Item 1. Business
The Everest Fund, L.P. (the "Partnership") is a limited partnership organized on June 20, 1988 under the Iowa Uniform Limited Partnership Act. The business of the Partnership is the speculative trading of commodity futures contracts and other commodity interests, including forward contracts on foreign currencies (Commodity Interests) either directly or through investing in other, including subsidiary, partnerships, funds or other limited liability entities. The Partnership commenced its trading operations on February 1, 1989. Its General Partner is Everest Asset Management, Inc. (the "General Partner") a Delaware corporation organized in December, 1987.
The Partnership was initially organized on June 20, 1988 under the name Everest Energy Futures Fund, L.P. and its initial business was the speculative trading of Commodity Interests, with a particular emphasis on the trading of energy-related commodity interests. However, effective September 12, 1991, the Partnership changed its name to "Everest Futures Fund, L.P." and at the same time eliminated its energy concentration trading policy. The Partnership thereafter has traded futures contracts and options on futures contracts on a diversified portfolio of financial instruments and precious metals as well as forward contracts on currencies. In November 2003 the Partnership changed its name to its present form.
The initial public offering of the Partnership's Units of limited partnership interests (Units) pursuant to a registration statement on Form S-18 and Prospectus was declared effective and commenced on or about December 6, 1988. On February 1, 1989, the initial offering period for the Partnership was terminated, by which time the Net Asset Value of the Partnership was $2,140,315.74. Beginning February 2, 1989, an extended offering period commenced which terminated on July 31, 1989, by which time a total of 5,065.681 Units of Limited Partnership Interest were sold. Effective May, 1995 the Partnership ceased to report as a public offering. On July 1, 1995 the Partnership recommenced the offering of its Units as a Regulation D, Rule 506 private placement, which continues to the present with a total of 53558.62 additional Units sold for $100,216,376 since July 1, 1995 through December 31, 2003.
During its operation, the Partnership has had various advisors. In December 1990, John W. Henry & Company, Inc. (JWH) began trading for the Partnership as one of the Partnership's trading advisors. In May 1994, JWH became the sole advisor to the Partnership. In March 1996, the Partnership transferred all of its assets to, and became the sole limited partner of, Everest Futures Fund II, L.P. (Everest II) and JWH began trading for Everest II. In July 2000, the Partnership redeemed approximately 50% of its assets from Everest II and allocated them to Trilogy Capital Management, LLC's (Trilogy) Barclay Futures Index Program (BFIP). The Partnership instructed Trilogy to trade its account using twice the leverage of Trilogy's un-leveraged portfolio to attempt to achieve a return greater than the return of the Index before fees and expenses. Effective as of the close of business August 31, 2000, the Partnership liquidated the balance of its investment in Everest II and opened a trading account directly with JWH. JWH has used its Financial and Metals Portfolio while trading for Everest II and the Partnership through June 30, 2001. Beginning July 1, 2001, JWH began trading its Strategic Allocation Program for the Partnership with a trading allocation of $40 million. Trilogy was terminated as trading advisor June 30, 2001. Effective September 1, 2001, Mount Lucas Management Corporation (MLM) was added as trading advisor with an initial allocation of $10 million. This allocation represented notional funding for the Partnership. Effective June 12, 2003 JWH began trading its GlobalAnalyticsR Family of Programs, Worldwide Bond Program and Currency Strategic Allocation Programs for the Partnership. Mount Lucas Management was terminated as trading advisor on October 31, 2003.
The Partnership clears all of its futures and options on futures trades through Cargill Investor Services, Inc. (CIS), its clearing broker, and all of its cash trading through CIS Financial Services, Inc. (CISFS), an affiliate of CIS.
On September 13, 1996 the Commission accepted a voluntary filing by the Partnership of a Form 10 - General Form for Registration of Securities, and public reporting of Units of the Partnership sold as a private placement commenced at that time and has continued to the present.
Upon fifteen days written notice, a Limited Partner may require the Partnership to redeem all or part of his Units effective as of the close of business (as determined by the General Partner) on the last day of any month at the Net Asset Value thereof on such date. Notwithstanding the above, pursuant to the Amended and Restated Agreement of Limited Partnership, the General Partner may, in its sole discretion, and on ten days' notice, require a Limited Partner to redeem all or part of his Units in the Partnership as of the end of any month. There are no additional charges to the Limited Partner at redemption. The Partnership's Amended and Restated Agreement of Limited Partnership contains a full description of redemption and distribution procedures.
Since commencing trading operations, the Partnership has engaged in the speculative trading of Commodity Interests and will continue to do so until its dissolution and liquidation, which will occur on the earlier of December 31, 2020 or the occurrence of any of the events set forth in Paragraph 4(a) of the Agreement of Limited Partnership. Such events are (i) an election to dissolve the Partnership made by over 50% of the Limited Partnership Units at least 90 days prior to dissolution, (ii) withdrawal, insolvency, or dissolution of the General Partner (unless a new general partner is substituted), (iii) decline in the Net Asset Value of the Partnership at the close of any business day to less than $300,000, or (iv) any event which will make it unlawful for the existence of the Partnership to be continued or requiring termination of the Partnership.
The address of the General Partner and the Partnership is 1100 North 4th Street, Suite 143, Fairfield, Iowa 52556, and the telephone number is (641) 472-5500. The General Partner changed its name as of March 1, 1994 and amended its Certificate of Incorporation, with no other changes, accordingly. In accordance with the provisions of the Commodity Exchange Act and the rules of the National Futures Association (NFA), the General Partner is registered as a commodity pool operator and a commodity trading advisor, JWH is registered as a commodity trading advisor and the Commodity Broker is registered as a futures commission merchant, each subject to regulation by the Commodity Futures Trading Commission (CFTC). Each is also a member of the NFA in such capacity.
The General Partner to the exclusion of the limited partners of the Partnership (the "Limited Partners"), manages and conducts the business of the Partnership. Thus the General Partner (i) selects and monitors the independent commodity trading advisor(s) and the Commodity Broker; (ii) allocates and/or reallocates assets of the Partnership to or from JWH and/or the advisor(s); (iii) determines if an advisor or commodity broker should be removed or replaced; (iv) negotiates management fees, incentive fees and brokerage commissions; (v) determines its own compensation with respect to management and administrative fees; and (vi) performs such other services as the Partnership may from time to time request, except that all trading decisions are made by JWH and not the General Partner. In addition, the General Partner selects the commodity broker(s) that will clear trades for the advisor(s). Cargill Investor Services, Inc. currently acts as Everest's commodity broker and CIS Financial Services, Inc., an affiliate of Cargill Investor Services, Inc., acts as Everest's currency dealer.
The General Partner is responsible for the preparation of monthly and annual reports to the Limited Partners; filing reports required by the CFTC, the NFA, the SEC and any other federal or state agencies having jurisdiction over the Partnership's operations; calculation of the Net Asset Value (meaning the total assets less total liabilities of the Partnership {for a more precise definition, see the Exhibit "Form 10 - General Form for Registration of Securities" incorporated by reference hereto}) and directing payment of the management and incentive fees payable to JWH or the advisor(s)under an advisory agreement(s) entered into with the commodity trading advisor(s).
Everest pays the Commodity Broker a brokerage commission charge equal to 0.50% of the Partnership's Beginning Net Asset Value as of the beginning of each month (approximately 6.0% annually). Prior to November 1, 2003, the brokerage commission charge was equal to 0.5166% per month (approximately 6.1875% annually.) Approximately 83% of this amount is rebated by the Commodity Broker to the General Partner. If there is a material change in Everest's brokerage commission structure, investors and Limited Partners will be informed in writing. The Commodity Broker may, in the future, increase the fee charged to Everest.
The General Partner in turn pays a portion of such amount to the Selling Agent and additional selling agents as ongoing compensation. In addition, the Partnership reimburses the General Partner for the actual organization and offering expenses advanced by it, not to exceed one percent of the Net Asset Value of Units sold. Organization and offering expenses shall mean all expenses incurred by the Partnership or the General Partner in connection with and in preparation to offer and distribute the Units to investors, including, but not limited to, expenses for traveling, printing, engraving, mailing, salaries of employees while engaged in sales activity, charges of transfer agents, registrars, trustees, escrow holder, depositories, experts, expenses of qualification of the sales of its securities under state law, including taxes and fees and accountants' and attorneys' fees.
Everest pays John W. Henry & Company, Inc., 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% (15% April 1, 1995 through October 1, 2000) of Everest's trading profits allocable to its trading exclusive of interest income on Allocated Assets, as defined. The incentive fee is retained by JWH even though trading losses may occur in subsequent quarters; however, no further incentive fees are payable until any such trading losses (other than losses attributable to redeemed units and losses attributable to assets reallocated to another advisor) are recouped by Everest. Prior to October 1, 2000, the management fee paid to JWH was 4% annually.
MLM received a monthly management fee of 0.0625% (0.75% annually) of the Partnership's month-end allocated assets as defined. As MLM used the MLM Index-Unleveraged, they did not receive an incentive fee. Effective February 2003, the management fee was reduced to 0.04167% (0.50% annually).
Trilogy received a monthly management fee equal to 0.075% (approximately 0.90% annually) of Everest's month-end allocated assets, as defined. Trilogy did not receive an incentive fee.
