade. Nevertheless,
the Fund profited in this sector as the dollar continued to benefit from the
growing yield advantage against the Japanese yen, British pound and Swiss franc.
The energy sector was also profitable during the month, with positive returns in
every market traded within the sector. Natural gas and crude oil had the most
significant impact, as crude oil futures surpassed $62 a barrel on July 7, 2005,
the highest price at the time since trading began on the New York Mercantile
Exchange in 1983. Economic growth in the two largest oil consumers, the US and
China, was a main contributor to the record prices. Performance in global stock
indices was positive during the month. The rally in the global equity markets
contributed to the Fund's profitable performance, as the majority of the markets
traded within the sector were positive for the month. Stocks rose as companies
posted better-than-expected earnings while economic reports showed tame
inflation and growth in retail sales. The Nikkei (Osaka) was the sector's top
performer, as the index rose 2.7 percent for the month.
The fixed income sector was unprofitable for the month, as
stronger-than-expected economic growth in the US, Europe and Japan caused a sell
off in global bond markets. US Treasuries fell for the fifth week in a row, the
longest slump this year, as reports showed the economy may be growing fast
enough to spur inflation. The Fund's performance in the agriculture sector was
slightly negative during the month, as volatility in various markets prevented
the Fund from achieving any returns. The metals sector was unprofitable for the
month. Gold prices fell from recent highs as the US dollar strengthened,
reducing the metal's appeal as an alternative investment. Silver, the only other
market traded within the metal sector was also negative on the month.
13
In conclusion, the performance was negative for the month as the Fund's
trend-following approach enabled it to withstand extreme market volatility in
the currency sector.
Class A Units were positive 3.43% for August 2005, resulting in a net asset
value per unit of $2,354.33 as of August 31, 2005.
Class I Units were positive 3.69% for August 2005, resulting in a net asset
value per unit of $2435.97 as of August 31, 2005.
The Fund's performance was positive for the month of August 2005. The systematic
trading approach employed by the Fund's Trading Advisor enabled it to withstand
volatile market conditions that resulted from Hurricane Katrina. The energy
sector was the Fund's best performer, along with smaller gains achieved in both
the indices and agricultural sectors. The Fund's exposure to the energy sector
helped performance as Hurricane Katrina affected the U.S. gulf coast, shutting
oil and gas production, as well as creating spot fuel shortages throughout the
U.S. The storm's impact also added to some of the losses in the remaining
sectors thus hindering the Fund's overall return.
Performance in the agriculture sector was positive on the month as trading in
N.Y. coffee, London sugar and cotton helped bolster returns within the sector.
Performance in the global stock indices sector was positive during the month as
the Nikkei (Osaka) rose to a four year high on signs that the world's second
largest economy grew for the third straight quarter. Nevertheless, the sector's
gains were limited as the majority of world's equity markets weakened during the
month on concerns that record oil prices, caused by Hurricane Katrina, may slow
global economic growth.
The currency sector was the Fund's most unprofitable sector for the month as the
U.S. dollar fell 1.8% against the euro and 1.7% against the yen. The dollar's
weakness was a result of speculation that the record high oil prices would slow
U.S. economic growth thereby reducing expectations for how much the Federal
Reserve will raise interest rates this year, if at all. The fixed income sector
was also unprofitable for the month, as Hurricane Katrina sparked an unexpected
rally in global bond markets. The month began with an expected 25 basis point
rate hike by the Federal Reserve and for the majority of the month both the U.S.
and Japanese bond markets were falling. However, as it became apparent that
Hurricane Katrina would make landfall and cause widespread damage to the U.S.
gulf coast region and its industries global bond markets rallied. The metals
sector was unprofitable for the month as volatility typified trading in gold
during the month. The cumulative effects of violent price action in the
currencies and fixed income markets, along with the market impact of Hurricane
Katrina, led gold to be the worst performer in the sector. However, the positive
performance of silver helped to limit the losses within the sector.
In conclusion, the Fund finished positive for the month of August 2005, as
global markets saw extreme volatility as a result of Hurricane Katrina.
Class A Units were positive 0.93% for September 2005, resulting in a net asset
value per unit of $2376.16 as of September 30, 2005.
Class I Units were positive 1.19% for September 2005, resulting in a net asset
value per unit of $2464.94 as of September 30, 2005.
The Fund's performance was positive for the month of September 2005. The stock
indices, energy and currency sectors led performance along with more
14
moderate gains in agriculture and metals. Energies benefited from record high
natural gas prices that occurred as a result of Hurricane Katrina and the threat
of Hurricane Rita, while metals profited from higher trending prices in gold.
The Fund's overall returns in September 2005,were limited however, as the storms
induced volatility and fear grew over increased global inflation. This resulted
in losses in the interest rate sector.
CHANGE AT EF CLEARING BROKER
Effective September 1, 2005 Refco, LLC became the Fund's new futures clearing
broker, and Refco Capital Markets, Ltd. became the Fund's foreign currency
broker due to the recent purchase of Cargill Investor Services (CIS) and CIS
Financial Services, Inc., respectively, by Refco.
