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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, 1999
Everest Futures 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.)
2280 West Tyler Street, Suite 105, Fairfield, Iowa 52556
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(515) 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 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
filesuch 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: [ X ]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant as of February
29, 2000: $47,075,371.93
Part 1
Item 1. Business
Everest Futures 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. and its initial business was the speculative trading
of Commodity Interests, with a particular emphasis on the trading of
energy-related commodity interests. However, effective September 12, 1991, the
Partnership changed its name to "Everest Futures Fund, L.P." and at the same
time eliminated its energy concentration trading policy. 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.
The initial public offering of the Partnership's Units of limited partnership
interests ("Units") pursuant to a registration statement on Form S-18 and
Prospectus was declared effective and commenced on or about December 6, 1988. On
February 1, 1989, the initial offering period for the Partnership was
terminated, by which time the Net Asset Value of the Partnership was
$2,140,315.74. Beginning February 2, 1989, an extended offering period commenced
which terminated on July 31, 1989, by which time a total of 5,065.681 Units of
Limited Partnership Interest were sold. Effective May, 1995 the Partnership
ceased to report as a public offering. On July 1, 1995 the Partnership
recommenced the offering of its Units as a Regulation D, Rule 506 private
placement, which continues to the present with a total of 31,619.44 additional
Units sold for $56,946,733 since July 1, 1995 through December 31, 1999.
On February 29, 1996, the Partnership amended its Agreement of Limited
Partnership permitting the Partnership to conduct its trading business by
investing in other partnerships and funds and in subsidiary partnerships or
other limited liability entities. Effective close of business on March 29, 1996
the Partnership invested all of its assets in another limited partnership, the
Everest Futures Fund II L.P. ("Everest II"), a Delaware limited partnership in
which the Partnership is the sole limited partner. As a result, the Partnership
does not currently invest directly in Commodity Interests. Instead, the
Partnership transferred all of its assets to Everest II in return for its
Everest II limited partnership interest. Everest II invests directly in
Commodity Interests through the Financial and Metals Portfolio of John W. Henry
& Company, Inc. ("JWH"), an independent commodity trading advisor which had
hitherto been the advisor to the Partnership.
The main advantage in creating Everest II was the continued ability of Limited
Partners to invest in the Financial and Metals Portfolio of JWH. JWH is one of
the leading commodity trading advisors in the managed futures industry, measured
both in terms of total assets under management and historical performance. With
approximately $1.8 billion under management, JWH no longer accepts direct
managed accounts from individual investors. The Partnership is currently one of
only a few investment vehicles which provide U.S. investors with access to the
JWH Financial & Metals Portfolio. The General Partner currently believes that
retaining JWH as trading advisor for the Partnership is important to the
Partnership's continued success. As a result, the General Partner chose to
establish Everest II as the means of retaining JWH as trading advisor.
The General Partner does not believe that the Partnership's investment in
Everest II will cause any significant or material disadvantage to Limited
Partners. The co-general partner fee being paid to CIS Investments, Inc. is
being borne directly by the General Partner, not by the Partnership. All other
fees and expenses of the Partnership, except for operating expenses, remain the
same as prior to the creation of Everest II. Operating expenses are a
semi-variable expense with respect to the Partnership's size, and have decreased
as a percentage of Net Asset Value since the creation of Everest II given the
growth in the Partnership's assets which is due to the retention of JWH.
Everest II has two general partners, Everest Asset Management, Inc. the current
General Partner of the Partnership, and CIS Investments, Inc. ("CISI"), which is
a wholly-owned subsidiary of Cargill Investor Services, Inc., the former
commodity broker of the Partnership and now the commodity broker for Everest II
(Cargill Investor Services, Inc. is hereafter referred to as the "Commodity
Broker"). CIS Financial Services, Inc. ("CISFS"), an affiliate of the Commodity
Broker, acts as the Partnership's currency dealer. CISI and the General Partner
are registered with the Commodity Futures Trading Commission (the "CFTC") as
commodity pool operators and are members of the National Futures Association
(the "NFA") in such capacity.
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.
Upon ten days written notice, 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. 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. The Partnership may
redeem its sole limited partnership interest in Everest II effective as of the
end of one business day after such redemption request has been made. Everest
II's Limited Partnership Agreement contains a full description of that
partnership's 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 termination of Everest II shall occur on the first to occur of the
following: (i) December 31, 2025; (ii) withdrawal, insolvency or dissolution of
a General Partner or any other event that causes a General Partner to cease to
be a general partner unless (a) at the time of such event there is at least one
remaining general partner of Everest II to carry on the business of Everest II,
or (b) within ninety (90) days after such event, all partners agree in writing
to continue the business of Everest II and to the appointment of one or more
managing general partners of Everest II, or any event which will make it
unlawful for the existence of Everest II to continue.
The address of the General Partner and the Partnership is 2280 West Tyler
Street, Suite 105, Fairfield, Iowa 52556, and the telephone number is (515)
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 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 CFTC. Each is also a member of the NFA in such
capacity.
The General Partner through the Partnership's participation in Everest II, 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 their commodity broker(s) that will
clear trades for the advisor(s). Cargill Investor Services, Inc. currently acts
as Everest II's commodity broker and CIS Financial Services, Inc., an affiliate
of Cargill Investor Services, Inc., acts as Everest II'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).
The Partnership is now the beneficial owner of the sole limited partnership
interest of Everest II. The Partnership is not, however, an investment company
of the Partnership within the meaning of the Investment Company Act of 1940,
because (i) the Partnership does not otherwise invest, reinvest, own, hold or
trade securities, (ii) the Partnership shall continue to hold at least 50% of
the limited partnership interest in Everest II, (iii) the Partnership does not
fall within the meaning of an investment company under Section 3(a) of the 1940
Act, (iv) the Limited Partners continue to have the right to remove the General
Partner of the Partnership, and (v) the Partnership continues to have the right
to remove the general partners of Everest II.
The General Partner does not believe that the Partnership's investment in
Everest II will cause any significant or material disadvantage to Limited
Partners. The co-general partner fee being paid to CISI is being borne directly
by the General Partner, not by the Partnership. All other fees and expenses of
the Partnership, except for operating expenses, remain the same as prior to the
creation of Everest II. Operating expenses are a semi-variable expense with
respect to the Partnership's size, and have decreased as a percentage of Net
Asset Value since the creation of Everest II given the growth in the
Partnership's assets which is due to the retention of JWH.
