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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, 2001
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:
(641) 472-5500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation SK is not contained herein
and will not be contained to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of Form 10K: [ X ]
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the Registrant as of February
28, 2002: $39,268,945.03
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 42,736.19 additional Units sold for
$75,054,598 since July 1, 1995 through December 31, 2001.
During its operation, the Partnership has had various advisors.
In December 1990, John W. Henry & Company, Inc. (JWH) began
trading for the Partnership as one of the Partnership's trading
advisors. In May 1994, JWH became the sole advisor to the
Partnership. In March 1996, the Partnership transferred all of
its assets to, and became the sole limited partner of, Everest
Futures Fund II, L.P. (Everest II) and JWH began trading for
Everest II. In July 2000, the Partnership redeemed approximately
50% of its assets from Everest II and allocated them to Trilogy
Capital Management, LLC's (Trilogy) Barclay Futures Index Program
(BFIP). The Partnership instructed Trilogy to trade its account
using twice the leverage of Trilogy's un-leveraged portfolio to
attempt to achieve a return greater than the return of the Index
before fees and expenses. Effective as of the close of business
August 31, 2000, the Partnership liquidated the balance of its
investment in Everest II and opened a trading account directly
with JWH. JWH has used its Financial and Metals Portfolio while
trading for Everest II and the Partnership through June 30, 2001.
Beginning July 1, 2001, JWH began trading its Strategic
Allocation Program for the Partnership with a trading allocation
of $40 million. Trilogy was terminated as trading advisor June
30, 2001. Effective September 1, 2001, Mount Lucas Management
Corporation (MLM) was added as trading advisor with an initial
allocation of $10 million. This allocation represented notional
funding for the Partnership.
The Partnership clears all of its futures and options on futures
trades through Cargill Investor Services, Inc. (CIS), its
clearing broker, and all of its cash trading through CIS
Financial Services, Inc. (CISFS), an affiliate of CIS.
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.
Since commencing trading operations, the Partnership has engaged
in the speculative trading of Commodity Interests and will
continue to do so until its dissolution and liquidation, which
will occur on the earlier of December 31, 2020 or the
occurrence of any of the events set forth in Paragraph 4(a) of
the Agreement of Limited Partnership. Such events are (i) an
election to dissolve the Partnership made by over 50% of the
Limited Partnership Units at least 90 days prior to dissolution,
(ii) withdrawal, insolvency, or dissolution of the General
Partner (unless a new general partner is substituted), (iii)
decline in the Net Asset Value of the Partnership at the close
of any business day to less than $300,000, or (iv) any event
which will make it unlawful for the existence of the Partnership
to be continued or requiring termination of the Partnership.
The address of the General Partner and the Partnership is 2280
West Tyler Street, Suite 105, Fairfield, Iowa 52556, and the
telephone number is (641) 472-5500. The General Partner changed
its name as of March 1, 1994 and amended its Certificate of
Incorporation, with no other changes, accordingly. In
accordance with the provisions of the Commodity Exchange Act and
the rules of the National Futures Association (NFA), the General
Partner is registered as a commodity pool operator and a
commodity trading advisor, JWH and MLM are registered as
commodity trading advisors and the Commodity Broker is registered
as a futures commission merchant, each subject to regulation by
the Commodity Futures Trading Commission (CFTC). Each is also a
member of the NFA in such capacity.
The General Partner to the exclusion of the limited partners of
the Partnership (the "Limited Partners"), manages and conducts
the business of the Partnership. Thus the General Partner (i)
selects and monitors the independent commodity trading advisor(s)
and the Commodity Broker; (ii) allocates and/or reallocates
assets of the Partnership to or from JWH, MLM 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 MLM and not the General Partner. In addition, the
General Partner selects the commodity broker(s) that will clear
trades for the advisor(s). Cargill Investor Services, Inc.
currently acts as Everest's commodity broker and CIS Financial
Services, Inc., an affiliate of Cargill Investor Services, Inc.,
acts as Everest's currency dealer.
The General Partner is responsible for the preparation of
monthly and annual reports to the Limited Partners; filing
reports required by the CFTC, the NFA, the SEC and any other
federal or state agencies having jurisdiction over the
Partnership's operations; calculation of the Net Asset Value
(meaning the total assets less total liabilities of the
Partnership {for a more precise definition, see the Exhibit
"Form 10 - General Form for Registration of Securities"
incorporated by reference hereto}) and directing payment of the
management and incentive fees payable to JWH and MLM or the
advisor(s)under an advisory agreement(s) entered into with the
commodity trading advisor(s).
Everest pays the Commodity Broker a brokerage commission
charge equal to 0.5052% of the Partnership's Beginning Net Asset
Value as of the beginning of each month (approximately 6.0625%
annually). Monthly brokerage commissions will increase
incrementally to 0.5208% (approximately 6.25% annually) as the
trading allocation to MLM increases. Approximately 83% of this
amount is rebated by the Commodity Broker to the General Partner.
If there is a material change in Everest'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.
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 pays John W. Henry & Company, Inc., one of its current
commodity trading advisors, a monthly management fee equal to
0.167% (approximately 2% annually) of Everest's month-end
Allocated Assets, as defined, and a quarterly incentive fee equal
to 20% (15% April 1, 1995 through October 1, 2000) of Everest's
trading profits allocable to its trading exclusive of interest
income on Allocated Assets, as defined. The incentive fee is
retained by JWH even though trading losses may occur in
subsequent quarters; however, no further incentive fees are
payable until any such trading losses (other than losses
attributable to redeemed units and losses attributable to assets
reallocated to another advisor) are recouped by Everest. Prior
to October 1, 2000, the management fee paid to JWH was 4%
annually.
MLM receives a monthly management fee of 0.0625% (0.75% annually)
of the Partnership's month-end allocated assets as defined. As
MLM uses the MLM Index-Unleveraged, they do not receive an
incentive fee.
Trilogy received a monthly management fee equal to 0.075%
(approximately 0.90% annually) of Everest's month-end allocated
assets, as defined. Trilogy did not receive an incentive fee.
The Commodity Broker has agreed to pay Everest interest on
Everest'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 assets, above the amount of interest paid to
Everest. The interest rate to be paid by the Commodity
Broker to Everest is a negotiated rate which has been
negotiated between the Commodity Broker and the General Partner.