During the reporting period, additional Units sold consisted of 809.81 limited
partnership Units; there were no general partnership Units sold during the
period. Additional Units sold during the period represented a total of
1,914,840. Investors redeemed a total of 899.71 Units during the period and the
General Partner redeemed no Units. At the end of the period there were 15,354.29
Units outstanding (including zero Units owned by the General Partner).
See Note 5 of the Notes to 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 Note 5, 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.
FISCAL QUARTER ENDED SEPTEMBER 30, 2004
The Partnership recorded a gain of $1,689,808 or $113.60 per Unit of Class A
Units ($129.94 for Class I Units) for the third quarter of 2004. This compares
to a loss of $2,312,751 or $178.73 per Unit for the third quarter of 2003. The
third quarter 2004 showed a gain of 5.81%% for the fund.
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 2.40% for July 2004 resulting in a net asset value
per unit of $2,003.64 as of July 31, 2004. The month began with a 25 basis point
rate increase by the Federal Open Market Committee (FOMC). Economic figures,
released throughout the month, continued to provide positive indications for the
US economy. However, most of the data failed to meet market expectations. The
lack of robust economic figures prevented the financial markets from trending in
one direction for any sustained period. In the commodity sector, with the
prospect of an abundant harvest, grain prices continued their steady decline,
which led to gains for the fund. In the energy market,
15
the rally in oil prices continued throughout July. The market continued to focus
on concerns about supply and demand as well as external issues, such as
terrorist attacks in the Middle East and the problems facing the Russian oil
industry.
Class I Units for July 2004 were also positive with a gain of 2.67% resulting in
a net asset value per unit of $2,013.44. The Class I Units are traded with the
same program as the Class A Units above.
Class A Units showed a loss of 3.67% resulting in a net asset value per unit of
$1,930.18 as of August 31, 2004. Overall, JWH was negative for the month of
August. Fixed-income markets provided the most significant gains for the Fund as
fixed-income prices rallied in response to the weak US unemployment data and
other weaker-than-expected fundamental data. The Fund suffered losses in the
foreign exchange markets which continued to be dominated by short-term flow and
little conviction of a trend.
The fixed-income sector provided significant gains for August 2004 as prices
rallied in Australian, European and the US fixed-income markets. The largest
gains for the month were in the bund and the US 30-year bond. The only losses
for this sector were in the Japanese Government bond and the 3-month eurodollar.
The foreign exchange sector was negative for August, as most foreign exchange
markets failed to sustain any discernible direction. Global Stock Indices have
continued to stay rangebound in 2004 although the month of August showed slight
losses. In spite of good profit reports for many companies, the threat of future
declines has not allowed these markets to gain any traction. The energy sector
was negative for August and the agricultural sector was also negative for
August.
For Class I the fund showed a loss of 3.40% in August. The net asset value per
unit was $1,944.92 as of August 31, 2004.
Class A Units showed a gain of 7.25% resulting in a net asset value per unit of
$2,070.19 as of September 30, 2004. The Fund continues to benefit from the
long-term trend towards higher energy prices. For the first time in history, the
benchmark crude oil contract surpassed the $50 per barrel mark in September.
Nascent trends in global fixed-income markets also had a positive impact on
performance. Treasury yields, arguably trading in a counter-intuitive fashion,
fell on the mid and long end of the curve against the backdrop of another 25
basis point rate hike by the U.S. Federal Reserve Board. As we've often seen
during periods of solid JWH performance, factors that may be driving one market
sector to an extreme, coalesce into a central theme that cuts across multiple
asset classes. In September, the surge in energy prices was a clear and dominant
theme that made an impression on a number of different markets. The result was
strong performance for the Fund.
A significant portion of September's gain was directly related to trading in the
energy sector. Rising demand out of Asia, supply disruptions in Iraq, and fears
of terrorism kept prices high. Two other factors also contributed to higher
prices in September - an active hurricane season in the US, and unrest in
Nigeria. The benchmark NYMEX crude oil contract responded to these factors by
rising more than 15% during the month. Fund positions in all energy markets
performed well
16
during the month. Trading in fixed-income markets was also profitable. Trading
in the foreign exchange market continues to be difficult this year as many of
the world's major currencies remain stuck in broad ranges. While overall trading
in this sector was slightly profitable, there were no significant winners or
losers.
Opportunities in equity markets have been limited as volatility in many of the
world's stock markets is registering multi-year lows. Hopes are that equity
markets will begin to move after the U.S presidential elections. The Fund
suffered slight losses in most equity trading. Trading in the agriculture
markets was profitable in September.
Class I Units showed a gain of 7.51% resulting in a net asset value per unit of
$2,091.06 as of September 30, 2004.
During the quarter, additional Units sold consisted of 398.58 limited
partnership Units; there were zero general partnership Units sold during the
quarter. Additional Units sold during the quarter represented a total of
$797,030. Investors redeemed a total of 402.14 Units during the quarter and the
General Partner redeemed zero Units. At the end of the quarter there were
14,839.07 Units outstanding (including 12.33 Units owned by the general
partner).
During the fiscal quarter ended September 30, 2004, the Partnership had no
credit exposure to a counterparty, which is a foreign commodities exchange, or
to any counter party dealing in over the counter contracts, which was material.
See Note 5 of the Notes to 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 Note 5, 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.