The Commodity Broker has agreed to pay Everest interest on the 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 Units sold unless waived in whole or in part by the General Partner, to Capital Management Partners, Inc. ("Capital") or the additional selling agents in connection with the sale of the Units. Capital is a CFTC-regulated introducing broker, and an NFA member. Capital is also registered with the National Association of Securities Dealers (NASD) as a broker dealer. The General Partner may pay up to 100% of the funds it receives from the Commodity Broker to Capital and the additional selling agents as additional selling commission.
The Partnership is obligated to pay its periodic operating expenses and extraordinary expenses. Although those expenses will vary depending on the Partnership's size, it is estimated that the periodic operating expenses will be approximately $65,000 annually. Extraordinary expenses for these purposes include expenses associated with significant non-recurring litigation including, but not limited to, class action suits and suits involving the indemnification provisions of the Agreement of Limited Partnership or any other agreement to which the Partnership is a party. By their nature, the dollar amount of extraordinary expenses cannot be estimated. All expenses shall be billed directly and paid for by the Partnership. The Partnership's operating expenses for the years 1999-2003 can be found in the table in Item 6 below.
The Partnership has no Employees. As of December 31, 2003, the General Partner had 4 employees. Further, the General Partner, in its capacity as a CFTC-regulated commodity pool operator, contracts certain services of research, administration, client support and management information systems and analysis to Capital Management Partners, Inc. (Capital). As of December 31, 2003 Capital had 12 employees.
The Partnership's business constitutes only one segment for financial reporting purposes; and the purpose of this limited partnership is to trade, buy, sell, spread or otherwise acquire, hold or dispose of Commodity Interests including futures contracts, forward contracts, physical commodities and related options thereon. The objective of the Partnership's business is appreciation of its assets through speculative trading in such Commodity Interests. Financial information about the Partnership's business, as of December 31, 2003 is set forth under Items 6 and 7 herein.
For a description of commodity trading and its regulation, see the Prospectus filed on Form S-18 and the Confidential Private Placement Memorandum filed as part of the Form 10 and included in the exhibits hereto.
The Current Offering
On July 1, 1995 the Partnership reopened for investment as a Regulation D, Rule 506 private placement offering an unlimited amount of limited partnership interests. On September 19, 1996 the Commission accepted a Form 10 - General Form for Registration of Securities submitted by the Partnership thereby making the Partnership a public reporting private placement offering. It also qualified the Partnership as a "publicly offered security" as defined in the Employee Retirement Income Security Act of 1974 (ERISA) rules permitted it to accept investment of an unlimited amount of plan assets as defined in ERISA. Hitherto, as a private placement the Partnership could accept ERISA plan assets representing no more than 25% of the total investment in the Partnership. The limited partnership interests are offered by the Selling Agent and additional selling agents with a minimum subscription amount of $25,000 (the minimum subscription amount for employee benefit plans and individual retirement accounts is $10,000).
Competition
JWH and any other advisor(s) of the Partnership, its or their respective principals, affiliates and employees are free to trade for their own accounts and to manage other commodity accounts during the term of the Advisory Agreement and to use the same information and trading strategy which JWH obtains, produces or utilizes in the performance of services for the Partnership through its investment in Everest. To the extent that JWH recommends similar or identical trades to the Partnership and other accounts which it manages, the Partnership may compete with those accounts for the execution of the same or similar trades.
Other trading advisors who are not affiliated with the Partnership may utilize trading methods which are similar in some respects to those methods used by JWH, or any other future Partnership's advisor(s). These other trading advisors could also be competing with the Partnership for the same or similar trades as requested by the Partnership's advisor(s).
Item 2.
Item 2.	Properties
The Partnership does not utilize any physical properties in the conduct of its business. The General Partner uses the offices of the Selling Agent at no additional charge to the Partnership, to perform their administrative functions, and the Partnership uses the offices of the Selling Agent, again at no additional charge to the Partnership, as its principal administrative offices.
Item 3.
Item 3.	Legal Proceedings
In October 2000, there was a discrepancy between the performance of the Barclay Futures Index Program (BFIP) as traded for the Partnership and the Barclay Futures Index (BFI). Certain transactions executed by Trilogy on behalf of the Partnership resulted in a loss of approximately $520,000 that was recorded in the statement of operations. The General Partner believes that these transactions were not executed in accordance with the provisions of BFIP and has demanded that Trilogy reimburse the Partnership for the loss. The parties are currently attempting to resolve the issue.
Until a final resolution is reached, the parties have agreed that the management fees otherwise payable to Trilogy under its advisory contract would be applied as a credit to offset the losses. The offset is not in settlement, partial settlement, or indemnification of any kind and is without prejudice to any rights or claims by either side. Beginning in November 2000, and until approximately July 1, 2001, at which time Trilogy was terminated, all of the management fees that would otherwise be paid to Trilogy were deposited into a separate account for the benefit of those limited partners that were limited partners on November 1, 2000 and to cover the expenses associated with the collection of the losses. The separate account is not included in the financial statements of the Partnership. After its termination, Trilogy demanded that such fees be returned to it. The General Partner rejected Trilogy's demand and is assessing its options for collection.
A demand for arbitration was filed with the NFA on October 3, 2002. Trilogy has responded to the demand for arbitration and has counterclaimed for the amount of $130,210, together with attorney's fees, interest and costs of suit. That figure represents the amount of management fees, otherwise payable to Trilogy under its advisory contract, that both parties agreed would be held as a credit to the Partnership to offset the losses. The General Partner has a letter to that effect which was signed by the president of Trilogy on January 29, 2001.
The General Partner anticipates a hearing in front of an NFA arbitration panel in the coming months, but no date has been set for the hearing. At the present time, the General Partner is unable to determine whether any of the losses will be recovered.
Item 4.
Item 4.	Submission of Matters to a Vote of Security Holders
A solicitation of consent to changes in the Agreement of Limited Partnership was mailed to all Limited Partners in November 2003.
Summary of voting results: 14,662 units approving through consent without response; 105 units approving through written consent; 62 units opposed.
Summary of matters voted upon: 1)	Creation of multiple series for the fund. 2)	Wider latitude for the General Partner to make changes in the fund without seeking consent from the Limited Partners, assuming such changes do not materially affect the Limited Partners.
PART II
Item 5.
Item 5.	Market for Registrant's Units & Related Security Holder Matters
(a) There is no established public market for the Units and none is expected to develop.
(b) As of December 31, 2003, there were 14,828.57 Units held by Limited Partners and 0.42 held by the General Partner. A total of 23,187.57 Units were redeemed by Limited Partners and 198.07 units were redeemed by the General Partner from January 1, 2001 to December 31, 2003. The Sixth Amended and Restated Agreement of Limited Partnership for the Partnership contains a full description of redemption and distribution procedures.
(c) To date no distributions have been made to partners of the Partnership.
The Agreement of Limited Partnership does not provide for a regular or periodic cash distributions, but gives the General Partner sole discretion in determining what distributions, if any, the Partnership will make to its partners. The General Partner has not declared any such distributions to date, and does not currently intend to declare any such distributions.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources
Most U.S. commodity exchanges limit by regulations the amount of fluctuation in commodity futures contract prices during a single trading day. These regulations specify what are referred to as "daily price fluctuation limits" or "daily limits". The daily limits establish the maximum amount the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular commodity, no trades may be made at a price beyond the limit. Positions in the commodity could then be taken or liquidated only if traders are willing to effect trades at or within the limit during the period from trading on such day. Because the "daily limit" rule only governs price movement for a particular trading day, it does not limit losses. In the past, futures prices have moved the daily limit for numerous consecutive trading days and thereby prevented prompt liquidation of futures positions one side of the market, subjecting commodity futures traders holding such positions to substantial losses for those days.
It is also possible for an exchange or the CFTC to suspend trading in a particular contract, order immediate settlement of a particular contract, or direct that trading in a particular contract be for liquidation only.
For the year ended December 31, 2003, Limited Partners redeemed a total of 14,709.70 Units for $35,369,317 and the General Partner redeemed a total of 21.54 Units for $52,069. For the year ended December 31, 2002, Limited Partners redeemed a total of 6191.54 Units for $11,104,729 and the General Partner redeemed a total of 176.42 units for $325,526.
During 2003, investors purchased 8,946.66 Units (none of the units were purchased by the General Partner) for $21,315,646.
As of December 31, 2003, Everest had no credit risk exposure to a counterparty which is a foreign commodities exchange which was material. Everest trades on recognized global futures exchanges. In addition, over the counter contracts in the form of forward foreign currency transactions are traded by Everest. As of December 31, 2003, the Partnership had $1,842,505 on deposit at CISFS. CISFS does not deal in foreign exchange forwards, but acts as a broker, placing the trades immediately with large banks having assets in excess of $100 million. At the settlement date, all transactions with each of the banks are netted and any excess or deficit is received from or sent to the bank. All of the Partnership's foreign exchange transactions are transacted in US dollars.
See Footnote 4 of the Financial Statements for procedures established by the General Partner to monitor and minimize market and credit risks for the Partnership. The General Partner of Everest, reviews on a daily basis reports of the performance of Everest, including monitoring of the daily net asset value of Everest. The financial situation of the Commodity Broker is monitored on a monthly basis to monitor specific credit risks. The Commodity Broker does not engage in proprietary trading and thus has no direct market exposure which provides the general partner with assurance that the Partnership, will not suffer trading losses through the Commodity Broker.
Results of Operations
Effective June 12, 2003 JWH began trading its GlobalAnalyticsR Family of Programs, Worldwide Bond Program and Currency Strategic Allocation Programs for the Partnership. Mount Lucas Management was terminated as trading advisor on October 31, 2003.