The actual interest income on Everest's assets earned by the
Commodity Broker may be greater than or less than the negotiated
rate to be paid by the Commodity Broker to Everest. The
Commodity Broker will also be responsible for execution and
clearance of futures contracts (and possibly certain other
Commodity Interests).
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. Capital is also registered with the National
Association of Securities Dealers (NASD) as a broker dealer. 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 be 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 1997-2001 can be
found in the table in Item 6 below.
Neither the Partnership nor the General Partner has any
employees other than their officers and directors, all of whom
are employees of affiliated companies of the Partnership and
General Partner. 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, 2001 Capital had 11 employees.
The Partnership's business constitutes only one segment for
financial reporting purposes; and the purpose of this limited
partnership is to trade, buy, sell, spread or otherwise acquire,
hold or dispose of Commodity Interests including futures
contracts, forward contracts, physical commodities and related
options thereon. The objective of the Partnership's business is
appreciation of its assets through speculative trading in such
Commodity Interests. Financial information about the
Partnership's business, as of December 31, 2001 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, MLM, 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 and/or MLM
obtains, produces or utilizes in the performance of services for
the Partnership through its investment in Everest. To the extent
that JWH or MLM 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, MLM, 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 uses the offices of
the Selling Agent 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, 2001, there were 24,907.39 Units
held by Limited Partners and 198.49 held by the General Partner.
A total of 13,478.59 Units were redeemed by Limited Partners
and 69.5 units were redeemed by the General Partner from
January 1, 1999 to December 31, 2001. 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
1997 1998 1999 2000 2001
(In thousands, except amounts per Unit)
1. Operating Revenues $7,337 $9,170 $(4,695) (186) 4,688
2. Income (Loss) from
Continuing Operations 4,190 3,756 (9,713)(3,969 1,284
3. Income (Loss) Per Unit 240.0 594.80 (405.66)(133.98) 48.46
4. Total Assets 39,462 57,221 41,849 43,075 42,235
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, 2001, Limited Partners redeemed
a total of 2,286.33 Units for $3,783,769 and the General Partner
did not redeem any Units. For the year ended December 31, 2000,
Limited Partners redeemed a total of 6,538.33 Units for
$9,768,550 and the General Partner did not redeem any Units.
During 2001, investors purchased 1,288.52 Units (none of the
units were purchased by the General Partner) for $2,101,548.
As of December 31, 2001, Everest had no credit risk exposure
to a counterparty which is a foreign commodities exchange which
was material. Everest trades on recognized global futures
exchanges. In addition, over the counter contracts in the form
of forward foreign currency transaction are traded by Everest.
As of December 31, 2001, the Partnership had 4,245,024 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. The General Partner
of Everest, reviews on a daily basis reports of Everest's
performance, including monitoring of the daily net asset value of
Everest. The financial situation of the Commodity Broker is
monitored on a monthly basis to monitor specific credit risks.
The Commodity Broker does not engage in proprietary trading and
thus has no direct market exposure which provides the general
partner with assurance that the Partnership, will not suffer
trading losses through the
Commodity Broker.
Results of Operations
The Partnership's assets were traded 50% by the John W. Henry &
Company, Inc. Financial and Metals Portfolio (JWH) until June 30,
2001. Beginning July 1, 2001 The Partnership invested 100% of
its cash position in the John W. Henry & Company, Inc. Strategic
Allocation Program. The 50% allocation to Trilogy's Barclay
Futures Index Program was terminated June 30, 2001.
In September the Partnership began an allocation to another
futures index fund, the MLM Index Program unleveraged, managed
by Mount Lucas Management Corporation (MLM) in Princeton, NJ.
At December 31, 2001 the Partnership had approximately $41.9
million in assets. JWH's allocation was approximately $40
million and MLM's was approximately $9.9 million.
2001
For the year, the Partnership was negatively correlated to the
equity indices. The Partnership was positive for the first and
third quarters and negative for the second and fourth quarters.
The S&P 500 was just the opposite. The Partnership had a
positive result of 2.78% for the year, while the S&P 500 was
negative 13.04%.
The Partnership recorded a gain of $4,275,321 or $163.15 per Unit
for the first quarter of 2001. This compares to a loss of
$5,502,945 or $200.52 per Unit for the first quarter of 2000.
The Partnership continued to employ two different trading
strategies for the first quarter 2001. The Fund was down 1.08%
in January. The John W. Henry & Company Financial and Metals
Portfolio (JWH) was profitable for the month due to interest rate
positions. A significant portion of the positive returns
occurred during the last days of the month surrounding the Fed
cut in rates on January 21st. In spite of the unusual action of
two 50 basis point rate cuts by the Fed in a single month, bond
prices actually declined by just over 2 points for January. All
the remaining sections traded, currencies, non-US stock indices
and metals, incurred losses. The Barclay Futures Index Program
(BFIP) had an allocation of approximately 50% of the Fund's
assets for the first quarter 2001. In January the Index had a
decline for the Fund of 6.03%. The largest losses came in the
energies and grains and overall six of the seven sub-indexes (or
sectors) were negative. The only exception was profits in softs,
especially sugar. All in all, the Partnership posted a loss of
$455,012 or $17.43 per Unit in January.
The Fund was up 0.78% in February. The JWH allocation was again
positive with gains in short term interest rates. The short term
rates reacted to central bank easing and the massive rally in the
Japanese government Bond as the Japanese economy showed signs of
sputtering, realized gains. After eliminating their zero
interest rate policy last August because of the belief that a
recovery was around the corner, the Bank of Japan is again
following a monetary policy of easing as rates were brought down
15 basis points. The Japanese stock market reacted and the
Nikkei stock index hit a 15 year low during February. Currencies
suffered losses for the month as they were affected by a
weakening in the euro, which offset some of the earlier gains
from the beginning of the year. Late in the month, the euro
tumbled to two-month lows against the dollar in the wake of
Turkey's lira currency float. Market concerns about European
bank exposure to Turkish assets helped push the euro, already
trending lower during the month, to fresh troughs. Metals were
slightly unprofitable for the month. The BFIP allocation of the
Fund lost 1.35%. The passive index had losses in metals and
currencies and profits in meats, softs, and energies. Overall,
the Partnership posted a gain of $318,381 or $12.51 per Unit in
February.
