Attached files
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
December 31, 2011 0-17555
The Everest Fund, L.P.
(Exact name of registrant as specified in its charter)
Iowa 42-1318186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 North 4th Street, Suite 143, Fairfield, Iowa 52556
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(641) 472-5500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes No X
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes X No
Note Checking the box above will not relieve any
registrant required to file reports pursuant to Section 13
or 15(d) of the Exchange Act from their obligations under
those Sections.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No __
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation SK is not contained
herein and will not be contained to the best of the
Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of Form
10K or any amendment to this Form 10-K: [ X ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-
accelerated filer. See definition of accelerated filer and
large accelerated filer in Rule 12b-2 of the Exchange Act.
(Check one): Large accelerated filer Accelerated
filer Non-accelerated filer
Small Reporting Company Filer X
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Act).
Yes No X
State the aggregate market value of the voting and non-
voting common equity held by non-affiliates computed by
reference to the price at which the common equity was last
sold, or the average bid and asked price of such common
equity, as of the last business day of the registrant's
most recently completed fourth fiscal quarter: $15,024,420.
Note If a determination as to whether a particular person
or entity is an affiliate cannot be made without involving
unreasonable effort and expense, the aggregate market value
of the common stock held by non-affiliates may be
calculated on the basis of assumptions reasonable under the
circumstances, provided that the assumptions are set forth
in this Form.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12,
13 or15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the
registrant s classes of common stock, as of the latest
practicable date.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by
reference and the Part of the Form 10-K (e.g., Part I, Part
II, etc.) into which the document is incorporated: (1) Any
annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed
pursuant to Rule 424(b) or (c) under the Securities Act of
1933. The listed documents should be clearly described for
identification purposes (e.g., annual report to security
holders for fiscal year ended December 24, 1980). None
Part I
Item 1. Business
The Everest Fund, L.P. (the "Partnership" or "Everest") 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 indirectly through other entities,
including subsidiaries, partnerships, Partnerships or other
limited liability entities, which constitute one industry segment.
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.
During its operation, the Partnership has had various
trading 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 trading advisor to the Partnership.
On September 13, 1996 the U.S. Securities and Exchange
Commission accepted a voluntary filing by the Partnership
of a Form 10 - General Form for Registration of Securities,
and public reporting of Units of the Partnership sold as a
private placement commenced at that time and has continued
to the present.
In 2009 the Partnership continued previously offered
Class A Units (retail shares) and charged an initial
1% Offering and Organization fee as a reduction to capital.
In 2009 the Partnership retained the JWH Global Analytics Program
( JWH GAP )as its sole trading program. As of December 31, 2009
100% of the Partnership's assets are being traded by
the JWH GAP.
Upon fifteen days written notice, a Class A Limited Partner
may require the Partnership to redeem all or part of his
Units effective as of the close of business (as determined
by the General Partner) on the last day of any month at the
Net Asset Value thereof on such date. Notwithstanding
the above, pursuant to the Amended and Restated Agreement
of Limited Partnership, the General Partner may, in its
sole discretion, and on ten days' notice, require a Limited
Partner to redeem all or part of his Units in the
Partnership as of the end of any month. There are no
additional charges to the Limited Partner at redemption.
The Partnership's Amended and Restated Agreement of Limited
Partnership contains a full description of redemption and
distribution procedures.
Since commencing trading operations, the Partnership has
engaged in the speculative trading of Commodity Interests
and will continue to do so until its dissolution and
liquidation, which will occur on the earlier of December
31, 2020 or the occurrence of any of the events set forth
in Paragraph 4(a) of the Agreement of Limited Partnership.
Such events are (i) an election to dissolve the Partnership
made by over 50% of the Limited Partnership Units at least
90 days prior to dissolution, (ii) withdrawal, insolvency,
or dissolution of the General Partner (unless a new general
partner is substituted), (iii) decline in the Net Asset
Value of the Partnership at the close of any business day
to less than $300,000, or (iv) any event which will make it
unlawful for the existence of the Partnership to be
continued or requiring termination of the Partnership.
The address of the General Partner and the Partnership is
1100 North 4th Street, Suite 143, Fairfield, Iowa 52556,
and the telephone number at such location is (641) 472-
5500. The General Partner changed its name as of March 1,
1994 and amended its Certificate of Incorporation, with no
other changes, accordingly. In accordance with the
provisions of the Commodity Exchange Act and the rules of
the National Futures Association (NFA), the General Partner
is registered as a commodity pool operator and a commodity
trading advisor, JWH is registered as a commodity trading
advisor and the Commodity Broker is registered as a futures
commission merchant, each subject to regulation by the
Commodity Futures Trading Commission (CFTC). Each is also
a member of the NFA in such capacity.
The General Partner, to the exclusion of the limited
partners of the Partnership (the Limited Partners ),
manages and conducts the business of the Partnership. Thus
the General Partner (i) selects and monitors the
independent commodity trading advisor(s) and the Commodity
Broker; (ii) allocates and/or reallocates assets of the
Partnership to or from JWH and/or the advisor(s); (iii)
determines if an advisor or commodity broker should be
removed or replaced; (iv) negotiates management fees,
incentive fees and brokerage commissions; (v) determines
its own compensation with respect to management and
administrative fees; and (vi) performs such other services
as the Partnership may from time to time request, except
that all trading decisions are made by JWH and not the
General Partner. In addition, the General Partner selects
the commodity broker(s) that will clear trades for the
advisor(s). Newedge Financial Inc., part of the Newedge
Group joint venture between Societe Generale and Calyon
currently acts as Everest's commodity broker.
