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, 2013 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: $6,331,720.
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.
After another tough month of trading, John W. Henry,
the Chairman of JWH announced that JWH would
stop trading client assets as of December 31, 2012.
The Partnership terminated JWH as of October 31st.
The Fund began trading on December 3rd 2012 with the
new advisor EMC Capital Management, Inc (EMC).
In October 1, 2013 EMC Capital Management., Inc changed
name to EMC Capital Advisors, LLC.
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 were traded by
the JWH GAP through October 31, 2012.
The Partnership began trading on December 3rd 2012 with the
new advisor EMC Capital Management, Inc (now EMC Capital
Advisors, LLC) or (EMC). 100% of the Partnership's
assets are being traded by the EMC Classic Program.
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, EMC Capital Advisors, LLC (EMC) 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 EMC 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 EMC and not the
General Partner. In addition, the General Partner selects
the commodity broker(s) that will clear trades for the
advisor(s).
R.J. O'Brien and Associates, LLC (RJO) currently acts as
Everest's commodity broker. RJO offices are located at 222 South
Riverside Plaza, Suite 900, Chicago, Illinois 60606.
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 EMC 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 EMC Capital Advisors, LLC(EMC). , 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 EMC
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 $ 90,000 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 2012-2013 can be found in the table in Item 6 below.
As of December 31, 2013, the General Partner had two full-time
employees and one part-time employee. 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, 2013, 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, 2013 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
EMC 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 EMC obtains, produces or utilizes in the
performance of services for the Partnership through its
investment in Everest. To the extent that EMC 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 EMC, 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 EMC 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 EMC, 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 EMC 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. EMC 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 EMC to use this market may be
curtailed.
Trading Decisions Based on Technical Analysis. EMC 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 EMC will generate profits under all or any
market conditions.
Possible Effects of Other Similar Systems. Commodity
trading systems, which use market data like EMC 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 EMC's Continued Services. EMC has
exclusive responsibility for trading commodity interests
allocated to it. EMC is dependent on the services of
certain key persons. The loss of the services of such
persons would make it difficult or impossible for EMC to
continue to provide services to the Partnership. In
addition, the advisory contract between the Partnership and
EMC 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. EMC 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. EMC controls
the commodity trading of other accounts. All positions and
accounts owned or controlled by EMC and its principals are
combined with the Partnership's positions established by
EMC for position limit purposes. In order to avoid
exceeding position limits, it is possible that EMC 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. EMC 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 EMC 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 EMC 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 EMC 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.
EMC PROGRAMS
Effects of Trading Multiple Investment Programs. EMC makes
trading decisions for each of its investment programs
independently of trading decisions for the other EMC
investment programs.
Mandatory Closing Out of Offsetting Positions. CFTC rules
require offsetting positions taken by EMC for
clients be closed out.
Swap Transactions. EMC 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
EMC. 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. EMC
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. EMC 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.
Any business interruption events, whether weather-
related or otherwise, that affect the Illinois area
could disrupt the trading operations of EMC,
despite the back up precautions it has established. EMC
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. EMC 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. EMC'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,
EMC 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 EMC systems are re-reconciled in
an attempt to identify changes from previously posted
prices. EMC'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 EMC, but which are later cancelled or
amended by the exchange. In addition, EMC 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 EMC 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 EMC 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. EMC 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 EMC's trading is provided from third parties, EMC,
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 EMC that is based on, among other things,
unrealized appreciation in open commodity interest
positions. The incentive fee is paid (and retained by EMC)
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 EMC. Trading profits are calculated on the
overall profits earned by EMC 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 EMC, 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. EMC 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. EMC 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
clearing house 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 RJO becomes bankrupt, the Partnership could lose
money. In addition, even if RJO 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 RJO's customers.
Forex Trading Counterparty Creditworthiness. The
Partnership will enter into an agreement with an equity in
the RJO 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),
EMC is registered with the CFTC as a CTA and RJO
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, 2013, there were 3,072.20
Class A Units held by Limited Partners. A total of 0
Class A units were purchased by Limited Partners during 2013.
A total of 586.12 Units were redeemed by Class A Limited
Partners during 2013.
RECENT SALES OF UNREGISTERED SECURITIES IN 2013 A UNITS
2013 1st quarter 2nd quarter 3rd quarter 4th quarter
Units Sold 0 0 0 0
Value of Units Sold $0.00 $0.00 $0.00 $0.00
RECENT SALES OF UNREGISTERED SECURITIES IN 2012 A UNITS
2012 1st quarter 2nd quarter 3rd quarter 4th quarter
Units Sold 29.26 25.26 66.17 0
Value of Units Sold $83,777 $72,000 $179,999 $0
1% of the proceeds from the above sales in 2012 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
2009 2010 2011 2012 2013
------- ------- ------ ------- ------
(In thousands, except amounts per Unit)
1. Net trading Gain/loss $-2,618 $4,878 -835 -3,249 -340
2. Interest and other income $138 $55 37 34 4
3. Expenses $1,333 $1,299 1,527 992 653
4. Net Income -3,813 3,634 -2,325 -4,207 -989
5. Income (Loss)
Per Unit: A Shares -810.50 806.75 -512.12 -1,150.01 -322.05
I Shares 0.00 0.00 0.00 0.00 0.00
AA Shares 0.00 0.00 0.00 0.00 0.00
II Shares 0.00 0.00 0.00 0.00 0.00
6. Total Assets 14,396 17,369 15,178 9,296 6,876
7. Long Term Obligations 0 0 0 0 0
8. Cash Dividend per Unit 0 0 0 0 0
9. Total partners capital 14,085 17,063 15,024 8,637 6,332
10. Increase/decrease in NA -4,628 2,978 -2,039 -6,387 -2,305
* Certain prior year amounts have been reclassified to conform to the
current year presentation.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
We receive our capital resources from investor's contributions.
Net Asset Value of an interest is defined in the Partnership
Agreement to mean the Net Assets allocated to the capital
account represented by such interest on the date of calculation
and includes that interest's pro-rata share of all assets attributable
to that Class of units less all liabilities attributable to that Class
of units determined in accordance with the principles specified
in the Partnership Agreement or, where no principle is specified,
in accordance with U.S. generally accepted accounting principles
consistently applied under the accrual basis of accounting
Past performance is not necessarily indicative of future results.
An investment in the partnership is speculative and involves a
substantial Risk of loss.
Off-Balance Sheet Risk
The term "off-balance sheet risk" refers to an unrecorded
potential liability that, even though it does not appear on the
balance sheet, may result in future obligation or loss. The Partnership
trades in futures and forward contracts and is therefore a party
to financial instruments with elements of off-balance sheet market
and credit risk. In entering into these contracts there exists a risk
to the Partnership, market risk, that such contracts may be significantly
influenced by market conditions, such as interest rate volatility,
resulting in such contracts being less valuable. If the markets
should move against all of the futures interests positions of the
Partnership at the same time, and if the commodity trading advisors were
unable to offset futures interest positions of the Partnership, the
Partnership could lose all of its assets and the Limited Partners
would realize a 100% loss. Everest Asset Management, Inc., the
General Partner, minimizes market risk through diversification of
the portfolio allocations to EMC, which in turn trades a diversified
portfolio, and maintenance of a margin-to-equity ratio that rarely
exceeds 30%.
In addition to market risk, in entering into futures and forward
contracts there is a risk that the counterparty will not be able to
meet its obligations to the Partnership. The counterparty for futures
contracts traded in the United States and on most foreign
exchanges is the clearinghouse associated with such exchange.
In general, clearinghouses are backed by the corporate members
of the clearinghouse who are required to share any financial
burden resulting from the non-performance by one of their
members and, as such, should significantly reduce this risk. In
cases where the clearinghouse is not backed by the clearing
members, like some foreign exchanges, it is normally backed
by a consortium of banks or other financial institutions.
In the case of forward contracts, which are traded on the
inter-bank market rather than on exchanges, the counterparty
is generally a single bank or other financial institution, rather
than a group of financial institutions; thus there may be a
greater counterparty risk. Everest Asset Management, Inc.
utilizes only those counterparties that it believes to be
creditworthy for the Partnership. All positions of the
Partnership are valued each day on a mark-to-market basis.
There can be no assurance that any clearing member, clearinghouse
or other counterparty will be able to meet its obligations to
the Partnership.
The Partnership will utilize high grade short-term commercial
paper, which is an unsecured, short-term debt instrument
issued by a corporation with maturities rarely longer than
365 days. Commercial paper is not usually backed by any
form of collateral, so only firms with high-quality debt
rating will be used. As commercial paper is not backed by
the full faith and credit of the U.S. Government, if the
issuing corporation defaults on their obligations to the
Partnership, the Partnership bears the risk of loss of the
amount expected to be received.
The Partnership has no Contractual Obligations.
Most U.S. commodity exchanges limit by regulations the
amount of fluctuation in commodity futures contract prices
during a single trading day. These regulations specify
what are referred to as "daily price fluctuation limits" or
"daily limits". The daily limits establish the maximum
amount the price of a futures contract may vary either up
or down from the previous day's settlement price at the end
of a trading session. Once the daily limit has been
reached in a particular commodity, no trades may be made at
a price beyond the limit. Positions in the commodity could
then be taken or liquidated only if traders are willing to
effect trades at or within the limit during the period from
trading on such day. Because the "daily limit" rule only
governs price movement for a particular trading day, it
does not limit losses. In the past, futures prices have
moved the daily limit for numerous consecutive trading days
and thereby prevented prompt liquidation of futures
positions on one side of the market, subjecting commodity
futures traders holding such positions to substantial
losses for those days.
It is also possible for an exchange or the CFTC to suspend
trading in a particular contract, order immediate
settlement of a particular contract, or direct that trading
in a particular contract be for liquidation only.
For the year ended December 31, 2013, Limited Partners
redeemed a total of 586.12 Class A Units for $1,316,294.