As a result of the Partnership's investment in Everest II, the majority of the
Partnership's trading and operating expenses have been transferred to Everest
II. This transfer is not expected to have any material economic effect on the
overall fees and expenses attributable to Partnership investors. The Partnership
continues to pay its own operating expenses, but as of the close of business on
March 29, 1996, Everest II is now obligated to pay the substantial trading and
operational expenses and to pay an incentive fee to its trading advisor. These
expenses materially affect the net results of an investment in the Partnership,
reducing net profits and increasing net losses. The Partnership would have to
make an 8.78% return on its investments during the initial year of a Limited
Partner's investment in the Partnership in order for a Limited Partner to break
even during the Limited Partner's first year of investment in the Partnership.
The fees and expenses of the Partnership and Everest II are described in more
detail in the Partnership's offering memorandum which are incorporated herein by
reference.
Everest II pays the Commodity Broker a brokerage commission charge equal to 0.5%
of the Partnership's Beginning Net Asset Value as of the beginning of each month
(approximately 6% annually). Approximately 80% of this amount is rebated by the
Commodity Broker to the General Partner. From this rebated amount, the General
Partner paid CISI a monthly co-general partner fee equal to 1/12 of 0.40% of the
month-end NAV of Everest II. In 1998 an opinion of counsel was obtained which
permits CISI to reduce its capital account to 0.50% or less of Everest II's NAV,
and the annual rate of the monthly co-general partner fee is now 0.25%. If there
is a material change in Everest II's brokerage commission structure, investors
and Limited Partners will be informed in writing. The Commodity Broker may, in
the future, increase the fee charged to Everest II.
The General Partner in turn pays a portion of such amount to the Selling Agent
and additional selling agents as selling commissions. 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 Net Asset
Value of Units sold. 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 II pays its current commodity trading advisor, John W. Henry & Company,
Inc. a monthly management fee equal to 0.333% (approximately 4% annually) of
Everest II's month-end Allocated Assets and a quarterly incentive fee equal to
15% of Everest II's New Net Trading Profits as of the end of each quarter.
The Commodity Broker has agreed to pay Everest II interest on Everest II's
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 Everest II assets, above the amount of interest paid to Everest II. The
interest rate to be paid by the Commodity Broker to Everest II is a negotiated
rate which has been negotiated between the Commodity Broker and the General
Partner.
The actual interest income on Everest II'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 II. The Commodity Broker will also be responsible
for execution and clearance of futures contracts (and possibly certain other
Commodity Interests).
A selling commission of 3% of the Net Asset Value of Units sold will be paid,
unless waived in whole or in part by the General Partner, by the Limited
Partners to Capital Management Partners, Inc. ("Capital") or the additional
selling agents in connection with the sale of the Units. Capital is a
CFTC-regulated introducing broker, an NFA member, and an affiliate of the
General Partner. The General Partner may pay up to 100% of the funds it receives
from the Commodity Broker to Capital and the additional 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
total on a combined Partnership and Everest II basis approximately $65,000
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. All expenses shall be billed directly and paid for by the
Partnership. The Partnership's operating expenses for the years 1994-1999 can be
found in the table in Item 6 below.
Neither the Partnership, the General Partner nor CISI has any employees other
than their officers and directors, all of whom are employees of affiliated
companies of the Partnership, the General Partner, and CISI. Rather, the General
Partner, in its capacity as a CFTC-regulated commodity pool operator, contracts
the services of research, fund administration, client support (marketing) and
management information systems and analysis to Capital. As of December 31, 1999
Capital had 10 employees.
The Partnership's business constitutes only one segment for financial reporting
purposes; and the purpose of this limited partnership is to directly or
indirectly through its investment in Everest II 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, 1999 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 permitted 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 minimum subscription amount of $26,000 (the minimum
subscription amount for employee benefit plans and individual retirement
accounts is $10,000).
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 II. 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 2. Properties
The Partnership does not utilize any physical properties in the conduct of its
business. The General Partner and CISI use the offices of the Selling Agent and
CIS respectively, at no additional charge to the Partnership, to perform their
administrative functions, and the Partnership uses the offices of the Selling
Agent, again at no additional charge to the Partnership, as its principal
administrative offices.
Item 3. Legal Proceedings
The General Partner is not aware of any material pending legal proceedings to
which the Partnership or the General Partner is a party or to which any of their
assets is subject.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Units & Related Security Holder Matters
(a) There is no established public market for the Units and none is
expected to develop.
(b) As of December 31, 1999, there were 22,615.30 Units held by Limited
Partners and 198.49 held by the General Partner. A total of 8,415.58 Units were
redeemed by Limited Partners and 69.5 units were redeemed by the General Partner
from January 1, 1997 to December 31, 1999. The Partnership's Fifth Amended and
Restated Agreement of Limited Partnership contains a full description of
redemption and distribution procedures.
(c) To date no distributions have been made to partners of the
Partnership.
The Agreement of Limited Partnership does not provide for a 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
1995 1996 1997 1998 1999
(In thousands, except amounts per Unit)
1. Operating Revenues $569 3,205 $7,337 $9,170 $(4,695)
2. Income (Loss) from
Continuing Operations 371 2,080 4,190 3,756 (9,713)
3. Income (Loss)Per Unit 416.06 377.35 240.0 594.80 (405.66)
4. Total Assets 2,279 12,478 39,462 57,221 41,849
5. Long Term Obligations 0 0 0 0 0
6. Cash Dividend per Unit 0 0 0 0 0
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 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, 1999, Limited Partners redeemed a total of
4,653.93 Units for $9,381,012 and the General Partner did not redeem any Units.
For the year ended December 31, 1998, Limited Partners redeemed a total of
3,273.29 Units for $6,281,330 and the General Partner redeemed a total of 69.50
Units for $150,000.
During 1999, investors purchased 1,891.18 Units (none of the units were
purchased by the General Partner) for $3,876,849.
Since the March 29, 1996 investment by the Partnership of all of its assets in
Everest II there has been no actual credit risk exposure to the Partnership
beyond its actual investment in Everest II.
As of December 31, 1999, Everest II had no credit risk exposure to a
counterparty which is a foreign commodities exchange which was material. Everest
II trades on recognized global futures exchanges. In addition, over the counter
contracts in the form of forward foreign currency transaction are traded by
Everest II. As of December 31, 1999, the Partnership had $235,882 on deposit at
CISFS. CISFS does not deal in foreign exchange forwards, but acts as a broker,
placing the trades immediately with large banks having assets in excess of $100
million. At the settlement date, all transactions with each of the banks are
netted and any excess or deficit is received from or sent to the bank. All of
the Partnership's foreign exchange transactions are transacted in US dollars.
See Footnote 5 of the Financial Statements for procedures established by the
General Partner to monitor and minimize market and credit risks for the
Partnership. As long as the Partnership invests all of its assets in Everest II,
these procedures will be primarily monitoring the performance of Everest II and
monitoring of the daily net asset value of Everest II. CISI, one of the general
partners of Everest II, reviews on a daily basis reports of Everest II's
performance, including monitoring of the daily net asset value of Everest II.
