ACCELERATED EFFECTIVENESS REQUESTED
September 20, 1996
Securities and Exchange Commission
Division of Corporate Finance
Mail Stop 7-2, Filing Desk
450 Fifth Street, N.W.
Washington, D. C. 20549
Attn.: Mark Britton, Esq.
Re:Registrant: Everest Futures Fund, L.P. (the "Partnership")
FORM 10 filed September 20, 1996
File No. 0-17555
Dear Mark:
Attached please find a Form 10 being filed for the above-referenced Partner
ship being filed through the EDGAR system. ACCELERATED EFFECTIVENESS of this
f1995 financial statements for ship being filed through the EDGAR System.
Accelerated effectiveness is being he General Partner, Everest Asset
Management, Inc. as well as the sought for registration of the Partnership.
Thank you for your assistance in this matter. Should you have any questions
please do not hesitate to contact me or Mr. Todd Lashway regarding the
procedure for filing this registration statement.
Very truly yours,
Noel C. Reilly
Corporate Counsel
Vice President
cc. John P. Lass, President
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
Everest Futures Fund, L.P.
(Exact name of registrant as specified in its charter)
Iow 42-1318186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
508 North Second St. 52556
Suite 302, Fairfield, Iowa (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (515) 472-5500
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
(Title of class)
Item 1. Business
Certain Definitions.
Allocated Assets. Allocated Assets means the amount which the General Partner
directs an advisor to trade on the Partnership's behalf, which may be higher
than the Partnership's Net Asset Value, together with any appreciation or
depreciation in that amount plus any accrued distributions, redemptions and
management and advisory fees and the prior month's taxes, if any.
Redemptions, distributions and interest income received by the Partnership
shall be allocated among the Partnership's advisors in the same proportion
that the Allocated Assets allocated to an advisor bears to all of the
Allocated Assets.
CEA. CEA means the Commodity Exchange Act.
CFTC. CFTC means the Commodity Futures Trading Commission.
CISI. CISI means CIS Investments, Inc., a wholly-owned subsidiary of the
Clearing Broker and a co-general partner of Everest II.
Clearing Broker. Clearing Broker means Cargill Investor Services, Inc.
Commodity Interests. Commodity Interests means commodity futures contracts
and other commodity interests, including forward contracts on foreign
currencies.
Everest II. Everest II means the Everest Futures Fund II L.P., a Delaware
limited partnership.
General Partner. General Partner means Everest Asset Management, Inc., the
general partner of the Partnership and a co-general partner of Everest II.
JWH. JWH means John W. Henry & Co., Inc.
Limited Partner. Limited Partner means a limited partner of the Everest
Futures Fund, L.P.
NFA. NFA means the National Futures Association.
Net Asset Value. Net Asset Value means the Partnership's total assets less
total liabilities, determined on the basis of generally accepted accounting
principles, consistently applied.
Net Asset Value per Unit. Net Asset Value per Unit means the Net Asset Value
divided by the number of Units and Units of general partnership interest then
outstanding.
1940 Act. 1940 Act means the Investment Company Act of 1940.
Partnership. Partnership means the Everest Futures Fund, L.P.
Selling Agent. Selling Agent means Capital Management Partners, Inc.
Trading Profits. Trading Profits (for purposes of calculating an advisor's
incentive fees only) during a fiscal quarter shall mean the cumulative profits
(over and above the aggregate of previous period profits) during the quarter
allocable to an advisor's trading (after deduction for accrued brokerage
commissions and accrued management fees payable to an advisor). Trading
Profits shall include both realized and unrealized profits. Trading Profits
shall not include interest received by the Partnership on its assets.
If Trading Profits for a quarter are negative, it shall constitute a
"Carryforward Loss" for the beginning of the next quarter. No incentive fees
shall be payable to an advisor until future Trading Profits attributable to
an advisor's trading for the ensuing quarters exceed the advisor's aggregate
Carryforward Loss. To the extent any Units are redeemed at a loss or assets
are allocated away from an advisor, any loss attributed to those Units or
amounts allocated away shall not be carried forward to reduce future Trading
Profits.
Trading Suspension Level. Trading Suspension Level means the Net Asset
Value per Unit level at which the Partnership will suspend trading. The
Partnership will suspend trading if the Net Asset Value per Unit declines as
of the close of business on any day to an amount which represents a decline
of 50% or more in Net Asset Value per Unit from the highest Net Asset Value
per Unit as of any prior month end (after adjustments for prior distributions).
Units. Units means units of limited partnership interest in the Everest
Futures Fund, L.P.
OVERVIEW
Everest Futures Fund, L.P. (the "Partnership") is a limited partnership
organized on June 20, 1988 under the Iowa Uniform Limited Partnership Act.
The business of the Partnership is the speculative trading of commodity
futures contracts and other commodity interests, including forward contracts
on foreign currencies ("Commodity Interests"). The Partnership commenced
its trading operations on February 1, 1989.
The Partnership was initially organized on June 20, 1988 under the name
Everest Energy Futures Fund, L.P. The Partnership's initial business was the
speculative trading of Commodity Interests, with a particular emphasis on the
trading of energy-related commodity interests, including crude oil, heating
oil and gasoline futures contracts. Effective September 12, 1991, based upon
an affirmative vote by a majority of the holders of Units of limited
partnership interest, the Partnership amended its Certificate of Limited
Partnership to change the Partnership's name to "Everest Futures Fund, L.P."
At the same time, the Partnership amended its Agreement of Limited
Partnership to eliminate the trading policy requiring that the Partnership
concentrate its trading activity in energy-related commodity interests.
As is noted under "Business - Investment Trading and the Advisor", the
Partnership currently trades futures contracts and options on futures
contracts on a diversified portfolio of financial instruments and precious
metals and trades forward contracts on currencies.
Since February, 1989, 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 Part-
nership made by over 50% of the Limited Partnership Units at least 90 days
prior to dissolution, (ii) withdrawal, insolvency of the General Partner
(unless a new general partner is substituted, (iii) a 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.
Upon ten days written notice, a Limited Partner may require the Partnership
to redeem all or part of his Units effective as of the close of business
(as determined by the General Partner) on the last day of any month at the Net
Asset Value thereof on such date. Notwithstanding the above, pursuant to the
Agreement of Limited Partnership, the General Partner may, in its sole discret-
ion, 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. See Item 11 below
("Redemptions").
The Partnership's General Partner is Everest Asset Management, Inc. (the
"General Partner") a Delaware corporation organized in December, 1987. The
address of the General Partner and the Partnership is 508 North Second
Street, Suite 302, Fairfield, Iowa 52556, and their telephone number is
(515) 472-5500. The General Partner changed its name as of March 1, 1994 and
amended its Certificate of Incorporation, with no other changes, accordingly.
In accordance with the provisions of the Commodity Exchange Act (the "CEA")
and the rules of the National Futures Association (the "NFA"), the General
Partner is registered as a commodity pool operator and a recommending
commodity trading advisor, the advisor 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 (the "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. 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 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
General Partner management and administrative fees; and (vi) perform such
other services as the Partnership may from time to time request, except that
all trading decisions are made by the advisor retained by the General
Partner. In addition, the General Partner selects their commodity broker(s)
that will clear trades for the Partnership's advisor(s). Cargill Investor
Services, Inc. ( "Commodity Broker") currently acts as the Partnership's
futures commission merchant and CIS Financial Services, Inc., an affiliate of
the Commodity Broker, acts as the Partnership's currency dealer.
Neither the Partnership nor the General Partner has any employees. Rather,
the General Partner, in its capacity as a CFTC-regulated commodity pool
operator, contracts the services of research, fund administration, client
support (marketing) and management information systems and analysis to
Capital Management Partners, Inc. ("Selling Agent") which is a CFTC-regulated
introducing broker, an NFA member, and an affiliate of the General Partner,
to conduct its operational activities. The Selling Agent has 12 employees
(as of June 30, 1996).
The public offering of the Partnership's Units of limited partnership
interests ("Units") commenced on or about December 6, 1988. As of that date
there was one Unit issued and outstanding held by the initial Limited
Partner. On February 1, 1989, the initial offering period for the
Partnership was terminated. On that date, $2,081,000 was contributed as the
capital contribution by the Limited Partners who purchased during the initial
offering period and $99,000 was contributed as the capital contribution of the
General Partner. After deducting $41,620 (2% of the capital contributions from
the Limited Partners purchasing during the initial offering period) to
reimburse the General Partner for offering and organizational expenses
advanced by it, the Partnership commenced trading on February 2, 1989. Its
Net Asset Value as of that date was $2,140,315.74 or $980.90 per Unit.
Beginning February 2, 1989, Units continued to be offered during the extended
offering period at a price computed by reducing the subscription amount by 2%
and dividing the balance by the Net Asset Value Per Unit on the last day in
the month in which a subscription was accepted by the General Partner. The
extended offering period was terminated on July 31, 1989, and no further
Units were sold after that date as part of the Partnership's public offering.
As of August 1, 1989, a total of 5,065.681 Units of Limited Partnership
Interest had been purchased. In addition, as of that date the General
Partner had purchased a total of 100 Units of General Partner's interest.
The Partnership's private placement of Units, which began on July 1, 1995 and
which continues as of the date hereof, is described below in Item 10 ("Recent
Sales of Unregistered Securities").
On February 29, 1996 based on an affirmative vote of a majority of the holders
of Units of limited partnership interest, the Partnership amended its
Agreement of Limited Partnership permitting the Partnership to conduct its
trading business by investing in other partnerships and funds and in
subsidiary partnerships or other limited liability entities. Thus effective
close of business on March 29, 1996 the Partnership invested all of its
assets in another limited partnership, the Everest Futures Fund II L.P., a
Delaware limited partnership in which the Partnership is the sole limited
partner. At the present time, the Partnership does not invest directly in
Commodity Interests. Instead the Partnership transferred all of its assets
to Everest II in return for its Everest II limited partnership interest.
Everest II invests directly in commodity interests through JWH, the former
advisor to the Partnership. Each of the Partnership's material contracts were
transferred or replaced with substantially identical agreements in which
Everest II rather than the Partnership is a party. It is not anticipated
that any of the foregoing changes will have any material economic or
operating effect on the Partnership investors.
Everest II has two general partners, Everest Asset Management, Inc. - the
current General Partner of the Partnership, and CIS Investments, Inc., which
is a wholly-owned subsidiary of Cargill Investor Services, Inc., the current
Clearing Broker of the Partnership. The Clearing Broker will be the clearing
broker for Everest II. CISI and the General Partner are registered with the
CFTC as commodity pool operators and are members of the NFA in such capacity.
The Partnership is now the beneficial owner of the sole limited partnership
interest of Everest II. The Partnership is not, however, an investment company
of the Partnership within the meaning of the Investment Company Act of 1940,
because (i) the Partnership does not otherwise invest, reinvest, own, hold or
trade securities, (ii) the Partnership shall continue to hold at least 50% of
the limited partnership interest in Everest II, (iii) the Partnership does
not fall within the meaning of an investment company under Section 3(a) of
the 1940 Act, (iv) the Limited Partners continue to have the right to remove
the General Partner of the Partnership, and (vi) the Partnership continues to
have the right to remove the general partners of Everest II.
The primary purpose in creating Everest II and investing all of the
Partnership's assets therein was to retain the advisory services of JWH, the
Partnership's commodity trading advisor. In February 1996, JWH advised the
General Partner that, as one of the leading commodity trading advisors in the
managed futures industry, JWH was concerned about the confidentiality of its
trading systems in the marketplace. JWH decided to limit access by market
participants to its trading data to a small number of futures commission
merchants. This list included Cargill Investor Services, Inc. - the
Partnership's Clearing Broker. The CFTC requires at least one general
partner of a managed futures fund to have daily access to the special futures
trades executed on behalf of a fund pursuant to the direction of that fund's
trading advisor. The Partnership was advised by legal counsel that the most
appropriate means of retaining JWH was to create Everest II and make CISI, an
affiliate of the Clearing Broker a co-general partner thereof. This advice was
followed, Everest II was created with two general partners, and the General
Partner agreed that only CISI would have access to JWH's market trading data
for Everest II. As a result of creating this structure, JWH was satisfied
about confidentiality and the Limited Partners retained the ability to invest
with JWH.
The main advantage in creating Everest II is the continued ability of Limited
Partners to invest in the Financial and Metals Program of JWH. JWH is one of
the leading commodity trading advisors in the managed futures industry,
measured both in terms of total assets under management and historical
performance. With approximately $1.3 billion under management, JWH no longer
accepts direct managed accounts from individual investors. The Partnership
is currently one of only a few investment vehicles which provide U.S.
investors with access to the JWH Financial & Metals Portfolio.
The General Partner currently believes that retaining JWH as trading advisor
for the Partnership is important to the Partnership's continued success. As
a result, the General Partner chose to establish Everest II as the means of
retaining JWH as trading advisor.
The General Partner does not believe that the Partnership's investment in
Everest II will cause any significant or material disadvantage to Limited
Partners. The co-general partner fee being paid to CISI is being borne
directly by the General Partner, not by the Partnership. All other fees and
expenses of the Partnership, except for operating expenses, remain the same
as prior to the creation of Everest II. Operating expenses are a
semi-variable expense with respect to the Partnership's size, and have decreased
as a percentage of Net Asset Value since the creation of Everest II given the
growth in the Partnership's assets which is due to the retention of JWH.
As a separate matter, by an affirmative vote of a majority of the holders of
Units of limited partnership interest on February 29, 1996, the Partnership
amended its Agreement of Limited Partnership permitting the General Partner to
maintain a capital contribution in the Partnership other than the current 1%
in all material items of the Partnership gain, loss, deduction, or credit, in
reliance upon an opinion of counsel for the Partnership as to the level of
capital contribution necessary for the Partnership to be classified as a
partnership for federal income tax purposes. No such opinion has yet been
rendered to the Partnership and thus no change in General Partner capital
contribution has occurred.
FEES AND EXPENSES
As a result of the Partnership's investment in Everest II, the majority of the
Partnership's trading and operating expenses have been transferred to
Everest II. This transfer is not expected to have any material economic
effect on the overall fees and expenses attributable to Partnership investors
The Partnership continues to pay its own operating expenses, but as of the
close of business on March 29, 1996, Everest II is now obligated to pay the
substantial trading and operational expenses and to pay an incentive fee to
its trading advisor. These expenses materially affect the net results of an
investment in the Partnership, reducing net profits and increasing net
losses. The Partnership would have to make a 9.13% return on its investments
during the initial year of a Limited Partner's investment in the Partnership
in order for a Limited Partner to break even during the Limited Partner's
first year of investment in the Partnership. The fees and expenses of the
Partnership and Everest II are described in more detail in the Partnership's
offering memorandum which are incorporated herein by reference as Exhibit 1.3.
Fees to the General Partner. As is noted below, Everest II pays the Clearing
Broker a brokerage commission charge equal to 0.5% of the Partnership's
Beginning Net Asset Value as of the beginning of each month (approximately 6%
annually). Approximately 80% of this amount is rebated by the Clearing Broker
to the General Partner. From this rebated amount, the General Partner pays CISI
a monthly co-general partner fee equal to 1/12 of 0.40% of the month-end NAV
of Everest II. However, in the event an opinion of counsel is obtained which
permits CISI to reduce its capital account to 0.50% or less of Everest II's
NAV, then the annual rate of the monthly co-general partner fee will
thereafter be 0.25%.
The General Partner in turn pays a portion of such amount to the Selling Agent
and additional selling agents as selling commissions. In addition, the
Partnership reimburses the General Partner for the actual organization and
offering expenses advanced by it, not to exceed one percent of the Net Asset
Value of Units sold. Organization and offering expenses shall mean all
expenses incurred by the Partnership or the General Partner in connection
with and in preparation to offer and distribute the Units to investors,
including, but not limited to, expenses for traveling, printing, engraving,
mailing, salaries of employees while engaged in sales activity, charges of
transfer agents, registrars, trustees, escrow holder, depositories, experts,
expenses of qualification of the sales of its securities under state law,
including taxes and fees and accountants' and attorneys' fees.