During 2013, investors purchased 0 Class A Units.
The Partnership trades on recognized global futures
exchanges. In addition, the Partnership trades over the
counter contracts in the form of forward foreign currency
transactions.
See Footnote 4 of the 2013 Financial Statements for procedures
established by the General Partner to monitor and minimize
market and credit risks for the Partnership. The General
Partner of the Partnership reviews on a daily basis reports
of the performance of the Partnership, including monitoring
the daily net asset value of the Partnership. The financial
situation of the Commodity Broker is monitored on a monthly
basis to monitor specific credit risks. The Commodity
Broker does not engage in proprietary trading and thus has
no direct market exposure which provides the General
Partner with assurance that the Partnership, will not
suffer trading losses through the Commodity Broker.
Results of Operations
Calendar Year 2013
At December 31, 2013 the Partnership had approximately
$6.331 million in Class A assets , all of which have been
allocated to EMC Capital Advisors, LLC (EMC), formerly
EMC Capital Management, Inc (EMC).
The balance was being held in interest-bearing accounts in
anticipation of future allocations to EMC or other traders.
The Partnership recorded a loss of $989,411 or $322.05 per
Class A unit, for the year 2013. That represents a loss of
12.71% for the year.
The Partnership continued to employ advisor EMC Capital
Advisors, LLC's (EMC) Classic Program through December 31, 2013.
Class A Units were positive 6.17% in January 2013 resulting in
a Net Asset Value per unit of $2,506.77 as of January 31, 2013.
The Fund and EMC was up nicely in January. Price trends did
in fact reappear in January as the "fiscal cliff" was avoided.
Profits came in currency trading, metals, energies, and stock
indices.
Class A Units were negative 4.17% in February 2013 resulting in
a Net Asset Value per unit of $2,402.34 as of February 28, 2013.
In February the Fund gave back more than half the gains
from January. The "sequester" created uncertainty in the
markets and trend following systems do not usually do well
with uncertainty. Gains in commodities were not enough to
offset losses in currencies, energies, metals, and stock indices
for the month.
Class A Units were positive 2.32% in March 2013 resulting in
a Net Asset Value per unit of $2,457.99 as of March 31, 2013.
In March the Fund had a gain of just over 2%. EMC was able
to post a positive return despite the fact that energies, grains
and metals were "range bound" with little real change for
the month. Profits came from currencies, financials, softs and
stock indices.
Class A Units were positive 1.85% in April 2013 resulting in
a Net Asset Value per unit of $2,503.40 as of April 30, 2013.
In April the Fund gained 1.85%. Profits came in metals,
energies and stock indices, with smaller gains in financials.
We were impressed by EMC's ability to hold on to profits
in the metals sector as the abrupt decline in gold and
silver prices was followed by a sharp reversal to the upside.
This can be a very difficult combination for a trend
follower but EMC's sophisticated risks overlays were effective.
Class A Units were negative 6.32% in May 2013 resulting in
a Net Asset Value per unit of $2,345.31 as of May 31, 2013.
In May the Fund experienced a loss, most of which was
generated on Thursday/Friday the 23rd/24th by events and
news from China creating a one day downturn of 7 1/2% in
the Japanese equity index (Nikkei 225). There were reversals
in other China sensitive markets like the yen, the Hang Seng,
the SP200 Australian Index and even soybean prices. With
large abrupt price changes across a number of futures
contracts, EMC's trend following approach, despite what
we believe to be sophisticated risk management overlays,
got caught up and was not able to recover in the last
week of trading.
Class A Units were negative 2.54% in June 2013 resulting in
a Net Asset Value per unit of $2,285.75 as of June 30, 2013.
The Fund fluctuated during the month of June ending with
gains in metals, grains and financials but larger overall losses
in stock indices, energies, soft and currencies.
This was a very volatile month and while volatility can
be a friend of trend following the volatility this month had
metals, equity indices, bonds and currencies fluctuating in both
directions in short periods of time.
Class A Units were negative 4.39% in July 31, 2013 resulting in
a Net Asset Value per unit of $2,185.33 as of July 31, 2013.
As the S&P 500 continues to make all-time highs, trend
followers in the managed futures industry continue to struggle.
The Fund's advisor EMC has been no exception. Futures
markets continue to be either range bound or having
dramatic reversals after what look to be promising trends.
We do not believe that trend following is dead or that the need
for meaningful diversification is over. We do recognize
that when one asset class outperforms another it tests the
patience of investors and asset allocators. Disciplined, long
term investing is not always easy, but we believe patience is
rewarded.
In July, the Fund had gains from grain markets and stock
indices, but larger losses almost across the board in metals,
energies, currencies and financials.
Class A Units were negative 2.71% in August 31, 2013 resulting in
a Net Asset Value per unit of $2,126.07 as of August 31, 2013.
The Fund and S&P 500 had losses for August in almost
identical amounts. The Fund had gains in financials and
currencies but larger losses in energies, metals and stock
indices. As has been the case for the last few months,
these markets are range bound and reversing rather than
trending.
Equities seem top heavy and struggling with the reality
of the end of quantitative easing. Not if, but when. As the
war drums are sounding again we feel that this is the time
to stay diversified in an asset class that has the potential
for profit regardless of what direction the equity indices
move. Providing, of course, that the futures contracts
move (up or down) in one direction for sustained period of
time.
Class A Units were negative 4.69% in September 30, 2013 resulting
in a Net Asset Value per unit of $2,026.27 as of September 30, 2013.
The Fund had another month of promising trends and positive
results in the first two weeks, followed by a return to reversing
and choppy price action for the last two weeks giving way to losses.
EMC'slosses came pretty much across the board in energies,
financials, metals, grains and currencies. Gains came in stock
index positions.
Class A Units were a positive 2.16% in October 2013 resulting in
a Net Asset Value of $2,070.05 as of October 31, 2013.
The Fund had a gain of just over 2% for October. Gains
came from trending markets in response to the federal
government shutdown and potential US default issues. As
in the last few months, the gains came in the first half of
the month and there was give back in the last half. This
month EMC was able to retain enough for a profitable month.
2013 has been a great year for equities and a difficult year
for managed futures. With 2 months left it remains to be
seen whether or not we will see a reemergence of trending
prices this year. If so, we remain confident that EMC will
capture them.
Class A Units were a positive 3.62% in November 2013
resulting in a Net Asset Value of $2,145.07 as of November
30, 2013.
The Fund had a gain of just over 3% in November beating the
S&P 500 total return of 2.80% for the month. Profits came in
grains, financials, metals, and stock indices. The Everest Fund
has been +5.5% (approximately) for the last two months and
with one month remaining in the 2013, we wait to see if tradable
trends are reemerging for our manager EMC to capitalize on.
Class A Units were a negative 3.92% in December 2013
resulting in a Net Asset Value of $2,060.97 as of December
31, 2013.
The last month of the year saw losses in fixed income, equity
indices and metals that more than offset smaller gains from
currencies and grains. This marks the first year of EMC trading
the Fund and it has been a disappointing year for most of the
Managed Futures industry, EMC included.
Results of Operations
Calendar Year 2012
At December 31, 2012 the Partnership had approximately
$8.637 million in Class A assets , all of which have been
allocated to EMC Capital Management, Inc (EMC).
The balance was being held in interest-bearing accounts in
anticipation of future allocations to EMC or other traders.
The Partnership recorded a loss of $4,207,119 or $1,150.01 per
Class A unit, for the year 2012. That represents a loss of
28.09% for the year.
The Partnership continued to employ John W. Henry &
Company, Inc. s (JWH) GlobalAnalyticsR Family of Programs
through October 31, 2012.
The Fund began trading on December 3rd 2012 with the
new advisor EMC Capital Management, Inc. 's (EMC) Classic Program.
Class A Units were negative 13.32% in January 2012 resulting in
a Net Asset Value per unit of $2,845.95 as of January 31, 2012.
The Year started on a decidedly negative note for the Fund
as performance declined in January. All six sectors of the portfolio
posted negative returns with the largest losses coming from the
metals sector. There was no dominant or clear theme running through
the markets in January that easily explains the Fund's returns. The
interest rate sector was the best performing sector in the Fund for
the month. The foreign exchange markets were more difficult to trade
in January as the Fund suffered from significant reversals across the
sector during the month. The stock market was slightly unprofitable as
gains from positions in U.S. equity index futures were insufficient to
offset losses from positions in the Nikkei and European index futures.
The largest losses came from the metals sector and from positions in
gold and silver. Gold and silver ended 2011 in clear down trends with
closing prices near multi-month lows. The energy sector was
unprofitable as gains from positions in natural gas could not
offset losses from petroleum products. Agricultural commodities
were also unprofitable for the month with all markets in the sector
detracting from performance.
The month was filled with radical trend reversals in many markets
that have previously provided excellent returns and portfolio protection
for our investors. Fund's portfolios have been structured to provide
investors with a broad exposure to historically uncorrelated markets
and market sectors that have an opportunity to enhance the risk and
return profiles of their overall investment portfolios.
Class A Units were negative 0.66% in February 2012 resulting in
a Net Asset Value per unit of $2,827.04 as of February 28, 2012.
After a tumultuous start to the year, the Fund's performance
stabilized in February. This period of relative quiet reflected a less
volatile market environment for many of the sectors traded in the
Fund. Global equity prices rose while registering lower levels of
volatility. The energy sector was one area where there continues
to be a high level of uncertainty. The Fund was able to profit
as energy prices rose. Gains from positions in energy, indices
and currencies helped reduce the losses in the other sectors
resulting in a minimal loss for the Fund. The currency
sector was profitable for February as positions in the Japanese
yen paced gains. Gains from positions in the yen more than
offset small net losses from trading in European currencies. The
rally in global stock prices propelled performance in the equity
sector in the latest period. Positions in the Japanese Nikkei 225
were the most profitable in the sector. Positions in the metal
sector were unprofitable in February as the listless trading
conditions that prevailed for most of the month were upset in a one
day shock on the last trading day of the month. Gold trended
higher on low volatility for most of February, while it generally
followed the path of stocks. The energy sector was profitable
in February as crude oil prices moved higher and traded
over $100 per barrel for most of the month. Positions in all
energy markets were profitable in February. The agricultural
sector was unprofitable as gains from positions in the cotton
market were unable to offset losses in other parts of the sector.