The General Partner is responsible for the preparation of
monthly and annual reports to the Limited Partners; filing
reports required by the CFTC, the NFA, the SEC and any
other federal or state agencies having jurisdiction over
the Partnership's operations; calculation of the Net Asset
Value (meaning the total assets less total liabilities of
the Partnership ( for a more precise definition, see the
Exhibit Form 10 - General Form for Registration of
Securities incorporated by reference hereto ) and
directing payment of the management and incentive fees
payable to JWH or the advisor(s)under an advisory
agreement(s) entered into with the commodity trading
advisor(s).
Effective November 2003, the General Partner charges the
Partnership a monthly management fee equal to 0.50% of the
Partnership's Class A beginning-of-month net asset value.
The General Partner pays a portion of its fees for actual
commission charges to its Clearing Broker.
In addition, the Partnership reimburses the General Partner
for the actual organization and offering expenses advanced
by it, not to exceed one percent of the Class A Net Asset
Value of Units sold.
Organization and offering expenses shall mean all expenses
incurred by the Partnership or the General Partner in
connection with and in preparation to offer and distribute
the Units to investors, including, but not limited to,
expenses for traveling, printing, engraving, mailing,
salaries of employees while engaged in sales activity,
charges of transfer agents, registrars, trustees, escrow
holder, depositories, experts, expenses of qualification of
the sales of its securities under state law, including
taxes and fees and accountants and attorneys fees.
Everest pays John W. Henry & Company, Inc., its current
commodity trading advisor, a monthly management fee equal
to 0.167% (approximately 2% annually) of Everest s month-
end Allocated Assets, as defined, and a quarterly incentive
fee equal to 20% of Everest's trading profits allocable to
its trading exclusive of interest income on Allocated
Assets, as defined. The incentive fee is retained by JWH
even though trading losses may occur in subsequent
quarters; however, no further incentive fees are payable
until any such trading losses (other than losses
attributable to redeemed units and losses attributable to
assets reallocated to another advisor) are recouped by
Everest.
The Commodity Broker has agreed to pay Everest interest on
95% of Everest assets (including open trade equity)
deposited with it during a month at the average of 91-day
U.S. Treasury Bills purchased by the Commodity Broker
during each month. The Commodity Broker will retain all
excess interest, if any, earned on the Everest assets,
above the amount of interest paid to Everest. The interest
rate to be paid by the Commodity Broker to Everest is a
negotiated rate which has been negotiated between the
Commodity Broker and the General Partner. The actual
interest income on Everest s assets earned by the Commodity
Broker may be greater than or less than the negotiated rate
to be paid by the Commodity Broker to Everest. The
Commodity Broker will also be responsible for execution and
clearance of futures contracts (and possibly certain other
Commodity Interests).
The Partnership pays no selling commission but does pay an
ongoing compensation fee equal to 3% of the Net Asset Value
of Class A Units sold, unless waived in whole or in part by
the General Partner, to the selling agents in connection
with the sale of the Units. The Partnership 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 $89,000 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 2010-2011 can be found in the table in Item 6 below.
As of December 31, 2011, the General Partner had two full-time
employees and two part-time employees. Further, the General
Partner, in its capacity as a CFTC-regulated commodity pool
operator, contracts certain services of research, administration,
client support and management information systems and analysis
to Capital Management Partners, Inc. (Capital). Capital is
a CFTC-regulated introducing broker, and an NFA member. Capital
is also registered with the Financial Industry Regulatory
Authority, Inc. ( FINRA ) as a broker dealer. As of
December 31, 2011, Capital had 5 employees.
The Partnership's business constitutes only one segment for
financial reporting purposes; and the purpose of the
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, 2011 is set forth under Items 6 and 7
herein.
For a description of commodity trading and its regulation,
see the Prospectus filed on Form S-18 and the Confidential
Private Placement Memorandum filed as part of the Form 10
and included in the exhibits hereto.
The Current Offering
On July 1, 1995 the Partnership reopened for investment as
a Regulation D, Rule 506 private placement offering an
unlimited amount of limited partnership interests. On
September 19, 1996 the Commission accepted a Form 10 -
General Form for Registration of Securities submitted by
the Partnership thereby making the Partnership a public
reporting private placement offering. It also qualified
the Partnership as a publicly offered security as defined
in the Employee Retirement Income Security Act of 1974
(ERISA) rules permitting it to accept investment of an
unlimited amount of plan assets as defined in ERISA.
Hitherto, as a private placement the Partnership could
accept ERISA plan assets representing no more than 25% of
the total investment in the Partnership. The limited
partnership interests are offered by the Selling Agent and
additional selling agents with a Class A minimum
subscription amount of $25,000. (The Class A minimum
subscription amount for employee benefit plans and
individual retirement accounts is $10,000).
Competition
JWH and any other advisor(s) of the Partnership, its or
their respective principals, affiliates and employees are
free to trade for their own accounts and to manage other
commodity accounts during the term of the Advisory
Agreement and to use the same information and trading
strategy which JWH obtains, produces or utilizes in the
performance of services for the Partnership through its
investment in Everest. To the extent that JWH recommends
similar or identical trades to the Partnership and other
accounts which it manages, the Partnership may compete with
those accounts for the execution of the same or similar
trades.