Fees to the Advisor. Everest II pays its current commodity trading advisor,
John W. Henry & Co., Inc. ("JWH") a monthly management fee equal to 0.333%
(approximately 4% annually) of Everest II's month-end Allocated Assets and a
quarterly incentive fee equal to 15% of Everest II's New Net Trading Profits
as of the end of each quarter.
Cargill Investor Services, Inc. As a result of the investment in Everest II by
the Partnership, Everest II pays commodity brokerage commissions charges to the
Clearing Broker equal to 0.5% of Everest II's Beginning Net Asset Value as of
the beginning of each calendar month. It is estimated that this amount will
equal approximately 6% of Everest II's average annual Net Asset Value. If
there is a material change in Everest II's brokerage commission structure,
investors and Limited Partners will be informed in writing. The Clearing
Broker may, in the future, increase the fee charged to Everest II.
Approximately 80% of this amount is paid by the Clearing Broker to the General
Partner.
The Clearing Broker has agreed to pay Everest II interest on Everest II's
assets (including open trade equity) deposited with it during a month at the
average of 91-day U.S. Treasury Bills purchased by the Clearing Broker during
each month. The Clearing Broker will retain all excess interest, if any,
earned on Everest II assets, above the amount of interest paid to Everest II.
The interest rate to be paid by the Clearing Broker to Everest II is a
negotiated rate which has been negotiated between the Clearing Broker and the
General Partner. The actual interest income on Everest II's assets earned by
the Clearing Broker may be greater than or less than the negotiated rate to be
paid by the Clearing Broker to Everest II. The Clearing Broker will also be
responsible for execution and clearance of futures contracts (and possibly
certain other Commodity Interests).
The Selling Agent and Additional Selling Agents. A selling commission of 3% of
the Net Asset Value of Units sold will be paid, unless waived in whole or in
part by the General Partner, by the Limited Partners to the Selling Agent,
Capital Management Partners, Inc., or the additional selling agents in
connection with the sale of the Units. The General Partner may pay up to
100% of the funds it receives from the Clearing Broker to the Selling Agent
and the additional selling agents as additional selling commission.
Other Periodic Expenses. The Partnership is obligated to pay its periodic
operating expenses and extraordinary expenses. Although those expenses will
vary depending on the Partnership's size, it is estimated that the periodic
operating expenses will total approximately $40,000 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 1995, 1994, 1993, 1992
and 1991, and for the six months ended June 30, 1996 can be found in the table
below.
The following table reflects the actual fees and expenses for the periods
presented. See "Selected Financial Data" below.
Six months ended Year ended December 31,
June 30, 1996 1995 1994 1993 1992 1991
(In thousands)
Brokerage Commissions $144 $97 $162 $188 $210 $319
Advisor Management Fees 97 55 47 55 59 90
Advisor Incentive Fees 3 24 4 32 0 109
Operating Expenses 44 21 23 28 21 32
CERTAIN RISK FACTORS
Trading in Commodity Interests is Speculative and May Result in a Loss to the
Limited Partners. The prices of most, if not all, Commodity Interests are
highly volatile. Price movements for futures contracts, for example, which
may fluctuate substantially during a short period of time, are influenced by
numerous factors that affect the commodities markets, including, but not
limited to: changing supply and demand relationships; government programs
and policies; national and international political and economic events and
changes in interest rates. Such volatile price movements may result in
unprofitable trading by Everest II's trading advisor(s), thus resulting in
losses to the Limited Partners.
Commodity Interests Trading is Highly Leveraged and This Leverage May
Increase the Size of Possible Losses to the Limited Partners. The low margin
deposits normally required in trading Commodity Interests permit an extremely
high degree of leverage. Accordingly, a relatively small price movement in a
futures contract may result in immediate and substantial loss to the
investor. For example, if at the time of purchase 5% of the price of a
futures contract is deposited as margin, a 5% decrease in the price of the
futures contract would, if the contract were then closed out, result in a total
loss of the margin deposit (brokerage commission expense would also be
incurred). In addition, to the extent that certain advisors are instructed
to trade Everest II's account with a higher degree of leverage than the one
usually used by that advisor, the leverage risk is increased. Like other
leveraged investments, any futures trade may result in losses in excess of
the amount invested. Although Everest II may lose more than its initial margin
on a trade, Everest II, and not the Limited Partners personally, will be
subject to margin calls.
Advisors May Be Instructed to Use Increased Leverage Which May Increase the
Size of Possible Losses to the Limited Partners. The general partners of
Everest II may instruct certain advisors to use increased leverage in trading
the Everest II's account. This means that Everest II is exposed to a
greater volatility in its trading results than may be experienced by other
clients of that advisor. The instruction to use increased leverage means
that Everest II may, for example, allocate $150,000 to an advisor with
instruction to trade Everest II's account as if $300,000 had been allocated
to the advisor. Because of this increased leverage, an advisor's past
performance may not be reflective of the performance which may be experienced
by Everest II. Leverage can result in increased profits and increased
losses. In addition to increased volatility, Everest II will usually pay a
management fee to the advisor on the higher amount. This results in the
management fees paid by Everest II as being a greater percentage of
Everest II's actual assets than the specific amount shown. Since the
variation in the percentage is affected by both the amount of capital
allocated to the advisor as well as the amount of increased leverage, it is
impractical to give any meaningful estimate of the potential increase in the
effective management fee for the life of Everest II. The effect of increased
volatility and higher fees attributable to the use of increased leverage may
be to increase the size of possible losses experienced by the Limited
Partners. Everest II's current trading advisor, JWH, has not been instructed
to use leverage. Leverage levels may change from time to time. As of the
date of this document, none of Everest II's advisors has ever been instructed
by the general partners to use increased leverage.
Commodity Interests Trading May Be Illiquid and Such Illiquidity May Result in
the Inability to Exit Positions, Subjecting to Potential Losses. Most United
States commodity futures exchanges, for example, limit the maximum amount
above or below the previous day's settlement price which futures contract prices
may fluctuate during a single day by regulations referred to as "daily
limits." During a single trading day, no trades may be executed at prices
beyond the daily limit. Once the price of a particular futures contract has
increased or decreased to the limit point, it may be difficult, costly or
impossible to liquidate a position unless traders are willing to effect trades
at or within the limit (which, typically, they are unwilling to do). Futures
prices in particular contracts have occasionally moved the daily limit for
several consecutive days with little or no trading. If this were to occur,
Everest II might be prevented from promptly liquidating unfavorable positions,
which could subject Everest (and thus the Partnership) to substantial losses.
Those losses could significantly exceed the margin initially committed to the
trades involved. In addition, even if prices have not moved the daily limit
or no limits are in effect for the contracts traded by Everest II, Everest II
may not be able to execute trades at favorable prices if little trading in
the contracts is taking place.
Suspension of Trading in a Particular Futures Contract May Result in the
Partnership Experiencing Losses: It is possible that an exchange or the
CFTC may suspend trading in a particular futures contract, order immediate
settlement of a contract or order that trading in a contract be conducted for
liquidation of open positions only. This might result in Everest II having
to liquidate a particular futures contract at an unfavorable time, thereby
reducing profits or increasing losses for the Partnership and for the Limited
Partners.
Substantial Charges to Partnership May Result in the Partnership Experiencing
Losses. Everest II will pay JWH a monthly management fee equal to 0.333% (4%
annually) of the Allocated Assets and an incentive fee equal to 15% of
Everest II's quarter-end Trading Profits allocable to it. In addition, all
other liabilities, expenses and costs of Everest II, including charges
incidental to trading (primarily brokerage commissions) as well as legal,
accounting, filing and printing fees, and taxes, if any, will be paid by
Everest II regardless of whether Everest II realizes profits. The incentive
fee, if paid, is based upon, among other things, unrealized appreciation in
open futures positions (as is the Net Asset Value of the Units) and all fees
paid will be retained even if Everest II subsequently experiences losses or
the appreciation is never realized. The amount of unrealized appreciation
may often be substantial. Everest II will pay a monthly brokerage commission
charge equal to 0.5% of Everest II's Beginning Net Asset Value as of the
first day of each month. It is anticipated that this amount will equal
approximately 6% of Everest II's average annual Net Asset Value. These
payments may cause the Partnership to suspend trading if its Net Asset Value
per Unit declines below certain levels. The charges to which Everest II is
subject, excluding incentive fees based solely on increases in cumulative
Trading Profits, are such that the Partnership will be required to make
profits for the Net Asset Value of a Unit to increase. The Partnership must
achieve profits of at least 9.13% for the Net Asset Value per Unit at the end
of the initial 12 month period following a Limited Partner's investment in
the Partnership to equal the initial Net Asset Value per Unit paid by the
investor. The effect of the fees of the Partnership is to increase the
amount of trading profits required for the Partnership to break even,
therefore increasing the possibility that the Partnership and the Limited
Partners will experience losses. See "Business - Fees and Expenses" above.
Possibility of Trading on Foreign Exchanges Which Could Result in Losses for
the Partnership Due to Counterparty Risk. Everest II and thus the Partnership
may engage in trading on foreign exchanges and other markets located outside
of the United States. Neither existing CFTC regulations nor regulations of
any other United States governmental agency currently apply to transactions
executed on foreign markets. Some foreign markets, in contrast to domestic
exchanges, are "principals' markets" in which contractual performance is the
responsibility only of the individual member with whom the trader has entered
into a commodity transaction and not of the exchange or clearing corporation.
In those cases, Everest II and thus the Partnership will be subject to the risk
or the inability of, or refusal by, the counterpart to perform with respect
to a transaction. The effects of trading on foreign exchanges to Everest II
and thus the Partnership may be losses due to counterparty risk not normally
experienced on domestic exchanges and higher brokerage commissions, both of
which may result in greater losses experienced by the Limited Partners.
Currency Exchange Rate Fluctuations Increase Everest II's and thus the
Partnership's Risk of Loss. Also with respect to trading on foreign markets,
Everest II and thus the Partnership would be subject to the risk of
fluctuations in the exchange rate between the currencies in which trading is
done on foreign markets and United States dollars and the possibility that
exchange controls could be imposed in the future. In the event exchange
controls were imposed, it is possible that Everest II and thus the
Partnership might not be able to liquidate a foreign market position on
favorable terms, thereby increasing the risk of loss to Everest II and
therefore the Partnership and the Limited Partners. There is no limit to the
percentage of Everest II and therefore Partnership assets which may be
committed to trading on foreign markets. Finally, Everest II and/or the
Partnership may pay brokerage commissions based on British pounds or other
foreign currencies for trades on certain London or foreign markets. If the
exchange rate between the British pound or other foreign currency and the
United States dollar fluctuates, the commissions paid by Everest II and/or the
Partnership for those trades may increase (or decrease).
Possibility of Forward Trading Increases Counterparty Risk Which Could Result
in Losses to the Partnership. Spot transactions and forward contracts for the
trading of certain commodities, primarily currencies, may be entered into
with United States or foreign banks or other dealers. A forward contract is a
contractual right to purchase or sell a commodity, such as a currency, at or
before a specified date in the future at a specified price. Forward
contracts, however, are not traded on exchanges and, as a consequence,
investors in forward contracts are not afforded the regulatory protection of
any exchange or the CFTC. There is no limitation on daily price moves of
forward contracts traded through banks. Banks are not required to continue
to make markets in any commodity. There have been periods during which
certain banks have refused to quote prices for forward contracts or have
quoted prices with an unusually wide spread between the price at which the
bank is prepared to buy and that at which it is prepared to sell. Everest II
and/or the Partnership will be subject to the risk of bank failure or
inability or refusal to perform with respect to forward contracts. The
effect of this would be that Everest II, and therefore the Partnership might
experience losses on forward trades resulting in losses to the Limited Partners.
In the future, the CFTC might assert that forward contracts on currencies
constitute futures transactions subject to the CFTC's jurisdiction but which
have not received the required regulatory approval and attempt to prohibit
Everest II and/or the Partnership from participating in transactions involving
those contracts. The CFTC is currently studying questions relating to the
regulation of "off-exchange instruments" such as forward contracts.
Furthermore, a number of the major U.S. commodity exchanges have expressed
concern regarding the proliferation of those instruments. The CFTC has
indicated in the past that if forward contracts were marketed on a retail basis
to the U.S. public at large, it would regard that activity as a violation of
the CEA. The CFTC may, in the future, determine to extend this position to
include prohibiting an entity, like Everest II or the Partnership, from
trading in the forward markets.
Trading Decisions Based on Technical Analysis Which May Result in
Unprofitable Trading Activity. Certain trading advisors, including JWH,
utilize technical trading programs that seek to take into account "technical"
factors in identifying price trends. The success of a trading method that
relies on technical analysis depends upon the occurrence in the future of
major price movements or trends in the relevant markets. In the past there
have been periods without discernible trends and presumably similar periods
will occur in the future. Technical trend-following systems will not be
profitable and may in fact produce losses if there are no trends of the kind
the system seeks to follow. Any factors which reduce the prospect of major
trends in the future (such as increased governmental control of, or
participation in, the markets or governmental support of price levels of
commodities) may reduce the prospect that any technical trend-following
system will be profitable. Any factor which would make it more difficult to
execute the trades indicated, such as significant lessening of liquidity in a
particular market, also would be detrimental to profitability. In the event
that technical trend-following systems are not able to achieve profitable
trading results, the result would be losses for the Limited Partners. No
assurance can be given that the trading systems of trading advisors will be
successful under all or any market conditions.
Possible Effects of Other Technical Systems Which May Make it More Difficult
for Everest II and/or the Partnership to Trade Profitably. Commodity trading
systems employing technical signals, based either upon technical analysis or a
combination of technical and fundamental analysis, are not new. If many
traders follow similar systems, these systems may generate similar buy and
sell orders at the same time. Depending on the liquidity of a market, this
could cause difficulty in executing orders. The General Partner believes
that while there has been an increase in the number of technical systems in
recent years, there also has been an increase in the overall trading volume
and liquidity in the futures markets. Any increase in the proportion of
funds traded using trend-following systems could alter trading patterns or
affect execution of trades to the detriment of Everest II and thus the
Partnership. This could result in Limited Partners experiencing losses.
Reliance on Key Personnel Whose Absence or Departure May Increase the
Likelihood of the Partnership Experiencing Losses. Pursuant to the advisory
contract between Everest II and the advisors which Everest II may engage,
each trading advisor will have exclusive responsibility for trading commodity
futures contracts and other commodity interests for that portion of
Everest II's, and thus the Partnership's, assets allocated to it. Most
trading advisors are dependent on the services of one or two key persons.
The loss of these services would result in the inability of a trading advisor
to continue to effectively advise or trade Everest II's account. If this
occurs, the general partners of Everest II may terminate the contract.
No Assurance of JWH's Continued Services and No Assurance that Replacement
Advisors May be Able to Trade Effectively. The advisory contract between
Everest II and JWH may be terminated by each party on written notice. In the
event that JWH were to terminate its advisory contract with Everest II, there
isa possibility that the replacement advisor(s) selected by the General
Partner would not be able to trade as effectively on behalf of the
Partnership as JWH does on behalf of Everest II, thereby increasing the
possibility of losses being incurred by the Limited Partners.
New Trading Advisors May Increase the Fees Paid by Everest II and thus the
Partnership Which May Contribute to a Deterioration of Partnership Performance.