There was an absence of trends across the balance of the
sector with generally lower levels of volatility. After a difficult
start to the year, a period of calm has come across many of the
market sectors in the Fund amid lower levels of volatility.
Class A Units were negative 3.57% in March 2012 resulting in
a Net Asset Value per unit of $2,726.12 as of March 31, 2012.
The Fund declined in March as the markets closed out the first
Quarter in a decidedly quiet tone. The interest rate sector was the
worst-performing sector in the Fund in March as the long run move
in bond prices may have ended. The currency sector was
essentially flat as gains from positions in the Japanese yen
nearly offset losses from trading in European currencies as
exchange rate flows generally tracked the changes in market risk
sentiment.
Trading in equities was predictably profitable given the
underlying state of the markets as positions in the Nikkei 225 led
the way. Trading in metals was unprofitable in March as
meaningful losses in silver more than offset small gains from
trading in gold. While the rally in crude oil prices lost some
momentum in March, the energy sector was nevertheless still
profitable as sector leadership rotated to the natural gas market.
In the petroleum complex, small gains in crude oil and London
gas oil offset small losses from positions in heating oil. The
agricultural sector was slightly unprofitable in March as gains
from positions in soybeans and coffee were unable to offset
losses in other parts of the sector. Unfortunately, soybeans
were the only strong trend in the sector as most other markets
lacked direction.
Class A Units were negative 1.80% in April 2012 resulting in
a Net Asset Value per unit of $2,677.00 as of April 30, 2012.
In a relatively quiet month the Fund declined in April as the
rally in equity prices appeared to lose some momentum.
In general, commodity prices fell in April as the uptrend in
crude oil prices appears to be threatened. Amidst this relatively
benign market backdrop, the Fund's trading advisor added a
few new markets to the portfolio with the objective of increasing
the diversification of the Fund. The South African rand and the
Russian ruble were added to the currency sector, while London
copper and aluminum were added to the metals sector.
The interest rate sector was the best-performing sector in the
Fund during April as positions in European and Japanese bond
futures lead the way and offset small losses from positions in
U.S., interest rates.
The currency sector was unprofitable in April. Trading in
European and emerging currencies was largely mixed and not
sufficient enough to offset losses from trading in the Japanese
yen. In their inaugural month of trading in the Fund's portfolio,
emerging currencies were flat, with the Russian ruble contributing
small gains and the South African rand contributing small losses.
The equity sector experienced small losses during the month. The
energy sector was the worst-performing sector in the Fund during
April, as positions in crude oil, crude oil products and natural
gas were all unprofitable. The high levels of supply combined with
weaker economic data weighed on the oil patch in April. The
small month-on-month rally in natural gas led to small losses for
the Fund, which ended a streak of nine consecutive months of
profitable trading in this commodity. The metals market was
profitable as gains from precious metals, especially silver, more
than offset small losses from trading in industrial metals. The
newly added London copper and London aluminum traded largely
flat with just small losses for the month. The agricultural sector
was also profitable in April due to strong gains from trading in
the soybean market.
Class A Units were positive 15.78% in May 2012 resulting in
a Net Asset Value per unit of $3,099.31 as of 31, 2012.
Performance in May was exceptional as the Fund gained almost
16 percent for the month. Profits came from almost every sector
traded: metals; interest rates; currencies; energies; and
agriculturals. In our opinion, this is a very good time to have the
diversification of Everest and the traditional equity and bond
markets. The interest rate sector was the best-performing sector
in the Fund as government bond prices surged to historic levels,
pushing yields on government bonds to historic levels. Performance
from the currency sector was also strong as investor flight from
the euro gathered momentum. The Russian ruble and the South
African rand were both profitable in their first full month of
trading after being added to the Fund in April. The euro and ruble
were the sector's best-performing markets. Despite the fact that
most global equity markets were down significantly during May, the
Fund's exposure to that sector generated only modest profits, as
not all markets entered the month in clear down trends.
The metals sector, revamped in April, contributed positively to
performance in May as all positions in the sector were profitable.
The copper and aluminum markets - also newly added to the Fund - were
both profitable in their first full month of trading. Trading in
the energy sector was profitable as positions in crude oil products
were more than sufficient to offset losses from trading in natural
gas. All positions in crude oil and crude oil products were
significantly positive in May. The Fund also benefited from
strong gains in the agricultural sector, especially in cotton
and sugar.
Class A Units were negative 10.54% in June 2012 resulting in
a Net Asset Value per unit of $2,772.63 as of June 30, 2012.
The Fund's performance in June was disappointing with the reversal
of a large portion of the profits generated in May.
The interest rate sector was unprofitable in June but, on a
relative basis, performance was more encouraging as long-term
trends remained largely intact and there was only a modest
retracement of the strong moves of May. The currency sector
was hard hit as all positions were unprofitable on the month.
Trends in the equity sector were similarly upset. The S&P 500,
which was down 6.26 percent in May, rebounded in June to
gain almost four percent, continuing the non-correlation of
the stock markets and our Everest Fund.
Trading in metals was unprofitable as gains from positions
in aluminum were insufficient to offset losses from
trading in gold and copper. In certain respects, trading in
the energy sector was similar to the metals sector. Crude
oil and crude oil products were in powerful downtrends for
much of the month and were making significant positive
contributions to the Fund's performance until very
late in the month. The agricultural sector was unprofitable
in June as trading in sugar and corn weighed heavily in the
group's performance. Both markets entered the month in
long protracted down trends. Sugar prices gained more than
six percent in June, ending trends for certain models used
in the Fund.
Class A Units were positive 5.31% in July 2012 resulting in
a Net Asset Value per unit of $2,919.89 as of July 31, 2012.
The Fund's performance was strong in July.
The agricultural sector made the difference between a
modestly positive month and the strong performance
delivered in July. Corn and soybean prices surged
during the month as drought conditions across much
of the grain belt significantly damaged the U.S. crop.
The trend in these markets was powerful and made
a significant contribution to the month's positive
performance.
Trading in the interest rate sector was profitable as
yields touched historic lows. All positions in the sector
were profitable for the month. Trading in the currency
sector was more mixed; but nonetheless, still modestly
profitable in July led by positions in the euro and
Swiss franc. The South African rand and Russian ruble
were directionless leading to small losses for the month.
Trading in the equity sector was unprofitable as positions
continue to be upset by abrupt changes in investor sentiment.
Trading in Japanese equities was also challenging in July.
The energy sector was also unprofitable in July as the
downtrend in oil prices reversed during July.
Trading in the metals sector was relatively subdued as
small losses from trading in gold and copper offset small
gains from trading in aluminum. Industrial metal prices have
also lacked direction for some time as the markets have
struggled to reconcile increased monetary stimulus with
reduced expectation for global demand. Positions across
the complex have been relatively light, reflecting the lack
of clear direction in the market, which has resulted in a
reduced impact on Fund performance attributable to the sector.
Trading in the agricultural sector was far from subdued.
Corn prices rallied 27 percent for the month and were up
more than 60 percent since mid-June, as drought
conditions in the U.S. Midwest persist. Soybean prices
rallied 15 percent during the month. The lack of rainfall
represents the worst drought since 1956, while crop
conditions are the poorest since 1988. The two markets
generated significant positive performance for the
Fund and more than offset small losses incurred from
trading in other parts of the sector.
Class A Units were negative 6.08% in August 2012 resulting in
a Net Asset Value per unit of $2,742.39 as of August 31, 2012.
Performance declined in August as trends in interest rates
and currencies reversed course near mid-month.
Price reversals in interest rates were the key factor affecting
performance in August. The Fund entered the month with
positions that were profiting from the long-term decline
in government bond yields. The extent of this increase in
interest rates was sufficient to cause a change in the make-up
and signals of the positions held within the interest rate sector of
the portfolio.
Trading in currencies was unprofitable as small gains from
positions in the British pound were insufficient to offset the
losses from trading in other currencies.
Trading in the equity sector was slightly negative as gains
from positions in U.S. and European equities were offset by
losses from trading in the Japanese Nikkei 225.
Trading in energies was unprofitable as gains from positions
in oil and oil products were offset by losses from trading
in natural gas. Trading in the metals sector was especially
quiet in August as the price action in all the markets
remained largely range-bound. Small gains from trading in
gold did not quite offset small losses from trading in aluminum
and copper.
Trading in agricultural commodities was positive as the
summer-long rally in soybean prices continued. Soybean
prices gained more than seven percent for the month,
while setting another all-time high during August. Grain
prices remain underpinned by supply losses caused by the
U.S. drought. The Fund was also able to profit from
certain downtrends in agricultural prices. Raw sugar
prices declined 12.5 percent in August as optimal
weather conditions in Brazil, the world's largest exporter
of sugar, weighed on prices.
Class A Units were negative 6.15% in September 2012 resulting in
a Net Asset Value per unit of $2,573.71 as of September 30, 2012.
Performance declined in September as most financial
markets continue to be held in check or under the firm
control of politicians and economic policy makers.
What has been extremely positive for the valuation
of stocks and bonds has been more challenging for the
trend-dependent strategies used by Fund.
Trading in the interest rate sector was little changed as
recent action steps by global monetary authorities have
sapped the market of much of its volatility. It has
been a difficult environment for trend-followers. The
sector was unprofitable for the month as small gains
from positions in Libor and Eurodollar contracts were
insufficient to offset small losses from positions in bond
futures.