Other trading advisors who are not affiliated with the
Partnership may utilize trading methods which are similar
in some respects to those methods used by JWH, or any other
future Partnership's advisor(s). These other trading
advisors could also be competing with the Partnership for
the same or similar trades as requested by the
Partnership's advisor(s).
Item 1A. Risk Factors
GENERAL
Trading in Commodity Interests Is Speculative. Commodity
interest prices are highly volatile. Price movements for
futures contracts, for example, which may fluctuate
substantially during a short period of time, are influenced
by numerous factors that affect the commodities markets,
including, but not limited to: changing supply and demand
relationships, government programs and policies, national
and international political and economic events, and
changes in interest rates. See, Risk Factors -- Commodity
Interests Trading May Be Illiquid.
Commodity Interests Trading Is Highly Leveraged. The low
margin deposits normally required in trading commodity
interests permit an extremely high degree of leverage.
Accordingly, a relatively small price movement in a
commodity interest may result in an immediate and
substantial loss to the investor. For example, if at the
time of purchase 5% of the price of a futures contract is
deposited as margin, a 5% decrease in the price of the
futures contract would, if the contract were then closed
out, result in a total loss of the margin deposit
(brokerage commission expense would also be incurred).
Like other leveraged investments, any commodity interest
trade may result in losses in excess of the amount
invested. Although more than the initial margin can be
lost on a trade, the Partnership, and not investors
personally, will be subject to margin calls.
The Partnership's Trading Account May Be Leveraged or de-levereged.
The general partner may, in its sole discretion, periodically
adjust the size of the trading account with JWH by increasing
or decreasing the cash, other assets or notional Partnerships
allocated to it (and thus the amount by which the Partnership's
assets are leveraged). Because the trading account may be
leveraged, (i) the Partnership may incur greater risk since
the Partnership may experience greater losses, as measured
by a percentage of assets actually allocated to JWH, due to the
notional Partnership's component; (ii) the Partnership's returns
may experience greater volatility compared to the returns
which the Partnership would have achieved on a non-
leveraged basis; and (iii) the Partnership may receive more
frequent and larger margin calls. Because the trading account
may be de-leveraged, the partnership may incur smaller gains
than it would if the JWH trading program had been fully
allocated to.
Commodity Interests Trading May Be Illiquid. Most U.S.
commodity futures exchanges impose daily limits regulating
the maximum amount above or below the previous day's
settlement price which a futures contract price may
fluctuate during a single day. During a single trading day
no trades may be executed at prices beyond the daily limit.
Once the price of a particular futures contract has
increased or decreased to the limit point, it may be
difficult, costly or impossible to liquidate a position.
Futures prices in particular contracts have occasionally
moved the daily limit for several consecutive days with
little or no trading. If this occurs, the Partnership
might be prevented from promptly liquidating unfavorable
positions, which could result in substantial losses. Those
losses could significantly exceed the margin initially
committed to the trades involved. In addition, even if
prices have not moved the daily limit or there are no
limits for the contracts traded, trades might not be able
to be executed at favorable prices if little trading in the
contracts is taking place. It is also possible that an
exchange or the Commodity Futures Trading Commission (CFTC)
may suspend trading in a particular contract, order
immediate settlement of a contract, or order the
liquidation of open positions only.
Exchange for Physical. JWH may make use of a trading
technique referred to as exchange for physical in which a
cash or spot market position (which may be a forward
contract) is exchanged, often outside of regular trading
hours, for a comparable futures position. The CFTC has
released a study of the exchange for physical market that
recommended that a number of new regulatory restrictions be
applied to it. If these recommendations or restrictions
are adopted, the ability of JWH to use this market may be
curtailed.
Trading Decisions Based on Technical Analysis. JWH uses
trading programs that employ technical factors in
identifying price moves. The success of technical analysis
depends upon the occurrence in the future of price
movements. Technical systems will not be profitable, and
may in fact produce losses, if there are no market moves of
the kind the system seeks to follow. Any factor that would
make it more difficult to execute the trades identified,
such as a reduction of liquidity, also would reduce
profitability. There is no assurance that the trading
systems of JWH will generate profits under all or any
market conditions.
Possible Effects of Other Similar Systems. Commodity
trading systems, which use market data like JWH uses, are
not new. If many traders follow similar systems, these
systems may generate similar buy and sell orders at the
same time. Depending on the liquidity of a market, this
could cause difficulty in executing orders. The General
Partner believes that, although there has been an increase
in the number of trading systems in recent years, there
also has been an increase in the overall trading volume and
liquidity in the futures markets. Any increase in the
proportion of Partnerships traded using trend-following systems
could alter trading patterns or affect execution of trades
to the detriment of the Partnership.
No Assurance of JWH'S Continued Services. JWH has
exclusive responsibility for trading commodity interests
allocated to it. JWH is dependent on the services of
certain key persons. The loss of the services of such
persons would make it difficult or impossible for JWH to
continue to provide services to the Partnership. In
addition, the advisory contract between the Partnership and
JWH may be terminated by either party on sixty (60) days
written notice.
Changes in Trading Strategies. The trading strategies of
most trading advisors are continually developing. JWH is
free to make any changes in trading strategies. Changes in
commodity interests traded or leverage used are not
considered changes in trading strategy.