In the future, the General Partner may designate additional and replacement
trading advisors to manage funds of the Partnership. Such additional or
replacement trading advisors may be experienced or inexperienced in the
management of customer funds but will, in the subjective judgment of the
General Partner, be suitable trading advisors for the Partnership. The
General Partner may appoint a new trading advisor or advisors or liquidate
its investment in Everest II at any time and may reallocate the Partnership's
assets among the then current trading advisors in such amounts as the General
Partner may determine in its sole discretion. Any additional and replacement
trading advisors would be selected by the General Partner without prior
notice to, or approval from, Limited Partners who would not have the
opportunity to review their performance record and the terms of their
agreement with the Partnership prior to their selection. Pursuant to the
Limited Partnership Agreement, the General Partner is authorized to enter into
management agreements with new trading advisors or invest in other limited
partnerships on such terms and conditions as the General Partner in its sole
discretion deems advisable. The compensation payable to any new trading
advisor may include a fixed management fee based on net assets under its
management and/or an incentive fee based on appreciation of the assets under
its management. Depending upon the compensation arrangements negotiated
between the General Partner and any new trading advisor, if such new trading
advisor were to be designated following a decline in Net Asset Value of the
Partnership, such trading advisor might receive an incentive fee based on any
subsequent appreciation experienced by the net assets under such trading
advisor's management in spite of the fact that such appreciation does not
exceed trading losses incurred by any previous or existing trading advisor or
advisors or by the Partnership as a whole. Due to the fact that new trading
advisors may have fee and compensation arrangements less favorable to the
Partnership than that charged by Everest II, , the selection of new advisors
may result in Limited Partners experiencing smaller gains or larger losses
than would have been the case had JWH remained as advisor to Everest II.
Possible Effects of Speculative Position Limits Which May Preclude Everest II
and thus the Partnership from Taking Potentially Profitable Trading Positions.
The CFTC and United States exchanges have established limits referred to as
"speculative position limits" on the maximum net long or net short
speculative futures or option (on futures) positions which any person may
hold or control in futures or option contracts traded on United States
exchanges. Most trading advisors which would be selected by the General
Partner currently control and will continue to control the commodity trading
of other accounts. All positions and accounts owned or controlled by any
trading advisor and its principals will be combined with Everest II's and
thus the Partnership's positions established for position limit purposes. It
is possible that trading instructions will have to be modified and that
positions held by Everest II and thus the Partnership will have to be
liquidated, in order to avoid exceeding position limits. Modification or
liquidation, if required, could adversely affect the operations and
profitability of Everest II and thus the Partnership. In addition, all
commodity accounts of the General Partner, its officers, directors,
affiliates and stockholders may also be combined with Everest II and thus the
Partnership for position limit purposes. The effect of speculative position
limits may be to preclude Everest II and thus the Partnership from taking
potentially profitable trading positions, thereby reducing the profit
potential of Limited Partners.
Increase in Amount of Funds Managed May Result in a Deterioration of an
Advisor's Performance. As a general rule, trading advisors will expect to
manage additional funds in the future. It is not known what effect, if any,
the increased funds managed by a trading advisor including funds raised in
this offering, will have on its performance or trading strategies. For
example, increases in funds managed may affect the number of futures or
options positions a trading advisor would otherwise hold for each account it
manages because of speculative position limits imposed by U.S. exchanges. No
assurance can be given that changes in a trading advisor's strategies (if
any) in response to increased funds it manages will be successful. In any case
there can be no guarantee that the investment results of Everest II and thus
the Partnership will be similar to those achieved by the trading advisors in
the past. If an increase in funds managed were to cause a deterioration in
the performance of the advisor, this could result in reduced profit potential
and increased risk of loss on the part of Limited Partners.
Automatic Trading Suspension Would Terminate the Partnership's Ability to
Trade, Thereby Terminating the Potential to Achieve Profits. The Units are
designed for investors who desire longer term investments. The Partnership
will terminate on December 31, 2020 and will suspend trading if there is a
decrease in the Partnership's Net Asset Value per Unit to or below a Trading
Suspension Level. The Partnership will suspend trading if the Net Asset
Value per Unit declines as of the close of business on any day to an amount
which represents a decline of 50% or more in Net Asset Value per Unit from
the highest Net Asset Value per Unit as of any prior month end (after
adjustments for prior distributions). However, no assurance can be given that
the investor will receive a Trading Suspension Level value or any other
specified amount since the impossibility of executing trades under certain
conditions may deplete the Partnership's assets below this amount. An
automatic trading suspension would terminate the Partnership's and thus
Everest II's ability to trade, and thereby would also terminate a Limited
Partner's potential to profit through the Partnership.
Mandatory Redemptions Would Terminate the Potential for Profits. The General
Partner has the right to require Units held by any benefit plan investor to be
redeemed at any time and for any reason. It is expected that this right will
only be exercised if necessary for the Partnership to comply with certain
numerical limits imposed by existing regulations. Depending on the length of
time Units have been held by an investor or the profitability of the
Partnership's trading activities, a Limited Partner who is forced to redeem
his Units may not have recouped the selling commission and portion of the
offering and organization expenses paid in connection with the purchase of
Units. In the event a Limited Partner were forced to redeem his Units, the
mandatory redemption would terminate the Limited Partner's potential to
achieve profits through the Partnership.
Indemnification of Partnership and Everest II by their respective Limited
Partner(s) May Result in Reduced Profits or Increased Losses. By signing the
Subscription Agreement, each investor whose subscription is accepted will become
a Limited Partner. Under the terms of the Agreement of Limited Partnership,
each Limited Partner indemnifies the Partnership for any liability which it
may be obligated to pay to a governmental agency because of a Limited
Partner's status or the liability is otherwise specifically attributable to
the Limited Partner. In the event that a Limited Partner were required to
make a payment to the Partnership under the terms of this indemnification
agreement, such a payment would reduce profits or increase losses for the
Limited Partner.
By signing the Subscription Agreement of Everest II, the Partnership became
the sole limited partner of Everest II. Under the terms of the Limited
Partnership Agreement, a limited partner indemnifies Everest II for any
liabilities or obligations which it may be obligated to pay unrelated to
Everest II's business. In the event that the Partnership were required to
make a payment to Everest II under the terms of this indemnification
agreement, such a payment would reduce profits or increase losses for the
Partnership.
Past Performance Is Not Necessarily Indicative of Future Results and Does Not
Provide any Guarantee that the Partnership Will Achieve Gains or Will Not Incur
Losses. Although the advisors selected or to be selected may have achieved
significant success in trading futures in the past, the General Partner
cautions prospective investors to take seriously the warning required by both
the Commodity Futures Trading Commission and the National Futures Association.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. AN
INVESTMENT IN EVEREST II AND THUS THE PARTNERSHIP IS SPECULATIVE AND INVOLVES
A SUBSTANTIAL RISK OF LOSS.
Possibility of Taxation as a Corporation Which Could Result in an Increased Tax
Liability for Limited Partners. Under current federal income tax law and
regulations, the Partnership will be classified as a partnership and not as
an association taxable as a corporation. This status has not been confirmed
by a ruling from, and an opinion of counsel is not binding on, the IRS. No
ruling has been or will be requested. The facts and authorities relied upon
by counsel in their opinion may change in the future. If Everest II and thus
the Partnership should be taxed as a corporation for federal income tax
purposes in any taxable year, income or losses of the Partnership and /or
Everest II would not be passed through to the respective limited partners and
Everest II and thus the Partnership would be subject to tax on its income at
the rate of tax applicable to corporations. In addition, all or a portion of
any distributions made to their respective limited partners could be taxable
to them as dividend or capital gain income, and the amount of the
distributions would not be deductible by Everest II and thus the Partnership
in computing its taxable income. If Everest II and thus the Partnership should
be taxed as a corporation, the respective limited partners would experience a
reduction in the value of their limited partnership interests due to the
corporate tax charged to the Partnership and they would also have a tax
liability with regard to some or all divided and capital gain income
distributed to them.
Everest II has not received an opinion from counsel regarding the
classification of Everest II as a partnership under current federal income
tax law, nor has it requested a ruling thereon from the Internal Revenue
Service.
Failure of Commodity Brokerage Firms Could Result in a Loss of a Portion of
Everest II's and thus the Partnership's Assets. Under the CEA, as amended,
futures commission merchants are required to maintain customers' assets
(other than assets used to trade foreign futures or options on foreign boards
of trade) in a segregated account. Everest II and thus the Partnership will
be subject to a risk of loss in the event of the bankruptcy of its Clearing
Broker. In addition, irrespective of adequate segregation of accounts by the
Clearing Broker, Everest II and thus the Partnership will be able to recover,
even in respect of property specifically traceable to Everest II and thus the
Partnership, only a pro rata share of the property available for distribution to
all of its customers. In the event Everest II and thus the Partnership were
able to recover only a portion of its assets, this would reduce the value of
the Units held by the Limited Partners.
Absence of Regulation Applicable to Investment Companies. The Partnership has
not registered as a securities investment company or "mutual fund" and thus is
not subject to the extensive regulation imposed by the Securities and Exchange
Commission (SEC) under the Investment Company Act of 1940 (the "1940 Act").
Although the Partnership has the right to invest in securities, which may or
may not represent interests in other commodity pools, investors will not be
accorded the protections provided by the 1940 Act.
As discussed in the Overview hereto, as of the close of business on March 29,
1996 the Partnership invested all of its assets in another limited partnership,
Everest II, which is an affiliated entity by virtue of the General Partner of
the Partnership being a co-general partner of Everest II, and because the
sole limited partner of Everest II is the Partnership. The Partnership should
not fall within the definition of an investment company under Section 3(a) of
the 1940 Act as a result of its holding a limited partnership interest in
Everest as long as the following factors are adhered to: (a) apart from
owning and holding the limited partnership interest in Everest II, the
Partnership does not invest, reinvest, own, hold or trade in securities; (b)
Everest II does not fall within the definition of an investment company
contained in Section 3(a) of the 1940 Act; (c) the Partnership continues to
hold more than 50% of the limited partnership interest in Everest II; (d) the
Limited Partners of the Partnership continue to have the right to remove and
replace the General Partner of the Partnership with or without cause at any
time; and (e) the Partnership, as the sole limited partner of Everest II,
continues to have the right to remove and replace the general partners of
Everest II with or without cause at any time.
CONFLICTS OF INTEREST
The following inherent or potential conflicts of interest should be considered
by prospective investors in the Partnership before subscribing for Units:
Other Commodity Pools. The General Partner currently acts as the general
partner for other commodity pools. It may continue to act as a general partner
in other commodity pools, either alone or jointly with others. If this occurs,
it may have a financial incentive to favor such accounts over the Partnership.
However, each of the General Partner, the Clearing Broker and JWH have
represented that they will not knowingly favor any customer account over the
Partnership on an overall basis.
Possible Effects of Competition. Accounts currently managed by JWH will seek
execution of trading orders similar to those of Everest II. In addition, JWH,
the General Partner, the Clearing Broker and their affiliates may trade for
their own accounts or the accounts of their principals. Accounts managed by
JWH and its principals will be aggregated for purposes of applying the
speculative positions limits which may result in an alteration of
Everest II's and thus the Partnership's trading patterns if those limits
apply. In addition, certain principals, officers, directors and employees of
the General Partner, JWH, CISI, the Clearing Broker and their affiliates,
may from time to time trade commodity interests for their own accounts. The
records of that trading will not be made available to Limited Partners. It
is possible that those persons may take positions either similar or opposite
to or ahead of positions taken by Everest II and thus the Partnership
and may from time to time compete with Everest II and thus the Partnership for
commodity positions. It is also possible that the Clearing Broker may have
orders for certain trades from the Partnership, Everest II, and other
accounts, including other pools operated by its affiliates, or by the General
Partner, JWH or their affiliates, and the Partnership trades may be executed
at more or less favorable prices. The Clearing Broker may be deemed to have
a conflict of interest as to the sequence in which orders will be transmitted
to the floor of the exchange. CFTC regulations require that the Clearing
Broker transmit all orders to the floor in the order in which they are received
regardless of the source. In addition, CFTC regulations prohibit a futures
commission merchant from using knowledge of any customer's trades for their
or their other customers' benefit.
Trading by the Advisors for Their Own Accounts. Advisors selected by the
general partners of the Partnership and/or Everest II, their principals, and
their employees may or may not trade for their own accounts. If they trade for
those accounts, the respective general partners may review those accounts but
limited partners may not. As a result of this trading, if any, the advisors,
their principals and employees may take positions opposite to or ahead of
positions taken for the Partnership and/or Everest II. Investors should note
that the trading methods used for the Partnership's or Everest II's account
may be applied in a substantially different manner in trading directed by the
principal of a trading advisor for their and the advisor's own accounts.
Generally, principals of an advisor review a substantial number of trading
methods in addition to the one presently utilized. As a result, performance
of the Partnership's and/or Everest II's account may differ significantly
over time from the performance of the accounts of an advisor, its principals
and employees. In general, these potential differences are due to the
willingness of these individuals to accept greater risks for what are perceived
to be greater opportunities for profits in the trading they conduct.
Additional Compensation. A portion of the brokerage commission charges paid
by Everest II to the Clearing Broker may be paid to Capital Management
Partners, Inc. and the additional selling agents from the portion of these
charges remitted to the General Partner by the Clearing Broker. Because this
compensation is based on the number of Units they service which are
outstanding at month end, they have a conflict of interest in advising
Limited Partners as to whether they should redeem their Units.
Independent Representation. The Partnership and General Partner are
affiliated entities and are represented by the same counsel, Sidley & Austin,
of Chicago, Illinois. No independent experts or professionals have been
retained on behalf of the Limited Partners. To the extent that Limited
Partners would benefit by further independent representation, that benefit
will not be available to Limited Partners and they should seek independent
counsel. Everest II is represented by separate independent counsel, Sidley &
Austin, of Chicago, Illinois.
Set forth below are Conflicts of Interest relating to the Partnership's
Investment in the Everest II Fund L.P.:
Relationship of CISI, the Clearing Broker, and CIS Financial Services, Inc.
CISI, one of the co-general partners of Everest II, is an affiliate of Cargill
Investor Services, Inc. , the Clearing Broker. The responsibilities of CISI
include selecting brokers to act on behalf of Everest II, obtaining
appropriate commission rates for Everest II, and ensuring that JWH and other
trading advisor(s) do not engage in excessive trading. Cargill Investor
Services, Inc. is currently acting as the clearing broker of Everest II. In
such circumstances, the Clearing Broker receives brokerage commissions for
commodity transactions effected by Everest II. Although Everest II will
trade only at the direction of independent commodity trading advisors, CISI
has a conflict of interest between its duty to the Partnership to limit or
reduce the cost of brokerage commissions and its interest in the generation
of brokerage commissions which would benefit the Clearing Broker, an
affiliate of CISI. CISI does not intend to negotiate with any other brokerage
firm for brokerage services for Everest II so long as the brokerage agreement
with the Clearing Broker in effect.
Because decisions determining the volume and frequency of trading by Everest II
will be made by independent commodity advisors, CISI believes that the effect of
this conflict of interest will be mitigated. CISI does not have authority to
influence the trading decisions of JWH regarding the volume and frequency of
trades, except that CISI is required to monitor compliance with Everest II's
trading policies, and may from time to time direct JWH to liquidate positions
held by Everest II in order to meet redemption requests. The Clearing Broker
may charge other customers, including other commodity pool accounts,
brokerage commissions at rates which are higher or lower than those paid by
Everest II.
The Clearing Broker may receive more brokerage commission revenue from
Everest II's trading if no distributions are made to the Partnership, its sole
limited partner. CISI's fee received from the General Partner will also be
larger if no distributions are made to the Partnership, since those fees are
based on Everest II's Net Asset Value. All decisions as to distributions
will be made by the General Partner and CISI; the General Partner and CISI
have no current intentions to declare distributions to Everest II's limited
partner. The General Partner and CISI may therefore have a conflict of interest
between their interest in making decisions about distributions in the best
interest of Everest II and its limited partners and their interest in
maximizing the assets of Everest II which are available for trading and for
the generation of brokerage commissions, and as the basis for the fees
payable to them.