The currency sector was quiet as small position sizes
across the sector meant that there were only small changes
to profit/loss on the individual market level. Small profits
from positions in the British pound and the Russian ruble
slightly offset losses from other positions in the sector.
The energy sector was unprofitable in September. Crude
oil prices, which entered the month in an uptrend due
in part to the increases in monetary stimulus and also the
heightened geopolitical risk linked to turmoil in Syria,
reversed course sharply during the month. Natural gas,
which has been in an extended long-term down trend, rallied in
September leading to losses.
Trading in the metals sector was profitable as strong gains
in the gold market more than offset losses from trading
in industrial metals. Copper and aluminum also moved higher
during September but the Fund was not positioned early in the
month to take advantage of the rally in industrial metals.
The agricultural sector suffered meaningful losses during
the month, partly as a result of the sharp turnaround in
grain prices. The market traded at a record price early in
the month, following reports that the U.S. crop will drop to
a nine-year low after the hottest and driest summer in the
Midwest since 1936. The Fund also suffered from a reversal
in the prices of coffee.
Class A Units were a negative 8.17% in October 2012 resulting in
a Net Asset Value of $2,363.40 as of October 31, 2012.
After another tough month of trading, John W. Henry,
the Chairman of JWH announced that JWH would stop
trading client assets as of December 31, 2012. The
Partnership terminated JWH as of October 31st, 2012.
They were replaced by EMC Capital Management, Inc.
(www.emccta.com). Everest believes that EMC is an
excellent CTA choice for the Fund for many reasons,
including the research component at EMC which has
substantially reduced the volatility of their trend following
approach over the last 5 years. In a very tough year
for trend followers, EMC is +7% approximately through
October 2012 while JWH was an estimate -28% for the
same time period. The choice of EMC was a considered
one, not a knee jerk reaction. EMC has agreed to take on
the substantial loss carry forward that we had from JWH
for the investors with respect to EMC's incentive fees. The
importance of this point should not be overlooked as we
all are attempting to re coup our assets as efficiently as possible.
Class A Units were a negative 0.55% in November 2012
resulting in a Net Asset Value of $2,350.51 as of November
30, 2012.
The Fund began trading on December 3rd with the new
advisor EMC Capital Management, Inc. The election
uncertainty has been replaced with the fiscal cliff uncertainty.
None the less, we feel that the markets have a better chance
for sustained price trends once the cliff has been settled than
we have seen for some time. No one can predict the future,
but we have a high level of confidence that EMC will identify
and profit whenever conditions become favorable for trend
following, and will do a better job at preserving capital than
JWH did when markets are not trending.
Class A Units were a positive 0.45% in December 2012
resulting in a Net Asset Value of $2,361.04 as of December
31, 2012.
EMC had a small profit for their first month of trading in
our fund. Futures prices were range bound most of the month,
awaiting for a resolution to the "fiscal cliff" crisis. There was a
break out in the last few hours of trading on the last day of the
month as the Senate passed their version of the bill. Gains in the
month came mostly in currency and equity index positions, which
were enough to offset losses in financials/interest rates, energies
and metals which were more choppy.
As one large cloud of uncertainty surrounding the "fiscal cliff"
is behind us we look forward to the possibility of sustained price
trends in the next months. We are keenly aware that political
uncertainties remain which may limit the Fund's upside until they
are resolved.
Inflation
Inflation does have an effect on commodity prices and the
volatility of commodity markets; however, inflation is not
expected to have an adverse effect on the Partnership's
operations or assets.
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
Introduction
Past Results Are Not Necessarily Indicative of Future
Performance
The Partnership is a speculative commodity pool. The
market sensitive instruments held by it are acquired for
speculative trading purposes, and all or substantially all
of the Partnership's assets are subject to the risk of
trading loss. Unlike an operating company, the risk of
market sensitive instruments is integral, not incidental,
to the main line of business of the Partnership.
Market movements result in frequent changes in the fair
market value of the open positions of the Partnership and,
consequently, in its earnings and cash flow. The market
risk of the Partnership is influenced by a wide variety of
factors, including the level and volatility of interest
rates, exchange rates, equity price levels, the market
value of financial instruments, the diversification effects
among the open positions of the Partnership and the
liquidity of the markets in which it trades.
The Partnership can acquire and/or liquidate both long and
short positions in a wide range of different financial and
metals markets. Consequently, it is not possible to
predict how a particular future market scenario will affect
performance, and the past performance of the Partnership is
not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the
Partnership could reasonably be expected to lose in a given
market sector. However, the inherent uncertainty of the
Partnership's speculative trading and the recurrence in the
markets traded by the Partnership of market movements far
exceeding expectations could result in actual trading or
non-trading losses far beyond the indicated Value at Risk
or the experience of the Partnership to date (i.e., "risk
of ruin"). In light of the foregoing as well as the risks
and uncertainties intrinsic to all future projections, the
inclusion of the quantification included in this section
should not be considered to constitute any assurance or
representation that the losses of the Partnership in any
market sector will be limited to Value at Risk or by the
attempts of the Partnership to manage its market risk.
Standard of Materiality
Materiality as used in this section, "Qualitative and
Quantitative Disclosures About Market Risk," is based on an
assessment of reasonably possible market movements and the
potential losses caused by such movements, taking into
account the leverage, optionality and multiplier features
of the market sensitive instruments of the Partnership.
Quantifying the Trading Value at Risk of the Partnership
Qualitative Forward-Looking Statements
The following quantitative disclosures regarding the market
risk exposures of the Partnership contain "forward-looking
statements" within the meaning of the safe harbor from
civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in
Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934). All quantitative
disclosures in this section are deemed to be forward-
looking statements for purposes of the safe harbor, except
for statements of historical fact.
The risk exposure of the Partnership in the various market
sectors traded by the commodity trading advisor is
quantified below in terms of Value at Risk. Due to the
mark-to-market accounting of the Partnership, any loss in
the fair value of the Partnership's open positions is
directly reflected in the earnings (realized or unrealized)
of the Partnership and cash flow (at least in the case of
exchange-traded contracts in which profits and losses on
open positions are settled daily through variation margin).
Exchange maintenance margin requirements have been used by
the Partnership as the measure of its Value at Risk.
Maintenance margin requirements are set by exchanges to
equal or exceed the maximum losses reasonably expected to
be incurred in the fair value of any given contract in 95%-
99% of any one-day intervals. The maintenance margin levels
are established by dealers and exchanges using historical
price studies as well as an assessment of current market
volatility (including the implied volatility of the options
on a given futures contract) and economic fundamentals to
provide a probabilistic estimate of the maximum expected
near-term one-day price fluctuation. Maintenance margin
has been used rather than the more generally available
initial margin, because initial margin includes a credit
risk component which is not relevant to Value at Risk.
In the case of market sensitive instruments which are not
exchange traded (almost exclusively currencies in the case
of the Partnership), the margin requirements for the
equivalent futures positions have been used as Value at
Risk. In those rare cases in which a futures-equivalent
margin is not available, margins of the dealers have been
used.
In quantifying the Value at Risk of the Partnership, 100%
positive correlation in the different positions held in
each market risk category has been assumed. Consequently,
the margin requirements applicable to the open contracts
have simply been aggregated to determine the aggregate
Value at Risk for each trading category. The
diversification effects resulting from the fact that the
positions of the Partnership are rarely, if ever, 100%
positively correlated have not been reflected.
The Trading Value at Risk in Different Market Sectors of
the Partnership
The following table indicates the trading Value at Risk
associated with the open positions of the Partnership by
market category as of December 31, 2013. All open position
trading risk exposures of the Partnership have been
included in calculating the figures set forth below.
As of
December 31, 2013, the total capitalization of the
Partnership was approximately $6,331,720, all in Class A
Shares.
December 31, 2013
Market Sector Value at Risk % of Total Capitalization
Commodities 0.26 4.03%
Energies 0.08 1.31%
Financial Stock Indices 0.36 5.75%
Interest Rates 0.31 4.91%
Metals 0.20 3.09%
Currencies 0.21 3.33%
Total 1.42 million 22.42%
As of
December 31, 2012, the total capitalization of the
Partnership was approximately $8,637,425, all in Class A
Shares.
December 31, 2012
Market Sector Value at Risk % of Total Capitalization
Commodities 0.16 1.82%
Energies 0.05 0.59%
Financial Stock Indices 0.28 3.22%
Interest Rates 0.41 4.74%
Metals 0.18 2.05%
Currencies 0.18 2.15%
Total 1.26 million 14.56%
Material Limitations on Value at Risk as an Assessment of
Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable
maintenance margin requirement (maintenance margin
requirements generally ranging between approximately 1% and
10% of contract face value) as well as many times the
capitalization of the Partnership. The magnitude of the
open positions of the Partnership creates a "risk of ruin"
not typically found in most other investment vehicles.
Because of the size of its positions, certain market
conditions that are unusual, but historically recurring
from time to time, could cause the Partnership to incur
severe losses over a short period of time. The foregoing
Value at Risk table, as well as the past performance of the
Partnership, give no indication of this "risk of ruin."
Non-Trading Risk
The Partnership has non-trading market risk on its foreign
cash balances not needed for margin. However, these
balances (as well as any market risk they represent) are
immaterial.
The Partnership holds a portion of its assets in cash on
deposit with RJO ("RJO") and substantial 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 RJO at the 91-day
Treasury bill rate. In addition, should short term
interest rates decline, so will the interest earnings for
assets on deposit with Horizon. The Partnership assets
managed by Horizon are deposited in an account in the
custodial department of the Northern Trust Company, and
invested in U.S. government securities and other interest-
bearing obligations at the direction of Horizon. Horizon
is responsible for the investment management of the assets
of the Partnership not deposited with RJO 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 with the Partnership. Horizon receives an
annual fee of 0.25% payable monthly on the assets it
manages. However, Horizon only receives its service fee if
the accrued monthly interest income earned on the assets of
the Partnership managed by Horizon exceeds the 91-day U.S.