The Fund was up 10.42% in March. The JWH program was up 12.88%
with all four sectors being profitable. Currencies led the way
due to continued weakness in the Japanese yen, although the other
currencies were also profitable. Declining interest rates also
helped for the month, led by the Euro Bund and the Japanese
government bond. Many attributed the strength in bond prices to
be the result of the 'flight to safety' due to continued weakness
in the equity markets. Stock index trading was mixed and there
was a small gain in metals. The BFIP gained back its losses from
January and February with a positive 7.49% result in March. The
gains came in the softs, metals, grains, currencies and energies.
Smaller losses came in meats and financials. Overall, the
Partnership posted a gain of $4,411,952 or $168.07 per Unit in
March.
The Partnership recorded a loss of $3,358,859 or $128.90 per Unit
for the second quarter of 2001. This compares to a loss of
$4,221,518 or $151.95 per Unit for the second quarter of 2000.
The Partnership continued to employ two different trading
advisors for the second quarter 2001. The Fund had a loss of
7.31% in April as both advisors suffered losses. The JWH firm
had reversals of the trends that had created profits in the first
quarter, mostly in currencies and interest rates. The Barclay
Futures Index Program (BFIP) gave back most of its gains from
March with losses in six out of seven sectors traded. The
Partnership recorded a loss of $3,394,496 or $130.21 per unit in
April.
May was a positive month for the Fund (up 1.51%), with both JWH
and the BFIP showing profits. On the JWH side, currencies led
the way with the dollar showing strength against the Euro and
Swiss franc. Profits were also seen in the British pound.
Interest rate positions were slightly negative for JWH, as were
overseas stock indexes and metals. The BFIP had gains in 5 out
of 7 sectors traded. They were, in this order, softs, energies,
grains, financials and currencies. The two losing sectors were
metals and meats. The Partnership recorded a gain of $641,062 or
$24.92 per unit in May.
June saw a loss of 1.41% for the Fund. The JWH programs were
down 4.29% coming from losses in interest rate and currency
sectors. However, the JWH losses were somewhat offset by the
BFIP gain of 1.92% coming in six of their seven sectors traded.
The largest gain for BFIP came in softs, following by metals and
energies. The Partnership recorded a loss of $605,424 or $23.61
per Unit in June.
The Partnership recorded a gain of $2,164,094 or $84.89 per Unit
for the third quarter of 2001. This compares to a loss of
$1,597,603 or $58.14 per Unit for the third quarter of 2000.
At September 30, 2001, John W. Henry & Company, Inc. (JWH) was
managing approximately $42 million in allocated assets for the
Partnership, and Mount Lucas Management Corporation's MLM Index
(MLM) was managing approximately $10 million in allocated assets.
As of September 30, the Partnership had approximately $44 million
in assets.
In July, the Partnership had a loss of 3.92%. The JWH Strategic
Allocation Program replaced the JWH Financial and Metals Program
beginning in July. The month was one of transition, especially
for the currency markets, with a key reversal in the dollar's
upward movement and growing talk that the dollar trend may be
reaching an end. The currency sector under performed, while
diversified programs had more modest declines.
In July the MLM Index Program had not yet begun trading. The
Partnership had a loss of 1,651,375 or $64.87 per Unit in July.
In August, the Partnership had a gain of 5.63%. The monthly
performance was dominated by the active behavior of the central
banks, with easing by the Fed, the Bank of Japan, and the
European Central Bank (ECB). These actions drove trends in
interest rates and currencies. The most significant gains came
in European interest rates and the dollar/Euro exchange rate.
The MLM Program did not trade in August. The Partnership had a
gain of $2,282,136 or $89.45 per Unit in August.
In September, the Partnership had a gain of 3.59%. The JWH SAP
Program had a gain of 3.69%, making profits in the global bond
markets. Bond prices rose as investors came out of equities and
into bonds after the September 11th attacks on America. Profits
were made in precious metals, where prices rose as they often do
in a crisis. Profits were also made in overseas stock indices,
which tended to sell off as a reaction to the economic
uncertainties of the month.
The MLM Index Program received its first allocation in the month
of September and posted a gain of 0.67%. The Partnership
recorded a gain of $1,533,334 or $60.16 per Unit in September.
The Partnership had JWH's Strategic Allocation (SAP) program for
its core investment of approximately $44 million at the beginning
of the fourth quarter. In addition, the Partnership had a $10
million notional allocation to the MLM Index Program
(unleveraged).
In October JWH SAP had a profit of 3.94%, mostly from gains in
the interest rate sector and energies. The MLM overlay program
was also slightly positive at 0.31% overall. The Partnership was
up 3.82% for the month.
In November the Partnership had a loss of 14.72%. At JWH losses
were concentrated in the fixed-income markets. Bonds had rallied
much of the year, but this rally was reversed in November with
one of the sharpest sell offs in decades. Given the previous
strength in fixed income trends, these positions dominated risk
exposure and there were no trends in other markets to offset the
interest rate losses. The MLM Index Program (unleveraged) had
losses in five out of seven sectors traded. As sentiment
switched from prolonged recession to swift recovery, commodity
and bond markets were driven against the trends.
In December the Partnership recovered some of November's loss
with a gain of 8.35%. JWH's gain was 8.61%, primarily from
currencies, especially the Japanese yen. Although profits were
posted in the European and North American bond positions with new
trends toward higher rates, the interest rate sector was down for
the month due to a loss in the Japanese 10 year bond. The MLM
had a gain of 0.48% from softs, grains, and currencies.
Overall, the Partnership had a loss of 4.07% for the fourth
quarter.
The Partnership ended the year with gain of $1,283,739.
2000
Despite a robust positive 20.61% for the fourth quarter, the
Partnership had a losing year in 2000. The lack of trends in the
markets traded by JWH brought a decline through the month of
September, which itself was carried over from the year 1999. Due
to the fact that JWH had exceeded its worst draw down, its
longest draw down and its previous worst 12, 18, and 24 month
performance, the General Partner reallocated approximately 50% of
the Partnership's assets to the Barclay Futures Index Program
effective August 1, 2000. This resulted in better results for
August and September than the Partnership would have had with
JWH, as that firm continued to struggle. However, JWH had a very
strong fourth quarter, while the BFIP was essentially flat. This
limited the Fund's recovery.