Possible Effects of Speculative Position Limits. The CFTC
and U.S. exchanges have established speculative position
limits. These limits control the number of net long or
net short speculative futures or options (on futures)
positions any person may hold or control in futures or
options contracts traded on U.S. exchanges. JWH controls
the commodity trading of other accounts. All positions and
accounts owned or controlled by JWH and its principals are
combined with the Partnership's positions established by
JWH for position limit purposes. In order to avoid
exceeding position limits, it is possible that JWH will
have to modify its trading instructions, and that positions
held by the Partnership will have to be liquidated. That
could have a negative effect on the operations of the
Partnership and its profitability. See, Risk Factors
Increase in Amount of Partnerships Managed. In addition, all
commodity accounts of the General Partner and its
affiliates may also be combined with the Partnership for
position limit purposes.
Increase in Amount of Partnerships Managed. JWH expects to
manage additional Partnerships in the future. It is not
known if managing additional Partnerships, including
Partnerships raised in this offering, will have any effect
on its performance or trading strategies. In many cases,
the rates of return achieved by an advisor deteriorate
as assets under management increase. Increases in
Partnerships managed may affect the number of futures or
options positions an advisor would otherwise hold for
each account it manages because of speculative position
limits imposed by U.S. exchanges. There is no assurance
that changes in strategies, if any, in response to
increased Partnerships will be successful. There
can be no guarantee that the investment results of that
portion of the assets allocated to JWH will be similar to
those achieved by it in the past in its other accounts.
Changes in the Number of Available Futures Contracts and
Related Options. U.S. and foreign exchanges have
established new futures and options contracts in the past
few years. This trend could continue. If JWH trades these
contracts in the future, there is no assurance that its
trading strategies will produce profits.
Past Performance Is Not Necessarily Indicative of Future
Results. Although some of the client accounts of JWH have
been profitable in the past, you should take seriously the
warning the CFTC and the NFA require. PAST PERFORMANCE IS
NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. AN
INVESTMENT IN THE PARTNERSHIP IS SPECULATIVE AND
INVOLVES A SUBSTANTIAL RISK OF LOSS.
Horizon Cash Management, L.L.C. Horizon is an Investment
Advisor (IA) with Power of Attorney (POA), to manage Everest
Partnership assets on deposit at Northern Trust through
investments in short term interest bearing instruments.
A substantial portion of the Partnership's assets is held
in an omnibus custody account on behalf of the Partnership
at The Northern Trust Company in the name of the Partnership.
The Partnership has entered into an advisory contract with
Horizon pursuant to which Horizon manages such assets in
an attempt to maximize their yield through investment in
various short-term interest bearing instruments including
U.S. Treasury Securities, U.S. Government Agencies
Securities, Bankers Acceptances, Certificates of Deposit,
Time Deposits, Commercial Paper, Loan Participation Notes
and Repurchase Agreements U.S. Treasury Securities and
U.S. Government Agencies Securities. As a result, the
Partnership's assets managed by Horizon are subject to
potential loss resulting from interest rate fluctuations
and default.
JWH PROGRAMS
Effects of Trading Multiple Investment Programs. JWH makes
trading decisions for each of its investment programs
independently of trading decisions for the other JWH
investment programs.
Mandatory Closing Out of Offsetting Positions. CFTC rules
require offsetting positions taken by JWH for
clients be closed out.
Swap Transactions. JWH may periodically enter into
transactions which are characterized as swap transactions
and which may involve interest rates, currencies,
securities interests, commodities, and other items. Swap
contracts are not traded on exchanges and are not regulated
by the CFTC. Swap transactions are individually negotiated,
non-standardized agreements between two parties to exchange
cash flows measured by different interest rates, exchange
rates or prices, with payments calculated by reference to a
principal amount or quantity. As a result, the Partnership
will not receive the protection afforded by the Commodity
Exchange Act in connection with this trading activity by
JWH. The absence of regulation could expose the Partnership
to significant losses in the event of trading abuses or
financial failure by participants in the swap markets. JWH
has not previously traded swaps and has no experience in
that market. Transactions in these markets also present
certain risks similar to those in the futures, forward and
options markets. Only the accounts of eligible swap
participants as defined in Part 35 of CFTC Regulations,
may engage in swaps.
Options Transactions. JWH may engage in the trading of
options (both puts and calls) on futures on behalf of the
Partnership. The value of an option depends largely upon
the likelihood of favorable price movements in the
underlying futures contract in relationship to the exercise
(or strike) price during the life of the option. Therefore
many of the risks applicable to trading the underlying
futures contract are also applicable to options trading. In
addition, there are a number of other risks associated with
the trading of options. For example, the purchaser of an
option runs the risk of loss of his/her entire investment
(the premium he pays). Similarly, the uncovered writer of
an option is subject to an adverse price movement in the
underlying futures position, any such movement may exceed
the premium income from the option transaction. Spread
positions using options are subject to the same risks
involved in the purchase and writing of options. In
addition, in the event the Partnership were to write
uncovered options as one part of a spread position and such
option were exercised by the purchasing party, the
Partnership would be required to purchase and deliver the
underlying futures contract in accordance with the terms of
the option. Finally, an options trader runs the risk of
market illiquidity preventing offsetting positions for any
particular option. (See Commodity Trading May Be Illiquid
above.)
Business Interruption Risk. During both 2004 and
2005, the operations of JWH at its Boca Raton, Florida,
offices were disrupted by hurricanes which required
recovery periods to re-establish communications and other
utilities. JWH continued its trading operations during
those periods without interruption from back up locations.
Any future business interruption events, whether weather-
related or otherwise, that affect the south Florida area
could similarly disrupt the trading operations of JWH,
despite the back up precautions it has established. JWH
has a business continuity plan, but it cannot guarantee
that business interruption events will not have an impact
on its operations.