Treasury Bill rate. As of December 31, 2013, the
Partnership had approximately $6.331 million in cash
on deposit with RJO and Horizon.
Qualitative Disclosures Regarding Primary Trading Risk
Exposures
The following qualitative disclosures regarding the market
risk exposures of the Partnership, except for (i) those
disclosures that are statements of historical fact and (ii)
the descriptions of how the Partnership and the Trading
Advisor manage the primary market risk exposures of the
Partnership, constitute forward-looking statements within
the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act. The primary
market risk exposures of the Partnership as well as the
strategies used and to be used by the Trading Advisor for
managing such exposures are subject to numerous
uncertainties, contingencies and risks, any one of which
could cause the actual results of the risk controls of the
Partnership to differ materially from the objectives of
such strategies. Government interventions, defaults and
expropriations, illiquid markets, the emergence of dominant
fundamental factors, political upheavals, changes in
historical price relationships, an influx of new market
participants, increased regulation and many other factors
could result in material losses as well as in material
changes to the risk exposures and the risk management
strategies of the Partnership. There can be no assurance
that the current market exposure and/or risk management
strategies of the Partnership will not change materially or
that any such strategies will be effective in either the
short- or long-term. Investors must be prepared to lose
all or substantially all of their investment in the
Partnership.
The following were the primary trading risk exposures of
the Partnership as of December 31,2013, by market sector.
Interest Rates. Interest rate risk is a major market
exposure of the Partnership. Interest rate movements
directly affect the price of the sovereign bond positions
held by the Partnership and indirectly the value of its
stock index and currency positions. Interest rate
movements in one country as well as relative interest rate
movements between countries materially impact the
profitability of the Partnership. The primary interest
rate exposure of the Partnership is to interest rate
fluctuations in the United States and the other G-7
countries. However, the Partnership also takes positions
in the government debt of smaller nations - e.g.,
Australia. The General Partner anticipates that G-7
interest rates will remain the primary market exposure of
the Partnership for the foreseeable future. The changes in
interest rates which have the most effect on the
Partnership are changes in long-term, as opposed to short-
term, rates. Most of the speculative positions held by the
Partnership are in medium to long-term instruments.
However, since February 2000, the JWH program added a
European short rate, the Euribor, which is closely tied to
the actions of the European Central Bank. This was done to
add short term interest rate diversification.
Currencies. The currency exposure of the Partnership is to
exchange rate fluctuations, primarily fluctuations which
disrupt historical pricing relationships between different
currencies and currency pairs. These fluctuations are
influenced by interest rate changes as well as political
and general economic conditions. The Partnership trades in
a large number of currencies, including cross-rates - i.e.,
positions between two currencies other than the U.S.
dollar. However, the Partnership's major exposures have
typically been in the dollar/yen, dollar/Euro, dollar/Swiss
franc, dollar/Australian dollar, dollar/pound positions and
dollar/Hong Kong dollar.
The General Partner does not anticipate that the risk
profile of the Partnership's currency sector will change
significantly in the future. The currency trading Value at
Risk figure includes foreign margin amounts converted into
U.S. dollars with an incremental adjustment to reflect the
exchange rate risk inherent to the dollar-based Partnership
in expressing Value at Risk in a functional currency other
than dollars.
Stock Indices. The primary equity exposure of the
Partnership is to equity price risk in the G-7 countries.
The stock index futures traded by the Partnership are by
law limited to futures on broadly based indices. Ordinarily
the primary exposures are in the FTSE (England), Nikkei
(Japan) and All Ordinaries (Australia) stock indices.
However, in February 2000, the JWH firm added the German
DAX Index Futures. The General Partner anticipates little
trading in non-G-7 stock indices. The Partnership is
primarily exposed to the risk of adverse price trends or
static markets in the major U.S., European and Japanese
indices. (Static markets would not cause major market
changes but would make it difficult for the Partnership to
avoid being "whipsawed" into numerous small losses.)
Metals. The metals market exposure of the Partnership is
to fluctuations in the price of gold and silver (precious
metals) and the base metals of copper, aluminum, zinc, and
nickel at EMC.
Commodities. The exposure to commodities of the
Partnership from EMC Classic Program includes corn, soybeans,
soybean meal, soybean oil, wheat, and the softs of coffee,
cotton, and sugar, as well as a full complement of other
agricultural commodities.
Energy. The exposure of the Partnership to energy
contracts in the EMC Classic program is heating oil, unleaded
gasoline, crude oil natural gas and others.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of
the Partnership as of December 31, 2013.
Foreign Currency Balances. The primary foreign currency
balances of the Partnership are in Japanese yen, Euros,
British pounds and Australian dollars. The Partnership
controls the non-trading risk of these balances by
regularly converting these balances back into dollars (no
less frequently than twice a month).
Cash Position. The Partnership holds a portion of its
assets in cash at R.J. O'Brien and Associates, LLC (RJO).
95% of these assets earn interest at the average rate paid
on 91-day U.S. Treasury Bills purchased during the month.
Substantially all of remainder is held at Horizon in short
term liquid investments.
Qualitative Disclosures Regarding Means of Managing Risk
Exposure
The General Partner monitors the performance of the
Partnership and the concentration of its open positions,
and consults with the commodity trading advisor concerning
the overall risk profile of the Partnership. If the
General Partner felt it necessary to do so, the General
Partner could require the commodity trading advisor to
close out individual positions as well as entire programs
traded on behalf of the Partnership. However, any such
intervention would be a highly unusual event. The General
Partner primarily relies on the commodity trading advisor's
own risk control policies while maintaining a general
supervisory overview of the Partnership's market risk
exposures.
Risk Management
EMC 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. EMC double checks the accuracy of
market data, and will not trade a market without multiple
price sources for analytical input. In constructing a
portfolio, EMC seeks to control overall risk as well as the
risk of any one position, and EMC 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. EMC factors the
point of exit into the decision to enter (stop loss). The
size of the EMC 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
EMC may vary the weighting at its discretion as market
conditions, liquidity, position limit considerations and
other factors warrant.
EMC 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, EMC at its sole discretion
may override computer-generated signals and may at times
use discretion in the application of its quantitative
models, which may affect performance positively or
negatively.
Adjustments in position size in relation to account equity
have been and continue to be an integral part of the EMC
investment strategy. At its discretion, EMC may adjust the
size of a position in relation to equity in certain markets
or entire programs. Such adjustments may be made at
certain times for some programs but not for others.
Factors which may affect the decision to adjust the size of
a position in relation to account equity include ongoing
research, program volatility, assessments of current market
volatility and risk exposure, subjective judgment, and
evaluation of these and other general market conditions.
Item 8. Financial Statements and Supplementary Data
Reference is made to the financial statements and the notes
thereto attached to this report.
THE EVEREST FUND, LIMITED PARTNERSHIP
Supplementary Summarized Quarterly Data
For the four Quarters for 2013 and 2012.
March 31, 2013 June 30, 2013 September 30, 2013 December 31, 2013
Class A Class A Class A Class A
Net Income $358,340 $-589,989 $-880,675 $122,914
Increase in Net
Asset Value Per Unit $96.95 $-172.24 $-259.48 $34.71
Net Asset Value Per Unit
$2,457.99 $2,285.75 $2,026.27 $2,060.97
Ending Net Asset Value $8,443,656 $7,786,726 $6,815,420 $6,331,720
March 31, 2012 June 30, 2012 September 30, 2012 December 31, 2012
Class A Class A Class A Class A
Net Income $-2,541,700 $207,020 $-899,848 $-972,591
Increase in Net
Asset Value Per Unit $-556.99 $46.51 $-198.92 $-212.67
Net Asset Value Per Unit
$2,726.12 $2,772.63 $2,573.71 $2,361.04
Ending Net Asset Value $12,232,307 $12,432,084 $11,700,455 $8,637,424
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 9A(T). Controls and Procedures
Evaluation of Disclosure Controls and
Procedures
The General Partner carried out an evaluation, under the
supervision and with the participation of the General
Partner's management, including its principal executive
Officer, Peter Lamoureux, of the effectiveness of the design
and operation of the Partnership's disclosure controls and
procedures as contemplated by Rule 13(a)-15(e) of the Securities
Exchange Act of 1934, as amended. Any control system, no matter
how well designed and operated, can provide only reasonable (not
absolute) assurance that its objectives will be met.
Furthermore, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
have been detected. Based on their evaluation as of December 31, 2013,
the General Partner's principal executive officer and principal
financial officer concluded that the Partnership's disclosure controls
and procedures were effective.
Changes In Internal Control Over Financial Reporting
There was no change in the Partnership's internal control
Over financial reporting in the 12 months ended December
31, 2013 that has materially affected, or is reasonably
likely to materially affect, the Partnership's internal
control over financial reporting.
The General Partner's management has conducted the evaluation
of the internal control over financial reporting, as required
by Exchange Act Rules 13a-15 and 15d-15.
Report on Management's Assessment of Internal Control
Over Financial Reporting
The management of the General Partner is responsible for
establishing and maintaining adequate internal control over
financial reporting by the Partnership.
The General Partner's internal control over financial reporting
is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with accounting
principles generally accepted in the United States. The Partnership's
internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Partnership; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting
principles generally accepted in the United States, and that receipts
and expenditures of the Partnership are being made only in accordance
with authorizations of management of the Partnership; and (iii) provide
reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the Partnership's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. All
internal control systems, no matter how well designed, have inherent
limitations, including the possibility of human error and the
circumvention of overriding controls. Accordingly, even effective
internal control over financial reporting can provide only reasonable
assurance with respect to financial statement preparation. Also,
projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management assessed the effectiveness of the Partnership's internal
control over financial reporting , based on the framework set forth by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework.