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 partners with assurance that Everest II, and thus the Partnership, will
not suffer trading losses through the Commodity Broker.
Results of Operations
The Partnership's assets through its exclusive investment in Everest II were
traded entirely by the John W. Henry & Company, Inc. Financial and Metals
Portfolio. This strategy concentrates on the financial futures markets including
the global interest rate contracts, foreign exchange, and stock indices. It also
trades precious metals.
1999
The Partnership experienced a disappointing year in 1999. John W. Henry &
Company, Inc (JWH), the trading advisor to the Fund, experienced the most
difficult performance year in its history. A lack of sustained price movements
coupled with abrupt trend reversals in many market sectors resulted in a very
difficult trading environment. The forces that supported strong returns in the
equity markets such as strong consumer confidence and the perception of economic
equilibrium caused volatile, sideways price patterns in the futures markets.
This type of price movement is extremely difficult for long-term trend followers
such as JWH.
The first quarter was marked by the advent of the newly formed Euro currency. In
March, the conflict in Kosovo led to the U.S. dollar gaining dramatically on the
Euro and Swiss franc. As the conflict in Kosovo escalated, the crisis-related
selling of these two currencies continued, resulting in profits for the
Partnership. However, erratic markets in interest rates in Europe and the Far
East along with agricultural markets created losses.
The second quarter was the most profitable for the Partnership. Highlights
included the rising Nikkei and S&P 500 stock indices and the continued rise of
the dollar relative to the Euro and Swiss franc. During May, the U.K. rendered
its decision to sell over 50% of its gold reserves. This drove gold prices lower
and the Partnership's short positions accrued profits. Short U.S. and European
interest rate positions performed well as the Federal Reserve increased the
discount rate a 1/4 point in June.
The third quarter was the most difficult quarter for the Partnership. As the
crisis in Kosovo began to abate, the Partnership's currency positions in the
Euro and Swiss franc quickly reversed and open trade profits were reduced
dramatically. Despite another 1/4 point interest rate increase in August, short
positions in the U.S. interest rate sector suffered. In the final week of
September, 15 European Central Banks announced that they had decided to stop
selling gold for the next five years. Subsequently, gold prices rose a
staggering $50/ounce and handed gold sellers such as the Partnership a
significant loss.
After the final interest rate increase in October, yields on the U.S. 30 year
bond moved from 6.4% to 6.1% and up to 6.5% in the fourth quarter further
emphasizing the difficult trading year. Similar trading patterns occurred in
offshore interest rates which in turn led to negative performance. The Japanese
yen and crude oil helped offset these losses as their positive trends continued.
The Partnership ended the year with a loss of $9,712,984.
1998
The year 1998 was marked by declining global interest rates and commodity prices
and extremely volatile currency fluctuations. The Partnership produced a net
gain of 4.59% for the calendar year.
The first quarter was marked by a flight to quality in the bond market, namely
German bunds and U.S. bonds amidst turbulence in the Asian markets. The U.S.
dollar remained volatile for the first two months of the year and strengthened
during March, primarily versus the German mark and Swiss franc. The volatility
in both these sectors produced overall losses for the Partnership. Warren
Buffett was rumored and then confirmed to be holding significant silver
positions anticipating a rise in silver prices. Long silver prices were
beneficial to the Partnership.
In the second quarter, the U.S. dollar strengthened against the
Japanese yen until the U.S. Government intervened to support the
Japanese yen, essentially selling the U.S. dollar and depressing
the value of the U.S. dollar relative to most major world
currencies. By July, the U.S. dollar was back at all-time highs
against the Japanese yen. Overall, the Partnership gained as a
result of the fluctuation of the U.S. dollar. However, the
ripple effect created volatility for the U.S. dollar versus the
European currencies and the Partnership lost on its positions in
these currencies. Precious metals, namely silver, reversed as
prices slumped. Gold prices seesawed up and down never settling
on direction. The volatility in these markets was unprofitable
to the Partnership.
The third quarter was highlighted by a devaluation of the Russian ruble which
sent shock waves through the world equity markets as traders liquidated equities
in favor of sovereign debt. Even prior to the Russian crisis, the Partnership
was well positioned to take advantage of rising bonds. The Partnership was long
the U.S., German and Japan bond markets. Interest rates on the U.S. 30-year long
bond fell below 5%, the lowest level in over 30 years. In addition, the
Partnership was short the Nikkei and FTSE equity indices. Gold and silver prices
fell to 1998 lows, as short positions in these precious metals were profitable.
The fourth quarter saw extremes in the currency sector as the U.S. dollar again
gyrated for the last three months of the year. The long Japanese yen position
that provided the only profit for the Partnership in October was the largest
losing position in November, yet by December, long Japanese yen positions were
providing profits. The Fed eased interest rates one quarter point three times in
seven weeks. However, long U.S. bond positions reaped few rewards as these rate
cuts had already been factored in the market. Global stock indices rebounded
beginning in October and long positions in the S&P and German DAX proved
rewarding. The Partnership ended the year with a profit of $3,755,667.
1997
During 1997 the global futures markets showed a great deal of volatility and
John W. Henry & Company, Inc., the Partnership's sole commodity trading advisor,
was well positioned to profit from these moves. The Partnership produced a net
gain of 13.17% for the calendar year. The year 1997 was marked by declining gold
prices and interest rates around the globe and a rising U.S. dollar relative to
the German mark and Japanese yen. The strength of these market moves proved
beneficial to the Partnership. The price of gold declined to the lowest level in
over a decade reflecting its declining value as an alternative monetary asset as
central banks increased their willingness to sell or lease the precious metal.
Solid gains were generated in the global interest rate markets, particularly in
the Japanese Government bond where yields plummeted to historic lows as the
nation sank relentlessly into a recession. Strong gains were also recorded in
Australian 10-year bonds and 3-year notes and in German and Italian bonds. Gains
were realized in positions in the German mark, which weakened in world markets
as hopes for European monetary union rose. The U.S. dollar dominated the world
currencies reflecting sound economic fundamentals in the U.S. The Partnership
ended the year with a profit of $4,190,161.
Since the commencement of trading on February 1, 1989 the Partnership has
experienced a cumulative gain of 78.66% through December 31, 1999. For further
discussion and analysis of financial condition please refer to the Notes to the
Combined Financial Statements attached hereto.
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 or Everest II's operations or assets.
Item 7(A). 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 Partnership's main line of business.
Market movements result in frequent changes in the fair market value of the
Partnership's open positions and, consequently, in its earnings and cash flow.