Electronic Trading and Order Routing Systems. JWH may from
time to time trade on electronic trading and order routing
systems which differ from traditional open outcry pit
trading and manual order routing methods. Transactions
using an electronic system are subject to the rules and
regulations of the exchanges offering the system or listing
the contract. Characteristics of electronic trading and
order routing systems vary widely among the different
electronic systems with respect to order matching
procedures, opening and closing procedures and prices,
error trade policies and trading limitations or
requirements. There are also differences regarding
qualifications for access and grounds for termination and
limitations on the types of orders that may be entered into
the system. Each of these matters may present different
risk factors with respect to the trading on or using a
particular system. Each system may also present risks
related to system access, varying response times and
security. In the case of internet-based systems, there may
be additional risks related to service providers and the
receipt and monitoring of electronic mail.
Trading through an electronic trading or order routing
system is also subject to risks associated with system or
component failure. In the event of system or component
failure, it is possible that for a certain time period, it
might not be possible to enter new orders, execute existing
orders or modify or cancel orders that were previously
entered. System or component failure may also result in
loss of orders or order priority. Some contracts offered
on an electronic trading system may be traded
electronically and through open outcry during the same
trading hours. Exchanges offering an electronic trading or
order routing system and listing the contract may have
adopted rules to limit their liability, the liability of
futures brokers and software and communication system
vendors and the amount that may be collected for system
failures and delays. These limitation of liability
provisions vary among the exchanges.
Reliance on Timely and Accurate Market Data. JWH's
ability to detect market trends and trade them profitably
depends on its access to timely and accurate market price
data throughout the trend identification and trading
processes. If price data is not available or is delayed,
JWH would be unable to trade for client accounts until
reliable data sources have been restored. Data
reconciliation procedures are applied each day to confirm
accurate price quotations, and on the subsequent day prices
that were employed in the JWH systems are re-reconciled in
an attempt to identify changes from previously posted
prices. JWH's traders are required to confirm a price from
multiple sources before executing a trade, and, during
volatile market conditions, traders request confirmation of
high and low prices from the floor before placing a trade.
Inaccurate information may be generated by a data vendor,
or an exchange may transmit inaccurate prices that a vendor
then distributes to JWH, but which are later cancelled or
amended by the exchange. In addition, JWH may obtain from
third parties, such as clearing firms, information about
price or about contract specifications and changes to them.
Inaccurate price information may cause JWH to enter or
close trades that it would not otherwise have entered or
closed, to trade or fail to trade at times that would have
been indicated by accurate data, or to be completely unable
to place a trade. Communications or technical failure may
also cause an electronic trading tool to fail, which could
cause JWH to fail to act when a trading stop is reached.
As a result of such potential data problems, client
accounts may be unable to exit positions or miss the
opportunity to establish new positions. JWH receives price
data electronically. Data providers typically make no
representations or warranties about the accuracy or
timeliness of the data they provide, and assume no
financial liability for lost profits, trading losses or
other consequential damages. Data providers also disclaim
any responsibility for events of force majeure, as well as
for actions (or inaction) of third party information,
hardware and software providers, and for interruption of
means of communication. Because all of the data required
for JWH s trading is provided from third parties, JWH,
cannot, despite its employment of the precautions described
above, make any assurances that its efforts will detect
erroneous or incomplete data, or prevent client accounts
from incurring losses or missing profit opportunities.
PARTNERSHIP ISSUES
Substantial Charges to Partnership. The Partnership pays
substantial fees and charges and has substantial operating
costs. As a result, it must make substantial profits for
your units to increase in value. These include an
incentive fee to JWH that is based on, among other things,
unrealized appreciation in open commodity interest
positions. The incentive fee is paid (and retained by JWH)
even if that portion of the Partnership's assets traded by
it experience subsequent losses or the appreciation is
never realized. It is therefore possible that the
Partnership may pay an incentive fee in years in which the
Partnership breaks even or experiences losses.
Possible Misallocation of Incentive Fees. The Partnership
pays quarterly incentive fees on trading profits, if any,
earned by JWH. Trading profits are calculated on the
overall profits earned by JWH on its allocated assets and
not just on increases in the Net Asset Value of each unit.
As a result, the Partnership might pay incentive fees even
if Partnership units decline in value. In addition, if, at
the time limited partners purchase units, there is an
accrued incentive fee expense, that accrued expense will
reduce the purchase price of their units. If the accrual
is reversed because of later losses, the incentive fee will
be misallocated because the reversal of the accrued
incentive fee expense will be allocated equally to all
outstanding units rather than only to those outstanding
during the period when the incentive fee expense accrued.
Similarly, if you buy units after an incentive fee has been
paid and after a later loss attributable to JWH, your units
will not be assessed an incentive fee until there are new
trading profits, even if your units have increased in
value.
There Is No Intrinsic Value to the Partnership's
Investments. The Partnership must be profitable for it to
provide beneficial diversification to a limited partner's
portfolio. Trading in commodity interests is a zero-sum
activity in which for every gain there is an equal and
offsetting loss (disregarding transaction costs). This
differs from a typical securities investment, in which
there is an expectation of consistent yields (in the case
of bonds) or participation over time in general economic
growth (in the case of stocks). The Partnership could lose
money while stock and bond prices rise. Stocks and bonds
(except penny stocks) generally have some intrinsic value.