FISCAL QUARTER ENDED JUNE 30, 2005
The Partnership recorded a gain of $1,781,153 or $113.12 per Unit of Class A
Units ($134.00 for Class I Units) for the second quarter of 2005. This compares
to a loss of $6,680,337 or $443.36 per Class A Unit for the second quarter of
2004 ($137.75 for I shares from inception to June 30, 2004). The second quarter
2005 showed a gain of 5.11% for the Class A Units of the fund (a gain of 5.93%
for the Class I 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 6.97% for April 2005 resulting in a net asset value
per unit of $2,059.50 as of April 30, 2005.
17
The Fund's performance was negative for the month of April. Fixed-income was the
only sector that was positive for the month. However, this positive performance
was not enough to offset the losses in the other sectors. The Fund's
underperformance was driven by the Federal Reserve changing its view on
inflationary pressures. Economic data released in March showed a pickup in
inflation within the U.S. due to recent higher energy prices, even as other
reports indicated that an economic slowdown was more pronounced than the markets
had expected. Such divergent statistics, combined with increased speculation
over a possible Chinese yuan revaluation, led to unfavorable and trendless
markets for the Fund.
The fixed income sector posted positive returns during the month. The majority
of the sector's gains came from the strength in Germany's and Japan's
fixed-income markets. The energy sector was the most unprofitable sector during
the month. Energies which had been trending higher experienced a sudden
turnaround as supplies increased and OPEC boosted output in an effort to lower
prices and to ensure adequate inventories to meet summer fuel demands. Crude oil
prices plunged 15 percent after recording a high on April 4th, as U.S. supplies
jumped. Currencies also contributed to the Fund's underperformance during April.
This was mainly due to the Japanese yen. The Japanese yen strengthened against
the dollar after a state-sponsored newspaper in China said the government may
let the yuan peg trade more freely. A stronger Chinese yuan could make China's
exports less competitive compared with those from Japan and other Asian
countries, giving those nations room to let their currencies appreciate versus
the dollar. Stock indices were also down for the month as volatility dominated
the equity markets around the world. IBM and 3M led the decline after missing
earnings estimates, while energy shares, such as Exxon Mobil Corp., fell along
with oil prices. The metals and agricultural sectors were unprofitable for the
month.
Class I Units were negative 6.71% for April 2005 resulting in a net asset value
per Unit of $2109.44 as of April 30, 2005.
The Fund's Class I under performance for April was driven by the Federal Reserve
changing its view on inflationary pressures. Economic data released in March
showed a pickup in inflation within the U.S. due to recent higher energy prices,
even as other reports indicated that an economic slowdown was more pronounced
than the markets had expected. Such divergent statistics, combined with
increased speculation over a possible Chinese yuan revaluation, led to
unfavorable and trendless markets for the Fund.
Class A Units were up 6.53% for May 2005 resulting in a net asset value per unit
of $2,193.98 as of May 31, 2005.
The currency and fixed-income sectors led profitability with robust gains that
were more than enough to offset lackluster returns in the other sectors. The
substantial gains in currencies came at the expense of the euro and Swiss franc.
France's rejection of the European Union Constitution drove the currency's
weakness. In the fixed-income sector, a slowing European economy, as well as
diminishing fears about inflation in the U.S., were the key factors that also
drove performance for the month.
The currency sector was the Fund's strongest performer for the month, as the
euro fell to a seven-month low against the U.S. dollar and weakened against most
other major currencies. France's rejection of the European Union constitution
was the catalyst for the euro's dramatic move lower. The fixed-income sector was
the Fund's other solid performer, as both European and American bonds rose
during the month. The benchmark German
18
10-year bund rose to a record high, as market conjecture grew that the European
Central Bank (ECB) would have to cut interest rates as the European economy
slowed. Further supporting the rally in the German bund was the expected
negative economic effects from the rejection of the European Union Constitution
in France. Meanwhile, U.S. Treasuries also rallied as the 10-year note broke 4%
for the first time since February. U.S. fixed-income advanced on diminished
inflation fears and on the downgrade of both GM's and Ford's credit ratings to
below investment grade. The Fund's performance in the metals sector was slightly
positive during the month as volatility in various markets limited the Fund's
ability to achieve returns. The Fund was able to benefit as gold traded near a
three-month closing low as the U.S. dollar strengthened.
The energy sector was negative, as energies weakened for the majority of the
month. Performance in the agriculture sector was negative for the month as
trading in cotton, NY coffee and CBOT wheat affected returns. Global Stock
Indices were negative for the month. Most of the world indices were higher on
the month, which was the cause of the sector's underperformance. Stock indices
rallied worldwide on lower inflation expectations: however, news of Ford's and
GM's credit rating downgrades caused the markets to trade lower before
recovering to end the month stronger.
Overall the Fund's performance was very strong for the month of May as JWH's
systematic trend following approach was able to profit as new trends emerged.
Class I Units were up 6.79% for May 2005 resulting in a net asset value per unit
of $2,252.70 as of May 31, 2005.