CISI is also affiliated with CIS Financial Services, Inc. ("CISFS"). CISFS
acts as the agent for Everest II with respect to forward contract
transactions in foreign currencies and gold bullion, and contracts on behalf
of Everest II with large banks (capitalization in excess of $100 million) in
order to make future delivery of specified lots of foreign currencies and
gold bullion for Everest II. In such capacity, CISFS will receive brokerage
commissions for the foreign currency and gold bullion contracts it effects for
Everest II's account. Although Everest II will trade only at the discretion
of JWH or other selected trading advisor(s), CISI has a conflict of interest
between its duty to Everest II's limited partner to limit or reduce the cost
of brokerage commissions and its interest in the generation of brokerage
commissions which would benefit the Clearing Broker, an affiliate of CISI.
CISI does not intend to negotiate with any other brokerage firm for
brokerage services for Everest II so long as the brokerage agreement with CISFS
in effect. CISFS believes that the consequences of this conflict of interest
will be mitigated by the fact all trading decisions will be made by
independent commodity advisors. The conflicts of interest described above
related to distributions to Everest II's sole limited partner and the
generation of brokerage commissions and a conflict of interest related to
the inclination of CISI to favor the retention of CISFS as Everest II's forward
contract broker even when circumstances may indicate the desirability of
replacing CISFS in that capacity also apply to the selection of CISFS as
Everest II's forward contract broker.
Other Commodity Pools and Accounts. The Clearing Broker currently acts as
the commodity broker for a variety of commodity pools, and may act as commodity
broker for other commodity pools of which CISI will be general partner. CISI
may in the future establish and operate additional commodity pools, which may
vary in structure and in compensation arrangements from Everest II. The
Clearing Broker and CISI will not knowingly or deliberately favor any such
commodity pool or account over Everest II with respect to the execution of
commodity trades. In addition, JWH or its affiliate(s) operate pools and
will manage accounts other than Everest II's, including commodity pools and
proprietary accounts. JWH has represented to Everest II that it will treat
Everest II equitably and will not deliberately favor on an overall basis any
other customer over Everest II with respect to advice relating to commodity
interest transactions.
Commodity Transactions of Affiliates and Customers of the Clearing Broker.
Corporate affiliates of the Clearing Broker, including Cargill, Inc. the parent
company of the Clearing Broker, and their affiliates, trade in commodity
interests from time to time for their own accounts. In addition, the C
learing Broker is a substantial futures commission merchant handling
transactions in commodities and commodity futures contracts for large
numbers of customers, including commodity pools, other than Everest II. The
Clearing Broker may effect transactions for the accounts of Everest II in which
other parties to the transaction may be affiliates of or other commodity pools
operated by affiliates of the Clearing Broker. In addition, it is likely
that the volume of trading by such other parties will result in Everest II's
competing with such other parties from time to time in bidding on similar
purchases or sales of commodities and commodity futures contracts.
Transactions for such other parties might be effected when similar trades for
Everest II are not executed or are executed at less favorable prices. The
operation policies of the Clearing Broker require that orders be transmitted to
the customer regardless of its size or identity. A limited partner of
Everest II will not be permitted to inspect the trading records of the
Clearing Broker in light of the proprietary and confidential nature of such
trading records.
Other Activities of the Clearing Broker and CISI. As part of its commodity
brokerage services, the Clearing Broker offers and services its discretionary
and non-discretionary commodity account customers meeting certain investment
requirements. The selection of commodity trades for such accounts is made
by the customer or by a commodity trading advisor engaged for such purposes.
In addition, the Clearing Broker provides, on a daily basis, both fundamental
and technical information available to employees and certain customers. It
should be noted, however, that the Clearing Broker, its employees, and its
affiliates will perform no advisory services for Everest II. Since
Everest II will be advised by JWH which is not affiliated with the Clearing
Broker, Everest II may take positions similar to or opposite to those taken
by other discretionary programs offered by the Clearing Broker or by the
commodity research of the Clearing Broker. Certain of the officers and/or
employees of the Clearing Broker may be members of various exchanges and may
from time to time serve on the governing bodies and standing committees of
such exchanges and their clearing houses. In addition, certain of the
officers and employees of JWH , the Clearing Broker, and CISI may also be
members of committees of the NFA, the Futures Industry Association and the
Managed Futures Association. In such capacities, these individuals have a
fiduciary duty to the exchanges or organizations on which they serve ad they
are required to act in the best interests of such exchanges or organizations,
even if such actions were to be adverse to the interests of Everest II. In
addition, principals of such firms may devote portions of their time or other
business activities unrelated to the business of those firms.
Compensation of CISI and the Clearing Broker. Receipt of compensation on an
ongoing basis in the form of brokerage commissions, paid by Everest II in the
case of the Clearing Broker, and in the form of a payment from the General
Partner (which is also compensated by Everest II) in the case of CISI,
creates a conflict of interest between their duty to perform certain services
for Everest II's limited partner and their interest in continuing to receive
ongoing compensation relating to brokerage commissions paid by Everest II or
fees paid by the General Partner., which are dependent on continued
participation by such limited partner in Everest II.
CISI and the General Partner will conduct the business of Everest II. They
will make all investment decisions on behalf of the Partnership, including
preparation of financial statements and reports to the limited partner,
calculation of Net Asset Value and preparation and filing of tax returns and
required regulatory reports; provided, that CISI will promptly deliver
copies of any financial statements and reports to the sole limited
partner, tax returns and regulatory reports to the General Partner.
COMMODITY INVESTMENT TRADING AND JWH
The General Partner monitors the Partnership's performance and from time to
time selects additional trading advisors, terminates existing relationships,
invests the Partnership's assets in other commodity pools and changes the
allocation of the Partnership's assets. In addition to allocating the
Partnership's assets to various trading advisors, the General Partner will
also determine the amount of leverage, if any, which each advisor should use
in trading the Partnership's assets. As the leverage is increased,
the Partnership's risk of loss as well as potential for profit increases.
The commodity trading of the Partnership was initially done pursuant to the
trading instructions of Pinnacle Trading Company, Inc. (Pinnacle), a commodity
trading advisor registered with the CFTC and a member of the NFA.
Pinnacle acted as the sole trading advisor for the Partnership since the
Registrant's commencement of trading on February 1, 1989, through
October 31, 1989. On November 1, 1989, the General Partner added a second
trading advisor by allocating approximately 40% of the Partnership's assets
to be traded pursuant to the trading instructions of Blenheim Investments,
Inc. ("Blenheim"). Blenheim is also a commodity trading advisor registered
with the CFTC and a member of the NFA. Pinnacle continued to act as trading
advisor for the remaining 60% of the Partnership's assets.
Effective November 9, 1990, the General Partner reduced Pinnacle's trading
allocation for the Partnership to zero, and effective November 30, 1990 the
General Partner terminated the Partnership's advisory contract with Pinnacle.
From November 9, 1990 through November 30, 1990 Blenheim acted as trading
advisor for 100% of the Partnership's assets. On December 1, 1990 the
General Partner added a new trading advisor by allocating approximately
one-third of the Partnership's assets to be traded pursuant to the trading
instructions of the JWH Financial and Metals Portfolio. JWH is
also a commodity trading advisor registered with the CFTC and a member of the
NFA. Blenheim continued to act as trading advisor for the remaining two-thirds
of the Partnership's assets.
Blenheim and JWH continued to act as the only trading advisors for the
Partnership 's assets during the entirety of 1991, 1992, and 1993. However,
effective April 30, 1994, the General Partner terminated the Partnership 's
advisory contract with Blenheim. On May 1, 1994, the General Partner
allocated 100% of the Partnership's assets to JWH. JWH has been the only
trading advisor for the Partnership's assets from May 1, 1994 through the
date hereof.
The principal place of business and the location of JWH's trading facility is
at 301 Yamato Road, Boca Raton, Florida. JWH maintains its executive offices at
One Glendinning Place, Westport, Connecticut 06880 and its telephone number is
203-221-0431. The Partnership's assets are traded pursuant to JWH Financial and
Metals Portfolio.
There neither now exists nor has there ever been any material administrative,
civil, or criminal action against JWH or its principals.
Trading Strategy.
Researched through 1983 by JWH, its systematic, technical trend-following
method was first traded in a format using solely financial and metals futures in
August of 1984. This program, the Financial and Metals Portfolio, participates
in four market sectors -- interest rates, world currencies, stock indices, and
precious metals -- and initiates trades according to trend-emergence and
computerized determination of relative risk. The Financial and Metals
Portfolio may take long, short or neutral positions in up to 38 individual
futures contracts, may use stop orders and commits 35-60% of equity in margin
on open positions. Because assets are concentrated in financial futures and
metals only, volatility can be higher than in a more diversified portfolio.
In October of 1992, JWH implemented a change in its investment policy
regarding the Financial and Metals Portfolio. This new policy is described in
the JWH Disclosure Document as follows:
The Company, at its discretion from time to time, may increase or decrease the
leverage of its trading programs from historical levels as a result of
research, volatility and other market factors. JWH may also decrease
leverage on a discretionary basis during profitable market cycles or in what
JWH feels is in the best interest of the account based on a discretionary and
subjective analysis of risk exposure, market conditions and other factors
such as portfolio volatility. Discretionary decisions that change the leverage
employed may positively or negatively affect performance, and no assurance is
given that such actions will be to the financial advantage of clients of JWH.
The new policy differs from the old in that prior to October 1992, JWH did not
increase or decrease the leverage of its trading programs on a discretionary
basis under any circumstances. The new policy has had the effect of smoothing
gains and losses and reducing the overall volatility of the trading program.
JWH reserves the right to change the portfolio structure above by adding or
deleting specific contracts, and does not consider any such change as a
material item requiring advance disclosure to limited partners.
BROKERAGE ARRANGEMENTS
The Clearing Broker.
The Partnership through its investment in Everest II currently utilizes the
Clearing Broker as the Partnership's commodity broker. The Partnership has in
the past utilized the services of other commodity brokerage firms. This section
will describe each of those relationships.
Effective December 6, 1988 the Partnership entered into a non-exclusive
brokerage agreement with Elders Futures, Inc. , pursuant to which Elders
Futures, Inc. acted as the Partnership 's commodity broker and executed all
trades on behalf of the Partnership. Under the brokerage agreement, the
Partnership paid Elders Futures, Inc. brokerage commissions on trades
executed on the Partnership 's behalf. The Partnership did not pay brokerage
commissions to Elders Futures, Inc. based on a round-turn basis but rather
on the first day of each month, paid a monthly flat rate which was initially
equal to 1.5% (but which was reduced to 1.25% on September 1, 1989) of the
Partnership's Net Asset Value as of the first day of each month (which
included exchange and NFA fees), a portion (equal to the net brokerage fee
paid to the Selling Agent less that portion paid to the additional sellers)
of which was remitted to the Selling Agent, an affiliate of the General
Partner. On March 1, 1990, the General Partner terminated the Partnership's
brokerage arrangement with Elders Futures, Inc. effective upon that date. The
General Partner terminated the brokerage arrangement with Elders Futures, Inc.
due to the announcement by Elder Futures, Inc.'s parent organization, Elders
IXL of Australia, that it intended to sell Elders Futures, Inc. to an
undisclosed party.
The General Partner agreed to terms and entered into a non-exclusive brokerage
agreement with Stotler and Company pursuant to which Stotler and Company acted
as the Partnership 's commodity broker and executed all trades on behalf of the
Partnership beginning May 1, 1990. The terms of brokerage commission
compensation paid by the Partnership to Stotler and Company were the same as
those under the arrangement with Elders Futures, Inc. as set forth above. On
July 23, 1990, the General Partner terminated the Partnership's brokerage
arrangement with Stotler and Company effective upon that date. The General
Partner terminated the brokerage arrangement with Stotler and Company due to
a deterioration in the financial strength of Stotler and Company at the time.
The General Partner agreed to terms and entered into a non-exclusive brokerage
agreement with LIT America, Inc. pursuant to which LIT America, Inc. commenced
acting as the Partnership's commodity broker and executing all trades on behalf
of the Partnership beginning July 24, 1990. The terms of the brokerage
commission compensation paid to LIT America, Inc. were the same as those
under the arrangements with Elders Futures, Inc. and Stotler and Company as
set forth above, except that the monthly brokerage commission flat rate
(which included exchange and NFA fees) for assets allocated to the JWH
Financial and Metals Portfolio was equal to 1.0833% of that portion of the
Partnership's Net Asset Value, a portion of which was remitted to the Selling
Agent, an affiliate of the General Partner, which in turn remitted a portion of
these funds to the additional sellers. On September 30, 1991, the General
Partner terminated the Partnership's brokerage arrangement with LIT America,
Inc. effective upon that date. The General Partner terminated the brokerage
arrangement with LIT America, Inc. in order to obtain more efficient
back-office services.
The General Partner agreed to terms and entered into a non-exclusive brokerage
agreement with Refco, Inc. pursuant to which Refco, Inc. commenced acting as
the Partnership's commodity broker and executing all trades on behalf of the
Partnership beginning October 1, 1991. The terms of the brokerage commission
compensation paid to Refco, Inc. by the Partnership were exactly the same as
those under the arrangements with LIT America, Inc. as set forth above, and
the amount remitted to the Selling Agent by Refco, Inc. was substantially
similar to the amount that the Selling Agent had received from LIT America,
Inc. On July 29, 1994, the General Partner terminated the Partnership's
brokerage arrangement with Refco, Inc. effective upon that date. The General
Partner terminated the brokerage arrangement with Refco, Inc. in order to
accommodate JWH's preference to clear futures trades through the Clearing
Broker.
The General Partner agreed to terms and entered into a non-exclusive brokerage
agreement with the Clearing Broker pursuant to which the Clearing Broker
commenced acting as the Partnership's commodity broker and executing all
trades on behalf of the Partnership beginning July 29, 1994. The Clearing
Broker is located at 233 South Wacker Drive, Chicago, Illinois 60606. The
Clearing Broker's telephone number is 312-460-4000. Following the investment
of all of the Partnership's assets in Everest II as of the close of business
on March 29, 1996 the Clearing Broker as of the date hereof acts as the
Clearing Broker for Everest II. The terms of the brokerage commission
compensation paid to the Clearing Broker by Everest II are set forth above in
Item 1 under "Fees and Expenses".
From time to time, the General Partner may select additional or replacement
clearing brokers as dictated by the Partnership's needs. If this occurs, the
Limited Partners will be informed in the next monthly report issued following
such an addition or replacement. The Clearing Broker will handle all of the
futures transactions (and options thereon) of Everest II and any other
futures-related investment of the Partnership. If the Partnership engages
in trading of forward contracts, such trading may be through the Clearing
Broker or other firms engaged by the Partnership or the Clearing Broker.
The Clearing Broker, CISI, and the General Partner, have entered into a
Customer Agreement pursuant to which the Clearing Broker will be responsible
for execution and clearance of Commodity Interests as well as for certain
administrative duties such as recordkeeping, transmittal of confirmation
statements, and calculating equity balances and margin requirements for the
Partnership's account. The Clearing Broker is acting only in its capacity
as clearing broker for Everest II. It does not supervise the business of
any advisor for Everest II.
The Clearing Broker does not endorse the offering nor the accuracy of the
facts herein stated (except as such facts relate to it). The Clearing Broker
will not participate in or have any responsibility for the management of the
affairs of Everest II in any way whatsoever. Therefore, an investor cannot
rely on the Clearing Broker in deciding whether to invest in Everest II.