Limited partners generally can realize some value for their
stocks or bonds even if they sell in a down market. In
trading commodity interests, on the other hand, investors
risk losing all of their investment if prices move against
them. In general, performance statistics do not reflect
the different risk profiles or tax treatment of traditional
and managed commodity interest investments. See, Risk
Factors Limited Partners Will Be Taxed on Profits whether
or Not Distributed or Realized.
Partnership Trading Is Not Transparent. JWH makes all of the
trading decisions for the portion of the Partnership's
assets allocated to it. While the General Partner receives
daily trade confirmations from the commodity broker, only
the monthly performance of the Partnership is reported to
limited partners. Accordingly, an investment in the
Partnership does not offer limited partners the same
transparency, i.e., an ability to review all investment
positions daily that a personal trading account offers.
Non-Correlated, Not Negatively Correlated, Performance
Objective. Historically, managed futures have been
generally non-correlated to the performance of other asset
classes such as stocks and bonds. Non-correlation means
that there is no statistically valid relationship between
the past performance of futures and forward contracts on
the one hand and stocks or bonds on the other hand (as
opposed to negative correlation, where the performance
would be exactly opposite between two asset classes).
Because of this non-correlation, the Partnership cannot be
expected to be automatically profitable during unfavorable
periods for the stock market, or vice versa. The futures
and forward markets are different from the
securities markets in that for every gain in futures and
forward trading, there is an equal and offsetting loss. If
the Partnership's investments do not perform in a manner
non-correlated with the general financial markets, or do
not perform successfully, limited partners will obtain no
diversification benefits by investing in the units and the
Partnership may have no gains to offset their losses from
other investments.
Limited Partners Will Not Participate in Management.
Limited Partners will not participate in the management of
the Partnership. Under principles of limited partnership
law, limited partners participation in the Partnership's
management could result in unlimited liability for them.
The limited partnership agreement provides that certain
actions may be taken, or approved, by the vote of limited
partners owning more than 50% of the units, but their role
in the Partnership is passive and the profitability of
their investment depends entirely on the efforts of others.
Indemnification of Partnership by Limited Partners. If
someone signs the subscription agreement and the General
Partner accepts their subscription, they will become a
limited partner. Under the agreement, they will be
required to indemnify the Partnership for any liability
that it incurs as a result of their actions.
LIQUIDITY
Limited Ability to Liquidate Investment in Units. Limited
partners cannot immediately liquidate their units. There
is no market for the units and none is likely to develop.
They may, however, redeem their Class A units, without
penalty, on the last day of any month on fifteen (15) days
prior written notice to the General Partner or such lesser
time as is acceptable to the General Partner Because of
the time delay between your Class A notice to the General
Partner and the end of the month when their investment is
redeemed, the value of their investment on the date of
redemption may be substantially less than at the time they
notify the General Partner of their request to redeem.
Possible Effect of Redemptions on Unit Values. The
Partnership will lose money if it has to sell positions at
a loss in order to raise capital so that the Partnership
can pay substantial redemptions. If a large number of
redemptions occur simultaneously, the need to liquidate
positions could continue even after the redemption date.
The Partnership would have fewer assets to trade after a
high level of redemptions. This might make it more
difficult for it to recover losses or generate trading
profits. Market illiquidity could make it difficult to
liquidate positions on favorable terms, and may also result
in losses and thus a decline in the value of Partnership
units.
Automatic Trading Suspension. Limited Partners should buy
units only if you are looking for a long-term investment.
If the net asset value per unit declines as of the close of
business on any day to a trading suspension level (50% of
the highest prior month-end net asset value per unit, after
adjustment for prior distributions), the Partnership will
liquidate its open positions and notify limited partners.
The Partnership cannot assure limited partners that it can
liquidate its investments without incurring substantial
additional losses or that limited partner will receive any
specific value for the units they own. See, Risk Factors
Commodity Interest Trading May Be Illiquid.
Counterparty Creditworthiness -- U.S. Markets. Commodity
exchanges provide centralized market facilities for trading
in futures contracts relating to specified commodities.
Each of the commodity exchanges in the United States has an
associated clearinghouse. Once trades made between
members of an exchange have been confirmed, the clearing
house becomes substituted for the clearing member acting on
behalf of each buyer and each seller of contracts traded on
the exchange and in effect becomes the other party to the
trade. Thereafter, each clearing member firm party to the
trade looks only to the clearinghouse for performance.
Clearinghouses do not deal with customers, but only with
member firms, and the guarantee of performance under open
positions provided by the clearinghouse does not run to
customers. If a customer's commodity broker becomes
bankrupt or insolvent, or otherwise defaults on such
broker's obligations to such customer, the customer in
question may not receive all amounts owing to such customer
in respect of his or her trading, despite the clearing
house fully discharging all of its obligations.
A substantial portion of the Partnership's assets are held
in a custodial account and managed by Horizon. Failure of
this firm might result in losses to the Partnership.
FOREIGN INSTRUMENTS
Counterparty Creditworthiness -- Non-U.S. Markets. JWH may
trade commodity interests on foreign exchanges and in the
over-the-counter markets. Unlike U.S. exchange traded
futures contracts where the exchange clearing corporation
acts as the counterparty to each customer transaction, the
over-the-counter markets and some foreign markets are
principals markets. This means that the performance of
the contract is the responsibility only of the individual
firm or member on the other side of the trade and not of
any exchange or clearing corporation. In those
transactions, the Partnership will be subject to the risk
of the inability of, or refusal by, the counterparty to
perform.