In May the Class I result came from the currency and fixed-income sectors with
robust gains that were more than enough to offset lackluster returns in the
other sectors. The substantial gains in currencies came at the expense of the
euro and Swiss franc. France's rejection of the European Union Constitution
drove the currency's weakness. In the fixed-income sector, a slowing European
economy, as well as diminishing fears about inflation in the U.S., were the key
factors that also drove performance for the month. The currency sector was the
Fund's strongest performer for the month, as the euro fell to a seven-month low
against the U.S. dollar and weakened against most other major currencies. The
fixed-income sector was the Fund's other solid performer, as both European and
American bonds rose during the month.
Class A Units were up 6.06% for June 2005 resulting in a net asset value per
unit of $2,326.94 as of June 30, 2005.
The currency and fixed income sectors led profitability on the strength of the
U.S. dollar and the global fixed income markets. These gains were mainly due to
the U.S. Federal Reserve raising interest rates another quarter point to 3.25
percent and reiterating its intention to continue to raise rates at a "measured"
pace. Hindering performance was volatility in the metals and agriculture
sectors.
The currency sector was the Fund's strongest performer for the month. The U.S.
dollar posted its largest quarterly gain against the euro since 2001 and rose
against the yen as the market anticipated the quarter point increase by the
Federal Reserve on June 30th. The dollar also benefited from the yield advantage
against the Japanese yen, Swiss franc and the euro.
19
The fixed income sector was the Fund's other solid performer, as global bond
markets continued to rally. The majority of the sector's gains came from the
strength in both Germany's and Japan's fixed income markets.
The energy sector was profitable for the month as volatility dominated these
markets. The entire sector rallied during the first half of the month as
expectations increased that global demand for oil would reach a record 86.4
million barrels a day in the 4th quarter. As a result, oil for August delivery
hit a record high $60.95 a barrel during the month. However, energy prices fell
towards the end of the month as many speculators booked profits in addition to
an Energy Department report that supplies unexpectedly surged as refineries
increased production of gasoline and other fuels. Most components of this sector
were positive; however the loss from natural gas hindered the sector's returns.
Metals were negative for the month as volatility also hurt this sector's
performance. Gold rose for the majority of the month as crude oil surged,
boosting the precious metal as a hedge against inflation. However, towards the
later part of the month gold fell as the U.S. dollar strengthened and the U.S.
Federal Reserve raised interest rates. Higher interest rates make holding gold
and silver less attractive because the metals have no fixed returns, unlike
bonds. All components of this sector were negative during the month. Performance
in the agriculture sector was down for the month as trading in cotton, CBOT
wheat and soybeans hindered returns.
Performance was slightly positive in global stock indices during the month.
Overall, stocks fell during the month as the Federal Reserve raised its
benchmark interest rate for the ninth time this year and signaled that more
increases were to come.
In conclusion, performance was positive for the month of June as the Fund
continued to profit from strong trends that started to emerge in May. The fixed
income and currency sectors once again led profitability.
Class I Units were up 6.32% for June 2005 resulting in a net asset value per
unit of $2,395.13 as of June 30, 2005.
In June the Class I gain came again from the currency and fixed income sectors'
profitability on the strength of the U.S. dollar and the global fixed income
markets. These gains were mainly due to the U.S. Federal Reserve raising
interest rates another quarter point to 3.25 percent and reiterating its
intention to continue to raise rates at a "measured" pace. Hindering performance
was volatility in the metals and agriculture sectors. The currency sector was
the Fund's strongest performer for the month.
On June 22, 2005, CIS and Refco Group Ltd., LLC, ("Refco") a provider of
execution and clearing services for exchange-traded derivatives and one of the
world's largest independent derivative brokers, announced that they had entered
into a definitive agreement for Refco to acquire the global brokerage operations
of CIS, the current clearing broker for the Everest Fund. After the closing, the
futures broker for the Fund will be Refco, LLC, a wholly-owned subsidiary of
Refco Group Ltd., LLC and a registered futures commission merchant. The
transaction will close upon receipt of necessary regulatory approvals and
satisfaction of other contractual closing conditions. to The General Partner
will inform the Fund's investors when and if this transaction is finalized. The
General Partner does not anticipate that the change will negatively impact the
Fund's business in any way.
20
During the reporting period, additional Units sold consisted of 850.37 limited
partnership Units; there were no general partnership Units sold during the
period. Additional Units sold during the period represented a total of
$1,894,841. Investors redeemed a total of 971.42 Units during the period and the
General Partner redeemed no Units. At the end of the period there were 15,444.18
Units outstanding (including zero Units owned by the General Partner).
During the fiscal quarter ended June 30, 2005, the Partnership had no credit
exposure to a counterparty, which is a foreign commodities exchange, or to any
counter party dealing in over the counter contracts, which was material.
See Note 5 of the Notes to 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 Note 5, 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.
FISCAL QUARTER ENDED JUNE 30, 2004
The Partnership recorded a loss of $6,680,332 or $443.36 per Unit of Class A
Units ($137.75 for Class I Units) for the second quarter of 2004. This compares
to a gain of $230,943 or $18.77 per Unit for the second quarter of 2003. The
second quarter 2004 showed a loss of 18.47% for the Partnership.
The Partnership continued to employ John W. Henry & Company, Inc.'s (JWH)
GlobalAnalyticsR Family of Programs, Worldwide Bond Program and Currency
Strategic Allocation Program.