The Clearing Broker is registered as a futures commission merchant with the
CFTC and is a member of the NFA. It is a clearing member of all major U.S.
commodity exchanges, including the Chicago Board of Trade, Chicago Mercantile
Exchange and the New York Futures Exchange.
There have been no material administrative, civil or criminal proceedings
against the Clearing Broker or its principals in the five years preceding the
date hereof.
Item 2. Financial Information.
SELECTED FINANCIAL DATA
The following selected financial data of the partnership has been derived from
the Partnership's financial statements for each of the years 1991 through 1995,
and for the six months ended June 30, 1996. The selected financial data for
each of the years 1991 through 1995 have been derived from the financial
statements of the Partnership, which were audited by independent certified
public accountants. The selected financial data as of and for the six months
ended June 30, 1996 have been derived from the financial statements for such
periods which have not been audited.
In the opinion of the General Partner, the unaudited financial
statements as of and for the six months ended June 30, 1996 include all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the financial information included therein. Results for the interim
period are not necessarily indicative of results to be
expected during the remainder of the current fiscal year or in future periods.
The auditors' report of Ernst & Young LLP on the Partnership's statements of
financial condition at December 31, 1995 and 1994 and the related statements of
operations, changes in partners' equity, and cash flows for each of the three
years in the period ended December 31, 1995 is included elsewhere herein.
Six months ended
June 30,1996 1995 1994 1993 1992 1991
(In thousands, except amounts per Unit)
Operations Data:
Net Realized Gains (Losses) $38 $512 ($198) $604 $329 $402
Change in Net Unrealized
Gains (Losses) 236 (12) (6) 21 (253) 308
Interest Income 12 69 48 40 53 109
Brokerage Commissions 144 97 162 188 210 319
Advisor's Management Fees 97 55 47 55 59 90
Advisor's Incentive Fees 3 24 4 32 0 109
Operating Expenses 44 21 23 28 21 32
Net Income (Loss) 103 371 (393) 362 (161) 268
Net Income (Loss) Per Unit
of Partnership Interest (for a
Unit Outstanding Throughout
each year) $29 $41 ($399) $336 ($79) $122
Financial Position Data:
General Partner's Capital 69 47 34 58 67 117
Limited Partners' Capital 6,819 2,046 902 1,407 1,228 1,863
Partnership Capital 6,888 2,093 935 1,465 1,295 1,980
Net Asset Value per Unit $1,475 $1,446 $1,030 $1,429 $1,093 $1,172
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Until the close of business of March 29, 1996 the assets of the Partnership
were used to engage, directly or indirectly, in the speculative trading of
Commodity Interests. After this date, the assets of the Partnership were
invested solely in Everest Futures Fund II L.P., a Delaware limited
partnership, which is an affiliate of the Partnership by virtue of Everest
Asset Management, Inc. being General Partner of the Partnership and co-general
partner of Everest II and because the Partnership is the sole limited partner of
Everest II. The assets of the Partnership invested in Everest II are used to
engage, directly or indirectly, in the speculative trading of Commodity
Interests. From time to time a portion of such proceeds may be used to trade in
forward contracts on foreign currencies.
The decision of the Partnership to invest in Everest II is of a permanent
nature to the extent that it provides a permanent solution to the problem of the
Partnership retaining the services of JWH. As discussed in the Overview section
herein, the primary purpose in creating Everest II and investing all of the
Partnership's assets therein was to retain the advisory services of JWH, the
Partnership's commodity trading advisor. The General Partner anticipates
retaining JWH as trading advisor for the foreseeable future and therefore
will direct the Partnership to continue to invest in Everest II as the means of
accomplishing that objective. In the event that either JWH terminates its
relationship with Everest II the General Partner and CISI decide to terminate
JWH as trading advisor for any reason, the decision by the Partnership to
continue to invest in Everest II would then need to be investigated and
discussed in relation to the requirements of selecting alternative commodity
trading advisors for the Partnership and any subsequent change would
thereafter be properly disclosed to the Limited Partners.
The reason for investing all of the Partnership's assets in Everest II was to
retain the services of JWH as commodity trading advisor to the Partnership. The
Partnership's need was to create a means of satisfying JWH's concerns regarding
the confidentiality of its trading systems in the marketplace while retaining
its services. Cargill Investor Services, Inc. - the Partnership's Clearing
Broker was one of only a few futures commissions merchants that JWH intended
to continue to do business with, and the Partnership was therefore advised by
legal counsel to bring CISI, an affiliate of the Clearing Broker, on board as a
co-general partner. This would also address the CFTC requirement that at
least one general partner of a managed futures fund have daily access to the
special futures trades executed on behalf of a fund in accordance with the
directions of that fund's trading advisor. As a result, Everest II was
created with CISI and Everest Asset Management, Inc. as its two general
partners with the General Partner agreeing that only CISI would have access
to JWH's market trading data for Everest II. At the close of business on
March 29, 1996 all the assets of the Partnership were invested in the
Partnership. The assets of the Partnership, which are invested exclusively in
Everest II, are deposited with Cargill Investor Services, Inc., the Clearing
Broker and a futures commission merchant registered with the CFTC, in trading
accounts established by Everest II for JWH, its advisor, and are used by the
Partnership as margin to engage in trading. Such assets are held in either
an interest-bearing bank account or in securities approved by the CFTC for
investment of customer funds. The Clearing Broker through clearing futures
trades for its customers, including Everest II, could expose the Partnership
to credit risk. The Clearing Broker attempts to mitigate this risk relating to
futures contracts in regulated commodities by maintaining funds deposited by
customers in separate bank accounts which are designated as segregated
customers' accounts. In addition, the Clearing Broker has set aside funds
deposited by customers relating to foreign futures and options in separate
bank accounts which are designated as customer secured accounts. Lastly, the
Clearing Broker is subject to the CFTC's Net Capital Rule which requires the
Clearing Broker to maintain minimum net capital of at least 4% of the
segregated customer funds as defined by the CEA and regulations promulgated
thereunder. The Clearing Broker has controls in place to make certain that all
customers maintain adequate margin deposits for the positions which they
maintain at the Clearing Broker. Such procedures are intended to protect
Everest II and thus the Partnership from the off-balance sheet risk as
mentioned earlier. The Clearing Broker has represented that it does
not engage in proprietary trading and thus has no direct market exposure.
The Clearing Broker complies with the settlement procedures established by the
clearinghouse of each exchange where the Clearing Broker is a clearing member.
The rules of each exchange vary, but at a minimum the exchange guarantees
performance on every contract to each of its clearing members. Thus, once a
trade between two clearing members is matched by the exchange, the rights and
obligations under the futures or options contract do not run between the
original buyer and seller, but between the clearing member and the seller of
the contract, and between the clearing member and the buyer. The
clearinghouse sets a settlement price for settling all accounts between
clearing members for each contract month. Unliquidated positions on outstanding
contracts are marked to market at least once a day via midday and/or morning
calls to determine any additional margin requirements. If the Clearing Broker
is not a member of an exchange clearinghouse, it will comply with the settlement
procedures established with the actual carrying brokers and will operate
through them. Settlement of calls on such contracts may take an extra day on
U.S. exchanges or two extra days on non-U.S. exchanges. Additional margin
requirements are wire-transferred by the Clearing Broker to the appropriate
clearinghouse.
The balance of the Partnership's assets invested in Everest II are deposited in
an account at the First National Bank of Chicago to be invested in U.S.
government securities and other high quality interest earning obligations or
deposited in an interest bearing account. At the sole discretion of the
general partners of Everest II, a portion of Everest II's assets not deposited
with the Clearing Broker may be invested at the directionof Horizon Cash
Management, L.L.C. (Horizon). Horizon is registered with the SEC as an
investment adviser. Horizon does not guarantee any interest or profits will
accrue on Everest II's assets it manages. Horizon will receive for its services
an annual rate of 0.25% payable monthly, computed on the assets as of the end of
the immediately proceeding month on the balance of the funds administered.
Horizon may use appropriately registered sub-advisors in efforts to increase
yield enhancement. The Partnership anticipates investing, at Horizon's
direction, in U.S. government securities including repurchase agreements for
such instruments, securities issued by U.S. Government agencies, as well as
commercial paper, certificates of deposit, banker's acceptances, and
Eurodollar time deposits.
During the year ended 1995 and the interim period ended June 30, 1996, the
Partnership had no material credit risk exposure to a counterparty which is a
foreign commodities exchange.
During late 1994, the Partnership commenced trading over the counter contracts
in the form of forward foreign currency transactions. The Partnership had open
forward foreign currency contracts as at December 31, 1994 with net unrealized
losses of ($2,197). Thus, for the year ended December 31, 1994 the Partnership
had no material credit risk exposure to a single counterparty in over the
counter contracts. During the year ended December 31, 1995, at 3/31, 4/30, and
5/31, and again at January 31, 1996 there were net unrealized gains on forward
foreign currency transactions with the Clearing Broker which amounted to
$227,658, $277,519, $216,651, and $79,513 respectively, and these amounts
represented a credit risk exposure in excess of 10% of the Partnership's net
assets. At no other times during the year 1995 and the interim period ended
June 30, 1996 did the Partnership possess a material credit risk exposure to a
single counterparty in forward foreign currency transactions in excess of 10% of
the Partnership's net assets. Furthermore, during the year ended
December 31, 1995 and the interim period for 1996, no counterparty which was
an affiliate of the Partnership had credit risk exposure which was greater
than 20% of the Partnership's total assets.
The counterparty to Everest II for futures contracts traded on U.S. and most
non-U.S. exchanges on which the Partnership trades is the clearing house
associated with the exchange. In general, a clearing house is backed by the
membership and will act in the event of non-performance by one of its members or
one of the member's customers, the intent of which is to significantly reduce
credit risk. The counterparty to Everest II for forward foreign currency
transactions is the Clearing Broker.
Market risk can be defined as the possibility that future changes in market
prices may make a financial instrument less valuable or more onerous. If the
markets should move against all the futures positions held by Everest II at the
same time, and if the markets moved such that the Advisor was unable to offset
these positions of Everest II, the Partnership as a result of its exclusive
investment in Everest II could lose all of its assets and the Limited Partners
would realize a loss of up to their capital contributions plus any profits.
JWH utilizes a diversified program consisting primarily of futures and
forward contracts in the financial and metals group of contracts. Such
diversification is intended to reduce this market risk.
The General Partner reviews, on a daily basis, reports of the Partnership's
performance, including monitoring of the Net Asset Value of the Partnership.
The General Partner also periodically reviews the financial condition of the
Everest II 's Clearing Broker. The general partners of Everest II rely 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 assurance to the General Partner that the Partnership
through its investment in Everest II will not suffer from trading losses of
the Clearing Broker itself. See Footnote 5 of the Financial Statements for
further discussion on monitoring and minimizing market and credit risks for
the Partnership.
Capital Resources. The Partnership does not have nor does it expect to have
any capital assets. Redemptions and sales of additional Units in the future
will affect the amount of funds available for trading commodity interests in
subsequent periods. None of the Partnership's assets are committed to overhead.
There are only three factors that affect the Partnership's capital resources:
(a) the trading profit or loss generated by its advisor (including interest
income); (b) the money invested or redeemed by the Limited Partners; and
(c) capital invested or redeemed by the General Partner. The General Partner
has maintained, and has agreed to maintain, at all times, a capital account
in such amount as is necessary for the General Partner to maintain a one
percent (1%) interest in the capital, income and losses of the Partnership
unless an opinion of counsel to the Partnership is obtained permitting the
Partnership to reduce its capital account to less than a one per cent interest.
All capital contributions by the General Partner necessary to maintain such
capital account balance shall be evidenced by Units of general partnership
interest, each of which shall have an initial value equal to the Net Asset
Value Per Unit at the time of such contribution. The General Partner in its
sole discretion may withdraw any excess above its required capital contribution
without notice to the Limited Partners. The General Partner, in its sole
discretion may also contribute any greater amount to the Partnership, for which
it shall receive additional Units of general partnership interest at the
then-current Net Asset Value.
Results of Operations. The success of Everest II, and thus the Partnership is
dependent upon the ability of its advisor to generate trading profits through
the speculative trading of Commodity Interests sufficient to produce capital
appreciation after payment of all fees and expenses. Future results will depend
in large part upon the Commodity Interests markets in general, the performance
of its advisor, the amount of additions and redemptions, and changes in
interest rates. Due to the highly leveraged nature of Everest II 's trading
activity, small price movements in Commodity Interests may result in
substantial gains or losses to Everest II and thus the Partnership. Because
of the nature of these factors and their interaction, it is not possible to
predict future operating results.
The Partnership has incurred directly, and indirectly through its investment
in Everest II will continue to incur substantial charges from the payment of
brokerage commissions to the Clearing Broker, payment of management and
incentive fees to its advisor and operating expenses. Everest II is required to
make substantial trading profits to avoid depletion and exhaustion of its assets
from the above-mentioned fees and expenses.
Due to the nature of the Partnership's business, the Partnership's trading
results depend on its advisor and the ability of its trading system to take
advantage of price movement or other profit opportunities in the Commodity
Interests markets or the success of its investments such as Everest II. The
following paragraphs represent a summary of the Partnership's operations for
the calendar years 1993 through 1995 and for the first six months of 1996 and
a general discussion of the Partnership's trading activities in certain
markets during each period. It is important to note, however, that JWH and
prior advisors trade in various markets at different times and that prior
activity in a particular market does not mean that such markets will be
actively traded by the Advisor or will be profitable in the future.
Consequently, the results of operations of the Partnership can only be
discussed in the context of the overall trading activities of Everest II, its
advisors' trading activities on behalf of Everest II and thus the Partnership
and how the Partnership has performed in the past.
The futures markets are constantly changing in character and in degree of
volatility. Although JWH has been the sole Advisor trading on behalf of the
Partnership's assets since May 1994, the General Partner continues to evaluate
and analyze from both quantitative and qualitative perspectives the ability
of JWH to trade effectively on Everest II's behalf in the context of the
current market environment. In the future, the General Partner may appoint
additional advisors to trade on behalf of the Partnership and/or may
liquidate the Partnership's investment in Everest II.
Set forth below is a comparison of the results of operations of the Partnership
for its last three years and for the first six months of 1996.
As of December 31, 1993, the Net Asset Value of the Partnership was $1,465,143,
an increase of $170,131 from its Net Asset Value of $1,295,013 at
December 31, 1992. The Partnership's 1993 redemptions totaled $191,943. For
the year ended December 31, 1993 the Partnership had revenues comprised of
$603,676 in net realized trading gains, $21,010 in the change in net
unrealized trading gains and $39,680 in interest income. For that same
period, the Partnership had expenses comprised of $187,606 in brokerage
commissions, $55,352 in advisor's management fees, $31,645 in advisor
incentive fees, and $27,690 in operating expenses. This resulted in the
Partnership having a net income of $362,073 for that period. During fiscal
year 1993 the Partnership's assets were traded approximately evenly by
Blenheim Investments, Inc. and by the JWH Financial and Metals Portfolio.
Each of these trading programs achieved profits on behalf of the Partnership
as favorable price trends occurred in the energy sector and in certain foreign
financial futures. The Net Asset Value per Unit at December 31, 1993 increased
30.73% from $1,092.83 at December 31, 1992 to $1,428.67 at December 31, 1993.
As of December 31, 1994, the Net Asset Value of the Partnership was $935,227, a
decrease of $529,916 from its Net Asset Value of $1,465,143 at
December 31, 1993. The Partnership's 1994 redemptions totaled $136,657. For
the year ended December 31, 1994 the Partnership had revenues comprised of
$198,046 in net realized trading losses, $6,383 in the change in net
unrealized trading losses and $47,610 in interest income. For that same
period, the Partnership had expenses comprised of $161,989 in brokerage
commissions, $47,476 in advisor's management fees, $4,167 in advisor incentive
fees, and $22,808 in operating expenses. This resulted in the Partnership
having a net loss of $393,259 for that period. During the first four months of
1994, Blenheim Investments, Inc. experienced losses as the energy markets
experienced choppy and non-trending price movements. Blenheim was terminated
as an advisor by the General Partner at the end of April 1994. Thereafter,
JWH acted as the sole advisor for the Partnership for the duration of 1994.