Trading on Foreign Exchanges and Currency Exchange Rate
Fluctuations. Neither existing CFTC regulations nor
regulations of any other U.S. governmental agency apply to
transactions on foreign markets. If a foreign
clearinghouse default or bankruptcy occurs, the
Partnership's rights and responsibilities are likely to
differ from those existing on U.S. exchanges. The
Partnership is at risk for fluctuations in the exchange
rate between the currencies in which the commodity interest
is traded and U.S. dollars. It also is possible that in
the future, U.S. or foreign governments could impose
exchange controls. There is no restriction on how much of
the Partnership's trading can be conducted on foreign
markets. The Partnership may pay brokerage commissions in
foreign currencies. If the exchange rate of those
currencies and the U.S. dollar fluctuates, the commission
rate paid for those trades might increase (decrease).
Possibility of Forward and Cash Trading. The Partnership
might make spot and forward contracts for certain
commodities, primarily currencies with U.S. or foreign
banks or dealers. A forward contract is a contractual
right to purchase or sell a commodity, such as a currency,
at or before a specific date in the future at a specific
price. Because forward contracts are not traded on
exchanges, there is no regulatory protection provided by
any exchange or the CFTC. There is no limit on daily price
moves for forward contracts. Banks and dealers are not
required to continue to make markets in any commodity. In
the past, there have been times when certain banks have
refused to quote prices for forward contracts or have
quoted prices with an unusually wide spread between the
price at which the bank is prepared to buy and that at
which it is prepared to sell. There is a risk that the
banks or dealers through which the Partnership trades could
fail or refuse to perform.
The CFTC is studying questions about the regulation of
off-exchange instruments such as forward contracts. A
number of the major U.S. commodity exchanges have also
expressed concerns about these instruments. The CFTC has
indicated that it would regard marketing of forward
contracts on a retail basis to the U.S. public at large as
a violation of the CEAct. The CFTC might, in the future,
prohibit the Partnership from trading in the forward
markets.
TAX AND REGULATORY ISSUES
Possibility of Taxation as a Corporation. General Partner
believes that under current federal income tax law and
regulations the Partnership will be classified as a
partnership and not as an association taxable as a
corporation. The General Partner will not obtain a
ruling from the Internal Revenue Service (IRS) or an
opinion of counsel to confirm its belief. If the
Partnership is taxed as a corporation for federal income
tax purposes in any taxable year, its income or losses
will not be passed through to you, and the Partnership
will be subject to tax on its income at the corporate
tax rate. In addition, any distributions made to
you could be taxable to you as dividend or capital gain
income, and those distributions will not be deductible in
computing taxable income.
Possible Legislative Tax Changes. All of the statements in
this Memorandum about taxes are based upon the current
Internal Revenue Code (the Code). Congress and the IRS
regularly revise the Code and the regulations. Those
revisions could materially affect you and the Partnership.
Unrelated Business Taxable Income (UBTI) for Employee
Benefit Plans. If the Partnership were a publicly-traded
partnership and limited partners are a tax-exempt entity,
or if they are a tax-exempt entity and debt finance their
investment, their share of gross income less Partnership
deductions is treated as UBTI, and subject to tax. The
General Partner does not believe that the Partnership is
publicly-traded for this purpose. However, if it were
decided that the Partnership is publicly-traded, it may not
be an appropriate investment for employee benefit plans,
including individual retirement accounts (IRAs). In
addition, if investing in commodity interests results in
UBTI, each partner that is a tax-exempt entity would take
into account its share of the Partnership's UBTI and the
deductions attributable to that income (including a $1,000
deduction against UBTI which is generally available to all
tax-exempt entities) in computing its tax liability.
Benefit plan investors should consult with their own legal
and financial advisers about the tax consequences of plan
investments in the Partnership.
Limited Partners Will Be Taxed on Profits whether or Not
Distributed or Realized. The Partnership is not required,
and the General Partner does not intend, to distribute
profits. If the Partnership has taxable income for a
fiscal year, the income will be taxable to them based on
their distributive share of Partnership profit even if no
profits have been distributed. As a result, limited
partners might owe taxes on undistributed profits. It is
also possible that those profits could be lost by the
Partnership after the end of its fiscal year, so that
limited partners might never receive the profits on which
they are taxed. However, they may redeem units to pay
taxes, but this would result in a reduction in their
interest in the Partnership's future profits (if any).
Foreign Limited Partners. If limited partners are not
citizens or residents of the U.S. and are not otherwise
engaged in a trade or business in the U.S., they will
generally not be required to pay U.S. income tax on capital
gains from commodity interest trading. Interest income
will be taxable to them, if they are a foreign investor,
unless there is an exemption from tax in an appropriate tax
treaty. If the law requires the General Partner to
withhold a portion of the income they earn because they are
a foreign limited partner, the General Partner may redeem
their units to pay the U.S. Department of Treasury taxes
they owe. If a limited partner believes amounts were
improperly withheld, they must deal directly with the U.S.
Department of Treasury.
Failure of Commodity Brokerage Firms. Futures commission
merchants must maintain the Partnership's assets in a
segregated account. If the Partnership's futures clearing
broker Newedge becomes bankrupt, the Partnership could lose
money.In addition, even if Newedge adequately segregates
the assets of the Partnership, the Partnership may be able
to recover only a pro rata share of the property available
for distribution to all of Newedge's customers.
Forex Trading Counterparty Creditworthiness. The
Partnership will enter into an agreement with an equity in
the Newedge Group which will result in such entity acting
as the counter-party to the Partnership's foreign currency
transactions. That is, the counterparty will be the seller
of all forex instruments purchased by the Partnership and
the buyer of all forex instruments sold by the Partnership.