The Partnership's assets were traded 50% by the John W. Henry & Company, Inc. Financial and Metals Portfolio (JWH) until June 30, 2001. Beginning July 1, 2001 The Partnership invested 100% of its cash position in the John W. Henry & Company, Inc. Strategic Allocation Program. The 50% allocation to the Trilogy Barclay Futures Index Program was terminated June 30, 2001.
In September 2001 the Partnership began an allocation to another futures index fund, the MLM Index Program (Unleveraged), managed by Mount Lucas Management Corporation (MLM) in Princeton, NJ.
At December 31, 2003 the Partnership had approximately $34.6 million in assets. The JWH allocation was approximately $33.2 million.
The Partnership recorded a gain of $4,845,876, or $184.01 per unit, for the year 2003. That represents a gain of 8.88% for the year.
The Partnership recorded a gain of $6,420,752 or $311.51 per Unit for the first quarter of 2003. This compares to a loss of $5,278,393 or $212.95 per Unit for the first quarter of 2002.
The Partnership continued to employ the John W. Henry & Company, Inc. Strategic Allocation Program (JWH SAP) as its core manager, and the Mount Lucas Management Corporation MLM Index (Unleveraged) (MLM) for an overlay program. In January the fund gained 16.02%. JWH was up 14.43%, with MLM adding 2.66%. The JWH investment style took advantage of uncertainty in the energy markets, a weakening dollar, and a poor global economic outlook. All sectors of the program made a positive contribution in January. MLM had profits in energies primarily, followed by financials and currencies. Although the media had focused on the impending war with Iraq and the strike in Venezuela and the effect these events were having on crude oil prices, the best performing part of the energy sector was natural gas. The Partnership posted a gain of $6,842,542 or $331.95 per Unit in January.
In February the Partnership gained 8.56%. JWH had a gain of 7.45% as the program continued to profit from long term trends, primarily in the energy and fixed income markets. The impending war with Iraq, slowing global economies, weaker US dollar and high energy prices are the factors that propelled market prices in the Fund's favor.
MLM had a profit of approximately 1%, and as was the case in January, the positive performance was driven by the energy sector. Gains were also seen in the currencies, financials and grains with smaller overall losses in meats, metals and softs. The Partnership posted a gain of $4,252,181 or $205.92 per Unit in February.
In March the Fund had a loss of 8.67%. JWH was down 6.81% for March with the US-led coalition's war on Iraq taking center stage in financial and energy markets. A week before the actual war started, the markets anticipated a quick victory. The US dollar strengthened, interest rates rose, and energy markets collapsed. The quick change in direction of the markets resulted in negative performance for the month of March.
MLM lost approximately 2% for the Fund in March, not surprisingly driven by market reaction to the war. The largest losses came in the energy sector followed by metals, softs and financials. Grains were positive. The Partnership posted a loss of $4,673,971 or $226.36 per Unit in March.
During the quarter, additional Units sold consisted of 1,955.36 limited partnership units; there were no general partnership units sold during the quarter. Additional Units sold during the quarter represented a total of $4,857,896. Investors redeemed a total of 8,173.04 Units during the quarter and the General Partner redeemed 21.65 Units. At the end of the quarter there were 14,374.35 Units outstanding (including 0.42 Units owned by the General Partner).
Effective February 1, 2003, Peter Lamoureux, President of Everest Asset Management, Inc. (EAM) became the majority shareholder and sole director of EAM. Steven Foster and Steven Rubin are no longer principals, directors or shareholders.
Effective March 7, 2003, EAM dismissed KPMG LLP as certifying accountant for the Partnership. Spicer, Jeffries, & Co. was engaged as the Registrant's independent accountant effective March 10, 2003.
During the fiscal quarter ended March 31, 2003, the Partnership had no credit exposure to a counterparty, which is a foreign commodities exchange, or to any counter party dealing in over the counter contracts, which was material.
The Partnership recorded a gain of $230,943 or $18.77 per Unit for the second quarter of 2003. This compares to a gain of $10,469,356.00 or $456.94 per Unit for the second quarter of 2002.
The Partnership continued to employ John W. Henry & Company, Inc. (JWH) as its core manager, and Mount Lucas Management Corporation's MLM Index (Unleveraged) (MLM) for an overlay program. In April the fund gained 1.67%. JWH was up 2.41%, while MLM lost 0.73%. For JWH, energies were the best performing sector as the end of the war in Iraq put considerable downside pressure on the price per barrel. Currencies, fixed income and stock indices were also profitable. Agriculturals were down slightly. The initial enthusiasm for the U.S. Dollar after the war was short-lived, bond prices continued higher. Most equity markets rallied around the world, encouraged by the swift victory by coalition forces in Iraq. The exception was the NIKKEI 225 in Japan, which succumbed to continuing Japanese domestic problems. The MLM Index Program (Unleveraged) had losses in energy and softs, which were only partially offset by gains in currencies, grains and livestock. The Partnership posted a gain of $572,164.00 or $39.80 per Unit in April.
In May 2003 the Partnership gained 5.30%. JWH had a gain of 5.61% with fixed income being the best performing sector. Yields continued to trend lower in Japan and the U.S. Currencies were positive with the U.S. Dollar still weakening. JWH had losses in stock indices, energies and metals. The MLM Index Program (Unleveraged) was essentially flat for the month, down .25 basis points. The Partnership posted a gain of $1,259,525 or $128.52 per Unit in May.
In June 2003 the Fund had a loss of 5.86%. In mid June the General Partner effected a re-allocation within the JWH investment. The Partnership withdrew from the JWH SAP Program and allocated approximately 55% to the JWH GlobalAnlaytics Program, 23% to the JWH Currency Strategic Allocation Program, and 22% to the JWH Worldwide Bond Program.
The month started out promising for JWH but turned abruptly negative during the last two weeks of the month. Two trends that were re-established after the war-a weakening dollar and falling global interest rates- reversed course sharply as hints of improving economic times forced liquidation of large positions in fixed income and currency markets. JWH lost in fixed income, energies, currencies, metals, and agriculturals. MLM lost approximately 1.32% for the Fund in June. Gains in energy and grain sectors were not enough to overcome losses in currencies, financials, metals and softs. The Partnership posted a loss of $1,600,746.00 or $149.55 per Unit in June.
During the quarter, additional Units sold consisted of 3,511.51 limited partnership units; there were no general partnership units sold during the quarter. Additional Units sold during the quarter represented a total of $8,606,645. Investors redeemed a total of 5,723.74 Units during the quarter and the General Partner redeemed zero Units. At the end of the quarter there were 12,162.13 Units outstanding (including 0.42 Units owned by the General Partner). During the second quarter 2003, Randy Kelsey, branch manager of the Minneapolis office was terminated. His duties have been taken over by Everest Asset Management president, Peter Lamoureux.
During the fiscal quarter ended June 30, 2003, the Partnership had no credit exposure to a counterparty, which is a foreign commodities exchange, or to any counter party dealing in over the counter contracts, which was material.
The Partnership recorded a loss of $2,312,751or $ 178.73 per Unit for the third quarter of 2003. This compares to a gain of $7,031,585 or $354.40 per Unit for the third quarter of 2002.
The Partnership continued to employ John W. Henry & Company, Inc. as its core manager, and the Mount Lucas Management Corporation MLM Index TM (Unleveraged) (MLM) for an overlay program.
In July 2003 the Fund was down 4.39%. JWH was down 0.99% in July. July was a difficult trading month, as there were significant trend reversals in major markets that resulted in a loss for the month. Signs of economic recovery have strengthened the US dollar, caused global interest rates to rise, stock prices to rise and higher base metal prices. JWH had profits in energy, fixed income and equity index sectors with (overall) larger losses in foreign exchange, metals and agriculturals. The MLM Index TM Program (Unleveraged) was down 3.53% in July. This was the second largest monthly loss for the MLM Index since it began trading for the fund in September of 2001. The Index had a gain in only one market sector- livestock. Losses came in financials, softs, grains, currencies and energies. High levels of volatility moved into the financial sector, as the bond market had one of its biggest drops on record. This action combined with the continued choppiness in the physical commodities, is the prototype for tough performance for the Index. Positions in the Index were flipping sides (long to short, short to long) more than is typical.
The Partnership recorded a loss of $1,283,432 or $105.53 per unit in July. Effective July 30, 2003, Janet Mullen retired as Vice President of Everest Asset Management.
In August 2003 the Partnership posted a gain of 1.51%. In August JWH was up 1.56% and the MLM Index Program (Unleveraged) was down 0.04%. As a result of global markets responding to improving economic conditions in the US, Japan and to a lesser degree, Europe, interest rates continue to move higher and the US dollar has strengthened against most major currencies. Energy markets, with the exception of natural gas, continued to grind higher. These trending markets resulted in a profitable August for JWH. Gains came in fixed income, equity indices, energies and metals. Smaller overall losses came in currencies and agriculturals. MLM Index Program (Unleveraged) was essentially flat for the month. The Partnership recorded a gain of $449,550 or $34.59 per unit in August 2003.