The Everest Fund, L.P. experienced a loss of 10.26% during April, resulting in a
Net Asset Value per Unit of $2,153.78 as of April 30, 2004. There were two main
themes dominating the financial markets in April. First of all, the emerging
strength of the US economy has led to market speculation that the Federal
Reserve will switch from a neutral stance on interest rates and begin raising
interest rates in the near term. The effects of this have been far reaching
through the financial markets resulting in the strengthening of the US dollar,
rising interest rates and providing tepid support to global equity indices.
Secondly, the country with the fastest growing economy, China, has decided to
rein in growth to avoid creating potentially dangerous financial bubbles like
the ones it faced a decade ago. The China State Council, the highest level of
government in China, has given a mandate to the Peoples Bank of China, the
Chinese Central Bank, to start limiting available credit and raising domestic
interest rates. The result has been a reduced consumption of basic commodities
which has diminished the recent vigor in the base metals and grain markets.
Energies were profitable with the agricultural, fixed-income, currency, stock
indices and metals sectors negative for the month.
21
The Everest Fund, L.P. experienced a loss of 5.06% during May, resulting in a
Net Asset Value per Unit of $2,044.83 as of May 31, 2004. Overall, the fund was
down for the month of May. May's performance can best be described as a
transition period with the greatest influences coming from the same spheres as
the previous month. Improving global economies, particularly the US economy,
have created expectations of central banks embarking on a campaign to raise
interest rates to moderate growth and curtail a possible increase in inflation.
Additionally, the Chinese government continues to try to rein in growth of the
world's fastest growing economy by reducing available domestic credit and money
supply, hoping to gradually cool its overheated economy. These factors have
created sufficient uncertainty in the financial markets, and have prevented
strong trends from emerging. The exceptions are the energy markets which
continue to climb higher due to increased global demand and heightened
geopolitical risks. Once again, the energy sector was positive with the
currency, fixed-income, stock indices, agricultural and metals sectors being
negative.
The Everest Fund, L.P. Class A experienced a loss of 4.32% during June,
resulting in a Net Asset Value per Unit of $1,956.59 as of June 30, 2004.
Overall, the Fund was negative for the month of June. The second quarter of 2004
has not produced any meaningful trends with the possible exception of the energy
markets. However, even the energy markets have struggled of late, needing the
full cooperation of OPEC members to increase their production levels to near
capacity to temporarily reverse the upward trend in crude oil prices. The lack
of price trends in other markets is a result of the confusion in financial
markets as analysts attempt to anticipate the major central banks' exit
strategy, from their highly accommodative monetary policy of the past two years,
and the effects on economic growth. Additionally, Chinese government authorities
have been faced with the challenge of slowing the world's fastest growing
economy while avoiding a hard economic landing, which would send shock waves
throughout the world.
The only positive results were posted in the metals and stock indices. The
losses came in the fixed-income, currency, energy and agricultural sectors.
The Everest Fund, L.P. Class I experienced a loss of 6.56% during June,
resulting in a Net Asset Value per Unit of $1,961.12 as of June 30, 2004. The
fund introduced a new share category in June 2004. The Class I Units or
Institutional Units are intended for entities who are capable of investing $5
million minimum, subject to the discretion of the general partner to accept
less. The Units were funded by the general partner and its president and trading
began on June 7, 2004. The Class I trading strategy will be materially the same
as that for the Class A Units, although the Class I Units have generally lower
fees.
During the reporting period, additional Units sold consisted of 1,050.59 limited
partnership Units; there were 11.91 general partnership Units sold during the
period. Additional Units sold during the period represented a total of $
2,221,077. Investors redeemed a total of 1,146.35 Units during the period and
the General Partner redeemed zero Units. At the end of the period there were
14,842.64 Units outstanding (including 12.33 Units owned by the General
Partner).
During the fiscal quarter ended June 30, 2004, the Partnership had no credit
exposure to a counterparty, which is a foreign commodities exchange, or to any
counter party dealing in over the counter contracts, which was material.
22
See Note 5 of the Notes to 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 Note 5, 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.
FISCAL QUARTER ENDED MARCH 31, 2005
The Partnership recorded a loss of $3,249,420 or $218.23 per Unit of Class A
Units ($202.84 for Class I Units) for the first quarter of 2005. This compares
to a gain of $2,087,470 or $143.50 per Class A Unit for the first quarter of
2004. The first quarter 2005 showed a loss of 8.97% for the Class A Units of the
fund (a loss of 8.23% for the Class I 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 6.29% for January 2005 resulting in a net asset
value per unit of $2,279.03 as of January 31, 2005. The Fund's performance was
negative in January. While both the fixed-income and agricultural sectors had
gains for the month, they weren't enough to offset the losses in other sectors.
The Fund's underperformance was driven by the strength of the US dollar, which
rebounded from last year's weakening trend. The dollar's sudden turnaround was
the dominant factor that drove most market sectors during the month, and
therefore resulted in the overall loss for the program.
A significant portion of January's loss was directly related to the strength of
the US dollar against most major currencies. The weak US dollar trend, which had
dominated the markets during the second half of last year, began to reverse
itself as market expectations of a Yuan revaluation by the Chinese central bank
began to diminish. The largest gain was achieved in the Brazilian real, while
the largest loss occurred in the euro.