The first quarter saw losses in trading from currencies and
global interest rates. The period saw large capital shifts out
of the U.S. dollar and overall currency destabilization.
The second quarter saw mixed results, with profits in April
exceeded by losses in May and June. Early in the quarter,
volatility in stocks led to a stronger U.S. dollar versus the
euro, and profitability for the Partnership. Later, however,
mixed inflationary signals set the scene for the two major trend
reversals: the U.S. interest rate markets headed lower and the
euro abruptly reversed its long term downtrend versus the dollar.
The concentration of trading losses was again in the euro for the
end of the second quarter.
The third quarter's losses were essentially half of what they
would have been had the Partnership not allocated approximately
50% of its assets away from JWH to the Barclay Futures Index
Program. The BFIP was up 1.77% and JWH was down 8.69% for the
quarter. JWH continued to struggle with interest rates and
currency losses, some due to European Central Bank intervention
to boost the euro. The BFIP gained overall for the two months
they traded, mostly coming in the energy sector.
The fourth quarter saw large gains by JWH and slightly negative
return from the BFIP. JWH had profits in currencies and interest
rates. Despite a positive 20.6% fourth quarter, the Partnership
finished the year with a loss of $3,969,456.
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 one fourth 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 one fourth 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.
Since the commencement of trading on February 1, 1989 the
Partnership has experienced a cumulative gain of 69.94% through
December 31, 2001. 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
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, 2001. All open position trading
risk exposures of the Partnership have been included in
calculating the figures set forth below. As of December 31,
2001, the Partnership's total capitalization was approximately
$41.9 million.
December 31, 2001
% of Total
Market Sector Value at Risk Capitalization
Interest Rates $ 0.98 million 2.34%
Currencies $ 2.16 million 5.16%
Stock Indices $ 0.46 million 1.10%
Precious Metals $ 0.41 million 0.98%
Commodities $ 0.45 million 1.07%
Energies $ 1.37 million 3.27%
Total $ 5.83 million 13.92%
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, LLC. (Horizon) in short term, highly liquid
investments. The Partnership has cash flow risk on these cash
deposits because if interest rates decline, so will the interest
paid out by CIS and CISFS at the 90-day Treasury bill rate. In
addition, should short term interest rates decline, so will the
interest earnings for assets on deposit with Horizon. The
Partnership assets managed by Horizon are deposited in an account
in the custodial department of Brown Brothers Harriman & Co., and
invested in U.S. government securities and other interest-bearing
obligations at the direction of Horizon. Horizon is responsible
for the investment management of the Partnership's assets not
deposited with CIS as margin monies or held in partnership
operating accounts. Horizon is registered with the Securities
and Exchange Commission (SEC) as an investment adviser. Horizon
may invest in U.S. government securities and other instruments as
permitted by the Agreement. Horizon receives an annual fee of
0.25% payable monthly on the assets it manages. However, Horizon
only receives its service fee if the accrued monthly interest
income earned on the Partnership's assets managed by Horizon
exceeds the 91-day U.S. Treasury Bill rate. As of December 31,
2001, the Partnership had approximately $39.7 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, 2001, 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. However,
since February 2000, the JWH program added a European short rate,
the Euribor, which is closely tied to the actions of the European
Central Bank. This was done to add short term interest rate
diversification.
Currencies. The 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, 2001, 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. However, in February 2000,
the JWH firm added the German DAX Index Futures. The General
Partner anticipates little trading in non-G-7 stock indices. The
Partnership is primarily exposed to the risk of adverse price
trends or static markets in the major U.S., European and
Japanese indices. (Static markets would not cause major market
changes but would make it difficult for the Partnership to avoid
being "whipsawed" into numerous small losses.)
Metals. The Partnership's metals market exposure is to
fluctuations in the price of gold and silver (precious metals)
and the base metals of copper, aluminum, zinc, and nickel at JWH.
At MLM the exposure is gold, silver and copper.
Commodities. The Partnership's exposure to commodities from MLM
includes corn, soybeans, soybean meal, soybean oil, wheat, and
the softs of coffee, cotton, and sugar. The program trades live
cattle as well. JWH also trades a full complement of commodities
in the SAP strategy.
Energy. The Partnership's exposure to energy contracts on the
MLM side is heating oil, unleaded gasoline, crude oil and natural
gas. The Partnership also has energy exposure from the JWH SAP
strategy.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the
Partnership as of December 31, 2001.
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.
The Barclay Futures Index Program is an attempt to replicate the
results of the Barclay Futures Index. It is implemented by
Trilogy Capital Management, LLC in Princeton, New Jersey.
The Barclay Futures Index (the Index) is a passive benchmark
designed to capture and represent the returns inherent in
commercial futures markets. The Index invests in 25 of the most
liquid, U.S. exchange-traded futures markets, categorized by the
following sectors: currencies, energy, fixed income, grains,
metals, meats, and softs. All markets are equally weighted and
there is no leverage. Though the Index is passive, the positions
taken by the Index will vary, from long to short and have
different contract months, for two reasons.
First, in order to capture returns through price movements, the
Index employs a momentum-following process and takes long or
short positions in each market. Using the closing prices of the
nearby contract month, a daily Unit Asset Value (UAV) is derived
for each market. Market positions are generated after the system
compares the various markets' UAV to the prior 13-week moving
average UAVs for those markets. For markets in which the current
UAV is higher than the moving average, the system indicates a
long signal and if the UAV is lower, it indicates a short signal.
The benchmark can be described as momentum-following in that its
objective is to capture returns in those markets that are
exhibiting a sustained movement in price away from their
historical average.
Second, in order to deal effectively with the relatively short
duration of futures contracts, the Index must implement a
periodic roll strategy. Current month contracts are rolled when
the open interest in the deferred month contract exceeds that of
the current month. This method closely follows the activity of
hedgers and maintains exposure in the most liquid contract month.
The objective of the Barclay Futures Index Program is to
replicate the return distribution of the Barclay Futures Index.
In order to achieve this objective, Trilogy may have to alter the
weightings of markets in the Index, from the equal-weighted
assumption employed by the Index, due to the fact that futures
contracts must trade in round lots, and the various contract
amounts are not the same for each market.