September 2003 saw a loss of 4.62% for the Fund. JWH posted a loss of 2.72% in September. The trend that provided profits in August abruptly turned around in September, resulting in a loss for the month. The strength of the US recovery was in doubt resulting in lower interest rates and the US dollar giving back its recent gains. In addition OPEC announcements reversed the decline in energy prices. For JWH the fixed income sector incurred the largest loss in September, with energies following. Currencies were positive, mostly from the Japanese yen. Metals and agriculturals were up as well. The MLM Index Program (Unleveraged) had a loss of 1.97% in September 2003. The Index had gains in currencies, livestock and metals that were more than offset by losses in energy, financials, grains and softs. Positions continue to be flipping quite a lot as many markets consolidate. The Partnership recorded a loss of $1,478,868 or $107.79 per Unit in September 2003.
During the third quarter 2003, additional Units sold consisted of 2297.60 limited partnership units; there were no general partnership units sold during the quarter. Additional Units sold during the quarter represented a total of $5,252,765. Investors redeemed a total of 132.98 Units during the quarter and the General Partner redeemed 0 Units. At the end of the quarter there were 14,326.75 Units outstanding (including 0.42 Units owned by the General Partner).
During the fiscal quarter ended September 30, 2003, the Partnership had no material credit exposure to a counter-party which is a foreign commodities exchange or to any counter-party dealing in over the counter contracts which was material.
During the fourth quarter 2003 the Partnership gained 1.46% In October the Partnership continued to employ John W. Henry and Company, Inc. (JWH) as its core manager and Mount Lucas Management Corporation (MLM) and MLM Index (Unleveraged) for an overlay program. The Fund was up 0.73% in October, with JWH down 2.66% and MLM up 3.49%
For JWH the tug of war between market fundamentals, government policies and perceived economic growth and weakness provided enough confusion in the financial markets to make trend following very difficult. Losses were concentrated in fixed income, energies and metals sectors. Smaller overall gains came in currencies, equity indices and agriculturals.
MLM had gains in physical commodities and currencies, with smaller losses in financials, for a gain of 3.49%. However, due to disappointing performance over the last 24 months and the fact that the Index and JWH have been more correlated than in the previous two years while researching the combination, the Partnership terminated its trading advisory agreement with MLM at the end of October 2003.
In November 2003 the fund was traded solely by JWH, who had a loss of 4.45% for the month. Smaller overall gains were posted in currencies with the continued weakening of the US Dollar against other major currencies, metals and gold. Losses came in the fixed income sector, with the largest sector loss in the Japanese 10 year government bonds. Indices were down in November with the largest loss in the Osaka Nikkei as it fell 7% under heavy selling, primarily from Japanese bank stocks. Energy and agricultural products were also negative for November.
In December 2003 JWH was up 5.40% for the Fund. The end of the year witnessed the continuation of the global rebalancing in terms of a weaker US dollar against most major currencies. Fixed-income markets had trouble developing sustainable tends in the past few months. The energy markets remained strong most of the year, despite anticipation that crude oil would return to a lower twenty-dollar per barrel range after the Iraqi war. Finally the effects of China's phenomenal economic growth and appetite for raw materials propelled the price of base metals and crude oil.
JWH had profits in currencies, energies and metals which more than offset smaller losses in the fixed-income, stock indices and agriculturals.
Since the commencement of trading on February 1, 1989 the Partnership has experienced a cumulative gain of 127.85% through December 31, 2003. For further discussion and analysis of Financial condition please refer to the Notes to the Combined Financial Statements attached hereto.
See Footnote 4 of the Financial Statements for procedures established by the General Partner to monitor and minimize market and credit risks for the Partnership. In addition to the procedures set out in Footnote 4, the General Partner reviews on a daily basis reports of the Partnership's performance, including monitoring of the daily net asset value of the Partnership. The General Partner also reviews the financial situation of the Partnership's Clearing Broker on a monthly basis. The General Partner relies on the policies of the Clearing Broker to monitor specific credit risks. The Clearing Broker does not engage in proprietary trading and thus has no direct market exposure, which provides the General Partner assurance that the Partnership will not suffer trading losses through the Clearing Broker.
The Partnership recorded a gain of $8,454,389, or $405.48 per unit, for the year 2002. That represents a gain of 24.32% for the year.
The most difficult period for the Partnership in 2002 was the first quarter, which saw a loss of 12.77%. In March both managers, the JWH Strategic Allocation Program and the MLM Index (Unleveraged), were substantially negative. JWH had losses in currencies, particularly the Japanese Yen where government intervention abruptly brought the yen above the 132 level and created a volatile trading environment. The JWH positions in the US dollar versus the British pound, the Swiss franc and the Euro were negative as well as the yen. Losses were also incurred in the global stock indices, particularly the Nikkei, DAX, Eurostoxx and NASDAQ which all started the month on a positive note, but either failed to continue or simply faltered and reversed trend. JWH did post smaller overall profits in energies, interest rates, and metals. After a small gain in January and a small loss in February, the MLM Index (Unleveraged) had a loss of 5.88% for the month, but the effect for the Partnership was somewhat mitigated by the fact that the Index program was only approximately one half allocated to the Partnership. Therefore, the loss from the Index was approximately 2.96%. For the Index in March, dramatic reversals, particularly in the energy markets, spurred by the hope of a US recovery and escalating tension in the Middle East, resulted in a very difficult month.
For the second quarter of 2002, the Partnership gained 31.43%. Most of the gains came in May and June, particularly June, and all of the gains came from JWH. In May JWH had a gain of 9.39%. The theme for JWH was the weakening of the US dollar. The US crisis in confidence brought about by corporate accounting scandals and constant government warnings of possible further terrorist attacks created a widespread repatriation of assets out of the US. JWH also had profits in metals, with gold and silver continuing to shine. In June the JWH program had a gain of 20.37%, coming largely form the continued weakness in the US dollar against the major currencies. Continued accounting irregularities further depressed the stock market while triggering a flight from the US dollar. JWH also had profits from interest rates and agriculturals, with losses coming from metals as gold retreated form its highs. The MLM Index was negative for the Partnership in all three months of the second quarter.
In the third quarter 2002 the Partnership had a gain of 18.55%. JWH had solid gains in each month with MLM posting profits in each month except July. JWH continued to take full advantage of two recurring themes that have spurred significant trends: the global economic slowdown and a possible war with Iraq. JWH had profits in the interest rate sector as rates continued to decline and in energies as prices continued to go up.
In the fourth quarter 2002, the Partnership had a overall loss of 8.52%. October and November saw losses of 8.97% and 6.84% respectively, with a gain of 7.88% for December. As had been the case for the whole year except the first quarter, JWH drove the performance in both directions, with MLM essentially flat overall for the quarter. The JWH program was adversely affected in October by reversals in the fixed income, equity and energy markets. Stronger than expected third quarter corporate earnings as a result of increased operating leverage, one-time asset sales, and reduced expenses propelled global equity indices higher. This erased much of the deflationary fears in the market, pushing interest rates higher. The energy markets acted keenly to the US government's deferral to the United Nations on the subject of Iraq. As a result the perceived war premium subsided, reducing the price of crude oil. In November JWH had its largest losses in the currency sector, with the Japanese yen the leading looser followed by the British pound and the Swiss franc. Fixed income was the second largest losing sector in November with the almost daily alternation of positive and negative economic releases form around the world making trading very difficult. JWH had losses in the global stock indices, especially the Nikkei 225. The Middle East tensions and the United Nations resolutions continued to affect the energy markets, creating a challenging environment, with losses for the JWH program. Fortunately for the Partnership, the JWH program had a strong performance in December, mostly coming from foreign exchange and fixed income. A last minute shift out of US assets for year-end considerations put heavy pressure on the US dollar, and fears of continued slow economic growth spurred a renewed rally in the bond market.
In summary, the core program of the partnership, the JWH Strategic Allocation Program, had a very good year. The year 2002 for JWH can be broken up into four parts that closely correspond to each quarter. The first quarter showed negative performance due to a lack of trends in any of the major market sectors. Markets were unable to decide on a direction in the aftermath of September 11 and the first mild US recession in a decade. The second quarter corresponded to a major dollar sell off and was the best performing quarter of the year for JWH with significant profits being generated in the currency markets. A wider interest rate differential in favor of Europe, looser monetary policy in the United States, and an outflow of capital in response to the poor equity markets, all contributed to this dollar weakening. This was the most significant adjustment in the dollar rally in years. The third quarter saw a great decline in interest rates, with global bond markets rallying in all major countries. This rally led to significant returns from trading the interest rate sector. The backdrop for this decline was somewhat anticipated due to poor to modest economic growth around the world. The fourth quarter started out with a significant retracement in interest rates; however, December saw another lowering in the value of the dollar, and a clear signal ending the long-term dollar rally, which has lasted since before the introduction of the Euro.
Behind these adjustments in currencies and bonds, the bear market in equities around the world continued for the third straight year. There were significant stock declines, particularly in the third quarter. In the commodity markets, droughts in the wheat, corn and soybean belts for the US as well as in Canada and Australia caused a spike in prices. In spite of the sluggish world economic growth, the oil market moved higher in response to Iraq War fears and the Venezuelan oil strike. The gold market saw one of the biggest moves in years in response to overall market uncertainty.
The MLM Index (Unleveraged) had a losing year for the partnership. The major loss came in March as a result of reversal in the energy sector that the system does not rebalance until the end of each month. Historically, the MLM Index has underperformed in transition years between expanding and contracting economic growth of which 2002 was an example. In 2003 we intend to increase the allocation to MLM to a 100% overlay by the end of the first quarter or the beginning of the second quarter.
Since the commencement of trading on February 1, 1989 the Partnership has experienced a cumulative gain of 159.47% through December 31, 2002. For further discussion and analysis of financial condition please refer to the Notes to the Combined Financial Statements attached hereto.