The Partnership's market risk 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 Partnership's open positions 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 Partnership's past performance 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 Partnership's experience 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
Partnership's losses in any market sector will be limited to Value at Risk or by
the Partnership's attempts 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 Partnership's market
sensitive instruments.
Quantifying the Partnership's Trading Value at Risk
Qualitative Forward-Looking Statements
The following quantitative disclosures regarding the Partnership's market risk
exposures 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 Partnership's risk exposure in the various market sectors traded by the
commodity trading advisor is quantified below in terms of Value at Risk. Due to
the Partnership's mark-to-market accounting, any loss in the fair value of the
Partnership's open positions is directly reflected in the Partnership's earnings
(realized or unrealized) 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,
dealers' margins have been used.
In quantifying the Partnership's Value at Risk, 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 each trading category's aggregate Value at
Risk. The diversification effects resulting from the fact that the Partnership's
positions are rarely, if ever, 100% positively correlated have not been
reflected.
The Partnership's Trading Value at Risk in Different Market
Sectors
The following table indicates the trading Value at Risk associated with the
Partnership's open positions by market category as of December 31, 1999. All
open position trading risk exposures of the Partnership have been included in
calculating the figures set forth below. As of December 31, 1999, the
Partnership's total capitalization was approximately $40.0 million.
December 31, 1999
% of Total
Market Sector Value at Risk Capitalization
Interest Rates $ 1.3 million 3.4%
Currencies $ 1.9 million 4.7%
Stock Indices $ 0.7 million 1.6%
Precious Metals $ 1.0 million 2.6%
Commodities $ 0.0 million 0.0%
Energies $ 0.0 million 0.0%
------------- ----
Total $ 4.9 million 12.3%
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 Partnership's open positions creates a "risk
of ruin" not typically found in most other investment vehicles. Because of the
size of its positions, certain market conditions - 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 CIS and
CISFS with the remainder on deposit with Horizon Cash Management, Inc. 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 CIS and CISFS at the 90% of 90-day Treasury bill rate. In addition, should
short term interest rates decline, so will the interest earnings for assets on
deposit with Horizon. As of December 31, 1999, the Partnership had approximately
$ 40.6 million in cash on deposit with CIS, CISFS and Horizon.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's market risk
exposures - 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 Partnership's primary market risk exposures - constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act. The Partnership's primary
market risk exposures 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 Partnership's risk controls 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 Partnership's current market exposure and/or risk management strategies 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, 1999, 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
Partnership's profitability. The Partnership's primary interest rate exposure 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. Consequently, even a material change in short-term rates would have
little effect on the Partnership were the medium to long-term rates to remain
steady.
Currencies. The Partnership's currency exposure is to exchange rate
fluctuations, primarily fluctuations which disrupt the 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 Partnership's primary equity exposure 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. As of December 31, 1999, the
Partnership had no exposure in stock index futures. Ordinarily the primary
exposures are in the FTSE (England), Nikkei (Japan) and All Ordinaries
(Australia) stock indices. 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 Partnership's metals market exposure is to fluctuations in the price
of gold and silver, although it may, from time to time, maintain positions in
other metals. The Trading Advisor has from time to time taken substantial
positions as it has perceived market opportunities to develop. The General
Partner anticipates that gold and silver will remain the primary metals market
exposure for the Partnership.
Commodities. The trading program utilized by the Partnership
does not trade commodities, therefore it has no commodities
exposure.
Energy. The trading program utilized by the Partnership does
not trade energy contracts, therefore it has no energy exposure.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Partnership as of
December 31, 1999.
Foreign Currency Balances. The Partnership's primary foreign currency balances
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 CIS and
CISFS, earning interest at 90% of the average 90-day Treasury bill rate for
Treasury bills issued during each month. The remainder is held at Horizon in
short term liquid investments.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The General Partner monitors the Partnership's performance and the concentration
of its open positions, and consults with the commodity trading advisor
concerning the Partnership's overall risk profile. 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 JWH's 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 JWH's 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 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 2280 West Tyler Street,
Suite 105, Fairfield, Iowa 52556 and its telephone number is (515) 472-5500.
The officers and directors of the General Partner as of December 31, 1999 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, in 1991 and has had primary responsibility for
Partnership syndication for the past two years. 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.
Teresa Prange. Ms. Teresa Prange (born in 1954) became Chief
Financial Officer of the General Partner in 1993. She joined
Capital Management Partners, Inc., a selling agent and affiliate
of the Partnership, in March 1992 where she was responsible for
various financial, accounting and back office activities. Prior
to this, she was self-employed as a copyrighting research
consultant from October 1991 through March 1992. From 1987
through October 1991, Ms. Prange worked as an accountant for
Zimmerman Capital Group. She possesses a B.A. and M.B.A. from
M.I.U., Fairfield, Iowa and became a Certified Public Accountant
in 1988.
Steven L. Foster. Mr. Foster, (born in 1948), has been
associated with the General Partner since 1987, initially as its
Chief Executive Officer and a director and since 1991 as a
director. His term of office as director is annual. Since
1987, Mr. Foster has been a director of Capital Management
Partners, Inc. Mr. Foster has served as Executive Vice
President of United Fuels International, Inc., an oil brokerage
firm based in Waltham, Massachusetts, since 1980. From 1990 to
1994, he served as President of Jillian's Entertainment Corp.
and now serves as Chairman of the Board. During 1978-1979, Mr.
Foster served as President of Spin Off, Inc., a Boston based
entertainment firm. From May 1977 until June 1978, Mr. Foster
served as a law clerk and from July 1978 until May 1979 as an
attorney with the firm of Gordon, Hurwitz, Butowski, Baker,
Weitzen and Shalov in New York City. Mr. Foster received his
J.D. from Boston University, graduating Magna Cum Laude in 1978.
Mr. Foster received his B.A. degree from Brandeis University.
Steven L. Rubin. Mr. Rubin, (born in 1952), has been associated
with the General Partner as a director since 1987. His term of
office as director is annual. Since 1987, Mr. Rubin has been a
director of Capital Management Partners, Inc. Mr. Rubin has
served as President of United Fuels International, Inc., an oil
brokerage firm based in Waltham, Massachusetts, since 1980.
United Fuels International's affiliated companies include:
United Crude Oil, Inc. based in Westport, Connecticut; United
Crude U.K. based in London; and United Fuels International. Mr.
Rubin served for one year as an oil broker with Amerex Oil
Associates in Livingston Manor, New York. Mr. Rubin is a
graduate of Brown University.
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.