The trading rules employed by Trilogy can be described as
momentum following in that they seek to capture returns
associated with short to medium-term price trends. The current
prices of the securities in the program are compared to recent
historical prices and depending on that relationship, the system
generates a long or short trading signal.
Trilogy also employs a set of rules that define its risk control
and asset allocation systems. Trilogy may vary its risk control
systems based on market conditions, such as volatility, and will
manage those controls according to each account's specific risk
parameters. Some of the risk control measures utilized by
Trilogy include, but are not limited to, margin and leverage
limits, standard and semi-deviation of returns, maximum negative
returns, and maximum peak to trough draw-down. Trilogy employs a
non-linear, dynamic asset allocation method, which incorporates
the risk control measures previously described, to determine the
optimal mix of assets which is expected to achieve an attractive
return distribution.
The trading and risk management systems employed by Trilogy are
predominantly systematic and disciplined and involve very little
human discretion. However, human discretion may be used to
manage positions during periods of unusual market activity or
when Trilogy believes the risk parameters should be increased or
reduced (within the predefined limits), or in decisions involving
the number of futures contracts required to be purchased or sold
in order to arrive at the specified target allocation prescribed
by the asset allocation program.
Mount Lucas Management Corporation's MLM Index is a recognized
benchmark of the returns available to a futures investor. It is
based on daily closing prices of the nearby contract month of a
portfolio of the most active futures markets. Only highly liquid
U.S. futures markets are currently included in the Index; the
choice of markets for a calendar year is made in the December
preceding the start of the year, and markets are not added to or
deleted from the Index during a year. If a commodity is traded
on more than one futures exchange, only the one with the largest
open interest is included in the Index. For example, Chicago
Board of Trade wheat has larger open interest than Kansas City
Board of Trade wheat; consequently, Chicago Board of Trade wheat
is included in the Index but Kansas City wheat is not.
The MLM Index trades the following commodities: Chicago corn,
Chicago soybeans, Chicago soybean meal, Chicago soybean oil,
Chicago wheat, 5-year T-Notes, 10-year T-Notes, Treasury bonds,
heating oil, natural gas, crude oil, unleaded gas, live cattle,
New York gold, New York copper, New York silver, Australian
Dollar, British Pound, Canadian Dollar, Swiss Franc, Japanese
Yen, Euro Currency, New York coffee, New York cotton, and New
York sugar.
All the programs that MLM offers are highly systematized and
limit the extent to which judgmental, discretionary decisions
influence trading. Consequently, the programs may have less
trading success in markets in which underlying economic
conditions have undergone rapid change. MLM believes however
that such systematic methods are in the interest of the client
who focuses on long-term performance. MLM reserves the right to
refine or modify its programs, including, but not limited to,
adding or deleting commodities from the portfolio without
approval by, or prior notice to, the client.
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 (641) 472-5500.
The officers and directors of the General Partner as of December
31, 2001 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.
Janet A. Mullen. Ms. Mullen, (born in 1948), became Vice
President of Everest in August 2000. She joined Everest in
October 1993 with responsibility for fund administration,
investor services, and certain compliance and regulatory
functions. Prior to joining Everest, Ms. Mullen was associated
with Zimmerman Capital Group (ZCG) from February 1985 to February
1993, holding positions in the accounting, legal, insurance, and
property management departments. She was self-employed as an
accountant from February 1993 to October 1993 for ZCG and other
clients. Ms. Mullen graduated cum laude from Indiana State
University and received an M.S. degree from there in 1975.
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.
Item 11. Executive Compensation.
The Partnership has no directors or executive officers. As a
limited partnership, the business of the Partnership is managed
by its General Partner which is responsible for the
administration of the business affairs of the Partnership and
receives the compensation described in Item 1 "Business" hereof.
The officers and directors of the General Partner receive no
compensation from the Partnership for acting in their respective
capacities with the General Partner.
Item 12. Security Ownership of Certain Owners and Management.
(a) As of December 31, 2001 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 3,595.80 Units 14.32%
P.O. Drawer 1787
Gastonia, NC 28053
Units Pamela K. Warlick Trust 4,121.20 Units 16.42%
P.O. Box 995
Gastonia, NC 28052
Units Shepard C. Kimbrell Trust 4,694.90 Units 18.70%
P.O. Box 995
Gastonia, NC 28052
Units SSIHM Charitable Trust 2,973.96 Units 11.85%
P. O. Box 180
Monroe, MI 48161
(b) As of December 31, 2001, the General Partner
beneficially owned 198.49 Units or approximately 0.79% of the
outstanding Units of the Partnership. Mr. Peter Lamoureux,
President of the General Partner owned 17.18697 Units or 0.068%
of the outstanding Units.
(c) As of December 31, 2001, 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. Independent Auditors Report.
b. Statements of Financial Condition as of
December 31, 2001 and 2000.
c. Statements of Operations, Statements of
Changes in Partners' Equity, and
Statements of Cash Flows for the years
ended December 31, 2001, 2000, and 1999.
d. Notes to Financial Statements.
e. Schedule of Investments as of December 31,
2001.
(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 ______ 2002 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 ______________, 2002
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)
Financial Statements
Years Ended December 31, 2001, 2000 and 1999
(With Independent Auditors' Report Thereon)
EVEREST FUTURES FUND, L.P.
(An Iowa Limited Partnership)
Table of Contents
Page
Independent Auditors' Report 1
Financial Statements:
Statements of Financial Condition, December 31, 2001
and 2000 2
Statements of Operations, Years Ended December 31,
2001, 2000 and 1999 3
Statements of Changes in Partners' Equity, Years Ended
December 31, 2001, 2000 and 1999 4
Notes to Financial Statements 5
Schedule of Investments, December 31, 2001 10
Acknowledgment 12
Independent Auditors' Report
The Partners
Everest Futures Fund, L.P.:
We have audited the accompanying statements of
financial condition, including the schedule of
investments, of Everest Futures Fund, L.P., (the
Partnership) as of December 31, 2001 and 2000,
and the related statements of operations and
changes in partners' equity for each of the years
in the three-year period ended December 31, 2001.
These financial statements are the responsibility
of the Partnership's General Partner. Our
responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with
auditing standards generally accepted in the
United States of America. 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 financial statements referred to
above present fairly, in all material respects, the
financial position of the Partnership at December 31,
2001 and 2000 and the results of its operations and
changes in partners' equity for each of the years in
the three-year period ended December 31, 2001, in
conformity with accounting principles generally
accepted in the United States of America.