For the year, the Partnership was negatively correlated to the equity indices. The Partnership was positive for the first and third quarters and negative for the second and fourth quarters. The S&P 500 was just the opposite. The Partnership had a positive result of 2.78% for the year, while the S&P 500 was negative 13.04%.
The Partnership recorded a gain of $4,275,321 or $163.15 per Unit for the first quarter of 2001. This compares to a loss of $5,502,945 or $200.52 per Unit for the first quarter of 2000.
The Partnership continued to employ two different trading strategies for the first quarter 2001. The Fund was down 1.08% in January. The John W. Henry & Company Financial and Metals Portfolio (JWH) was profitable for the month due to interest rate positions. A significant portion of the positive returns occurred during the last days of the month surrounding the Fed cut in rates on January 21st. In spite of the unusual action of two 50 basis point rate cuts by the Fed in a single month, bond prices actually declined by just over 2 points for January. All the remaining sections traded, currencies, non-US stock indices and metals, incurred losses. The Barclay Futures Index Program (BFIP) had an allocation of approximately 50% of the Fund's assets for the first quarter 2001. In January the Index had a decline for the Fund of 6.03%. The largest losses came in the energies and grains and overall six of the seven sub-indexes (or sectors) were negative. The only exception was profits in softs, especially sugar. All in all, the Partnership posted a loss of $455,012 or $17.43 per Unit in January.
The Fund was up 0.78% in February. The JWH allocation was again positive with gains in short term interest rates. The short term rates reacted to central bank easing and the massive rally in the Japanese government Bond as the Japanese economy showed signs of sputtering, realized gains. After eliminating their zero interest rate policy last August because of the belief that a recovery was around the corner, the Bank of Japan is again following a monetary policy of easing as rates were brought down 15 basis points. The Japanese stock market reacted and the Nikkei stock index hit a 15 year low during February. Currencies suffered losses for the month as they were affected by a weakening in the euro, which offset some of the earlier gains from the beginning of the year. Late in the month, the euro tumbled to two-month lows against the dollar in the wake of Turkey's lira currency float. Market concerns about European bank exposure to Turkish assets helped push the euro, already trending lower during the month, to fresh troughs. Metals were slightly unprofitable for the month. The BFIP allocation of the Fund lost 1.35%. The passive index had losses in metals and currencies and profits in meats, softs, and energies. Overall, the Partnership posted a gain of $318,381 or $12.51 per Unit in February.
The Fund was up 10.42% in March. The JWH program was up 12.88% with all four sectors being profitable. Currencies led the way due to continued weakness in the Japanese yen, although the other currencies were also profitable. Declining interest rates also helped for the month, led by the Euro Bund and the Japanese government bond. Many attributed the strength in bond prices to be the result of the 'flight to safety' due to continued weakness in the equity markets. Stock index trading was mixed and there was a small gain in metals. The BFIP gained back its losses from January and February with a positive 7.49% result in March. The gains came in the softs, metals, grains, currencies and energies. Smaller losses came in meats and financials. Overall, the Partnership posted a gain of $4,411,952 or $168.07 per Unit in March.
The Partnership recorded a loss of $3,358,859 or $128.90 per Unit for the second quarter of 2001. This compares to a loss of $4,221,518 or $151.95 per Unit for the second quarter of 2000.
The Partnership continued to employ two different trading advisors for the second quarter 2001. The Fund had a loss of 7.31% in April as both advisors suffered losses. The JWH firm had reversals of the trends that had created profits in the first quarter, mostly in currencies and interest rates. The Barclay Futures Index Program (BFIP) gave back most of its gains from March with losses in six out of seven sectors traded. The Partnership recorded a loss of $3,394,496 or $130.21 per unit in April.
May was a positive month for the Fund (up 1.51%), with both JWH and the BFIP showing profits. On the JWH side, currencies led the way with the dollar showing strength against the Euro and Swiss franc. Profits were also seen in the British pound. Interest rate positions were slightly negative for JWH, as were overseas stock indexes and metals. The BFIP had gains in 5 out of 7 sectors traded. They were, in this order, softs, energies, grains, financials and currencies. The two losing sectors were metals and meats. The Partnership recorded a gain of $641,062 or $24.92 per unit in May.
June saw a loss of 1.41% for the Fund. The JWH programs were down 4.29% coming from losses in interest rate and currency sectors. However, the JWH losses were somewhat offset by the BFIP gain of 1.92% coming in six of their seven sectors traded. The largest gain for BFIP came in softs, following by metals and energies. The Partnership recorded a loss of $605,424 or $23.61 per Unit in June.
The Partnership recorded a gain of $2,164,094 or $84.89 per Unit for the third quarter of 2001. This compares to a loss of $1,597,603 or $58.14 per Unit for the third quarter of 2000.
At September 30, 2001, John W. Henry & Company, Inc. (JWH) was managing approximately $42 million in allocated assets for the Partnership, and Mount Lucas Management Corporation's MLM Index (MLM) was managing approximately $10 million in allocated assets. As of September 30, the Partnership had approximately $44 million in assets.
In July, the Partnership had a loss of 3.92%. The JWH Strategic Allocation Program replaced the JWH Financial and Metals Program beginning in July. The month was one of transition, especially for the currency markets, with a key reversal in the dollar's upward movement and growing talk that the dollar trend may be reaching an end. The currency sector under performed, while diversified programs had more modest declines.
In July the MLM Index Program had not yet begun trading. The Partnership had a loss of 1,651,375 or $64.87 per Unit in July.
In August, the Partnership had a gain of 5.63%. The monthly performance was dominated by the active behavior of the central banks, with easing by the Fed, the Bank of Japan, and the European Central Bank (ECB). These actions drove trends in interest rates and currencies. The most significant gains came in European interest rates and the dollar/Euro exchange rate.
The MLM Program did not trade in August. The Partnership had a gain of $2,282,136 or $89.45 per Unit in August.
In September, the Partnership had a gain of 3.59%. The JWH SAP Program had a gain of 3.69%, making profits in the global bond markets. Bond prices rose as investors came out of equities and into bonds after the September 11th attacks on America. Profits were made in precious metals, where prices rose as they often do in a crisis. Profits were also made in overseas stock indices, which tended to sell off as a reaction to the economic uncertainties of the month.
The MLM Index Program received its first allocation in the month of September and posted a gain of 0.67%. The Partnership recorded a gain of $1,533,334 or $60.16 per Unit in September.
The Partnership had the JWH Strategic Allocation (SAP) program for its core investment of approximately $44 million at the beginning of the fourth quarter. In addition, the Partnership had a $10 million notional allocation to the MLM Index Program (Unleveraged).
In October JWH SAP had a profit of 3.94%, mostly from gains in the interest rate sector and energies. The MLM overlay program was also slightly positive at 0.31% overall. The Partnership was up 3.82% for the month.
In November the Partnership had a loss of 14.72%. At JWH losses were concentrated in the fixed-income markets. Bonds had rallied much of the year, but this rally was reversed in November with one of the sharpest sell offs in decades. Given the previous strength in fixed income trends, these positions dominated risk exposure and there were no trends in other markets to offset the interest rate losses. The MLM Index Program (Unleveraged) had losses in five out of seven sectors traded. As sentiment switched from prolonged recession to swift recovery, commodity and bond markets were driven against the trends.
In December the Partnership recovered some of the November loss with a gain of 8.35%. The JWH gain was 8.61%, primarily from currencies, especially the Japanese yen. Although profits were posted in the European and North American bond positions with new trends toward higher rates, the interest rate sector was down for the month due to a loss in the Japanese 10 year bond. The MLM had a gain of 0.48% from softs, grains, and currencies.
Overall, the Partnership had a loss of 4.07% for the fourth quarter.
The Partnership ended the year 2001 with gain of $1,283,739.
Inflation
Inflation does have an effect on commodity prices and the volatility of commodity markets; however, inflation is not expected to have an adverse effect on the Partnership's operations or assets.
Item 7(A). Quantitative and Qualitative Disclosures About Market Risk
Introduction
Past Results Are Not Necessarily Indicative of Future Performance
The Partnership is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes, and all or substantially all of the Partnership's assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the 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 each 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, 2003. All open position trading risk exposures of the Partnership have been included in calculating the figures set forth below. As of December 31, 2003, the total capitalization of the Partnership was approximately $33.5 million.
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 CIS and CISFS with the remainder on deposit with Horizon Cash Management, LLC. (Horizon) in short term, highly liquid investments. The Partnership has cash flow risk on these cash deposits because if interest rates decline, so will the interest paid out by CIS and CISFS at the 90-day Treasury bill rate. In addition, should short term interest rates decline, so will the interest earnings for assets on deposit with Horizon. The Partnership assets managed by Horizon are deposited in an account in the custodial department of Brown Brothers Harriman & Co., and invested in U.S. government securities and other interest-bearing obligations at the direction of Horizon. Horizon is responsible for the investment management of the assets of the Partnership not deposited with CIS as margin monies or held in partnership operating accounts. Horizon is registered with the Securities and Exchange Commission (SEC) as an investment adviser. Horizon may invest in U.S. government securities and other instruments as permitted by the Agreement. Horizon receives an annual fee of 0.25% payable monthly on the assets it manages. However, Horizon only receives its service fee if the accrued monthly interest income earned on the assets of the Partnership managed by Horizon exceeds the 91-day U.S. Treasury Bill rate. As of December 31, 2003, the Partnership had approximately $32.9 million in cash on deposit with CIS, CISFS 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, 2003, 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 and dollar/pound positions. The General Partner does not anticipate that the risk profile of the Partnership's currency sector will change significantly in the future. The currency trading Value at Risk figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the dollar-based Partnership in expressing Value at Risk in a functional currency other than dollars.