The Net Asset Value per Unit at December 31, 1994 decreased 27.91% from
$1,428.67 at December 31, 1993 to $1,029.88 at December 31, 1994.
As of December 31, 1995, the Net Asset Value of the Partnership was $2,092,722,
an increase of $1,157,495 from its Net Asset Value of $935,277 at
December 31, 1994. The Partnership's subscriptions and redemptions totaled
$958,463 and 370,695 respectively. For the year ended December 31, 1995 the
Partnership had revenues comprised of $511,948 in net realized trading gains,
$12,457 in the change in net unrealized trading losses and $69,022 in interest
income. For that same period, the Partnership had expenses comprised of
$97,062 in brokerage commissions, $55,276 in advisor's management fees,
$24,468 in advisor incentive fees, and $21,011 in operating expenses. This
resulted in the Partnership having a net loss of $370,696 for that period.
During the first four months of 1995, JWH experienced losses as the markets
experienced choppy and non-trending price movements. Thereafter, the performance
of JWH improved significantly for the duration of 1995. The Net Asset Value per
Unit at December 31, 1995 increased 40.4% from $1,029.88 at December 31, 1994 to
$1,445.94 at December 31, 1995.
As of June 30, 1996, on a consolidated basis the Net Asset Value of the
Partnership was $6,888,092, an increase of $4,795,370 from its Net Asset Value
of $2,092,722 at December 31, 1995. The Partnership's subscriptions and
redemptions for the six months of 1996 on a consolidated basis totaled
$5,512,044 and $819,373 respectively. For the six months ended June 30, 1996 on
a consolidated basis the Partnership had revenues comprised of $37,525 in net
realized trading gains, $235,744 in the change in net unrealized trading losses
and $119,518 in interest income. For that same period, the Partnership on a
consolidated basis had expenses comprised of $143,631 in brokerage commissions,
$96,591 in advisor's management fees, $2,555 in advisor incentive fees, and
$46,216 in operating expenses and a minority interest of ($3,096). This
resulted in the Partnership on a consolidated basis having a net income of
$102,698 for that period. During the first six months of 1996, the Partnership
achieved its small gains on a consolidated basis due primarily to trends in the
currency futures markets in January and successful trading positions in the
fixed income and currency futures markets in April and June. These gains were
partially offset by losses experience due to choppy market conditions in
February and May. The Net Asset Value per Unit on a consolidated basis at
June 30, 1996 increased 2.02% from $1,445.94 at December 31, 1995 to
$1,475.17. at June 30, 1996.
For the reasons described in this section, past performance is not indicative
of future results. As a result, any recent increases in net realized or
unrealized trading gains may have no bearing on any results that may be obtained
in the future.
To enhance the foregoing comparison of results of operations from year to year,
prospective investors can examine the Statements of Financial Condition and
Operations for the years described above. Trading in 1994 and 1996 did not
offer the same opportunities for profits as had been experienced during 1993 and
1995. The absence of trending markets as well as sharp reversals in market
prices create difficult trading environments, especially for advisors who
utilize systematic trend-following trading methodologies, as does JWH.
Profit opportunities tend to improve during periods when markets trend more
consistently. The last three quarters of 1995 were examples of the latter as
the U.S. dollar declined and then gained against major foreign currencies over
an extended period of time. As indicated above, the Partnership's ability to
achieve a net profit and to avoid the depletion of the Partnership's assets
during a period of time is dependent upon the advisor being able to achieve net
realized or unrealized trading gains which are greater than the amount of
brokerage commissions and other fees and expenses incurred by the Partnership
during such period.
Liquidity. Although there is no public market for the Units, a Limited Partner
may redeem his Units in the Partnership as of any month-end upon ten days' prior
written notice to the General Partner. See Item 11. "Description of
Registrant's Securities to be Registered - Redemption".
With respect to the Partnership's trading, in general, the Partnership's
advisor or the advisor of any investment which the Partnership makes, will trade
only those Commodity Interests that have sufficient liquidity to enable them to
enter and close out positions without causing major price movements.
Notwithstanding the foregoing, most United States commodity exchanges limit the
amount by which certain commodities may move during a single day by regulations
referred to as "daily price fluctuation limits" or "daily limits". Pursuant to
such regulations, no trades may be executed on any given day at prices beyond
daily limits. The price of a futures contract has occasionally moved the
daily limit for several consecutive days, with little or no trading, thereby
effectively preventing a party from liquidating his position. While the
occurrence of such an event may reduce or eliminate the liquidity of a
particular market, it will not eliminate losses and may in fact substantially
increase losses because of this inability to liquidate unfavorable positions.
In addition, if there is little or no trading in a particular futures or
forward contract that the Partnership and/or Everest II is trading, whether such
illiquidity is caused by any of the above reasons or otherwise, Everest II and
thus the Partnership may be unable to execute trades at favorable prices and/or
may be unable or unwilling to liquidate its position prior to its expiration
date, thereby requiring Everest II and thus the Partnership to make or take
delivery of the underlying interest of the commodity investment.
The Partnership's and/or Everest II's trading may also be impacted by the
various conflicts of interest among the Partnership and the General Partner,
Everest II, CISI, the advisor(s),the Clearing Broker and their affiliates. See
Item 1. "Business - Conflicts of Interest".
Item 3. Properties
The Partnership does not own or lease any physical properties. The
Partnership's office is located within the office of the General Partner at
508 N. Second St., Suite 302, Fairfield, IA 52556.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners. As of June 30, 1996, a
total of 4,622.644 Units of Limited Partnership interests were issued and
outstanding and were held by 177 Limited Partners. As of June 30, 1996 the
following persons owned 5% or more of the outstanding Units of Limited
Partnership.
Title of Name and address of Amount and nature of Percent of
class beneficial owner beneficial owner class
Units H. T. Circuit 335.442 Units 7.26%
and Yvette Circuit, Apt. 9L
3530 Piedmont Road
Atlanta, GA 30305
Units Rolando S. Safrana 530.599 Unit 11.48%
Buenaventura 1942, Vitacura
Santiago, Chile
Units Ronald C. Davis
6543 Beachwood Road 231.134 Units 5.0%
Fernandina, FL 32034
As of April 1, 1996 and thereafter though July l, 1996 one hundred percent
(100%) of the limited partnership interest in Everest II was owned by the
Partnership.
(b) Security Ownership of Management. The Partnership has no officers or
directors and delegates all management of its affairs to the General Partner.
As of June 30, 1996, the General Partner owned 46.697 Units of general
partnership interests, representing a 1% percent ownership of the total
outstanding partnership interests. Pursuant to the Agreement of Limited
Partnership, the General Partner is required to maintain a capital contribution
equal to a 1% interest in all material items of Partnership gain, loss,
deduction or credit as a general partnership interest unless an opinion of
counsel for the Partnership provides that a lesser amount is necessary for the
Partnership to continue to be classified as a partnership.
Everest II has no officers or directors and delegates all management of its
affairs to the two co-general partners, Everest Asset Management, Inc. and CIS
Investments, Inc. ("CISI"). As of July 1, 1996, CISI owned 100 units of general
partnership interests in Everest II, representing a 1.48% percent ownership of
the total outstanding partnership interests. Pursuant to the Limited
Partnership Agreement of Everest II, the general partners are required to
maintain a capital contribution equal to at least a 1% interest in all
material items of the partnership gain, loss, deduction or credit as a general
partnership interest unless an opinion of counsel for Everest II provides a
lesser amount is necessary for Everest II to be continue to be classified as a
partnership.
(c) Changes in Control. None.
Item 5. Directors and Executive Officers.
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 508 North Second
Street, Suite 302, Fairfield, Iowa 52556 and its telephone number is
(515) 472-5500.
The company's officers, directors and shareholders are listed below:
John P. Lass. Mr. Lass, age 45, has been associated with the General Partner
as its Chief Operating Officer since 1987 and in 1991 became the Chief Executive
Officer and President. His term of office is annual. Mr. Lass has also served
as President of Capital Management Partners, Inc. since 1987. Since
December 1990, Mr. Lass has been a director of Barclay Research Group, Ltd.
From 1984 until 1987, Mr. Lass served as President of John P. Lass & Co., Inc.,
a professional management and investment consulting firm. From September 1983
until January 1984, he acted as an independent consultant. From July 1986
until November 1987, Mr. Lass also served as Director of Pay'n Save Inc., a
retail chain based in Seattle, Washington. From August 1982 until
September 1983, Mr. Lass served as a Consultant with the Boston Consulting Group
based in Chicago. Mr. Lass received an M.B.A. from Harvard Business School,
graduating as a Baker Scholar in 1982. Mr. Lass received his B.A. degree from
the University of Washington. Mr. Lass was born in 1950.
Steven L. Foster. Mr. Foster, age 47, has been associated with the General
Partner since 1987, initially as its Chief Executive Officer and a director and
since 1991 as a director. His term of office as director is annual. Since
1987, Mr. Foster has been a director of Capital Management Partners, Inc.
Mr. Foster has served as Executive Vice-President of United Fuels International,
Inc., an oil brokerage firm based in Waltham, Massachusetts, since 1980. From
1990 to 1994, he served as President of Jillian's Entertainment Corp. and now
serves as Chairman of the Board. During 1978-1979, Mr. Foster served as
President of Spin Off, Inc., a Boston-based entertainment firm. From
May 1977 until June 1978, Mr. Foster served as a law clerk and from July 1978
until May 1979 as an attorney with the firm of Gordon, Hurwitz, Butowski, Baker,
Weitzen and Shalov in New York City. Mr. Foster received his J.D. from Boston
University, graduating Magna Cum Laude in 1978. Mr. Foster received his B.A.
degree from Brandeis University. Mr. Foster was born in 1948.
Steven L. Rubin. Mr. Rubin, age 43, has been associated with the General
Partner as a director since 1987. His term of office as director is annual.
Since 1987, Mr. Rubin has been a director of Capital Management Partners, Inc.
Mr. Rubin has served as President of United Fuels International, Inc., an oil
brokerage firm based in Waltham, Massachusetts, since 1980. United Fuels
International's affiliated companies include: United Crude Oil, Inc. based in
Westport, Connecticut; United Crude U.K. based in London; and United Fuels
International. Mr. Rubin served for one year as an oil broker with Amerex Oil
Associates in Livingston Manor, New York. Mr. Rubin is a graduate of Brown
University. Mr. Rubin was born in 1952.
Noel C. Reilly. Mr. Reilly, age 42, has been associated with the General
Partner as its legal counsel since October 1993 and as Vice President since
February 1995. His term of office as Vice President is annual. Mr. Reilly was
in private practice as an attorney in New York and Fairfield, Iowa from January
1991 to October 1993. From May 1989 through December 1990, Mr. Reilly was
associated with the London, England office of the Philadelphia law firm of
Dechert, Price & Rhoads. He received his M.A. in Jurisprudence from Oxford
University, England in 1985 and an LL.M. from New York University Law School
in 1988. Mr. Reilly was born in 1953.
The General Partner does not trade commodities for its own account but its
principals may. Because of their confidential nature, records of such trading
will not be available to Limited Partners for inspection.
There have been no material criminal, civil or administrative actions during
the preceding five years or ever against the General Partner or its principals.
The Partnership's investee partnership, Everest II Futures Fund L.P.:
The two co-general partners of Everest II are Everest Asset Management, Inc.
which is the General Partner of the Partnership, and CIS Investments, Inc. which
is an affiliate of the Clearing Broker, and are the commodity pool operators of
Everest II. CISI is a Delaware corporation incorporated in 1983, is and has
been registered with the CFTC as a commodity pool operator since
December 13, 1985 and is and has been a member of the National Futures
Association since that date. Its address is the same as the Clearing Broker,
at Suite 2300, 233 South Wacker Drive, Chicago, Illinois 60606 and its telephone
number is (312) 460 4926.
CISI's officers, directors and shareholders are listed below:
Hal T. Hansen. Mr. Hansen, age 59, has been associated with CISI as President
and Director since June 27,1983. He has been President of Cargill Investor
Services, Inc. since November, 1978. He serves on the Executive Committees of
the Board of Directors of NFA and the Futures Industry Association and is the
Chairman of the NFA. Mr. Hansen graduated from the University of Kansas in
1958. He started work at Cargill, Incorporated in 1958, and was employed by
Cargill S.A.C.I. in Argentina from 1965 to 1969. Mr. Hansen has been employed
by Cargill Investor Services, Inc. since 1974.
L. Carlton Anderson age 58, has served as Vice President and Director of CISI
since June 27, 1983. Mr. Anderson is a graduate of Northwestern University,
Evanston, Illinois. He started work at Cargill, Incorporated in 1959, in the
Commodity Marketing Division. He served as President of Stevens
Industries Inc., Cargill's peanut shelling subsidiary from 1979 to 1981. He has
been employed by Cargill Investor Services, Inc. since 1981, and is currently
the Director in charge of the Portfolio Diversification Group. Mr. Anderson
recently served on the Board of Directors of the Managed Futures Association.
Richard A. Driver. Mr. Driver, age 48, has been Vice President and Director of
CISI since June 29, 1993. Mr. Driver graduated from the University of North
Carolina in 1969 and he received a Masters Degree from the American Graduate
School of International Management in 1973. Mr. Driver began working for
Cargill, Incorporated in 1973 and joined Cargill Investor Services, Inc. in 1977
as Vice President of Operations.
Christopher Malo. Mr. Malo, age 39, has served as Vice President and Secretary
of CISI since July, 1991. Mr. Malo graduated from Indiana University in 1976.
He started work at Cargill, Incorporated in June, 1978 as an internal auditor.
He transferred to Cargill Investor Services, Inc. in August, 1979, and served as
Secretary/Treasurer from November, 1983 until July, 1991. He was elected Vice
President and Secretary in July, 1991. He is a member of the FIA Operations
Division and has served as Chairman of the FIA Finance Committee.
Barbara A. Pfendler. Ms. Pfendler, age 43, has served as Vice President of CISI
since June 1, 1990. Ms. Pfendler is a graduate of the University of Colorado,
Boulder. She started work at Cargill, Incorporated in 1975 as a meal merchant
and regional sales manager for the Flax and Sunflower Department in Minneapolis.
In 1979, she was named senior merchant for the Domestic Soybean Processing
Division ("DSP") in Cedar Rapids, Iowa and later was an account manager for DSP
facilities in Savage, Minnesota and Sidney, Ohio. She joined the Clearing
Broker in 1986 as the Sales manager for the Portfolio Diversification Group in
Chicago.
Donald Zyck. Mr. Zyck, age 34, has been associated with CISI as Controller,
Secretary and Treasurer since October, 1994. Mr. Zyck graduated from Northern
Illinois University, DeKalb, Illinois in 1983. He began working at Cargill
Investor Services, Inc. in April, 1985 as a Staff Accountant. From January 1988
to October 1994 he was a Manager of Treasury Operations at CIS.
Bruce H. Barnett. Mr. Barnett, age 48, has been associated with CISI as
Secretary since January 18, 1991. Mr. Barnett graduated in 1968 from Southern
Connecticut State College. New York University Law School awarded Mr. Barnett a
J.D. in 1971 and an LL.M. in 1973. He started work at Cargill, Incorporated in
1990 as Vice President, Taxes. From 1987 to 1990, Mr. Barnett was employed in
various positions held at Unilever, a European based multi-national corporation.