March 8, 2002
(1) Organization of the Partnership
Everest Futures Fund, L.P. (Partnership) is a
limited partnership organized in June 1988, under
the Iowa Uniform Limited Partnership Act (Act) for
the purpose of engaging in the speculative trading
of commodity futures and options thereon and
forward contracts (Commodity Interests). The sole
General Partner of the Partnership is Everest
Asset Management, Inc. (General Partner). The
Partnership clears futures and options on futures
trades through Cargill Investor Services, Inc.
(CIS or Clearing Broker) and forward trading
through CIS Financial Services, Inc. (CISFS or
Forwards Currency Broker) (collectively referred
to as the Brokers).
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
that invested directly in commodity interests. The
co-general partners of the Trading Partnership
were CIS Investments, Inc. (CISI) and the General
Partner (collectively, the General Partners). In
July 2000, the Partnership redeemed approximately
50% of its assets from the Trading Partnership.
Effective as of the close of business August 31,
2000, the Partnership liquidated its remaining
investment in the Trading Partnership. CISI also
liquidated its investment in the Trading
Partnership and the Trading Partnership was
dissolved in September 2000.
The Partnership was closed to new investors from
July 31, 1989 to June 30, 1995. Effective July 1,
1995, the Partnership recommenced the offering as
a Regulation D, Rule 506 private placement. The
private placement offering is continuing at a
gross subscription price per unit equal to net
asset value 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
Prior to the dissolution of the Trading
Partnership, the accompanying financial statements
were prepared on a combined basis and included the
accounts of the Partnership and the Trading
Partnership. All significant intercompany
transactions and balances have been eliminated in
the accompanying financial statements. Certain
prior year amounts have been reclassified to be
consistent with the current year presentation.
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.
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.
The Partnership earns interest on 100% of the
Partnership's average monthly cash balance on
deposit with the Brokers at a rate equal to the
average 91-day Treasury bill rate for U.S.
Treasury bills issued during that month.
Foreign Currency Translation
Assets and liabilities denominated in foreign
currencies are translated at the prevailing
exchange rates as of the valuation date. Gains and
losses on investment activity are translated at
the prevailing exchange rate on the date of each
respective transaction while year-end balances are
translated at the year-end currency rates.
Realized and unrealized foreign exchange gains or
losses are included in trading income (loss) in
the statements of operations.
Income Taxes
No provision for income taxes has been made in the
accompanying financial statements as each partner
is responsible for reporting income (loss) based
upon the pro rata share of the profits or losses
of the Partnership.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally
accepted in the United States of America requires
management to make estimates and assumptions that
affect the reported amounts of assets and
liabilities and disclosure of contingent assets
and liabilities at the date of the financial
statements and the reported amounts of revenues
and expenses during the reporting period. Actual
results could differ from those estimates.
(3) The Limited Partnership Agreement
The Limited Partners and General Partner share in
the profits and losses of the Partnership in
proportion to the number of units or unit
equivalents held by each. However, no Limited
Partner is liable for obligations of the
Partnership in excess of their capital
contribution and profits, if any, and such other
amounts as they may be liable for pursuant to the
Act. Distributions of profits are made solely at
the discretion of the General Partner.
Responsibility for managing the Partnership is
vested solely in the General Partner. The General
Partner has delegated complete trading authority
to an unrelated party (see note 4).
Prior to the dissolution of the Trading
Partnership, the Trading Partnership bore 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. In
addition, the Trading Partnership bore all of its
administrative expenses. After the dissolution,
the Partnership bears all of these 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 fifteen days' prior written
notice to the Partnership, or such lesser period
as is acceptable to the Partnership. Although the
Agreement does not permit redemptions for the
first six months following a Limited Partner's
admission to the Partnership, the Agreement does
permit the Partnership to declare additional
regular redemption dates. The Partnership will be
dissolved at December 31, 2020, or upon the
occurrence of certain events, as specified in the
Limited Partnership agreement.
(4) Fees
Prior to August 1, 2000, the Partnership's trading
advisor was John W. Henry & Company, Inc. (JWH).
Beginning July 1, 2001 JWH began trading its
Strategic Allocation Program with a trading
allocation of $40 million. Previously JWH traded
its Financial and Metals program. JWH receives a
monthly management fee equal to 0.167% (2%
annually) of the Partnership's or Trading
Partnership's (prior to September 2000) month-end
net asset value, as defined, and a quarterly
incentive fee of 20% of the Partnership's or
Trading Partnership's (prior to September 2000)
new net trading profits, as defined. The monthly
management fee was reduced as of October 1, 2000
from 0.33% (4% annually). The incentive fee is
retained by JWH even though trading losses may
occur in subsequent quarters; however, no further
incentive fees are payable until any such trading
losses (other than losses attributable to redeemed
units and losses attributable to assets
reallocated to another advisor) are recouped by
the Partnership or Trading Partnership (prior to
September 2000).
Effective August 1, 2000, Trilogy Capital
Management, LLC (Trilogy) was added as a trading
advisor. Trilogy was terminated effective June 30,
2001. Trilogy received a monthly management fee of
0.075% (0.9% annually) of the Partnership's month-
end allocated assets as defined and did not
receive an incentive fee.
Effective September 1, 2001, Mount Lucas
Management Corporation (MLM) was added as trading
advisor with an initial allocation of $10 million.
This allocation represented notional funding for
the Partnership. MLM receives a monthly management
fee of 0.0625% (0.75% annually) of the
Partnership's month-end allocated assets as
defined. As MLM uses the MLM Index Unleveraged,
they do not receive an incentive fee.
Effective September 1, 2001, CIS charges the
Partnership or Trading Partnership (prior to September
2000) monthly brokerage commissions equal to 0.5052%
of the Partnership or Trading Partnership's beginning-
of-month net asset value, as defined. Prior to
September 1, 2001, the monthly brokerage commission
was 0.5%. Monthly brokerage commissions will increase
incrementally to 0.5208% as the trading allocation to
MLM increases. The General Partner receives a
management fee of approximately 83% of the brokerage
commission charged by CIS. Net brokerage commissions
are recorded in the statements of operations as a
reduction of trading income and the amounts paid to
the General Partner are recorded as management fees.