Based on that assessment, management concluded that, as of
December 31, 2013, the Partnership's internal control over financial
reporting was effective based on the criteria established in
Internal Control-Integrated Framework.
This annual report does not include an attestation report of
the Partnership's registered public accounting firm regarding
internal control over financial reporting. Management's report
was not subject to attestation by the company's registered public
accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only
management's report in this annual report.
Item 9B. Other Information.
None
Part III
Item 10. Director and Executive Officer of the
Registrant.
The General Partner, Everest Asset Management, Inc., is the
sole General Partner and commodity pool operator of the
Partnership. It is a Delaware corporation incorporated in
1987, is and has been registered with the CFTC as a
commodity pool operator since July 1, 1988 and is and has
been a member of the National Futures Association since
that date. Its address is 1100 North 4th Street, Suite 143,
Fairfield, Iowa 52556 and its telephone number at such
location is (641) 472-5500.
The officer and director of the General Partner as of
December 31, 2013 is listed below:
Peter Lamoureux. Mr. Lamoureux, (born in 1950), has
been President, Treasurer and Secretary of the General
Partner since November 1996. He joined the General Partner
and Capital Management Partners, Inc., a selling agent and
affiliate of the Partnership at that time, in 1991 and has
had primary responsibility for Partnership syndication
since October 1994. Prior to joining the General Partner,
Mr. Lamoureux was Manager of Refined Products with United
Fuels International, Inc., an energy brokerage firm in
Waltham, Massachusetts. He received his B.S. in Education
from Rhode Island College, R.I.
The General Partner does not trade commodities for its own
account but its principals may. Because of their
confidential nature, records of such trading will not be
available to Limited Partners for inspection.
There have been no material criminal, civil or
administrative actions during the preceding five years or
ever against the General Partner or its principal.
Audit Committee Financial Expert
The Board of Directors of Everest Asset Management, Inc.
has determined that Peter Lamoureux, President, Treasurer
and Secretary of the General Partner, qualifies as an audit
committee financial expert in accordance with the
applicable rules and regulations of the U.S. Securities and
Exchange Commission. Mr. Lamoureux is not "independent" as
that term is defined in Item 7(a)(3)(iv) of Schedule 14A
under the Exchange Act.
Code of Ethics
The General Partner has adopted a code of ethics for its
chief executive officer and persons performing similar
functions. A copy of the General Partner's code of ethics
may be obtained at no charge by written request to Everest
Asset Management, Inc., 1100 North 4th Street, Suite 143,
Fairfield, Iowa 52356 or by calling 641-472-5500.
Item 11. Executive Compensation.
The Partnership has no directors or executive officers. As
a limited partnership, the business of the Partnership is
managed by its General Partner which is responsible for the
administration of the business affairs of the Partnership
and receives the compensation described in Item 1
"Business" hereof. The officers and directors of the
General Partner receive no compensation from the
Partnership for acting in their respective capacities with
the General Partner.
The General Partner is the manager of the Partnership. General Partner
receives .05% management fees monthly.
Item 12. Security Ownership of Certain Owners and
Management and Related Stockholder Matters.
(a) As of December 31, 2013 there were four partners
known to the Partnership to own beneficially more than 5%
of the outstanding Units:
Alan L Schoolcraft 24.50%
RBRF Limited Partnership 8.42%
Ruth Davis 6.36%
James & Venice King, LLC 5.01%
(b) As of December 31, 2013, management ownership
was: by Peter Lamoureux with 77.353 class A units. This
represents 2.52% of class A units of the Partnership.
(c) As of December 31, 2013, 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.
The Partnership filed Registration Statements on Form S-18
and Form 10, therefore this information is not required to
be included.
Item 14. Principal Accounting Fees and Services
Audit Fees
For the year ended December 31,2013 the aggregate fee
billed by Donahue Associates, LLC, Independent
Registered Public Accountant, for professional services
rendered for the audit of the financial statements included
in this annual report was $13,300.
For the year ended December 31,2012 the aggregate fee
billed by Donahue Associates, LLC, Independent
Registered Public Accountant, for professional services
rendered for the audit of the financial statements included
in this annual report was $13,300.
Audit Related Fees
None.
Tax Fees
The audit committee pre-approved all fees for the
Everest Partnership, L.P. for fiscal year 2013 and 2012.
For the year ended December 31, 2013, the aggregate fees
billed by Donahue Associates, LLC for federal and state tax
return preparation totaled $7,000.
For the year ended December 31, 2012, the aggregate fees
billed by Donahue Associates, LLC for federal and state tax
return preparation totaled $7,000.
All Other Fees
None.
Part IV
Item 15. Exhibits, Financial Statement, Schedules.
(a) The following documents are included herein:
(1) Financial Statements:
a. Report of Independent Registered
Public Accounting Firm:
Donahue Associates, LLC for 2013
Donahue Associates, LLC for 2012
b. Statements of Financial Condition, December 31, 2013 and 2012.
c. Statements of Operations, Years Ended December 31, 2013 and 2012.
d. Statements of Changes in Partners' Capital, Years Ended
December 31, 2012 and 2011.
e. Statements of Cash Flows, Years Ended December 31, 2013 and 2012.
f. Schedule of Investments, December 31, 2013
g. Schedule of Investments, December 31, 2012
Notes to Financial Statements.
Acknowledgment
(2) All financial statement schedules have been omitted
because the information required by the schedules is not
applicable, or because the information required is
contained in the financial statements included herein or
the notes thereto.
(3) Exhibits:
See the Index to Exhibits annexed hereto.
Form 8-K -None
Exhibits:
See The Index to Exhibits annexed hereto.
(c) Financial Statement Schedules
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Partnership has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 31, 2014 The Everest Fund, L.P.
By: Everest Asset Management, Inc.
(General Partner)
By: /s/ Peter Lamoureux
Peter Lamoureux, President
Secretary, Treasurer, and Director
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Partnership and in the capacities
and on the date indicated.
Date: March 31, 2014
By: /s/ Peter Lamoureux
Peter Lamoureux, President,
Secretary, Treasurer, and Director
Index to Exhibits:
Exhibit
No. Description
3.4 Amended and Restated Agreement of Limited
Partnership dated as of May 1, 1995.
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.
Limited Partnership Agreement for Everest Futures Fund
II L.P. dated as of March 29, 1996.
Confidential Private Placement Memorandum and Disclosure
Document dated August 21, 1996.
Advisory Contract between the Partnership, the General
Partner and EMC Capital Management, Inc. dated
November 30, 2012.
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.
Yours truly,
Peter Lamoureux
President
EVEREST FUND, L.P.
(An Iowa Limited Partnership)
ACKNOWLEDGEMENT
The Everest Fund, L.P.
(an Iowa Limited Partnership)
FINANCIAL REPORT
For the Years Ending
December 31, 2013 and December 31, 2012
The Everest Fund, L.P.
(an Iowa Limited Partnership)
Table of Contents
Page(s)
I. Affirmation of the Commodity Pool Operator 1
II. Management's Report Over Internal Control 2
III. Report of Independent Registered Public Accounting Firm 3
IV. Financial Statements
Statements of Financial Condition 4
Statements of Operations 5
Statement of Changes in Partners' Capital 6
Statements of Cash Flows 7
Condensed Schedules of Investments 8 - 9
V. Notes to the Financial Statements 10 - 17
The Everest Fund, L.P
(an Iowa Limited Partnership)
AFFIRMATION OF THE COMMODITY POOL OPERATOR
To the best of my knowledge and belief, information contained
in the attached financial statements for the years ended
December 31, 2013 and December 31, 2012 is accurate and
complete.
Peter Lamoureux, President
Everest Asset Management, Inc. for Commodity Pool Operator
The Everest Fund, L.P.
1
Management's Report on Internal Control Over Financial Reporting
The management of the Partnership is responsible for establishing and
maintaining adequate internal control over financial reporting. Internal
control over financial reporting is defined in Rules 13-a-15(f) and
15d-15(f) under the Exchange Act as a process designed by, or under the
supervision of, the Partnership's principal executive and principal
financial officers and effected by the Partnership's management and
other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally
accepted accounting principles. Internal control includes those
policies and procedures that:
pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the Partnership;
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the Partnership are being made only in accordance
with authorization of management and directors of the Partnership; and
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Partnership's assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management assessed the effectiveness of the Partnership's internal
control over financial reporting as of December 31, 2013. In making
this assessment, management used the criteria established in
"Internal Control-Integrated Framework," issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
Based on this assessment, management believes that, as of December
31, 2013, the Partnership's internal control over financial reporting
is effective.
There have not been any changes in the Partnership's internal control
over financial reporting (as such term is defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act that have materially affected,
or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
2
DONAHUE ASSOCIATES, LLC
Certified Public Accountants
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
The Everest Fund, L.P.
We have audited the accompanying statements of financial condition,including
the condensed schedules of investments, of The Everest Fund, L.P. as of
December 31, 2013 and December 31, 2012, and the related statements of
operations, changes in partners' capital and cash flows each of the two
years in the period ended December 31, 2013. These financial statements
are the responsibility of the Partnership's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). 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 Everest Fund, L.P.
as of December 31, 2013 and December 31, 2012, and the results of its
operations and its cash flows for each of the two years in the period
ended December 31, 2013 in conformity with accounting principles generally
accepted in the United States of America.
Donahue Associates LLC
Monmouth Beach, New Jersey
March 14, 2014
3
The Everest Fund, L.P.