Trading in both metals and stock indices were also negative during the month.
The loss in metals was due to the weakness in both gold and silver. Gold, which
recently has had a strong inverse relationship with the US dollar, came under
pressure as the US dollar strengthened throughout the month. The Fund's returns
in the indices sector further hindered performance. The loss in indices resulted
from a sell off in world equity markets as stocks weakened because energy prices
rose during the month. The largest gain in the indices sector was achieved in
the Eurostoxx 50, while the largest loss occurred in the Nasdaq e-mini.
Higher prices in energies led to negative performance in this sector. In
addition to the events in the Middle East, weather dominated the sector's price
action. Oil prices surged as colder-than-expected weather, as well as a
blizzard, moved into the eastern U.S., which accounts for 80 percent of
residential heating oil usage.
23
Both the agricultural and fixed income sectors provided positive returns. Wheat
helped returns as prices fell to a 20-month low after a report showed that U.S.
exports slowed when the European Union indicated it would subsidize exports of
the grain for the first time since June 2003. Corn slightly boosted returns as
prices fell to the lowest level since June 2001 on slumping demand for record
supplies in the U.S., which is the world's largest producer and exporter of the
grain. In addition, in the fixed income sector the Japanese Government bonds
(JGBs) rose during the month after Japanese government reports showed household
spending and industrial production fell. However, the positive returns in both
sectors were not enough to offset losses in the rest of the fund. The largest
gain in the agricultural sector was achieved in wheat, while the largest loss
occurred in cotton. In the fixed income sector the largest gain was achieved in
the JGBs, while the largest loss occurred in the Australian 10-year bond.
Class I Units for January 2005 were also negative with a loss of 6.03% resulting
in a net asset value per unit of $2,315.40. While both the fixed-income and
agricultural sectors had gains for the month, they weren't enough to offset the
losses in other sectors. The Fund's underperformance was driven by the strength
of the US dollar, which rebounded from last year's weakening trend. The dollar's
sudden turnaround was the dominant factor that drove most market sectors during
the month, and therefore resulted in the overall loss for the program. A
significant portion of January's loss was directly related to the strength of
the US dollar against most major currencies.
The Class I Units are traded with the same program as the Class A Units above.
Class A Units showed a loss of 4.47% resulting in a net asset value per unit of
$2,177.09 as of February 28, 2005. The Fund's performance was negative in
February. While both stock indices and the energy sectors had gains for the
month, it wasn't enough to offset the combined losses in the other sectors
traded. The Fund's underperformance was driven by the apparent end to some
long-term trends in the global fixed-income market and the unfavorable
performance in the currency sector.
A significant portion of February's losses was directly related to the
fixed-income sector as the European, Japanese and U.S. bond markets sold off.
The catalyst for the dramatic move higher in world interest rates was the
cumulative effect of various events and economic data released during the month.
Currencies were the other main contributor to the Fund's losses as the weakness
of the Japanese yen against the U.S. dollar during the first half of February
hurt performance. On February 10th, the U.S. dollar rose to a three-month high
against the yen after a Commerce Department report showed the U.S. trade deficit
narrowed in January from a previous record high. The recent dollar strength
began six days earlier when Chairman Alan Greenspan predicted that the deficit
in the U.S. current account, the broadest measure of trade, may shrink. The
energy sector had positive returns and was the Fund's best performing sector.
Energies rallied as commodity prices surged to a 24-year high due to signs of
growing global demand for everything energy-related. The International Energy
Agency raised its prediction for global consumption, and forecasts of colder
temperatures across Europe and the U.S. which also helped to drive energy prices
even higher. All components of this sector were positive with the largest gain
achieved in London gas oil.
24
The Fund's three other sectors, indices, metals, and agriculture all had
relatively little effect on overall performance during the month. Indices posted
gains as the Nikkei rallied throughout the month on hopes that quicker U.S.
growth would help Japan start an export-led economic recovery. The metals sector
posted negative returns, as inflation fears in the U.S. pushed gold prices
higher. All components of this sector were negative with the largest loss coming
from silver. Lastly, agriculture was slightly negative, as profits from the
rally in NY coffee caused by forecasts of a dry season in Brazil, was offset by
losses in various other agricultural markets.
For Class I, the Fund showed a loss of 4.21% in February. The net asset value
per unit was $2,217.90 as of February 28, 2005. Stock indices and energy sector
gains for the month did not offset the combined losses in the other sectors
traded. The Fund's underperformance was driven by the apparent end to some
long-term trends in the global fixed-income market and the unfavorable
performance in the currency sector. A significant portion of February's losses
was directly related to the fixed-income sector as the European, Japanese and
U.S. bond markets sold off. The catalyst for the dramatic move higher in world
interest rates was the cumulative effect of various events and economic data
released during the month. Currencies were the other main contributor to the
Fund's losses as the weakness of the Japanese yen against the U.S. dollar during
the first half of February hurt performance.
Class A Units showed a gain of 1.69% resulting in a net asset value per unit of
$2,213.82 as of March 31, 2005. The Fund's performance was positive for the
month of March. The energy sector exhibited strong returns and the agricultural
sector also contributed to the Fund's positive performance. The combined
positive performance in these two sectors was able to offset the losses suffered
in the other sectors. Continuing worries over supply drove profits in energies,
while a strengthening U.S. dollar, as well as increasing inflation fears
dominated performance in most other sectors.