The Partnership's investee partnership, Everest II Futures Fund
L.P.:
The two co-general partners of Everest II are Everest Asset Management, Inc.
which is the General Partner of the Partnership, and CIS Investments, Inc. which
is a wholly-owned subsidiary of the Commodity Broker, and are the commodity pool
operators of Everest II. CIS Investments, Inc. is a Delaware corporation
incorporated in 1983, is and has been registered with the CFTC as a commodity
pool operator since December 13, 1985 and is and has been a member of the
National Futures Association since that date. Its address is the same as the
Commodity Broker at Suite 2300, 233 South Wacker Drive, Chicago, Illinois 60606
and its telephone number is (312) 460-4000.
CISI's officers, directors and shareholders are listed below:
Bernard W. Dan (born in December 1960), President and Director.
Mr. Dan has served as President and Director of CISI since June
1, 1998. He received a B.S. degree in accounting from St.
John's University, Collegeville, Minnesota. He joined Cargill
Investor Services, Inc. in 1985 and held various operational
positions. In 1986 Mr. Dan was assigned to Cargill Investor
Services, Ltd. in London as Administrative Manager for all
operational activities. In 1989 Mr. Dan was assigned to the CIS
New York Regional Office as the Administrative Manager. Mr. Dan
was named Director of Cargill Investor Services (Singapore) Pte
Ltd. at the formation of the company in November 1994 and
continued in that position until April 1997. Mr. Dan was named
President of Cargill Investor Services, Inc. on June 1, 1998.
Mr. Dan actively serves within the futures industry on exchange
committees and industry user groups.
Shaun D. O'Brien (born November 1964) is Vice President - Controller/Treasurer
and a director. Mr. O'Brien became a Vice President and a director of CISI on
July 1, 1999. Mr. O'Brien graduated from Northeastern University in 1987 and
he received a master's degree from the University of Minnesota's Carlson School
of Management in 1999. Mr. O'Brien began working for Cargill, Incorporated in
1988 and joined CIS in 1999.
Barbara A. Pfendler (born in May 1953), Vice President and
Director. Ms. Pfendler was appointed Vice President of CISI in
May 1990 and Director of CISI in June 1998. Ms. Pfendler
graduated from the University of Colorado in 1975. She began
her career with Cargill, Incorporated in 1975, holding various
merchandising and management positions within Cargill
Incorporated's Oilseed Processing Division before transferring
to Cargill Investor Services, Inc. in 1986. She is currently
the manager responsible for all activities of the Fund Services
Group at Cargill Investor Services, Inc. She was appointed Vice
President of Cargill Investor Services, Inc. in June 1996 and
Director Cargill Investor Services, Inc. in June 1998.
Jan R. Waye (born in June 1948), Vice President. Mr. Waye was
appointed Vice President of CISI in June 1997. Mr. Waye
graduated from Concordia College, Moorhead, MN, with a B.A.
degree in Communications and Economics in 1970. Mr. Waye
assumed the position of Senior Vice President of Cargill
Investor Services, Inc. in September 1996, after returning from
London where he held various management positions for Cargill
Investor Services, Ltd. including most recently Managing
Director for CIS Europe. Mr. Waye joined Cargill, Incorporated
in 1970 and served in various commodity trading and management
positions in Chesapeake, VA; Winnipeg, Manitoba; and Vancouver,
BC. In 1978 he moved to New York and shortly thereafter
Minneapolis as head of Foreign Exchange for Cargill's metals
trading business. Mr. Waye served in various management
positions in the Financial Markets Group until 1988 when he
assisted in the management and sale of Cargill's life insurance
business in Akron, Ohio. He moved to London in late 1988. Mr.
Waye has served as a member of the Board of LIFFE, the London
International Financial Futures and Options Exchange, and as
Vice Chairman of its Membership and Rules Committee. He also
served on the Board of the London Commodity Exchange up to its
merger with LIFFE.
Christopher Malo (born in August 1956), Vice President. Mr.
Malo graduated from Indiana University in 1976 with a B.S. in
Accounting and further completed the University of Minnesota
Executive Program in 1993. He started working at Cargill,
Incorporated in June 1978 as an internal auditor. He
transferred to Cargill Investor Services, Inc. in August 1979
and served as Secretary/Treasurer and Controller from November
1983 until July 1991. He was elected Vice President,
Administration and Operations in July 1991. Mr. Malo was
Managing Director in Europe from 1996 until January 1999,
responsible for CIS activities and operations in Europe, the
Middle East and Russia. He was an active member of the FIA-UK
Chapter and LIFFE Membership and Rules Committee. He currently
serves on the Board of the FIA in Chicago.
Ronald L. Davis (born in September 1953), Vice President. Mr.
Davis was elected Vice President of CISI in June 1998. Mr.
Davis graduated from Illinois Institute of Technology, Chicago,
Illinois with a B.S. in 1975 and with an M.B.A in 1977. He
began his career in the futures industry with A.G. Becker,
Incorporated in 1980 and joined Cargill Investor Services, Inc.
in 1987 as the Administrative Manager of the Fund Services
Group. He is responsible for all administrative, accounting and
reporting functions of all CISI funds. In June 1998 Mr. Davis
became Business Development Manager of the Fund Services Group.
Rebecca S. Steindel (born in April 1965), Secretary. Ms.
Steindel was elected Secretary of CISI in September 1997. Ms.
Steindel graduated from the University of Illinois in 1987. She
began working at Cargill Investor Services, Inc. in August 1987.
She has held various financial and risk management positions at
Cargill Investor Services, Inc. and was elected Risk and
Compliance Officer and Secretary of Cargill Investor Services,
Inc. in August 1997. She currently serves on the Board of
Directors and Executive Committee of the FIA Financial
Management Division.
Patrice H. Halbach (born in August 1953), Assistant Secretary.
Ms. Halbach became Assistant Secretary of CISI in June 1996.
Ms. Halbach graduated phi beta kappa from the University of
Minnesota with a bachelor of arts degree in history. In 1980
she received a J.D. degree cum laude from the University of
Minnesota. She is a member of the Tax Executives Institute, the
American Bar Association and the Minnesota Bar Association. Ms.
Halbach joined the Law Department of Cargill, Incorporated in
February 1983. She had previously been an attorney with
Fredrikson & Byron, Minneapolis, Minnesota. In December 1990
she was named Senior Tax Manager for Cargill, Incorporated's Tax
Department and became Assistant Tax Director in March 1993. She
was named Assistant Vice President of Cargill, Incorporated's
Administrative Division in April 1994. In January 1999 she was
named Vice President, Tax, of Cargill, Incorporated. In her
current position as Vice President, Tax, Ms. Halbach oversees
Cargill, Incorporated's global tax function.
Barbara A. Walenga (born in February 1960) is an Assistant Secretary. Ms.