Neither CISI nor its individual principals trade or intend to trade commodities
for their own account.
There have been no material criminal, civil or administrative actions during
the preceding five years or ever against CISI or its principals.
Item 6. 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.
Everest II has no directors or executive officers. As a limited partnership,
the business of Everest II is managed by its general partners which are
responsible for the administration of the business affairs of Everest II and
receives the compensation described in Item 1 "Business" hereof.
Item 7. Certain Relationships and Related Transactions.
The General Partner, Everest Asset Management, Inc., is the sole general
partner of the Partnership and manages and conducts the business of the
Partnership. As is more fully described in Item 1. above, to compensate the
General Partner for its management and operations of the Partnership, its
monitoring of the portfolio of the Partnership's advisor(s) and its assumption
of the substantial financial burden of operating the Partnership, the General
Partner receives approximately 80% of the brokerage commission charges paid
to the Partnership's Clearing Broker by the Partnership (approximately 5% of the
Partnership's annual average Net Asset Value) less that portion paid to the
Selling Agent, Capital Management Partners, Inc., and Additional Selling
Agents, if any, and less a monthly co-general partner fee paid to CISI equal to
1/12 of 0.40% of the month-end NAV of Everest II (a 0.4% annual rate) which fee
may be reduced to a 0.25% annual rate if CISI receives an opinion of counsel for
Everest II which provides that a lesser amount is necessary for Everest II to be
classified as a partnership.
In addition, the General Partner is reimbursed by the Partnership for the
actual organization and offering expenses advanced by it, not to exceed 1% of
the Net Asset Value of the Units sold. The General Partner received no
reimbursement for organization and offering expenses during the years ending
December 31, 1992; December 31, 1993; and December 31, 1994. For the year ended
December 31, 1995 the General Partner received $9,583. For the six months
ending June 30, 1996 the General Partner received $22,544 as reimbursement for
organization and offering expenses.
Effective November 1, 1995 the General Partner receives a management fee from
the Clearing Broker, a portion of which the General Partner pays to Capital
Management Partners, Inc. Thus for the prior years ending December 31, 1992;
December 31, 1993; and December 31, and 1994, the General Partner received no
such fees from the Partnership. After November 1, 1995 the General Partner
retained management fees of $17,160 and $48,734 for the year ended
December 31, 1995 and for the interim six month period ended June 30, 1996
respectively.
The General Partner and Capital Management Partners, Inc. are affiliated by
reason of common control by the same shareholders for each corporation. Units
are offered by Capital Management Partners, Inc. and the Additional Selling
Agents on a best efforts basis. The Partnership pays such persons a selling
commission of 3% of the Net Asset Value of the Units sold unless waived in whole
or in part by the General Partner. The General Partner may pay up to 100% of
the net fees it receives from the Partnership's Clearing Broker to Capital
Management Partners, Inc. based on the Units sold by it. Capital Management
Partners, Inc. received $12,779 and $16,235 in selling commissions from the
Partnership for the twelve month period ended December 31, 1995 and six month
interim period ended June 30, 1996 and no selling commissions during the years
1992, 1993 and 1994. Prior to November 1, 1995 Capital Management Partners,
Inc. received brokerage commission rebates directly from the Partnership's
Clearing Broker of $136,727; $102,267; $93,354; and $44,736 for the years ending
December 31, 1992, 1993 1994 and 1995;, after allowing commissions to other
brokers.
Item 8. Legal Proceedings.
The General Partner is not aware of any material pending legal proceedings to
which the Partnership or the General Partner is a party or to which any of
their assets is subject.
In September, 1996 JWH was named as a co-defendant in a class action lawsuit
brought in California Superior Court,Los Angeles County. The action, which
seeks unspecified damages purports to be brought on behalf of investors in
certain Dean Witter, Discover & Co. commodity pools, some of which are advised
by JWH, and is primarily directed at Dean Witter's alleged fraudulent selling
practices in connection with the marketing of those pools. JWH is essentially
alleged to have aided and abetted Dean Witter. JWH has stated that it believes
that the allegations against it are without merit; JWH intends to contest these
allegations vigorously and is convinced that it will be shown to have acted
properly and in the best interest of investors.
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
(a) Market Information. There is no established public trading market for the
Units.
(b) Holders. The number of holders of Units at June 30, 1996 was 178.
(c) Dividends. Pursuant to the Agreement of Limited Partnership,
distributions of profits, if any, will be made at the sole discretion of the
General Partner. As of June 30, 1996, the General Partner had not made, and
does not intend presently to make, distributions.
Item 10. Recent Sales of Unregistered Securities.
The Partnership's public offering of Units, which began on December 6, 1988
and which terminated on August 1, 1989, is described above in Item 1
("Business - Overview"). The Partnership Units were registered under the
requirements of Section 15(d) of the Securities Exchange Act of 1934 by the
filing of a Form 8-A.
In March, 1995 the Partnership filed Form 15 ("Certification and Notice of
Termination of Registration") which action terminated the Partnership's SEC
registration and public reporting requirements. On July 1, 1995 the Partnership
was reopened to new investment as a private placement in reliance on the
exemptions afforded by, among others, Regulation D, Rule 506 of the Securities
Act of 1933. Units are offered monthly at a price per Unit equal to 104% of
the then current Net Asset Value Per Unit, including a 3% sales commission and a
1% reimbursement to the General Partner of organization and offering costs.
The required minimum subscription is $26,000 for new investors and $10,300 for
existing Limited Partners, which amounts include selling commissions of
$750 and $300 respectively. As of the date hereof, Units are continuing to be
offered and there is no maximum number of Units that may be purchased or sold.
From the inception of the Partnership's private placement of Units on July 1,
1995 through June 30, 1996, a total of 4442.43 Units were sold for the aggregate
net subscription amount of $6,470,508. Details of the sale of these Units are
as follows:
Date of Sale Value of Units Class of Unitholder
7/1/95 293,359.67 Limited Partnership Units
8/1/95 2,403.85 Limited Partnership Units
9/1/95 198,019.80 Limited Partnership Units
10/1/95 34,900.99 Limited Partnership Units
11/1/95 75,190.42 Limited Partnership Units
12/1/95 354,588.73 Limited Partnership Units
1/1/96 169,801.98 Limited Partnership Units
2/1/96 900,703.90 Limited Partnership Units
3/1/96 1,127,893.98 Limited Partnership Units
4/1/96 1,561,951.81 Limited Partnership Units
5/1/96 853,243.03 Limited Partnership Units
6/1/96 898,449.49 Limited Partnership Units
TOTAL: $6,470,507.65
The Units are offered by Capital Management Partners, Inc. and the Additional
Selling Agents on a best efforts basis. A selling commission of 3% of the Net
Asset Value of the Units sold, unless waived in whole or in part by the General
Partner, in its sole discretion, will be paid by each Limited Partner to Capital
Management Partners, Inc. and the Additional Selling Agents for the sale of the
Units. The General Partner may pay up to 100% of the net fees it receives from
the Clearing Broker to Capital Management Partners, Inc. and the Additional
Selling Agents as additional selling commission as more fully described in
Item 7. "Certain Relationships & Related Transactions."
Item 11. Description of Registrant's Securities to be Registered.
The securities to be registered are Units of the Partnership. The rights of
the Limited Partners are governed by the Iowa Uniform Limited Partnership Act
and the Agreement of Limited Partnership. The Agreement of Limited Partnership
is attached as Exhibit 3.4 and is incorporated herein by reference. The
following description is a summary only, is not intended to be complete, and is
qualified in its entirety by reference to the Agreement of Limited Partnership.
Nature of the Partnership.
The Partnership was organized on June 20, 1988, under the Iowa Uniform Limited
Partnership Act. Interests in the Partnership are Units of Limited Partnership
Interest which when purchased and paid for pursuant to this offering will be
fully paid and non-assessable. In addition, a Limited Partner is obligated to
indemnify the Partnership for any losses or expenses incurred by the Partnership
in connection with any Limited Partner's activities unrelated to the
Partnership's business. The General Partner is liable for all obligations of
the Partnership to the extent that assets of the Partnership and amounts which
may be claimed against Limited Partners, as described above, are insufficient
to discharge Partnership obligations. No interest is paid by the Partnership on
any capital contribution. The Agreement of Limited Partnership provides that
the death of a Limited Partner will not terminate or dissolve the Partnership
and that the legal representatives of a deceased Limited Partner have the right
to withdraw or demand an accounting of the value of his interest to the extent
that a Limited Partner has these rights under the Agreement of Limited
Partnership.
Management of Partnership Affairs.
The Limited Partners take no part in the management and have no voice in the
operation of the Partnership. Management responsibility must be vested solely
in the General Partner in order to limit the liability of the Limited Partners
as described above. If by exercise of the voting rights under the Agreement of
Limited Partnership, Limited Partners participate in the management of the
Partnership affairs, those Limited Partners may lose their limited liability for
obligations of the Partnership.
Sharing of Profits and Losses; Distributions; Federal Tax Allocations.
See Section 7 of the Agreement of Limited Partnership. See Exhibit 3.4.
Additional Partners and Transfers of Units.
The Agreement of Limited Partnership provides that, the General Partner may, in
its discretion, offer and sell additional Units on either a public or private
basis, provided that in no event may the per Unit proceeds to the Partnership
from any sale be less than the Net Asset Value of a Unit at the time of sale.
The General Partner may also consent to and admit any assignee of Units as a
substituted Limited Partner.
Trading Suspension.
If the Partnership's Net Asset Value per Unit at the close of business on any
business day equals a Trading Suspension Level (as defined below), the
Partnership will redeem its investment in Everest II which as the sole limited
partnership interest in Everest II. This will result in Everest II liquidating
all open positions in order to return the Partnership's investment. No assurance
is given that the Partnership will be able to instruct Everest II sufficiently
quickly of the Partnership's intention of redemption of its limited partnership
interest in Everest II so as allow Everest II to close all open positions
without incurring substantial additional losses. The Trading Suspension Level
will be determined as of the close of business on any business day and
represents a decline of 50% in Net Asset Value per Unit from the highest Net
Asset Value per Unit (after adjustment for previous distributions).
Within 10 business days after the date of a suspend of trading due to a
decrease in Net Asset Value per Units to a Trading Suspension Level, the General
Partner must either give notice to the Limited Partners of its intention to
withdraw from the Partnership, or declare a business day within 30 business days
from the date of suspension of trading to be a Special Redemption Date. Notice
of a Special Redemption Date must be sent to each Limited Partner at least 10
business days before such date. Any Limited Partner who elects to have his
Units redeemed on a Special Redemption Date will receive from the Partnership,
for each Unit redeemed, an amount equal to the Net Asset Value per Unit
determined as of the close of business on the Special Redemption Date. If after
the Special Redemption Date the Partnership's Net Asset Value is at least
$300,000, it will resume trading either directly or in the alternative
indirectly through an investment in Everest II or another limited partnership
unless the General Partner elects to withdraw from the Partnership. The General
Partner may also, in its discretion, add additional Special Redemption Dates if
it determines it is in the Partnership's best interests to do so. The
Partnership will automatically terminate if its Net Asset Value as of the close
of business on any day declines at any time to less than $300,000.
Redemptions.
A Limited Partner may require the Partnership to redeem all or some of his
Units at their Net Asset Value per Unit as of the end of any calendar month on
ten days prior written notice to the General Partner.
Termination of the Partnership.
The affairs of the Partnership will be wound up and the Partnership liquidated
as soon as practicable upon the first to occur of the following:
(i) December 31, 2020; (ii) receipt by a General Partner of an election to
dissolve the Partnership at a specified time by Limited Partners owning more
than 50% of the Units then outstanding, notice of which is sent by registered
mail to the General Partner not less than 90 days prior to the effective date of
such dissolution; (iii) withdrawal (including withdrawal after suspension
of trading), admitted or court decreed insolvency or dissolution of the General
Partner; (iv) a decline in the Net Asset Value of the Partnership to less than
$300,000; (v) termination of the Partnership pursuant to the provisions of the
Agreement of Limited Partnership or (vi) any event which shall make it unlawful
for the existence of the Partnership to be continued or requiring termination of
the Partnership. The General Partner may withdraw at any time upon written
notice to the Limited Partners. If the Partnership is dissolved as the result
of the General Partner's withdrawal, insolvency or dissolution, the Limited
Partners have the right to elect a new general partner within 90 days of such
withdrawal, insolvency or dissolution. Upon such election, the Partnership
will be re-constituted.
Amendments; Meetings.
The Agreement of Limited Partnership, may, subject to certain limitations
described therein, be amended by an instrument signed by the General Partner and
Limited Partners owning more than 50% of the Units then owned by Limited
Partners. There is no notice requirement or meeting procedure necessary in the
case of amendments to the Agreement of Limited Partnership to which the General
Partner consents.
In addition, any Limited Partner, upon written request addressed to the General
Partner, may obtain from the General Partner, a list of the names and addresses
of record of all Limited Partners and the number of Units held by each, provided
that the Limited Partner represents that the list will not be used for
commercial purposes. Upon receipt of a written request, signed by Limited
Partners owning at least 10% of the Units then owned by Limited Partners, that a
meeting of the Partnership be called to consider any matter upon which Limited
Partners may vote pursuant to the Agreement of Limited Partnership, the General
Partner shall by written notice to each Limited Partner of record mailed within
15 days after receipt thereof, call a meeting of the Partnership. The meeting
shall be held at least 30 but not more than 60 days after the mailing of such
notice, and the notice shall specify the date, a reasonable time and place and
the purpose of such meeting.
At any such meeting, upon the affirmative vote of Limited Partners owning more
than 50% of the Units (or otherwise as provided by state law), the following
actions may be taken: (i) the Limited Partnership Agreement may, with certain
exceptions, be amended; (ii) the Partnership may be dissolved; (iii) the General
Partner may be removed and replaced; (iv) a new general partner or general
partners may (to the extent permitted by the Iowa Uniform Limited Partnership
Act) be elected if it elects to withdraw from the Partnership; and (v) the sale
of all or substantially all of the assets of the Partnership may be approved.
In the event the General Partner is removed or withdraws from the Partnership,
its general partner's interest shall be valued on a Unit-equivalent basis and
immediately be paid to it.
Item 12. Indemnification of Directors and Officers.
The Partnership has no officers and directors and is managed by its General
Partner, Everest Asset Management, Inc. The Agreement of Limited Partnership
provides that the General Partner, and any affiliate of the General Partner
engaged in the performance of services on behalf of the Partnership, shall be
indemnified for any liability or loss suffered by the General Partner or such
affiliate and shall have no liability to the Partnership or to any Limited
Partner for any liability or loss suffered by the Partnership which arises out
of any action or inaction of the General Partner or such affiliate if (i) the
General Partner has determined, in good faith, that such course of conduct was
in the best interests of the Partnership and (ii) such liability or loss was not
the result of negligence or misconduct by the General Partner or any such
affiliate. Notwithstanding the foregoing, the General Partner, and any
affiliate engaged in the performance of services on behalf of the Partnership,
shall not be indemnified by the Partnership for any liability imposed by
judgment, and costs associated therewith, including attorney's fees, arising
from or out of a violation of state or federal securities laws or rules. The
General Partner and such affiliates may, however, be indemnified for
settlements and related expenses of lawsuits alleging securities law violations,
and for expenses incurred in successfully defending such lawsuits, under certain
circumstances. Any amounts payable to the General Partner or affiliates
pursuant to the foregoing are recoverable only out of the assets of the
Partnership and not from the Limited Partners. The Partnership shall not incur
the cost of that portion of liability insurance which insures the General
Partner and its affiliates for any liability as to which the General
Partner and its affiliates are prohibited from being indemnified. Payment of
any indemnity by the Partnership would reduce the Partnership's assets. The
CFTC has issued a statement of policy relating to indemnification of officers
and directors of a futures commission merchant and its controlling persons under
which it has taken the position that whether indemnification is consistent with
the policies expressed in the Exchange Act will be determined by the CFTC on a
case-by-case basis.