Prior to September 2000, CISI received 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. CISI no longer acts
as co-general partner and no longer receives a co-
general partner fee.
As of December 31, 2001, the Partnership had
approximately $41.8 million in net assets. JWH's
allocation was approximately $40 million and MLM's
was approximately $9.9 million of notional
funding. The General Partner may replace or add
trading advisors at any time.
A portion of assets (73.3% and 79.6% at
December 31, 2001 and 2000, 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) Trading Activities and Related Risks
The Partnership engages in the speculative trading
of U.S. and foreign futures contracts, options on
U.S. and foreign futures contracts, and forward
contracts (collectively derivatives). These
derivatives include both financial and non-
financial contracts held as part of a diversified
trading strategy. The Partnership is exposed to
both market risk, the risk arising from changes in
the market value of the contracts; and credit
risk, the risk of failure by another party to
perform according to the terms of a contract.
The purchase and sale of futures and options on
futures contracts requires margin deposits with a
Futures Commission Merchant (FCM). Additional
deposits may be necessary for any loss on contract
value. The Commodity Exchange Act (CEAct) requires
an FCM to segregate all customer transactions and
assets from the FCM's proprietary activities. A
customer's cash and other property such as U.S.
Treasury Bills, deposited with an FCM are
considered commingled with all other customer
funds subject to the FCM's segregation
requirements. In the event of an FCM's insolvency,
recovery may be limited to a pro rata share of
segregated funds available. It is possible that
the recovered amount could be less than the total
of cash and other property deposited.
The Partnership has cash on deposit with an
interbank market maker in connection with its
trading of forward contracts. In the event of
interbank market maker's insolvency, recovery of
the Partnership assets on deposit may be limited
to account insurance or other protection afforded
such deposits. In the normal course of business,
the Partnership does not require collateral from
such interbank market maker. Because forward
contracts are traded in unregulated markets
between principals, the Partnership also assumes a
credit risk, the risk of loss from counter party
non-performance.
For derivatives, risks arise from changes in the
market value of the contracts. Theoretically, the
Partnership is exposed to a market risk equal to
the value of futures and forward contracts
purchased and unlimited liability on such
contracts sold short. As both a buyer and seller
of options, the Partnership pays or receives a
premium at the outset and then bears the risk of
unfavorable changes in the price of the contract
underlying the option.
The notional amounts of open contracts at December
31, 2001, as disclosed in the Schedule of
Investments, do not represent the Partnership's
risk of loss due to market and credit risk, but
rather represent the Partnership's extent of
involvement in derivatives at the date of the
statement of financial condition.
Net trading results from derivatives for the years
ended December 31, 2001, 2000, and 1999, are
reflected in the statement of operations and equal
gains (losses) from trading less brokerage
commissions. Such trading results reflect the net
gain arising from the Partnership's speculative
trading of futures contracts, options on futures
contracts, and forward contracts.
The Limited Partners bear the risk of loss only to
the extent of the net asset value of their
Partnership units.
(6) Trading Discrepancy
In October 2000, there was a discrepancy between
the performance of the Barclay Futures Index
Program (BFIP) as traded for the Partnership and
the Barclay Futures Index (BFI). Certain
transactions executed by Trilogy on behalf of the
Partnership resulted in a loss of approximately
$520,000 that was recorded in the statement of
operations. The General Partner believes that
these transactions were not executed in accordance
with the provisions of BFIP and has demanded that
Trilogy reimburse the Partnership for the loss.
The parties are currently attempting to resolve
the issue.
In the interim, the parties have agreed that the
management fees otherwise payable to Trilogy under
its advisory contract would be applied as a credit
to offset the losses. The offset is not in
settlement, partial settlement, or indemnification
of any kind and is without prejudice to any rights
or claims by either side.
Beginning in November 2000 through June 30, 2001
all of the management fees that would otherwise be
paid to Trilogy were deposited into a separate
account for the benefit of those limited partners
that were limited partners on October 31, 2000 and
to cover the expenses associated with the
collection of the losses. The separate account is
not included in the financial statements of the
Partnership. At the present time, the General
Partner is unable to determine whether any of the
losses will be recovered.
(7) Financial Highlights
The following financial highlights show the
Partnership's financial performance for the year
ended December 31, 2001. Total return is
calculated as the change in a theoretical limited
partner's investment over the entire period.
Total return is calculated based on the aggregate
return of the Partnership taken as a whole.
Total return
2
.
9
9
%
Ratio to
average net
assets:
Net income
3
.
0
4
%
General and
administrati
ve expenses:
Expenses
1
.
9
2
Incentive
fees
0
.
0
7
Total
gene
ral
and
admi
nist
rati
ve
expe
nses
1
.
9
9
%
The net investment income and general and
administrative expenses ratios are computed based
upon the weighted average net assets for the
Partnership for the period ended December 31,
2001.
Acknowledgement
To the best of my knowledge and
belief, the information contained here
is accurate and complete.
__________________________
Peter Lamoureux
President
Everest Asset Management, Inc.
General Partner of Everest Futures
Fund, L.P.
"EVEREST FUTURES FUND, L.P."
(An Iowa Limited Partnership)
Statements of Financial Condition
"December 31, 2001 and 2000"
Assets 2001
2000
Cash and cash equivalents
$ "20,938,678 " "19,699,842 "
Equity in commodity trading accounts:
Cash on deposit with brokers
"8,768,736 " "3,679,722 "
Net unrealized trading gains on open contracts
"2,486,233 " "5,019,780 "
"Investments, at fair value"
"9,988,541 " "14,340,365 "
Tax receivable
"36,445 "
Interest receivable
"52,501 " "299,333 "
Total assets $
"42,234,689 " "43,075,487 "
Liabilities and Partners' Equity
Liabilities:
Redemptions payable $
"118,786 " "572,530 "
Commissions payable
"157,564 " "160,192 "
Advisor's management fee payable
"73,208 " "68,143 "
Accrued expenses
"34,692 " "25,700 "
Total liabilities
"384,250 " "826,565 "
Partners' equity:
"Limited Partners 24,907.39 and 25,905.20 units outstanding"
"at December 31, 2001 and 2000, respectively"
"41,519,565 " "41,927,664 "
General Partner 198.49 unit equivalents outstanding
"at December 31, 2001 and 2000"
"330,874 " "321,258 "
Total partners' equity
"41,850,439 " "42,248,922 "
Total liabilities and partners'
equity $ "42,234,689 " "43,075,487 "
Net asset value per outstanding unit of Partnership interest
$ "1,667 "
"1,619 "
See accompanying notes to the financial statements.