Walenga graduated from Fayetteville Technical Institute in 1981. She began
working at CIS in August 1981. She has held various compliance management
positions at CIS and is currently the Legal Compliance Manager. She is currently
a member of the FIA Law and Compliance Division and the SIA Compliance and Legal
Division.
Additional CISI officers include James Clemens as Assistant Secretary and
Lillian Lundeen as Assistant Secretary
Neither CISI nor its individual principals trade or intend to trade commodities
for their own account.
There have been no material criminal, civil or administrative actions during the
preceding five years or ever against CISI or its principals.
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.
Everest II has no directors or executive officers. As a limited partnership, the
business of Everest II is managed by its general partners which are responsible
for the administration of the business affairs of Everest II and receives the
compensation described above in Item 1 "Business" hereof. The officers and
directors of the general partners receive no compensation from the Partnership
for acting in their respective capacities with the general partners.
Item 12. Security Ownership of Certain Owners and Management.
(a) As of December 31, 1999 the following persons were known to the
Partnership to own beneficially more than 5% of the outstanding
Units:
Title of Name & Address Amount & Nature Percent
Class of Beneficial Owner of Beneficial Interest of Class
Units W. Duke Kimbrell 3,023.88 Units 13.25%
P.O. Drawer 1787
Gastonia, NC 28053
Units Pamela K. Warlick Trust 2,227.06 Units 9.76%
U/A DTD 7/7/93
P.O. Box 995
Gastonia, NC 28052
Units Shepard C. Kimbrell Trust 2,476.39 Units 10.85%
U/A DTD 7/7/93
P.O. Box 995
Gastonia, NC 28052
(b) As of December 31, 1999, the General Partner beneficially owned
198.49 Units or approximately 0.87% of the outstanding Units of the Partnership.
Mr. Peter Lamoureux, President of the General Partner owned 17.18697 Units or
0.075% of the outstanding Units. One other shareholder of the General Partner
owned 17.44297 units or 0.08% of the outstanding Units.
As of December 31, 1999, CISI, the co-general partner of Everest
II, owned 369.81172 units of general partnership interests in Everest II
representing 1.12% ownership of the total outstanding partnership interests. As
of December 31, 1999, 98.88% of the beneficial ownership interest of limited
partnership units of Everest II was owned by the Partnership.
(c) As of December 31, 1999, 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.
Part IV
Item 14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K
(a) The following documents are included herein:
(1) Financial Statements:
a. Report of Independent Public Accountants
b. Combined Statements of Financial Condition as of
December 31, 1999 and 1998.
c. Combined Statements of Operations, Combined
Statements of Changes in Partners' Equity,
and Combined Statements of Cash Flows for the years ended
December 31, 1999, 1998, and 1997.
d. Notes to Financial Statements.
(2) All financial statement schedules have been omitted because
the information required by the schedules 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.
(b) Reports of Form 8-K:
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 24, 2000 Everest Futures Fund, L.P.
By: Everest Asset Management, Inc.
(General Partner)
By: /s/ Peter Lamoureux
Peter Lamoureux, President
Secretary and Treasurer
By: /s/ Teresa Prange
Teresa Prange, Chief Financial
Officer
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 24, 2000
By: /s/ Steven Rubin By: /s/ Peter Lamoureux
Steven Rubin, Director Peter Lamoureux,
President Secretary & Treasurer
By: /s/ Steven Foster By: /s/ Teresa Prange
Steven Foster, Director Teresa Prange, Chief
Financial Officer
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.
EVEREST FUTURES FUND, L.P.
(An Iowa Limited Partnership)
Table of Contents
Independent Auditors' Report
Financial Statements:
Combined Statements of Financial Condition
Combined Statements of Operations
Combined Statements of Changes in Partners' Equity
Combined Statements of Cash Flows
Notes to Combined Financial Statements
Acknowledgment
Independent Auditors' Report
The Partners
Everest Futures Fund, L.P.:
We have audited the accompanying combined statements of financial condition
of Everest Futures Fund, L.P. and Everest Futures Fund II, L.P.,
collectively, the Partnership, as of December 31, 1999 and 1998, and the
related combined statements of operations, changes in partners' equity, and
cash flows for each of the years in the three-year period ended December
31, 1999. These combined financial statements are the responsibility of the
Partnership's General Partner. Our responsibility is to express an opinion
on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Partnership at December 31, 1999 and 1998, and the results of their
operations, changes in partners' equity, and cash flows for each of the
years in the three-year period ended December 31, 1999, in conformity with
generally accepted accounting principles.
K.P.M.G. L.L.P.
Chicago, IL
February 3, 2000
EVEREST FUTURES FUND, L.P.
(An Iowa Limited Partnership)
Combined Statements of Financial Condition
December 31, 1999 and 1998
Assets 1999 1998
------------ -----------
Cash and cash equivalents $16,410,917 46,220,386
Equity in commodity trading accounts:
Cash on deposit with Brokers 5,281,725 4,919,607
Net unrealized trading gains on open contracts 670,107 5,802,585
Investments, at fair value 18,867,562 --
Tax receivable 36,445 36,445
Interest receivable 581,849 241,554
-----------------------
Total assets $41,848,605 57,220,577
=======================
Liabilities, Minority Interest, and Partners' Equity
Liabilities:
Redemptions payable $ 1,055,043 1,024,873
Commissions payable 192,660 225,131
Advisor's management fee payable 138,225 188,693
Accrued expenses 29,962 27,364
-----------------------
Total liabilities 1,415,890 1,466,061
-----------------------
Minority interest 452,105 556,759
-----------------------
Partners' equity:
Limited Partners (22,615.30 and 25,378.05 units outstanding
at December 31, 1999 and 1998, respectively) 39,632,760 54,769,377
General Partners (198.49 unit equivalents outstanding
at December 31, 1999 and 1998) 347,850 428,380
-----------------------
Total partners' equity 39,980,610 55,197,757
-----------------------
Total liabilities, minority interest, and partner's equity $41,848,605 57,220,577
=======================
Net asset value per outstanding unit of Partnership interest $ 1,752.48 2,158.14
=======================
See accompanying notes to combined financial statements.
EVEREST FUTURES FUND, L.P.