(an Iowa Limited Partnership)
Statements of Financial Condition
As of December 31, 2013 and December 31, 2012
2013 2012
ASSETS
Equity in broker trading accounts:
Cash and investments in marketable
securities $3,172,539 $6,214,936
Cash in broker trading accounts 2,072,126 1,593,346
Net unrealized gain (loss) on open
contracts
431,081 392,692
---------- ------------
Total cash & equity in broker
trading accounts
$5,675,746 $8,200,974
Other assets:
Investments in marketable securities 1,200,421 1,094,547
Interest receivable 20 48
---------- ------------
Total Assets $6,876,187
$9,295,569
========== ============
LIABILITIES
Management fees payable
$11,310 $15,096
General partner fees payable 25,865
37,013
Redemptions payable 442,723 541,387
Accounts payable & accrued expenses
64,569 64,648
----------- -----------
Total Liabilities $544,467
$658,144
PARTNERS' CAPITAL
Limited partners, Class A shares: 3,072.20
and 3,658.32 units outstanding
6,331,720 8,637,425
----------- -----------
Total Liabilities & Partners' Capital
$6,876,187 $9,295,569
=========== ============
The accompanying notes are an integral part of these financial statements.
4
The Everest Fund, L.P.
(an Iowa Limited Partnership)
Statements of Operations
For the Years Ended December 31, 2013 and 2012
Trading gains (losses): 2013 2012
Net realized trading gains (losses) ($288,150) ($2,995,016)
Change in unrealized gains (losses) 8,293 (198,258)
Brokerage commissions & fees (60,650) (56,259)
------------ ------------
Net gain (loss) from trading ($340,507) ($3,249,533)
Net investment income:
Income:
Interest income $4,248 $34,565
----------- ------------
Total income $4,248 $34,565
Expenses:
Management fees- general partner $409,994
$699,772
Management fees- advisors 155,578 206,312
Advisor incentive fees 0 0
Professional fees 83,139
75,576
Administrative expenses 4,441 10,491
------------ ------------
Total administrative expenses 653,152 992,151
============ ============
Net investment income (loss) (648,904)
(957,586)
------------ ------------
Net income (loss) ($989,411) ($4,207,119)
============== ============
Net income(loss)per unit of partner interest($322.05) ($1,150.01)
The accompanying notes are an integral part of these financial statements.
5
The Everest Fund, L.P.
(an Iowa Limited Partnership)
Statement of Changes in Partners' Capital
For the Years Ended December 31, 2013 and December 31, 2012
Partners' Units Net Asset
equity outstanding Value per unit
Partners' equity at December 31, 2011 $15,024,420 4,576.29 $3,283.10
Additions
335,776
120.69
Redemptions (2,512,328)
(1,038.66)
Offering costs (3,324)
Net loss (4,207,119)
------------ ------------
Partners' equity at December 31,2012 $8,637,425
3,658.32
$2,361.04
Additions 0 0.00
Redemptions (1,316,294) (586.12)
Offering costs 0
Net loss (989,411)
Partners' equity at December 31,2013 $6,331,720 3,072.20 $2,060.97
The accompanying notes are an integral part of these financial statements.
6
The Everest Fund, L.P.
(an Iowa Limited Partnership)
Statements of Cash Flows
For the Years Ended December 31, 2013 and 2012
2013 2012
Cash flows from (for) operating activities
Net income (loss) ($989,411) ($4,207,119)
Net changes to reconcile net income (loss)
to net cash
provided (used) by operating activities:
Unrealized gain (loss) on open contracts (38,389) 198,604
Interest receivable 28 (48)
Incentive fees payable 0 0
General partner fees payable (11,148) (32,855)
Redemptions payable (98,664) 541,387
Management fees payable (3,786) (9,829)
Accounts payable & accrued expenses (79) 5,352
------------- -------------
Net cash provided (used) by operating
activities ($1,141,449) ($3,504,508)
Cash flows from (for) financing activities:
Partner additions, net of offering costs $0 $332,452
Redemptions paid (1,316,294) (2,512,328)
------------- ------------
Net cash provided (used) by
financing activities (1,316,294) (2,179,876)
------------- ------------
Net change in cash & cash equivalent
position ($2,457,743) ($5,684,384)
Cash & investments in marketable securities
at January 1st 8,902,829 14,587,213
------------ -------------
Cash & investments in marketable securities
at December 31st $6,445,086 $8,902,829
============ ============
Cash & investment in marketable securities consist of:
Cash at banks $15,897 $23,512
Cash in broker trading accounts 2,072,126 1,593,346
Investment in marketable securities 4,357,063 7,285,971
------------ -----------
Total cash & marketable securities $6,445,086 $8,902,829
============= ===========
The accompanying notes are an integral part of these financial statements.
7
The Everest Fund, L.P.
(an Iowa Limited Partnership)
Condensed Schedule of Investments
As of December 31, 2013
Unrealized
Percent of Gain (Loss)
Expiration Dates Number of Partners' on Open
Contracts capital Contracts
---------- ----------- ----------
Long U.S. Futures
Contracts
Interest rates Sep 14-Mar 15 148 -1.09% ($68,958)
Metals Mar-14 3 -0.87% (55,181)
Energy Feb 14-Mar 14 30 0.52% 32,890
Agriculture Feb 14-Mar 14 98 -0.10% (6,509)
Currencies Mar-14 86 0.72% 45,775
Indices Jan 14-Mar 14 45 3.28% 207,506
----------- -----------
Total Long Futures Contracts 2.46% $155,523
Forward Positions
Currencies 0.48% 30,344
----------- ----------
Total Long Positions 2.94% $185,867
=========== ==========
Short U.S. Futures Contracts
Interest rates Mar 14-Jun 14 362 0.86% $54,445
Metals Feb 14-Apr 14 52 -0.18% (11,516)
Energy Feb-14 1 -0.03% (1,747)
Agriculture Feb 14-Mar 14 140 2.06% 130,342
Currencies Mar-14 57 1.02% 64,730
------------ ----------
Total Short Futures Contracts 3.73% $236,254
Forward Positions
Currencies 0.14% 8,960
------------ ----------
Total Short Positions 3.87% $245,214
============ ===========
Total Contracts 6.81% $431,081
============ ===========
The accompanying notes are an integral part of these financial statements.
8
The Everest Fund, L.P.
(an Iowa Limited Partnership)
Condensed Schedule of Investments
As of December 31, 2012
Percent of Gain (Loss)
Expiration Dates Number of Partners' on Open
Contracts capital Contracts
---------- ----------- ----------
Long U.S. Futures
Contracts
Interest rates 13 - Mar 14 171
-0.09% ($8,125)
Metals
Mar 13 26 -0.35% (30,181)
Energy Feb 13
4 0.17%
14,519
Agriculture Feb 13 - Mar 13 12 -0.07% (6,225)
Currencies Mar 13 - Sep 14 156 0.33% 28,935
Indices Jan 13 - Mar 87 1.15% 99,602
----------------------
Total Long Futures Contracts
1.14%
98,525
----------------------
Forward positions
Currencies
-0.21%
(17,763)
Total long positions
0.93%
80,762
Short U.S. Futures Contracts
Interest rates
Mar 13 - Mar 14
78
-0.05%
($4,399)
Metals
Feb 13
9
0.07%
5,851
Energy
Feb 13 - Mar 13
10
0.03%
3,000
Agriculture
Mar 13
85
1.37%
118,333
Currencies
Mar 13
46
1.88%
162,787
----------- -----------
Total Short Futures Contracts
3.30%
$285,572
----------- -----------
Forward positions
Currencies
0.31%
26,358
----------- -----------
Total Short Futures Contracts
3.61%
311,930
=========== ===========
Total Futures Contracts
4.54%
$392,692
=========== ===========
The accompanying notes are an integral part of these financial statements.
9
The Everest Fund, L.P.
(an Iowa Limited Partnership)
Notes to the Financial Statements
For the Years Ended December 31, 2013 and December 31, 2012
1. Organization and Business
The Everest Fund, L.P., (the "Partnership") is a limited partnership
organized in June 1988, under the Iowa Uniform Limited Partnership Act
(the "Act") for the purpose of engaging in the speculative trading of
commodity futures and options thereon and forward contracts
(collectively referred to as "Commodity Interests"). The sole
General Partner of the Partnership is Everest Asset
Management, Inc. (the "General Partner").
On July 1, 1995, the Partnership recommenced its offering under a
Regulation D, Rule 506 private placement. The private placement
offering is continuing at a gross subscription price per unit equal
to net asset value (NAV) per unit, plus an organization and offering
cost reimbursement fee payable to the General Partner, and an ongoing
compensation fee equal to 3% of the net asset value of Class A Units
sold. The Class A Units (retail shares) continue to be charged an
initial 1% offering and organization fee as a reduction to capital.
2. Summary of Significant Accounting Policies
Revenue Recognition
Commodity futures contracts, forward contracts, physical
commodities, and related options are recorded on the trade-date
basis and realized gains or losses are recognized when contracts
are liquidated. All such transactions are recorded on the
identified cost basis and marked to market daily. Unrealized
gains or losses on open contracts (the difference between contract
trade price and market price) are reported in the statement of
financial condition as a net unrealized gain or loss, as there
exists a right of offset of unrealized gains or losses in
accordance with the Financial Accounting Standards Board
Interpretation No. 39 - "Offsetting of Amounts Related to Certain
Contracts." Any change in net unrealized gain or loss from the
preceding period is reported in the statement of operations.
Fair value of exchange-traded contracts is based upon exchange
settlement prices. Fair value of non-exchange-traded contracts
is based on third party quoted dealer values on the Inter-bank
market.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
10
Note 2, continued
Cash and Cash Equivalents
Cash equivalents represent short-term highly liquid investments
with maturities of 90 days or less at the date of acquisition.
Redemptions Payable
Redemptions approved by the General Partner prior to month end
with a fixed effective date and fixed amount are recorded as
redemptions payable as of month end.
Fair Value of Financial Instruments
The financial instruments held by the Company are reported in
the statements of financial condition at fair value, or at
carrying amounts that approximate fair value, due to their
highly liquid nature and short-term maturity.