"EVEREST FUTURES FUND, L.P."
(An Iowa Limited Partnership)
Statements of Operations
"Years ended December 31, 2001, 2000 and 1999"
2001 2000
1999
Trading income (loss):
Net realized trading gain (loss)
on closed contracts $
"5,404,495 " "(6,612,772) " "(2,116,772)
"
Change in net unrealized trading gain (loss)
on open contracts
"(2,533,546) " "4,349,673 " "(5,132,478)
"
Net foreign currency translation gain (loss)
"73,233 " "(360,080) "
"46,852 "
Brokerage commissions
"(2,563,850) " "(2,492,949) " "(3,045,619)
"
Other income
"36,899 "
Total trading income (loss)
"380,332 " "(5,079,229) "
"(10,248,017) "
"Interest income, net of cash management fees"
"1,744,048 " "2,436,839 "
"2,507,482 "
Total income (loss)
"2,124,380 " "(2,642,390) " "(7,740,535)
"
General and administrative expenses:
Management fees
"751,263 " "1,262,055 " "2,004,411
"
Incentive fees
"29,399
Administrative expenses
"59,979 " "65,011 " "72,692 "
Total general and administrative
expenses "840,641 "
"1,327,066 " "2,077,103 "
Minority interest
"104,654 "
Net income (loss) $
"1,283,739 " "(3,969,456) " "(9,712,984)
"
Income (loss) per unit of partnership
interest (for a unit outstanding
throughout each year):
General Partner $ 48
(134) (406)
Limited Partners 48
(134) (406)
Net income (loss) allocated to:
General Partner $
"9,616 " "(26,592) " "(80,530) "
Limited Partners
"1,274,123 " "(3,942,864) " "(9,632,454)
"
See accompanying notes to the financial statements.
"EVEREST FUTURES FUND, L.P."
(An Iowa Limited Partnership)
Statements of Changes in Partners' Equity
"Years ended December 31, 2001, 2000 and 1999"
Total
Limited General
units
Partners Partner Total
"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 "
Partner contributions
"9,828.23 " "16,006,318 "
"16,006,318 "
Partner redemptions
"(6,538.33)" "(9,768,550) "
"(9,768,550) "
Net loss
"(3,942,864) " "(26,592) " "(3,969,456)
"
"Partners' equity at December 31, 2000"
"26,103.69 " "41,927,664 "
"321,258 " "42,248,922 "
Partner contributions
"1,288.52 " "2,101,547 "
"2,101,547 "
Partner redemptions
"(2,286.33)" "(3,783,769) "
"(3,783,769) "
Net loss
"1,274,123 " "9,616 " "1,283,739 "
"Partners' equity at December 31, 2001"
"25,105.88 " $ "41,519,565 "
"330,874 " "41,850,439 "
See accompanying notes to the financial statements.
"EVEREST FUTURES FUND, L.P."
(An Iowa Limited Partnership)
Schedule of Investments
"December 31, 2001"
Number
of Principal
contracts (notional) Value (OTE)
Long positions:
Futures positions (-0.46%)
Interest rates
104 $ "41,913,844 " "(107,775)"
Metals
145 "4,566,544 " "(138,335)"
Energy
10 "164,750 " "(5,650)"
Agriculture
238 "2,646,302 " "23,737 "
Currencies
17 "1,144,320 " "(13,158)"
Indices
102 "6,568,547 " "48,711 "
"57,004,307 " "(192,469)"
Forward positions (0.33%)
Currencies
"36,966,187 " "137,325 "
Total long positions
"93,970,494 " "(55,144)"
Short positions:
Futures positions (0.56%)
Interest rates
"1,353 " $ "175,470,925 " "468,266 "
Metals
257 "7,462,044 " "(301,266)"
Energy
417 "8,772,217 " "(15,901)"
Agriculture
556 "7,389,058 " "132,450 "
Currencies
93 "20,230,048 " "(50,927)"
"219,324,291 " "232,621 "
"EVEREST FUTURES FUND, L.P."
(An Iowa Limited Partnership)
Schedule of Investments
"December 31, 2001"
Carrying
Principal value/value
Coupon
Maturity (notional) (OTE)
Forward positions (5.52%)
Currencies
Swiss Franc
$ " 20,897,415 " " (105,400)"
Euro
" 16,448,175 " " (72,934)"
British Pound
" 7,371,000 " " (43,841)"
Japanese Yen
" 55,261,995 " " 2,436,964 "
Norway Krone
" 1,386,320 " " (8,535)"
Singapore Dollar
" 2,708,000 " " 23,741 "
South Africa Rand
" 3,594,540 " " 78,759 "
"107,667,445 " "2,308,755 "
Total short positions
$ "326,991,737 " "2,541,376 "
Total open contracts (5.94%)
"2,486,233 "
Securities Held
Maturity Over 60 days (23.41%)
Fannie Mae Medium Term Note
4.55% 07/23/03 "1,032,794 "
Fannie Mae Medium Term Note
5.38% 01/22/03 "1,894,028 "
Fannie Mae Medium Term Note
4.20% 09/18/03 "507,379 "
Fannie Mae Medium Term Note
4.31% 08/15/03 "1,017,169 "
Federal Home Loan Bank
3.60% 12/18/03 "1,500,000 "
Freddie Mac Note 4.97%
03/28/03 "1,018,214 "
Freddie Mac Note 4.02%
07/02/02 "1,935,239 "
U.S. Treasury Note
5.50% 01/31/03 "1,083,718 "
Total securities maturity over 60
days "9,988,541 "
Cash and cash equivalents (50.03%)
"20,938,678 "
Cash on deposit with brokers (20.95%)
"8,768,736 "
Liabilities in excess of other assets (-0.34%)
"(331,749)"
Net assets (100.0%)
$ "41,850,439 "
12
2
EVEREST FUTURES FUND, L.P.
(An Iowa Limited Partnership)
Notes to Financial Statements
December 31, 2001
16
(Continued)
18