Stock Indices. The 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. As of December 31, 2001, the Partnership had no exposure in stock index futures. Ordinarily the primary exposures are in the FTSE (England), Nikkei (Japan) and All Ordinaries (Australia) stock indices. However, in February 2000, the JWH firm added the German DAX Index Futures. The General Partner anticipates little trading in non-G-7 stock indices. The Partnership is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Japanese indices. (Static markets would not cause major market changes but would make it difficult for the Partnership to avoid being "whipsawed" into numerous small losses.)
Metals. The 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 JWH.
Commodities. The exposure to commodities of the Partnership from JWH GAP 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 JWH GAP 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, 2003.
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 CIS and CISFS, earning interest at 90% of the average 90-day Treasury bill rate for Treasury bills issued during each month. The remainder is held at Horizon in short term liquid investments.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The General Partner monitors the 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
JWH attempts to control risk in all aspects of the investment Process - from confirmation of a trend to determining the optimal exposure in a given market, and to money management issues such as the startup or upgrade of investor accounts. JWH double checks the accuracy of market data, and will not trade a market without multiple price sources for analytical input. In constructing a portfolio, JWH seeks to control overall risk as well as the risk of any one position, and JWH trades only markets that have been identified as having positive performance characteristics. Trading discipline requires plans for the exit of a market as well as for entry. JWH factors the point of exit into the decision to enter (stop loss). The size of the JWH positions in a particular market is not a matter of how large a return can be generated but of how much risk it is willing to take relative to that expected return.
To attempt to reduce the risk of volatility while maintaining the potential for excellent performance, proprietary research is conducted on an ongoing basis to refine the JWH investment strategies. Research may suggest substitution of alternative investment methodologies with respect to particular contracts; this may occur, for example, when the testing of a new methodology has indicated that its use might have resulted in different historical performance. In addition, risk management research and analysis may suggest modifications regarding the relative weighting among various contracts, the addition or deletion of particular contracts from a program, or a change in position size in relation to account equity. The weighting of capital committed to various markets in the investment programs is dynamic, and JWH may vary the weighting at its discretion as market conditions, liquidity, position limit considerations and other factors warrant.
JWH may determine that risks arise when markets are illiquid or erratic, such as may occur cyclically during holiday seasons, or on the basis of irregularly occurring market events. In such cases, JWH at its sole discretion may override computer-generated signals and may at times use discretion in the application of its quantitative models, which may affect performance positively or negatively.
Adjustments in position size in relation to account equity have been and continue to be an integral part of the JWH investment strategy. At its discretion, JWH may adjust the size of a position in relation to equity in certain markets or entire programs. Such adjustments may be made at certain times for some programs but not for others. Factors which may affect the decision to adjust the size of a position in relation to account equity include ongoing research, program volatility, assessments of current market volatility and risk exposure, subjective judgment, and evaluation of these and other general market conditions.
Item 8.
Item 8.	Financial Statements and Supplementary Data
Reference is made to the financial statements and the notes thereto attached to this report.
Item 9.
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Part III
Item 10.
Item 10.	Directors and Executive Officers of the Registrant.
The General Partner, Everest Asset Management, Inc., is the sole General Partner and commodity pool operator of the Partnership. It is a Delaware corporation incorporated in 1987, is and has been registered with the CFTC as a commodity pool operator since July 1, 1988 and is and has been a member of the National Futures Association since that date. Its address is 1100 North 4th Street, Suite 143, Fairfield, Iowa 52556 and its telephone number is (641) 472-5500.
The officers and directors of the General Partner as of December 31, 2003 are listed below:
Peter Lamoureux. Mr. Lamoureux, (born in 1950), has been President, Treasurer and Secretary of the General Partner since November 1996. He joined the General Partner and Capital Management Partners, Inc., a selling agent and affiliate of the Partnership, in 1991 and has had primary responsibility for Partnership syndication 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.
Effective June 20, 2002, Teresa M. Prange resigned as Principal and Chief Financial Officer of Everest Asset Management, Inc. Effective February 1, 2003, Mr. Lamoureux, President of the General Partner became the majority shareholder and sole director of Everest Asset Management, Inc., the General Partner. Mr. Rubin and Mr. Foster are no longer principals, directors, or shareholders. Effective July 30, 2003 Janet A. Mullen retired as Vice-President of Client Services There are no material changes in the operations of the firm.
The General Partner does not trade commodities for its own account but its principals may. Because of their confidential nature, records of such trading will not be available to Limited Partners for inspection.
There have been no material criminal, civil or administrative actions during the preceding five years or ever against the General Partner or its principals.
Item 11.
Item 11. Executive Compensation.
The Partnership has no directors or executive officers. As a limited partnership, the business of the Partnership is managed by its General Partner which is responsible for the administration of the business affairs of the Partnership and receives the compensation described in Item 1 "Business" hereof. The officers and directors of the General Partner receive no compensation from the Partnership for acting in their respective capacities with the General Partner.
Item 12.
Item 12. Security Ownership of Certain Owners and Management.
(a) As of December 31, 2003 the following persons were known to the Partnership to own beneficially more than 5% of the outstanding Units: NONE
(b) As of December 31, 2003, the General Partner beneficially owned 0.42 Units or approximately 0.00% of the outstanding Units of the Partnership. Mr. Peter Lamoureux, President of the General Partner owned 5.187 Units or 0.003% of the outstanding Units.
(c) As of December 31, 2003, 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.
Item 13. Certain Relationships and Related Transactions.
(a) None other than the compensation arrangements described herein.
(b) None.
(c) None.
(d) The Partnership filed Registration Statements on Form S-18 and Form 10, therefore this information is not required to be included.
Part IV
Item 14.
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) The following documents are included herein:
(1) Financial Statements:
	a. 	Independent Auditors Report.
b. Statements of Financial Condition as of December 31, 2003 and 2002.
c.	Statements of Operations, Statements of Changes in Partners' Equity, and Statements of Cash Flows for the years ended December 31, 2003, 2002, and 2001.
d.	Notes to Financial Statements.
e.	Schedule of Investments as of December 31, 2003.
(2) All financial statement schedules have been omitted because the information required by the schedules not applicable, or because the information required is contained in the financial statements included herein or the notes thereto.
(3) Exhibits:
See the Index to Exhibits annexed hereto.
(b) Reports of Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date:	March 18, 2004		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 18, 2004
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.
10.5	Advisory Contract between the Partnership, the General Partner and John W. Henry & Company, Inc. dated December 1, 1990.
10.6	 Amendment to Advisory Contract between the Partnership, the General Partner and John W. Henry & Company, Inc. dated April 1, 1995.
10.9	 Certificate of Limited Partnership for Everest Futures Fund II L.P. dated March 15, 1996.
10.10	 Limited Partnership Agreement for Everest Futures Fund II L.P. dated as of March 29, 1996.
28.1	Confidential Private Placement Memorandum and Disclosure Document dated August 21, 1996.
Notes to the Exhibits:
Exhibits 3.4, 10.5, 10.6, 10.9, 10.10 and 28.1 are incorporated by reference to the Partnership's Form 10 accepted on September 19, 1996.
The Exhibits referenced above bear the exhibit numbers corresponding to those indicated in the Partnership's Registration Statements.
Number of Attached Exhibits
None.
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
I, Peter Lamoureux, certify that: 1. I have reviewed this annual report on Form 10-K of The Everest Fund, L.P.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. I have disclosed, based on my most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
THE EVEREST FUND, L.P.