The energy sector was the Fund's best performing sector as crude oil and
gasoline surged to near all-time highs on speculation that rising domestic
demand may outpace U.S. refinery production during peak summer demand resulting
in strained global oil supplies.
The Fund's performance in the agriculture sector was profitable for the month.
The Fund was able to benefit from rising New York coffee prices as production
declined and stocks held by roasters and producers fell to their lowest level in
15 years. These profits combined with profits from cotton and London coffee were
enough to offset the negative returns in other markets within the sector.
Currencies were the most unprofitable sector during the month. The single most
influential factor driving performance in this sector was the U.S. dollar. At
the start of the month, the dollar weakened against other major currencies as
the U.S. trade deficit widened to $58.3 billion, the second-highest level ever.
However, the weakening trend reversed itself as the price of oil soared and the
yield on the benchmark 10-year Treasury note rose to its highest level in seven
months. Furthermore, demand for the greenback increased when the Federal Reserve
raised borrowing costs by a quarter percentage point for a seventh time since
last June and indicated that inflation pressures were picking up. The largest
gain in this sector was achieved in the Japanese yen, while the largest loss
occurred in the Swiss franc.
25
The Fund was unprofitable in the fixed income sector for the month as European
and Domestic markets sold off and the Japanese bond markets rallied. Increases
in both energy prices and inflation expectations were the catalyst for the
dramatic move higher in most of the world interest rates. The largest gain in
this sector was achieved in the U.S. ten-year note, while the largest loss
occurred in the bund.
Precious metals had losses for the Fund during March 2005, as gold and silver
were driven by the volatility in the U.S. dollar during the month. Precious
metals tend to have an inverse relationship with the U.S. dollar. Thus, as the
dollar weakened at the beginning of the month gold and silver strengthened; and
as the dollar rallied, gold sold off when the dollar became a more attractive
asset to hold. All components of this sector were negative, with the largest
loss coming from silver.
The Fund's performance in stock indices was slightly down for the month as
equity markets weakened around the world. Higher bond yields and oil prices made
equities less attractive to investors as inflationary pressures started to weigh
on the global economy.
Class I Units showed a gain of 1.95% resulting in a net asset value per unit of
$2,261.13 as of March 31, 2005. The energy sector exhibited strong returns and
the agricultural sector also contributed to the Fund's positive performance. The
combined positive performance in these two sectors was able to offset the losses
suffered in the other sectors. Continuing worries over supply drove profits in
energies, while a strengthening U.S. dollar, as well as increasing inflation
fears dominated performance in most other sectors. The energy sector was the
Fund's best performing sector as crude oil and gasoline surged to near all-time
highs on speculation that rising domestic demand may outpace U.S. refinery
production during peak summer demand resulting in strained global oil supplies.
The Everest Fund, L.P. Class A experienced a net loss of 8.97% for the first
quarter of 2005. The Class I Units experienced a net loss of 8.23% for the same
period.
During the first quarter, additional Units sold consisted of 906.45 limited
partnership Units; there were zero general partnership Units sold during the
quarter. Additional Units sold during the quarter represented a total of
$2,017,381. Investors redeemed a total of 242.589 Units during the quarter and
the General Partner redeemed 12.32 Units. At the end of the quarter there were
14,405.55 Units outstanding (including 0 Units owned by the General Partner).
During the fiscal quarter ended March 31, 2005, the Partnership had no credit
exposure to a counterparty, which is a foreign commodities exchange, or to any
counter party dealing in over the counter contracts, which was material.
See Note 5 of the Notes to 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 Note 5, 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
26
that the Partnership will not suffer trading losses through the Clearing Broker.
FISCAL QUARTER ENDED MARCH 31, 2004
The Partnership recorded a gain of $2,087,470 or $143.50 per Unit for the first
quarter of 2004. This compares to a gain of $6,420,752 or $311.51 per Unit for
the first quarter of 2003. The first quarter 2004 showed a gain of 6.36% for the
fund.
The Partnership continued to employ John W. Henry & Company, Inc.'s (JWH)
GlobalAnalyticsR Family of Programs, Worldwide Bond Program and Currency
Strategic Allocation Program. The Everest Fund, L.P. experienced a gain of 0.54%
during January, resulting in a Net Asset Value per Unit of $2,268.719 as of
January 31, 2004.
In January the JWH programs had gains in the fixed income sector, as the world-
wide trend of interest rates continued to move lower. The currency sector was
positive, with the US dollar trend continuing downward against most major
currencies in the first half of the month, then swiftly strengthening against
most currencies later in the month. The agricultural sector was also positive
primarily on the performance of corn, soybeans and New York coffee. Stock
indices were unprofitable as Europe, the US and Japan maintained their upward
trend for most of the month on positive economic growth and a favorable interest
rate environment. The energy sector was also down for the month, especially from
the position in London gas oil. Finally, the metals sector was also down, from
losses in gold.
The Everest Fund, L.P. experienced a gain of 6.32% during February, resulting in
a Net Asset Value per Unit of $2,412.208 as of February 29, 2004.