(An Iowa Limited Partnership)
Combined Statements of Operations
Years ended December 31, 1999, 1998, and 1997
1999 1998 1997
--------------- ------------- --------------
Trading income (loss):
Net realized trading gain (loss) on closed contracts $ (2,066,878) 2,823,961 4,482,936
Change in net unrealized trading gain (loss)
on open contracts (5,132,478) 3,981,075 1,648,592
Change in net unrealized gain (loss) on investments (49,894) -- --
Net foreign currency translation gain (loss) 46,852 (154,682) (125,711)
Brokerage commissions (3,045,619) (2,726,807) (1,495,903)
--------------- ------------- --------------
Total trading income (loss) (10,248,017) 3,923,547 4,509,914
Interest income, net of cash management fees 2,507,482 2,519,904 1,330,726
--------------- ------------- --------------
Total income (loss) (7,740,535) 6,443,451 5,840,640
--------------- ------------- --------------
General and administrative expenses:
Advisor's management fees 2,004,411 1,835,911 1,018,708
Advisor's incentive fees -- 753,071 523,681
Administrative expenses 72,692 61,502 66,256
--------------- ------------- --------------
Total general and administrative expenses 2,077,103 2,650,484 1,608,645
Minority interest 104,654 (37,300) (41,834)
--------------- ------------- --------------
Net income (loss) $ (9,712,984) 3,755,667 4,190,161
=============== ============= ==============
Income (loss) per unit of partnership interest (for a unit outstanding
throughout each year):
General Partner $ (405.66) 94.80 240.05
Limited partners (405.66) 94.80 240.05
=============== ============= ==============
Net income (loss) allocated to:
General Partner $ (80,530) 40,329 41,666
Limited partners (9,632,454) 3,715,338 4,148,495
=============== ============= ==============
See accompanying notes to combined financial statements.
EVEREST FUTURES FUND, L.P.
(An Iowa Limited Partnership)
Combined Statements of Changes in Partners' Equity
Years ended December 31, 1999, 1998, and 1997
Total Limited General
Units Partners Partner Total
-------------- --------------- ------------ ---------------
Partners' equity at December 31, 1996 6,079.60 $ 10,973,945 110,949 11,084,894
Partner contributions 12,655.67 23,057,009 222,770 23,279,779
Partner redemptions (488.36) (905,220) -- (905,220)
Net income -- 4,148,495 41,666 4,190,161
-------------- --------------- ------------ ---------------
Partners' equity at December 31, 1997 18,246.91 37,274,229 375,385 37,649,614
Partner contributions 10,672.42 20,061,140 162,666 20,223,806
Partner redemptions (3,342.79) (6,281,330) (150,000) (6,431,330)
Net income -- 3,715,338 40,329 3,755,667
-------------- --------------- ------------ ---------------
Partners' equity at December 31, 1998 25,576.54 54,769,377 428,380 55,197,757
Partner contributions 1,891.18 3,876,849 -- 3,876,849
Partner redemptions (4,653.93) (9,381,012) -- (9,381,012)
Net loss -- (9,632,454) (80,530) (9,712,984)
-------------- --------------- ------------ ---------------
Partners' equity at December 31, 1999 22,813.79 $ 39,632,760 347,850 39,980,610
============== =============== ============ ===============
See accompanying notes to combined financial statements.
EVEREST FUTURES FUND, L.P.
(An Iowa Limited Partnership)
Combined Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
1999 1998 1997
--------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) $ (9,712,984) 3,755,667 4,190,161
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Decrease (increase) in net unrealized trading
gain (loss) on open contracts 5,132,478 (3,981,075) (1,648,592)
Decrease in net unrealized gain (loss) on investments 49,894 -- --
Increase in investments (18,917,456) -- --
Increase in tax receivable -- (36,445) --
Increase in interest receivable (340,295) (119,638) (64,136)
Increase (decrease) in commissions payable (32,471) 63,383 113,771
Increase (decrease) in management and
incentive fees payable (50,468) (333,710) 158,089
Increase (decrease) in accrued expenses 2,598 (13,589) 23,031
Increase (decrease) in minority interest (104,654) 167,300 261,834
--------------- -------------- --------------
Net cash provided by (used in) operating activities (23,973,358) (498,107) 3,034,158
--------------- -------------- --------------
Cash flows from financing activities:
Proceeds from offering of units 3,876,849 19,590,412 23,087,470
Redemption of units of partnership interest (9,350,842) (5,470,617) (851,026)
--------------- -------------- --------------
Net cash provided by (used in) financing activities (5,473,993) 14,119,795 22,236,444
--------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (29,447,351) 13,621,688 25,270,602
Cash and cash equivalents at beginning of year 51,139,993 37,518,305 12,247,703
--------------- -------------- --------------
Cash and cash equivalents at end of year $ 21,692,642 51,139,993 37,518,305
=============== ============== ==============
See accompanying notes to combined financial statements.
EVEREST FUTURES FUND, L.P.
(An Iowa Limited Partnership)
Notes to Combined Financial Statements
December 31, 1999, 1998, and 1997
(1) Organization of the Partnership
Everest Futures Fund, L.P. (Partnership) was organized in June 1988,
under the Iowa Uniform Limited Partnership Act (Act) for the purpose of
engaging in the speculative trading of futures and options thereon
and forward contracts. The sole General Partner of the Partnership is
Everest Asset Management, Inc. (General Partner).
On March 29, 1996, the Partnership transferred all of its assets to and
became the sole limited partner of, Everest Futures Fund II, L.P.
(Trading Partnership), a newly formed limited partnership which invests
directly in commodity interests. The co-general partners of the Trading
Partnership are CIS Investments, Inc. (CISI) and the General Partner
(collectively, the General Partners). The clearing broker is Cargill
Investor Services, Inc. (CIS or Clearing Broker), the parent company of
CISI. The forwards broker is CIS Financial Services, Inc. (CISFS or
Forwards Currency Broker), an affiliate of CISI. The Clearing Broker and
the Forwards Currency Broker will collectively be referred to as the
Brokers.
The Partnership was closed to new investors from July 31, 1989 to June
30, 1995. Effective July 1, 1995, the Partnership reopened to new
investors. 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 fee payable to the General
Partner, and a selling commission equal to 1% and 3%, respectively, of
net asset value per unit. The General Partner may waive, in whole or in
part, the selling commission. Partnership interests are distributed
through Capital Management Partners, Inc., an affiliate of the General
Partner, and certain Additional Sellers.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements are prepared on a combined
basis and include the accounts of Everest Futures Fund, L.P. and
Everest Futures Fund II, L.P. All significant intercompany
transactions and balances have been eliminated in the accompanying
combined financial statements.
Cash and Cash Equivalents
Cash equivalents represent short-term highly liquid investments
with remaining maturities of 60 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. For purposes of the statements of
cash flows, cash and cash equivalents includes cash and cash
equivalents and cash on deposit with Brokers in the equity in
commodity futures trading accounts.
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 which approximate fair value, because of their
highly liquid nature and short-term maturity.
Revenue Recognition
Commodity futures contracts, forward contracts, physical
commodities, and related options are recorded on the trade date.
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.
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 combined
statements of operations.
Income Taxes
Income taxes are not provided for by the Partnership because
taxable income (loss) of the Partnership is includable in the
income tax returns of the partners.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from
those estimates.