The counterparty's financial benefit from entering into
these transactions with the Partnership is derived from its
ability to participate in the foreign exchange interbank
markets, which are only available to large institutional
investors. The counterparty's compensation will be derived
from a mark-up on the bid/ask spread price quoted to the
Partnership on each transaction, and the counterparty's
ability to offset these transactions in the foreign
exchange interbank market. In the event that the
counterparty is unable to successfully participate in this
market, the ability of the counterparty to enter into
transactions with the Partnership may be interrupted. In
addition, the counterparty has entered into similar
agreements with other persons, and thus acts as the
counter-party in transactions effected by these other
persons. Because the counterparty acts as counter-party in
these transactions, the Partnership is subject to the
additional risk that the counterparty will be unable to
fulfill its obligations to the Partnership. Moreover, in
the event of a bankruptcy of the counterparty, the
Partnership may be unable to recover assets held at the
counterparty, even if such assets are directly traceable to
the Partnership. In the event of the counterparty's
bankruptcy, there is no equivalent of the Securities
Investors Protection Corporation insurance as applicable in
the case of securities broker dealers bankruptcies.
A substantial portion of the Partnership's assets are held
in a custodial account and managed by Horizon. Failure of
this firm might result in losses to the Partnership.
Possibility of Tax Audit. The IRS might audit the tax
returns of the Partnership, or adjustments to its returns
might be made as a result of an audit. Uncertainty
regarding the federal income tax treatment of certain
management and incentive fees paid by the Partnership, or
ongoing fees paid to others, may increase the likelihood of
an audit. If an audit results in an adjustment, limited
partners may be required to pay additional taxes, interest
and penalties and may be subject to audit. The IRS is
currently authorized to impose an interest penalty on tax
deficiencies based on prevailing private sector interest
rates.
Risk that Units Will Not Be Considered Publicly-Offered
Securities under the Employee Retirement Income Security
Act of 1974 (ERISA). The General Partner believes that it
is reasonable to take the position that the units qualify
as publicly-offered securities under Title I of ERISA,
and that the underlying assets of the Partnership will
therefore not be considered for any purposes of ERISA or
Section 4975 of the Code to be assets of employee benefit
plans and IRAs that purchase units. However, this position
is not binding on the Department of Labor (DOL) and,
therefore, there is no certainty that the units qualify.
If the units are determined not to qualify as such
publicly-offered securities, the General Partner intends
to redeem units held by certain limited partners that are
employee benefit plans or IRAs to the extent necessary to
prevent the underlying assets of the Partnership from
thereafter being considered for purposes of Title I of
ERISA or Section 4975 of the Code to be assets of such
employee benefit plans or IRAs. However, for any period
that the underlying assets of the Partnership are
considered to be assets of employee benefit plans or IRAs,
the provisions of Title I of ERISA and Section 4975 of the
Code would apply to the operation of the Partnership and
could adversely affect the Partnership's investments and
activities.
Absence of Regulation Applicable to Investment Companies.
The Partnership is not registered as an investment company
or mutual Partnership. Therefore, the SEC does not
regulate it under the Investment Company Act of 1940
(the 1940 Act). Although the Partnership has the right
to invest in securities, limited partners are not protected
by the 1940 Act. The General Partner is, however,
registered with the CFTC as commodity pool operator (CPO),
JWH is registered with the CFTC as a CTA and Newedge
Financial Inc. is registered with the CFTC as a futures
commission merchant (FCM).
Item 1B. N/A
Item 2. Properties
The Partnership does not utilize any physical properties in
the conduct of its business. The General Partner uses its
offices to perform its administrative functions.
The address of the General Partner and the Partnership is
1100 North 4th Street, Suite 143, Fairfield, Iowa 52556,
and the telephone number at such location is (641) 472-
5500.
Item 3. Legal Proceedings
Neither the Partnership, nor the General Partner, is party
to any pending material legal proceeding.
Item 4. None - Removed and reserved by SEC.
PART II
Item 5. Market for Registrant s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities.
(a) There is no established public market for the
Units and none is expected to develop.
(b) As of December 31, 2011, there were 4,576.29
Class A Units held by Limited Partners. A total of 397.34
Class A units were purchased by Limited Partners during 2011.
A total of 325.63 Units were redeemed by Class A Limited
Partners during 2011.
RECENT SALES OF UNREGISTERED SECURITIES IN 2011 A UNITS
2011 1st quarter 2nd quarter 3rd quarter 4th quarter
Units Sold 64.76 39.21 77.49 74.577
Value of Units Sold $256,010 $157,000 $300,000 $245,769
RECENT SALES OF UNREGISTERED SECURITIES IN 2010 A UNITS
2010 1st quarter 2nd quarter 3rd quarter 4th quarter
Units Sold 86.69 165.91 41.7 0
Value of Units Sold $245,000 $500,000 $125,000 $ 0
1% of the proceeds from the above sales were used to pay the
Partnership's Organization and Offering charge. The remaining 99%
was invested in the Partnership.
The Seventh Amended and Restated Agreement of Limited
Partnership for the Partnership contains a full description
of redemption and distribution procedures.
The Agreement of Limited Partnership does not provide for
regular or periodic cash distributions, but gives the
General Partner sole discretion in determining what
distributions, if any, the Partnership will make to its
partners. The General Partner has not declared any such
distributions to date, and does not currently intend to
declare any such distributions.
Item 6. Selected Financial Data