Date: March 18, 2004 By: Everest Asset Management, Inc., its General Partner
By: /s/ Peter Lamoureux Peter Lamoureux Director, President, and Treasurer
EVEREST FUND, L.P. (formerly Everest Futures Fund, L.P.) (An Iowa Limited Partnership)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
													Page Independent Auditors' Reports							2-3 Financial Statements:
Statements of Financial Condition, December 31, 2003 and 2002	4
Statements of Operations, Years Ended December 31, 2003, 2002 and 2001				5
Statements of Changes in Partners' Capital, Years Ended December 31, 2003, 2002 and 2001				6
Schedule of Investments, December 31, 2003				7-8
Schedule of Investments, December 31, 2002				9-10
Notes to Financial Statements							11
Acknowledgement									16
					INDEPENDENT AUDITORS' REPORT
To the Partners of Everest Fund, L.P. (formerly Everest Futures Fund, L.P.) We have audited the accompanying statement of financial condition, including the condensed schedule of investments, of Everest Fund, L.P. (An Iowa Limited Partnership), (the "Partnership") as of December 31, 2003 and 2002, and the related statements of operations and changes in partners' capital for the years then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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. (An Iowa Limited Partnership) as of December 31, 2003 and 2002, and the results of its operations and changes in partners' capital for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/SPICER JEFFRIES LLP Greenwood Village, Colorado February 6, 2004
INDEPENDENT AUDITORS' REPORT
To the Partners of Everest Futures Fund, L.P. We have audited the accompanying statements of operations and changes in partners' capital of Everest Futures Fund, L.P. (the Partnership) for the year ended December 31, 2001. These financial statements are the responsibility of the Partnership's General Partner. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and changes in partners' capital of the Partnership for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP Chicago, Illinois March 8, 2002
EVEREST FUND, L.P. (formerly Everest Futures Fund, L.P.) (An Iowa Limited Partnership)
STATEMENTS OF FINANCIAL CONDITION
																			December 31,
									2003		2002
			ASSETS Cash and cash equivalents				$17,674,473	$ 466129
Equity in Cargill Investor Services, Inc. 	trading accounts: Cash							 4,480,683	 14,452,134 Net unrealized trading gains on open contracts 1,670,155 5,429,931 Investments, at fair value			 10,720,039 22,810,860 Interest receivable 44,467 14,624
TOTAL ASSETS $34,589,817 $43,173,678
TOTAL LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES: Redemptions payable					$ 898,770 $ 167,638 Commissions payable 143,319 150,029 Advisor management fee payable 56,183 84,985 Accrued expenses 30,705 50,322
TOTAL LIABILITIES 1,128,977 452,974
PARTNERS' CAPITAL: General Partner 0.42 and 22.07 units outstanding 938 45,742 Limited Partners 14,828.57 and 20,591.62 units outstanding 33,459,902 42,674,962
TOTAL PARTNERS' CAPITAL 33,460,840 42,720,704
TOTAL LIABILITIES AND PARTNERS' CAPITAL 34,589,817 $43,173,678 The accompanying notes are an integral part of these statements
EVEREST FUND, L.P. (formerly Everest Futures Fund, L.P.) (An Iowa Limited Partnership)
EVEREST FUND, L.P. (formerly Everest Futures Fund, L.P.) (An Iowa Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL YEAR ENDED DECEMBER 31, 2003, 2002 AND 2001
EVEREST FUND, L.P. (formerly Everest Futures Fund, L.P.) (An Iowa Limited Partnership)
CONDENSED SCHEDULE OF INVESTMENTS DECEMBER 31, 2003
Carrying Long Positions:				Number of	 Principal Value Futures Positions: (1.82%) Contracts (Notional) (OTE)
Interest Rates			 530 $ 82,606,630 $ (117,961) Metals				 180 6,782,700 431,400 Energy					 235 7,325,704 174,704 Agriculture 280 5,575,320 71,028 Currencies				 105 25,683,000 15,275 Indices 35 1,462,180 36,089 129,435,534 610,535
Forward Positions: (3.97%) Currencies						 91,521,631 1,327,609
Total long positions $ 220,957,165 $ 1,938,144
Short Positions: Futures Positions: (-0.15%) Indices					 8 (797,946) (49,918)
Forward Positions: (-0.65%) Currencies 				 (16,789,211) (218,071)
Total short positions $ (17,587,157) (267,989) Total open contracts (4.99%) $ 1,670,155
EVEREST FUND, L.P. (formerly Everest Futures Fund, L.P.) (An Iowa Limited Partnership)
CONDENSED SCHEDULE OF INVESTMENTS DECEMBER 31, 2003
										 Carrying Value 					 Coupon Maturity (OTE)
Investments, at fair value: Maturity Over 60 Days: (32.04%) Federal Home Loan Bank Bond		1.75%		 06/17/05 $ 499,414 Federal Home Loan Bank Bond		1.45%		 07/22/05 246,371 Federal Home Loan Bank Bond		2.22% 08/26/05 499,700 Fannie Mae Medium Term Note 2.00% 05/05/05 550,000 Federal Home Loan Bank Bond 1.80% 11/18/05 1,200,000 Federal Home Loan Bank Bond		1.25% 11/26/04 800,000 Federal Home Loan Bank Bond		1.75% 06/17/05 499,550 Fannie Mae Medium Term Note		2.00% 02/05/05 300,807 Federal Home Loan Bank Bond		1.75% 06/17/05 249,875 Federal Home Loan Bank Bond 1.50% 12/22/04 2,800,000 U.S. Treasury Note				6.13% 08/15/07 1,475,322 Federal Home Loan Bank Bond		2.75% 12/28/05	 1,600,000 Total securities with maturities over 60 days 10,720,039
Cash and cash equivalents (52.82%) 17,674,473 Cash on deposit with brokers (13.39%) 4,480,683 Liabilities in excess of other assets (-3.24%) 	 (1,084,510) 											 21,070,646 Net assets (100.00%)					$ 33,460,840
The accompanying notes are an integral part of these statements.
EVEREST FUND, L.P. (formerly Everest Futures Fund, L.P.) (An Iowa Limited Partnership)
CONDENSED SCHEDULE OF INVESTMENTS DECEMBER 31, 2002
Carrying Number of Principal Value Contracts (Notional) (OTE)
Long Positions: Futures Positions: (6.41%)
Number of Contracts
Interest Rates			141		$ 24,782,050 $ 144,331 Metals					475 17,267,824 (122,802) Energy					627 20,776,101 1,051,192 Agriculture				756 11,373,995 252,849 Currencies				297 50,220,743 430,590 Indices 				1,031 234,910,156 983,319
Forward Positions: (8.16%) Currencies 729,609,867 3,485,982
Total long positions $1,088,940,736 $ 6,225,461
Short Positions: Futures Positions: (0.57%) Interest Rates			105 $ (11,948,220) $ (391,000) Metals					165 (4,518,400) 461,064 Agriculture				406 (5,670,320) 167,461 Currencies 		17 (1,074,740) (170) Indices					33 (2,189,898) 6,254 								 (25,401,578) 243,609 Forward Positions: (-2.43%) Currencies 4,523,422 (1,039,139)
Total short positions $ 29,925,000 (795,530) Total open contracts (12.71%) $ 5,429,931 The accompanying notes are an integral part of these statements.
EVEREST FUND, L.P. (formerly Everest Futures Fund, L.P.) (An Iowa Limited Partnership)
CONDENSED SCHEDULE OF INVESTMENTS DECEMBER 31, 2002 (continued)
											Carrying 											Value 					 Coupon Maturity		(OTE)
Invesments, at fair value: Maturity Over 60 Days: (53.40%) Fannie Mae Medium Term Note	5.75%		04/15/03	 $ 2,129,876 Fannie Mae Medium Term Note	5.00% 02/14/03 728,012 Fannie Mae Medium Term Note	3.90% 04/29/04 403,718 Fannie Mae Medium Term Note	3.80% 04/30/04 1,008,803 Fannie Mae Medium Term Note	3.75% 05/12/04 706,186 Fannie Mae Medium Term Note	3.50%		05/21/04		 503,669 Fannie Mae Medium Term Note	3.50% 06/24/04 2,921,684 Fannie Mae Medium Term Note	3.15% 07/29/04 709,942 Fannie Mae Medium Term Note	3.00% 07/29/04 2,789,980 Fannie Mae Note Term RP		7.25%		01/15/10		 818,059 Freddie Mac Note			2.45%		01/23/04		 902,175 GMAC Mortgage Co LP NT				01/02/03		 3,493,297 GMAC Mortgage Co LP NT				01/13/03		 1,900,000 Oneok Inc CP						01/07/03		 499,133 Oneok Inc CP						01/13/03 1,896,777 Oneok Inc CP 01/15/03 499,567 Prime Property Fund Inc LP NT 01/17/03 900,000 Total securities with maturities over 60 days 22,810,860
Cash and cash equivalents (1.09%) 466,129 Cash on deposit with brokers (33.83%) 14,452,134 Liabilities in excess of other assets (-1.03%) (438,350)
Net assets (100.00%) 14,479,913 									 $ 42,720,704 The accompanying notes are an integral part of these statements.
Notes to Financial Statements
NOTE 1-	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Everest Fund, L.P., formerly Everest Futures Fund, L.P. (An Iowa Limited Partnership"), (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"). The Partnership clears futures and options on futures trades through Cargill Investor Services, Inc. ("CIS" or the Clearing Broker") and forward trading through CIS Financial Services, Inc. ("CISFS" or the "Forwards Currency Broker") (collectively referred to as the "Brokers").
The Partnership was closed to new investors from July 31, 1989 to June 30, 1995. Effective July 1, 1995, the Partnership recommenced the offering as a Regulation D, Rule 506 private placement. The private placement offering is continuing at a gross subscription price per unit equal to net asset value per unit, plus an organization and offering cost reimbursement fee payable to the General Partner, and an ongoing compensation fee equal to 3% of the net asset value of Units sold. Partnership interests are distributed through Capital Management Partners, Inc. an affiliate of the General Partner and certain Additional Sellers.
Cash and Cash Equivalents
Cash equivalents represent short-term highly liquid investments with original maturities of 60 days or less and include money market accounts, securities purchased under agreements to resell, commercial paper, and U.S. Government and agency obligations with variable rate and demand features that qualify them as cash equivalents. These cash equivalents, with the exception of securities purchased under agreement to resell, are stated at amortized cost, which approximates fair value. Securities purchased under agreements to resell, with overnight maturity, are collateralized by U.S. Government and agency obligations, and are carried at the amounts at which the securities will subsequently be resold plus accrued interest.
Revenue Recognition
Commodity futures contracts, forward contracts, physical commodities, and related options are recorded on the trade-date basis. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized gains and losses on open contracts reflected in the statements of financial condition represent the difference between original contract amount and market value (as determined by exchange settlement prices for futures contracts and related options and cash dealer prices at a predetermined time for forward contracts, physical commodities, and their related options) as of the last business day of the year or as of the last date of the financial statements.
The Partnership earns interest on 100% of the Partnership's average monthly cash balance on deposit with the Brokers at a rate equal to the average 91-day Treasury bill rate for U.S. Treasury bills issued during that month.