Minority Interest
Minority interest represents CISI's interest in the Trading
Partnership.
(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 his capital contribution and
profits, if any, and such other amounts as he 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 4).
The Trading Partnership bears all expenses incurred in connection with
its trading activities, including commodity brokerage commissions and
fees payable to the trading advisor, as well as legal, accounting,
auditing, printing, mailing, and extraordinary expenses. The Partnership
bears all of its administrative expenses.
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 ten days' prior written
notice. The Partnership will be dissolved at December 31, 2020, or upon
the occurrence of certain events, as specified in the Limited
Partnership agreement.
(4) Other Agreements
The Trading Partnership's sole trading advisor is John W. Henry &
Company, Inc. (JWH). The General Partners may replace the advisor or
add additional advisors at any time.
JWH receives from the Trading Partnership a monthly management fee equal
to 0.33% (4% annually) of the Trading Partnership's month-end net asset
value, as defined, and a quarterly incentive fee of 15% of the Trading
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 Trading Partnership.
CIS charges the Trading Partnership monthly brokerage commissions equal
to 0.50% of the Trading Partnership's beginning-of-month net asset
value, as defined. The General Partner receives a management fee from
CIS of approximately 83% of the brokerage commission charged by CIS.
Prior to November 1, 1995, no management fee was received by the General
Partner. From this management fee, CISI receives a co-general partner
fee from the General Partner equal to 1/12 of .25% of the month-end net
asset value, as defined. Prior to January 1, 1999, CISI received 1/12 of
.40% of the month-end net asset value.
A portion of assets (84% and 81% at December 31, 1999 and 1998,
respectively) 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.
(5) Financial Instruments with Off-balance Sheet Risk
The Partnership was formed to speculatively trade commodity interests.
The Partnership's commodity interest transactions and related cash
balances are on deposit with the Brokers at all times. In the event that
volatility of trading of other customers of the Brokers impaired the
ability of the Brokers to satisfy the obligations to the Partnership,
the Partnership would be exposed to off-balance sheet risk. Such risk is
defined in Statement of Financial Accounting Standards No. 105 (SFAS
105) as a credit risk. To mitigate this risk, the Clearing Broker,
pursuant to the mandates of the Commodity Exchange Act, is required to
maintain funds deposited by customers, relating to futures contracts in
regulated commodities, in separate bank accounts which are designated as
segregated customers' accounts. In addition, the Clearing Broker has set
aside funds deposited by customers relating to foreign futures and
options in separate bank accounts which are designated as customer
secured accounts. Lastly, the Clearing Broker is subject to the
Securities and Exchange Commission's Uniform Net Capital Rule which
requires the maintenance of minimum net capital at least equal to 4% of
the funds required to be segregated pursuant to the Commodity Exchange
Act. The Clearing Broker and Forwards Currency Broker both have controls
in place to make certain that all customers maintain adequate margin
deposits for the positions which they maintain at each Broker. Such
procedures should protect the Partnership from the off-balance sheet
risk as mentioned earlier. Neither the Clearing Broker or the Forwards
Currency Broker engage in proprietary trading and thus have no direct
market exposure.
The contractual amounts of commitments to purchase and sell exchange
traded futures contracts and foreign currency forward contracts were
$105,684,842 and $196,940,119, respectively, on December 31, 1999, and
$770,165,935 and $1,165,567,730, respectively, on December 31, 1998. The
contractual amounts of these instruments reflect the extent of the
Partnership's involvement in the related futures and forward contracts
and do not reflect the risk of loss due to counterparty nonperformance.
Such risk is defined by SFAS 105 as credit risk. The counterparty of the
Partnership for futures contracts traded in the United States and most
non-U.S. exchanges on which the Partnership trades is the Clearing House
associated with the exchange. In general, Clearing Houses are backed by
the membership and will act in the event of nonperformance by one of its
members or one of the members' customers and as such should
significantly reduce this credit risk. In the cases where the
Partnership trades on exchanges on which the Clearing House is not
backed by the membership, the sole recourse of the Partnership for
nonperformance will be the Clearing House. The Forwards Currency Broker
is the counterparty for the Partnership's forward transactions. CISFS
policies require that they execute transactions only with top rated
financial institutions with assets in excess of $100,000,000.
The average fair value of commodity interests was $2,915,108,
$3,023,080, and $1,455,739 during 1999, 1998, and 1997, respectively.
Fair value as of December 31, 1999 and 1998 were $670,107 and
$5,802,585, respectively. The net gains or losses arising from the
trading of commodity interests are presented in the statements of
operations.
The Partnership holds futures and futures options positions on the
various exchanges throughout the world and forward positions with CISFS
which transacts with various top rated banks throughout the world. As
defined by SFAS 105, futures and foreign currency contracts are
classified as financial instruments. SFAS 105 requires that the
Partnership disclose the market risk of loss from all of its financial
instruments. Market risk is defined as the possibility that future
changes in market prices may make a financial instrument less valuable
or more onerous. If the markets should move against all of the futures
positions held by the Partnership at the same time, and if the markets
moved such that the CTAs were unable to offset the futures positions of
the Partnership, the Partnership could lose all of its assets and the
partners would realize a 100% loss. The Partnership has a contract with
a CTA who makes the trading decisions on behalf of the Partnership. That
CTA trades a program which is diversified among the various futures
contracts in the financials and metals group on exchanges both in the
U.S. and outside the U.S. Such diversification should greatly reduce
this market risk.
At December 31, 1999, the cash requirement of the commodity interests of
the Partnership was $5,198,824. This cash requirement is met by
$3,671,052 being held in segregated funds, $2,044,897 being held in
secured funds, and $235,882 being held in nonregulated funds. At
December 31, 1998, the cash requirement of the commodity interests of
the Partnership of $5,216,151 was met by $2,311,687 being held in
segregated funds, $5,732,920 being held in secured funds, and $2,677,584
being held in nonregulated funds. At December 31, 1999 and 1998, cash
was on deposit with the Brokers which exceeded the cash requirement
amount. The following chart discloses the dollar amount of the
unrealized gain or loss on open contracts of the Partnership at December
31, 1999 and 1998:
Commodity Group 1999 1998
-------- ----------
Currency $120,829 552,825
Stock Indices 122,676 --------
Metals (227,160) (8,580)
Interest 653,762 5,258,340
The range of expiration dates of these exchange-traded open contracts
is February 2000 to December 2000.
Acknowledgment
To the best of my knowledge and belief, the information contained herein is
accurate and complete.
/s/ Peter Lamoureux
Peter Lamoureux
President
Everest Asset Management, Inc.
General Partner of Everest Futures Fund, L.P.