Foreign Currency Translation
The Partnership's functional currency is the U.S. dollar,
however, it transacts business in currencies other than the
U.S. dollar. Assets and liabilities denominated in foreign
currencies are translated at the prevailing exchange rates as
of the date of the statements of financial condition. Gains
and losses on investment activity are translated at the
prevailing exchange rate on the date of each respective
transaction while year-end balances are translated at the
year-end currency rates. Realized and unrealized foreign
exchange gains or losses are included in trading income in
the statements of operations.
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.
The Partnership files U.S. federal and state tax returns.
Recently Issued Accounting Pronouncements
There have been no recently issued accounting pronouncements
that materially affect the Partnership's financial statements.
11
3. Fair Value of Financial Instruments
Fair value is defined as the price that would be received
to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date. The Financial Accounting Standards Board
has defined a hierarchy for fair value measurements. The
fair value hierarchy gives the highest priority to quoted
prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs
(Level 3). The three levels of the fair value hierarchy
are described below:
Level 1. Unadjusted quoted prices in active markets for
identical assets or liabilities that the reporting entity
has the ability to access at the measurement date.
Level 2. Inputs other than quoted prices within Level 1
that are observable for the asset or liability, either
directly or indirectly; and fair value is determined through
the use of models or other valuation methodologies.
A significant adjustment to a Level 2 input could result in
the Level 2 measurement becoming a Level 3 measurement.
Level 3. Inputs are unobservable for the asset or liability
and include situations where there is little, if any,
market activity for the asset or liability. The inputs
into the determination of fair value are based upon the best
information in the circumstances and may require significant
management judgment or estimation.
The table below demonstrates the Partnership's fair value
hierarchy for those assets and liabilities measured at fair
value on a recurring basis as of December 31, 2013 and
December 31, 2012:
Fair Value Measurement of Assets
Level 1 Level 2 Level 3
Assets at December 31, 2013:
Investment in marketable
securities $2,582 $4,354,481 $0
Open positions in futures and
forward contracts 431,081 0 0
--------- ---------- ------
Total assets at fair value $433,663 $4,354,481 $0
========= ========== ======
Level 1 Level 2 Level 3
Assets at December 31, 2012:
Investment in marketable
securities $9,871 $7,276,100 $0
Open positions in futures and
forward contracts 392,692 0 0
--------- ---------- ------
Total assets at fair value $402,563 $7,276,100 $0
========= =========== ======
12
Note 3, continued
In the normal course of business, the Partnership engages in
trading derivatives by purchasing and selling futures contracts
and options on future contracts for its own account. All such
trading is effectuated as speculative as opposed to hedging.
Effective January 1, 2009, the Partnership adopted the
provisions of Accounting Standards Codification 815,
Derivatives & Hedging, which requires enhanced disclosures
about the objectives and strategies for using derivatives and
quantitative disclosures about the fair value amounts, and
gains and losses on derivatives. See below for such disclosures.
Fair Value of Derivative Instruments
____________________________________
2013 2012
Speculative Instruments Location- Statement of Fair Value Fair Value
----------------------- Financial Condition
----------------------- ---------- ----------
Futures Contracts Net unrealized gain (loss)
on open contracts $431,081 $392,692
2013 2012
Speculative Instruments Location- Statement Fair Value Fair Value
----------------------- of Operations
---------------------- ---------- ----------
Futures Contracts Net realized trading gains(losses)($288,150) ($2,995,016)
Futures Contracts Change in unrealized gains(losses) $8,293 ($198,258)
In the normal course of business, the Partnership utilizes
derivative contracts, such as futures and option contracts,
in connection with its trading activities. Investments
in derivative contracts are subject to additional risks
that can result in a loss of all or part of an investment.The
Partnership's derivative activities are classified by the
following primary underlying risks: interest rate, foreign
currency exchange rate, and commodity price risks. At
December 31, 2013, the volume of the Partnership's
derivative activities based on their notional amounts
categorized by primary underlying risk is as follows.
Long Short
Primary underlying risk: Exposure Exposure
Interest Rate $24,672,736
$8,428,876
Foreign Currency $35,945,988
$76,677,036
Commodity Risk $6,751,641
$6,932,058
Stock indices $2,347,818
$0
13
Note 3, continued
The Partnership is subject to these risks in the normal
course of its investment objectives. The Partnership
uses futures and option contracts to gain exposure to,
or hedge against, changes in the value of commodities,
interest rates, stock indices, or foreign currencies.
A futures contract represents a commitment for the future
purchase or sale of an asset at a specified price on a
specified date. Option contracts entered into give the
Partnership the right, but not the obligation, to buy or
sell within a limited period of time, a futures contract
at a contracted price.
The purchase and sale of futures and options contracts
requires margin deposits with the clearing futures
commission merchant (FCM) equal to a certain percentage
of the total contract amount. Subsequent payments are
made or received by the Partnership each day, depending
on the daily fluctuations in the value of the contract.
These daily gains or losses are recognized by the
Partnership in the statement of operations.
4. Limited Partner 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. 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 5).
Limited Partners may cause any or all of their Class A
units to be redeemed as of the end of any month at the
month end net asset value on fifteen days' prior
written notice to the general partner, or such lesser
period as is acceptable to the Partnership. Although
the Partnership Agreement does not permit redemptions
for the first six months following a Limited Partner's
admission to the Partnership, the Agreement does permit
the Partnership to declare additional regular
redemption dates.
The Partnership will be dissolved on December 31, 2020,
or upon the occurrence of certain events, as specified
in the Partnership agreement.
14
5. Agreements and Related Party Transactions
EMC Capital Advisors, LLC. (EMC) serves as the
Partnership's commodity trading advisor. EMC receives
a monthly management fee equal to 0.167% (2% annually)
of the Partnership's month-end net asset value, as
defined, and a quarterly incentive fee of 20% of the
Partnership's new net trading profits, as defined. The
incentive fee is retained by EMC 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.
Effective November 2003, the General Partner charges
the Partnership a monthly management fee equal to 0.50%
(6% annually) of the Partnership's Class A
beginning-of-month net asset value.
The Partnership's clearing FCM is R.J. O'Brien, a company
headquartered in Chicago, Illinois and an FCM registered
with the Commodity Futures Trading Commission (CFTC).
R.J. O'Brien charges the Partnership a brokerage commission
rate per round-turn trade, plus applicable exchange fees,
give up fees and other fees for futures contracts and
options contracts executed on registered domestic and
foreign exchanges. For trades on certain foreign exchanges,
the rates may be higher.
The Partnership earns interest on 95% of the Partnership's
average monthly cash balance on deposit with R.J. O'Brien
at a rate equal to the average 91-day Treasury Bill rate
for US Treasury Bills issued during that month.
The Partnership has also entered into an investment
advisory agreement with Horizon Cash Management L.L.C.
("HCM"). At December 31, 2013 and December 31, 2012
approximately 69% and 84%, respectively, of the
Partnership's capital were funds deposited with a
commercial bank and invested under the direction of HCM.
HCM receives a monthly cash management fee equal to
1/12 of .25% (.25% annually) of the average daily assets
under management if the accrued monthly interest income
earned on the Partnership's assets managed by HCM
exceeds the 91-day U.S. Treasury bill rate.
6. Financial Instruments, Off-Balance Sheet Risks
and Contingencies
The Partnership engages in the speculative trading of
U.S. and foreign futures contracts, options on U.S.
and foreign futures contracts, and forward contracts
("collectively derivatives"). These derivatives
include both financial and non-financial contracts
held as part of a diversified trading strategy. The
Partnership is exposed to both market risk, the risk
arising from changes in the market value of the
contracts; and credit risk, the risk of failure by
another party to perform according to the terms of
a contract.
The purchase and sale of futures and options requires
margin deposits with an FCM. Additional deposits may
be necessary for any loss on contract value the
Partnership holds. The Commodity Exchange Act 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
15
Note 6, continued
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.
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.
In the case of forward contracts, over-the-counter options
contracts or swap contracts, which are traded on the
interbank or other institutional market rather than on
exchanges, the counterparty is generally a single bank
or other financial institution, rather than an FCM
backed by a group of financial institutions; thus,
there likely will be greater counterparty credit risk.
The Partnership trades only with those counterparties
that it believes to be creditworthy. All positions of
the Partnership are valued each day on a mark-to-market
basis.There can be no assurance a counterparty will be
able to meet its obligations to the Partnership.
The Partnership's policy is to continuously monitor its
exposure to market and counterparty risk through the
use of a variety of financial, position and credit
exposure reporting and control procedures. In addition,
the Partnership has a policy of reviewing the credit
standing of each FCM or counter party with which it
conducts business.
The limited partners bear the risk of loss only to
the extent of the net asset value of their
Partnership units.
16
7. Financial Highlights
The following financial highlights show the Partnership's
financial performance for the years ended
December 31, 2013 and December 31, 2012.
2013 2012
Class A Class A
Total return before distributions -12.71% -28.09%
======== ========
Ratio to average net assets:
Management fees 5.04% 6.07%
Incentive fees 0.00% 0.00%
Other expenses 3.56% 2.32%
-------- --------
Total expenses 8.60% 8.39%
======== =========
Total return is calculated for all partners throughout the year.
An individual partner's return may vary from these Partnership
returns based on the timing of unit transactions.
8. Concentrations of Credit
The Partnership has a significant amount of its assets
on deposit with the clearing FCM and at HCM, which are
not insured. In the event of the insolvency of the
clearing FCM or HCM, recovery of the Partnership's
assets may be limited to a pro rata share of available
funds.
The Partnership may, from time to time, have deposits
at banks that are in excess of insured amounts.
9. Subsequent Events
The Partnership has made a review of material subsequent
events from December 31, 2013 through the date of this
report and found no material subsequent events reportable
during this period.
17