NOTE 1-	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 		(Continued)
Net Income Per Unit of Partnership Interest
Net income per unit of partnership interest is the difference between the net asset value per unit at the beginning and end of each period.
Fair Value of Financial Instruments The financial instruments held by the Company are reported in statements of financial condition at market or fair value, or at carrying amounts that approximate fair value, because of their highly liquid nature and short-term maturity.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated at the prevailing exchange rates as of the valuation date. Gains and losses on investment activity are translated at the prevailing exchange rate on the date of each respective transaction while year-end balances are translated at the year-end currency rates. Realized and unrealized foreign exchange gains or losses are included in trading income in the statements of operations.
Income Taxes
No provision for income taxes has been made in the accompanying financial statements as each partner is responsible for reporting income (loss) based upon the pro rata share of the profits or losses of the Partnership.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2-	LIMITED PARTNERSHIP AGREEMENT
The Limited Partners and General Partner share in the profits and losses of the Partnership in proportion to the number of units or unit equivalents held by each. However, no Limited Partner is liable for obligations of the Partnership in excess of their capital contribution and profits, if any, and such other amounts as they may be liable for pursuant to the Act. Distributions of profits are made solely at the discretion of the General Partner.
Responsibility for managing the Partnership is vested solely in the General Partner. The General Partner has delegated complete trading authority to an unrelated party (see Note 3).
Limited Partners may cause any or all of their units to be redeemed as of the end of any month at net asset value on fifteen days' prior written notice to the Partnership, or such lesser period as is acceptable to the Partnership. Although the Agreement does not permit redemptions for the first six months following a Limited Partner's admission to the Partnership, the Agreement does permit the Partnership to declare additional regular redemption dates. The Partnership will be dissolved at December 31, 2020, or upon the occurrence of certain events, as specified in the Limited Partnership agreement.
NOTE 3-	CONTRACTS AND AGREEMENTS
Prior to August 1, 2000, the Partnership's trading advisor was John W. Henry& Company, Inc. (JWH). Beginning July 1, 2001 JWH began trading its Strategic Allocation Program with a trading allocation of $40 million. Previously JWH traded its Financial and Metals program. JWH receives a monthly management fee equal to 0.167% (2% annually) of the Partnership's month-end net asset value, as defined, and a quarterly incentive fee of 20%of the Partnership's new net trading profits, as defined. The incentive fee is retained by JWH even though trading losses may occur in subsequent quarters; however, no further incentive fees are payable until any such trading losses (other than losses attributable to redeemed units and losses attributable to assets reallocated to another advisor) are recouped by the Partnership.
Effective August 1, 2000, Trilogy Capital Management, LLC ("Trilogy") was added as a trading advisor. Trilogy was terminated effective June 30, 2001. Trilogy received a monthly management fee of 0.075% (0.9% annually) of the Partnership's month-end allocated assets as defined and did not receive an incentive fee.
Effective September 1, 2001, Mount Lucas Management Corporation ("MLM") was added as a trading advisor with an initial allocation of $10 million. This allocation represented notional funding for the Partnership. MLM receives a monthly management fee of 0.0625% (0.75% annually) of the Partnership's month-end allocated assets as defined. Effective February 2003, the management fee was reduced to 0.04167% (0.50% annually). As MLM uses the MLM Index Unleveraged, they do not receive an incentive fee. MLM was terminated effective October 31, 2003.
Beginning in June 2003, John W. Henry & Company, Inc. ("JWH") began trading JWH Global Analytics Program ("GAP"); Currency Strategic Allocation Program ("CSAP") and Worldwide Bond Program ("WBP") with a trading allocation of $27 million.
Effective November 2003, CIS charges the Partnership monthly brokerage commissions equal to 0.50% of the Partnership's beginning-of-month net asset value. From May 2002 through October 2003, CIS charged the Partnership monthly brokerage commissions of either 0.5104% or 0.5156%, depending on the total amount which the Partnership had allocated to trading, including notional funding. Prior to May 2002, CIS charged the Partnership monthly brokerage commissions equal to 0.5052% of the Partnership beginning-of-month net asset value, as defined. Prior to September 1, 2001, the monthly brokerage commission was 0.5%. The General Partner receives a management fee of approximately 83% of the brokerage commission charged by CIS. Net brokerage commissions are recordedin the statements of operations as a reduction of trading income and the amounts paid to the General Partner are recorded as management fees.
As of December 31, 2003 and 2002, the Partnership had approximately $33.5 million and $42.7 million in net assets. As of December 31, 2003 and 2002, JWH's allocation was approximately $33 and $41 million, respectively, and MLM's was approximately $0 and $26.6 million of notional funding, respectively. The General Partner may replace or add trading advisors at any time.
A portion of assets (82.1% and 53.9% at December 31, 2003 and 2002, respectively) are deposited with a commercial bank and invested under the direction of Horizon Cash Management, Inc. (Horizon). Horizon will receive a monthly cash management fee equal to 1/12 of .25% (.25% annually) of the average daily assets under management if the accrued monthly interest income earned on the Partnership's assets managed by Horizon exceeds the 91-day U.S. Treasury bill rate.
NOTE 4-	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.
NOTE 4-	FINANCIAL INSTRUMENTS, OFF-BALANCE SHEET RISKS AND CONTINGENCIES 		(Concluded)
The purchase and sale of futures and options on futures contracts requires margin deposits with a Futures Commission Merchant ("FCM"). Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act ("The CEAct") requires an FCM to segregate all customer transactions and assets from the FCM's proprietary activities.
A customer's cash and other property such as U.S. Treasury Bills, deposited with an FCM are considered commingled with all other customer funds subject to the FCM's segregation requirements. In the event of an FCM's insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than the total of cash and other property deposited.
The Partnership has cash on deposit with an interbank market maker in connection with its trading of forward contracts. In the event of the interbank market maker's insolvency, recovery of the Partnership assets on deposit may be limited to account insurance or other protection afforded such deposits. In the normal course of business, the Partnership does not require collateral from such interbank market maker. Because forward contracts are traded in unregulated markets between principals, the Partnership also assumes a credit risk, the risk of loss from counter party non-performance.
For derivatives, risks arise from changes in the market value of the contracts. Theoretically, the Partnership is exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short. As both a buyer and seller of options, the Partnership pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option.
The notional amounts of open contracts at December 31, 2003 and 2002, as disclosed in the Condensed Schedule of Investments, do not represent the Partnership's risk of loss due to market and credit risk, but rather represent the Partnership's extent of involvement in derivatives at the date of the statement of financial condition.
Net trading results from derivatives for the years ended December 31, 2003, 2002 and 2001, are reflected in the statement of operations and equal to gains (losses) from trading less brokerage commissions. Such trading results reflect the net gain arising from the Partnership's speculative trading of futures contracts, options on futures contracts, and forward contracts.
The Limited Partners bear the risk of loss only to the extent of the net asset value of their Partnership units.
NOTE 5-	TRADING DISCREPANCY
In October 2000, there was a discrepancy between the performance of the Barclay Futures Index Program ("BFIP") as traded for the Partnership and the Barclay Futures Index (BFI). Certain transactions executed by Trilogy on behalf of the Partnership resulted in a loss of approximately $520,000 that was recorded in the statement of operations. The General Partner believes that these transactions were not executed in accordance with the provisions of BFIP and has demanded that Trilogy reimburse the Partnership for the loss. The parties are currently attempting to resolve the issue.
Until a final resolution is reached, the parties have agreed that the management fees otherwise payable to Trilogy under its advisory contract would be applied as a credit to offset the losses. The offset is not in settlement, partial settlement, or indemnification of any kind and is without prejudice to any rights or claims by either side. Beginning in November 2000, and until approximately July 1, 2001, at which time Trilogy was terminated, all of the management fees that would otherwise be paid to Trilogy were deposited into a separate account for the benefit of those limited partners that were limited partners on November 1, 2000 and to cover the expenses associated with the collection of the losses. The separate account is not included in the financial statements of the Partnership. After its termination, Trilogy demanded that such fees be returned to it. The General Partner rejected Trilogy's demand and is assessing its options for collection.
NOTE 5-	TRADING DISCREPANCY (Continued)
A demand for arbitration was filed with the NFA on October 3, 2002. Trilogy has responded to the demand for arbitration and has counterclaimed for the amount of $130,210, together with attorney's fees, interest and costs of suit. That figure represents the amount of management fees, otherwise payable to Trilogy under its advisory contract, that both parties agreed would be held as a credit to the Partnership to offset the losses. The General Partner has a letter to that effect which was signed by the president of Trilogy on January 29, 2001.
The General Partner anticipates a hearing in front of an NFA arbitration panel in the coming months, but no date has been set for the hearing. At the present time, the General Partner is unable to determine whether any of the losses will be recovered.
NOTE 6-	FINANCIAL HIGHLIGHTS
The following financial highlights show the Partnership's financial performance for the years ended December 31, 2003, 2002 and 2001. This information has been derived from information presented in the financial statements.
EVEREST FUND, L.P. (formerly Everest Futures Fund, L.P.) (An Iowa Limited Partnership)
ACKNOWLEDGEMENT YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
Acknowledgement To the best of my knowledge and belief, the information contained here is accurate and complete.
/s/Peter Lamoureux President Everest Asset Management, Inc. General Partner of Everest Fund, L.P. (formerly Everest Futures Fund, L.P.)