In February JWH had a gain of +6.32%. Interest rates continued to move lower in
G7 nations due to benign inflationary pressures. Energies, with the exception of
natural gas, remained on an upward trend because of supply concerns. The US
dollar, which had been weakening against most major currencies, found strength
mid-month and reversed its five-month downtrend. Base metals continued the
strong move upward due to low inventory levels, while precious metals followed
currencies and reversed course during the month. Despite exhibiting a degree of
volatility on an intra-month basis, most equity indices ended the month close to
unchanged. Profits came from the fixed income sector, agriculturals, energies,
and metals in that order. Currencies were unprofitable.
The Everest Fund, L.P. experienced a loss of 0.51% during March, resulting in a
Net Asset Value per Unit of $2,399.95 as of March 31, 2004.
JWH had a loss of 0.51% in March for the fund. The month was dominated by
increased geopolitical risks, which led to a reduction in the market positions.
In March, the most influential market factors for the fund were the effects of
Japan's fiscal year end. The Bank of Japan, through intervention in foreign
exchange markets, bolstered the US dollar against the Japanese yen, which in
turn propelled Japanese equities and interest rates.
The Partnership's largest gains came from the agricultural sector with gains in
the fall of cotton prices and gains from the rising prices of grains. The metals
sector was the second most profitable sector with silver and gold moving higher
despite the US dollar strengthening. Energies were also profitable in March with
geopolitical risks and OPEC's policies
27
helping crude oil and related products maintain lofty price levels. Global stock
indices were also positive as most global indices went down in the first half of
the month but recovered in the later half in reaction to favorable economic
data. Profits were posted in the fixed income sector as well, as employment data
sent bond prices higher (and rates lower), with the exception of Japan. The
currency sector was unprofitable with action dominated by the action in the
Japanese yen, orchestrated by the Bank of Japan. March is the Japanese fiscal
year end and the Bank of Japan intervened in the foreign exchange market by
buying over $40 billion US dollars and selling Japanese yen in an effort to
allow Japanese exporters to hedge their US dollar profits at favorable rates for
year end considerations. Most other major currencies traded in a sideways
fashion. The largest losses came in the Japanese yen, the British pound and the
euro.
During the quarter, additional Units sold consisted of 924.18 limited
partnership Units; there were no general partnership units sold during the
quarter. Additional Units sold during the quarter represented a total of
$2,201,716. Investors redeemed a total of 826.69 Units during the quarter and
the General Partner redeemed zero Units. At the end of the quarter there were
14,926.48 Units outstanding (including 0.42 Units owned by the General Partner).
During the fiscal quarter ended March 31, 2004, the Partnership had no credit
exposure to a counterparty, which is a foreign commodities exchange, or to any
counter party dealing in over the counter contracts, which was material.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
There has been no material change with respect to market risk since the
"Quantitative and Qualitative Disclosures About Market Risk" was made in the
Form 10K of the Partnership dated December 31, 2004.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation was performed
by the Partnership under the supervision and with the participation of
management, including the President of the Partnership's General Partner, of the
effectiveness of the design and operation of the Partnership's disclosure
controls and procedures. Based on that evaluation, the Partnership's management,
including the President of the Partnership's General Partner concluded that the
Partnership's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Partnership that is
required to be included in the Partnership's periodic filings with the
Securities and Exchange Commission. There have been no significant changes in
the Partnership's internal controls or in other factors that could significantly
affect those internal controls subsequent to the date the Partnership carried
out its evaluation.
28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership and its affiliates are from time to time parties to
various legal actions arising in the normal course of business. The General
Partner believes that there are no proceedings threatened or pending against the
Partnership or any of its affiliates which, if determined adversely, would have
a material adverse effect on the financial condition or results of operations of
the Partnership.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
See Part I, Statement of Changes in Partner's Capital
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Subsequent to the purchase of Cargill Investor Services ("CIS") by
Refco, Inc. ("RI") and the replacement of CIS by Refco, LLC (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, 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. 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.
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. and Calyon Financial, SNC, respectively, and is in the process
of transferring assets previously held with RL to these new firms.
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-Q by reference.
29
Item 6. Exhibits
Exhibit Number Description of Document Page Number
- -------------- ----------------------- -----------
31 Certification by Chief Executive E-1-2
Officer and Chief Financial
Officer Pursuant to Section 302
Of the Sarbanes-Oxley Act of 2002
32 Certification by Chief Executive E-3
Officer and Chief Financial
Officer Pursuant to Section 906
Of the Sarbanes-Oxley Act of 2002
The registrant's report on Form 8-K and all
Exhibits attached thereto as filed with the
Commission on October 21, 2005 are
incorporated herein by reference
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned and thereunto duly authorized.
EVEREST FUND, L.P.
Date: November 11, 2005 By: Everest Asset Management, Inc.,
its General Partner
By: /s/ Peter Lamoureux
--------------------------------
Peter Lamoureux
President
31
EXHIBIT INDEX
Exhibit Number Description of Document Page Number
- -------------- ----------------------- -----------
31 Certification by Chief Executive Officer
and Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 E-1-2
32 Certification by Chief Executive Officer
and Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 E-3
32