Item 13. Financial Statements and Supplementary Data.
The Partnership's and the General Partner's financial statements, together with
the auditors' reports thereon appearing on pages F-1 through F-30 hereof, are
incorporated herein by reference.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) Index to Financial Statements:
(1) Financial Statements:
Page No. of
Financial Statement
EVEREST FUTURES FUND, L.P.
Report of Independent Auditors ............................................F-2
Financial Statements:
Statements of Financial Condition
December 31, 1995 and 1994 ...............................................F-3
Statements of Operations For the Years Ended
December 31, 1995, 1994 and 1993 .........................................F-4
Statements of Changes in Partners' Equity
For the Years Ended December 31,
1995, 1994 and 1993 ......................................................F-5
Statements of Cash Flows For the Years Ended
December 31, 1995, 1994 and 1993 .........................................F-6
Notes to Financial Statements .....................................F-7 - F-12
Interim Financial Statements (Unaudited):
Consolidated Statements of Financial Condition
June 30, 1996 ...........................................................F-13
Consolidated Statements of Operations For the Six months Ended
June 30, 1996 and 1995 ..................................................F-14
Consolidated Statements of Changes in Partners' Equity
For the Six months Ended June 30, 1996 and 1995 .........................F-15
Notes to Financial Statements ....................................F-16 - F-21
EVEREST ASSET MANAGEMENT, INC.
Report of Independent Auditors............................................F-22
Financial Statements:
Statement of Financial Condition
December 31, 1995 .......................................................F-23
Notes to Financial Statements ....................................F-24 - F-26
Interim Financial Statements (Unaudited):
Statement of Financial Condition
June 30, 1996 ...........................................................F-27
Notes to Financial Statements ....................................F-28 - F-30
(2) Financial Statement Schedules:
No Financial Statement Schedules are required to be filed with this
report because the information included therein is included in the
Financial Statements and footnotes thereto.
(b) Exhibits:
Exhibit
No. Description
3.1 Certificate of Limited Partnership for Everest Energy Futures
Fund, L.P. dated June 16, 1988. (e)
3.2 Amendment of Certificate of Limited Partnership to change the
name to Everest Futures Fund, L.P. dated August 26, 1991. (e)
3.3 Agreement of Limited Partnership dated as of June 20, 1988. (e)
3.4 Amended and Restated Agreement of Limited Partnership dated
as of May 1, 1995. (e)
10.1 Advisory Contract between the Registrant, the General Partner
and Pinnacle Trading Company, Inc. dated December 6, 1988. (a)
10.2 Brokerage Agreement between the Registrant, the General
Partner and Elders Futures, Inc. dated December 6, 1988. (a)
10.3 Advisory Contract between the Registrant, the General Partner
and Blenheim Investments, Inc. dated November 1, 1989. (b)
10.4 Brokerage Agreement between the Registrant, the General
Partner and LIT America, Inc. dated July 24, 1988. (c)
10.5 Advisory Contract between the Registrant, the General Partner
and John W. Henry & Co., Inc. dated December 1, 1990. (e)
10.6 Amendment to Advisory Contract between the Registrant, the
General Partner and John W. Henry & Co., Inc. dated April 1, 1995. (e)
10.7 Brokerage Agreement between the Registrant, the General
Partner and Refco, Inc. dated October 1, 1991. (d)
10.8 Customer Agreement and Customer Agreement Supplement
between Cargill Investor Services, Inc., CIS Financial Services,
Inc., the Registrant, the General Partner and the Selling Agent
dated July 29, 1994 and an Amendment thereto dated November
15, 1995. (e)
10.9 Certificate of Limited Partnership for Everest Futures Fund II L.P.
dated March 15, 1996. (f)
10.10 Limited Partnership Agreement for Everest Futures Fund II L.P.
dated as of March 29, 1996. (f)
10.11 Assignment of Advisory Contract between Registrant, the General
Partner, JWH, CISI, and Everest II Fund II L.P. dated as of March
29, 1996. (f)
10.12 Notice of Termination of Agreements between the Partnership, the
General Partner, the Clearing Broker and CIS Financial Services,
Inc. dated March 14, 1996. (f)
10.13 Letter of Authorization for Transfer of Trading Positions between
Everest Futures Fund, L. P. to Everest Futures Fund II L.P.
addressed to the Clearing Broker and CIS Financial Services, Inc.
dated March 14, 1996. (f)
10.14 Customer Agreement - Partnership Speculative Discretionary
Account-U.S. - between Everest II, the General Partner, CISI, and
the Clearing Broker dated March 12, 1996. (f)
10.15 Customer Agreement Supplement between Everest II, the General
Partner, CISI, and the Clearing Broker dated as of March 29, 1996. (f)
10.16 Foreign Exchange Account Agreement between Everest II, CISI,
the General Partner and CISFS dated as of March 29, 1996. (f)
10.17 Notice of Termination of Investment Advisory Agreement between
the Partnership, the General Partner and Horizon Cash
Management, LLC dated March 28, 1996. (f)
10.18 Letter of Authorization for Transfer of Trading Positions between
Everest Futures Fund, L. P. to Everest Futures Fund II L.P.
addressed to Horizon Cash Management, LLC dated March 28,
1996. (f)
10.19 Investment Advisory Agreement between Everest II, the
General Partner, CISI, and Horizon Cash Management, LLC dated
as of March 11, 1996. (f)
28.1 Confidential Private Placement Memorandum and Disclosure
Document dated August 21, 1996.
Notes to the Exhibits:
(a) Exhibits 10.1 and 10.2 are incorporated by reference to
Registration Statement filed on Form S-18 (33-26370-C).
(b) Exhibit 10.3 is incorporated by reference to the Registrant's Annual
Report Form 10K for the year ended December 31, 1989.
(c) Exhibit 10.4 is incorporated by reference to the Registrant's Annual
Report Form 10K for the year ended December 31, 1990.
(d) Exhibit 10.7 is incorporated by reference to the Registrant's Annual
Report Form 10K for the year ended December 31, 1991.
(e) Exhibits 3.1, 3.2, 3.3, 3.4, 10.5, 10.6, are incorporated by
reference to the Registrant's Form 10 filed on November 19, 1995.
(f) Exhibits 10.9 through 10.19 are incorporated by reference
to the draft Registrant's Form 10 filed on June 3, 1996.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
EVEREST FUTURES FUND, L.P.
By: Everest Asset Management, Inc.,
its General Partner
Dated: September 20, 1996
By: Noel C. Reilly
Vice-President
EVEREST FUTURES FUND, L.P.
INDEX TO FINANCIAL STATEMENTS
Page No. of
Financial
Statement
EVEREST FUTURES FUND, L.P.
Report of Independent Auditors ...........................................F-2
Financial Statements:
Statements of Financial Condition
December 31, 1995 and 1994 ..............................................F-3
Statements of Operations For the Years Ended
December 31, 1995, 1994 and 1993 ........................................F-4
Statements of Changes in Partners' Equity
For the Years Ended December 31,
1995, 1994 and 1993 .....................................................F-5
Statements of Cash Flows For the Years Ended
December 31, 1995, 1994 and 1993 ........................................F-6
Notes to Financial Statements ....................................F-7 - F-12
Interim Financial Statements (Unaudited):
Consolidated Statements of Financial Conditior-L
June 30, 1996 and December 31, 1995 ....................................F-13
Consolidated Statements of Operations For the Six
Months Ended June 30, 1996 and June 30, 1995 ...........................F-14
Consolidated Statements of Changes in Partners'
Equity For the Six Months Ended
June 30, 1996 and June 30, 1995 ........................................F-15
Notes to Financial Statements ...................................F-16 - F-21
EVEREST ASSET MANAGEMENT, INC.
Report of Independent Auditors ..........................................F-22
Financial Statements:
Statement of Financial Condition
December 31,1995 .......................................................F-23
Notes to Financial Statements ...................................F-24 - F-26
Interim Financial Statements (Unaudited):
Statement of Financial Condition
June 30, 1996 ..........................................................F-27
Notes to Financial Statements ...................................F-28 - F-30
F-1
Report of Independent Auditors
The Partners
Everest Futures Fund, L.P.
We have audited the accompanying statements of financial condition of Everest
Futures Fund, L.P. (an Iowa limited partnership) as of December 31, 1995 and
1994, and the related statements of operations, changes in partners' equity,
and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
partnership's general partner. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Everest Futures Fund, L.P. at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
Chicago, Illinois
February 23, 1996
F-2
Everest Futures Fund, L.P.
(An Iowa Limited Partnership)
Statements of Financial Condition
December 31,
1995 1994
Assets
Cash and cash equivalents $1,167,666 $38,053
United States Treasury bills, at market value - $247,259
Equity in commodity trading accounts:
Net unrealized trading gains on open contracts 84,024 90,941
Amount due from broker 1,023,069 587,995
Interest receivable 4,478 2,892
Total assets $2,279,237 $967,140
Liabilities and partners' equity
Liabilities:
Accrued expenses $19,006 $7,593
Commissions payable 8,386 8,792
Advisor's management and incentive fees payable 7,009 3,169
Redemptions payable 2,864 12,359
Deferred partnership offering proceeds 149,250 -
Total liabilities 186,515 31,913
Partners' equity:
Limited partners, units outstanding - 1,414.764 in
1995 and 875.546 in 1994 2,045,667 901,711
General partner, unit equivalents outstanding - 32.543
in 1995 and 1994 47,055 33,516
Total partners' equity 2,092,722 935,227
Total liabilities and partners' equity $2,279,237 $967,140
Net asset value per outstanding unit of partnership
interest $1,445.94 $1,029.88
See accompanying notes,
F-3
Everest Futures Fund, L.P.
(An Iowa Limited Partnership)
Statements of Operations
Year ended December 31
1995 1994 1993
Trading income and (expense)
Net realized trading gains (losses) on
closed contracts $511,948 $(198,046) $603,676
Change in net unrealized trading gains/
losses on open contracts (6,917) (16,948) 22,001
Net foreign currency translation gains
(losses) (5,540) 10,565 (991)
Brokerage conunissions (97,062) (161,989) (187,606)
Total trading income (loss) 402,429 (366,418) 437,080
Interest income, net of cash management
fees 69,022 47,610 39,680
Total income (loss) 471,451 (318,808) 476,760
General and administrative expenses
Advisor's management fees 55,276 47,476 55,352
Advisor's incentive fees 24,468 4,167 31,645
Administrative expenses 21,011 22,808 27,690
Total general and administrative expenses 100,755 74,451 114,687
Net income (loss) $370,696 $(393,259) $362,073
Income (loss) per unit of partnership
interest (for a unit outstanding
throughout each year):
General partner $416.06 $(398.79) $335.84
Limited partners $416.06 $(398.79) $335.84
Net income (loss) allocated to:
General partner $13,539 $ (14,251) $ 16,003
Limited partners $357,157 $(379,008) $346,070
See accompanying notes.
F-4
Everest Futures Fund, L.P.
(An Iowa Limited Partnership)
Statements of Changes in Partners' Equity
Years ended December 1, 1995, 1994, and 1993
Limited General
Partners Partner Total
Partners' equitv at December 31, 1992 $1,228,249 $ 66,764 $1,295,013
Redemption of 138.824 units of limited
partnership interest and 20.659 general
partner unit equivalents (166,943) (25,000) (191,943)
Net income 346,070 16,003 362,073
Partners' equity at December 31, 1993 1,407,376 57,767 71,465,143
Redemption of 109.549 units of limited
partnership interest and 7.891 general
partner unit equivalents (126,657) (10,000) (136,657)
Net loss (379,008) (14,251) (393,259)
Partners' equity at December 31, 1994 901,711 33,516 935,227
Proceeds from offering of 671.822 units
of limited partnership interest 968,048 - 968,048
Less: Organization and offering costs (9,585) - (9,585)
Redemption of 132.604 units of limited
partnership interest (171,664) - (171,664)
Net income 357,157 13,539 370,696
Partners' equity at December 31, 1995 $2,045,667 $ 47,055 $2,092,722
See accompanying notes.
F-5
Everest Futures Fund, L.P.
(An Iowa Limited Partnership)
Statements of Cash Flows
Year ended December 31
1995 1994 1993
Cash flows from operating activities
Net income (loss) $ 370,696 $(393,259) $ 362,073
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Decrease (increase) in equity in
commodity trading accounts (428,157) 335,815 (155,175)
Decrease (increase) in interest
receivable (1,586) 53 (838)
Increase (decrease) in accrued
expenses 11,413 190 (28,518)
Decrease in commissions payable (406) (2,436) (4,437)
Increase (decrease) in management and
incentive fees payable 3,840 (6,157) 4,936
Net cash provided by (used in) operating
activities (44,200) (65,310) 178,041
Cash flows from investing activities
Net decrease (increase) in investment in
United States Treasury bills 247,259 (247,259) 397,550
Cash flows from financing activities
Proceeds from offering of units and
deferred offering proceeds 1,117,298 - -
Organization and offering costs (9,585) - -
Redemption of units of partnership interest (181,159) (138,628) (194,961)
Net cash provided by (used in) financing
activities 926,554 (138,628) (194,961)
Net increase (decrease) in cash and cash
equivalents 1,129,613 (451,197) 380,630
Cash and cash equivalents at beginning
of year 38,053 489,250 108,620
Cash and cash equivalents at end of year $1,167,666 $38,053 $489,250
See accompanying notes.
F-6
Everest Futures Fund, L.P.
(An Iowa Limited Partnership)
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Cash Equivalents
Cash equivalents represent short-term highly liquid investments with maturities
of three months or less when purchased and include money market accounts,
securities purchased under agreements to resell, short-term commercial paper,
and U.S. government and agency obligations with variable rate and demand
features, that qualify them as cash equivalents. 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.
Income Recognition
Realized and unrealized trading gains and losses on commodity contracts, which
represent the difference between cost and selling price or quoted market value,
are recognized currently. All trading activities are accounted for on a
trade-date basis.
Deferred Partnership Offering Proceeds
Proceeds received during the month from the continuing offering of the
partnership's units of limited partnership interest are deferred pending
investment on the first day of the following month.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies and gains and losses on
investment activity are translated at the respective month-end exchange rates.
Realized and unrealized foreign exchange gains or losses are included in trading
income in the statements of operations.
Income Taxes
Income taxes are not provided for by the partnership because taxable income
(loss) of the partnership is includable in the income tax returns of the
partners.
F-7
Everest Futures Fund, L.P.
(An Iowa Limited Partnership)
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Net Income (Loss) Per Unit
Net income (loss) per unit of partnership interest is equal to the change in net
asset value per unit from the beginning to the end of each vear.
Reclassifications
Certain amounts in previously issued financial statements have been reclassified
to conform with the current presentation.
2. Organization of the Partnership
The partnership was 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 forward contracts. The general partner of the
partnership is Everest Asset Management, Inc. (the General Partner).
The partnership was closed to new investors from July 31, 1989 to June 30, 1995.
Effective July 1, 1995, the partnership reopened to new investors. The private
placement offering is continuing at a gross subscription price per unit equal to
net asset value per unit, plus an organization and offering cost reimbursement
fee, payable to the General Partner, and a selling commission equal to 1% and
3%, respectively, of net asset value per unit. The General Partner may waive,
in whole or in part, the selling commission. Partnership interests are
distributed through Capital Management Partners, Inc., an affiliate of the
General Partner, and certain additional sellers.
3. The Limited Partnership Agreement
The limited partners and General Partner share in the profits and losses of the
partnership in proportion to the number of units or unit equivalents held by
each. However, no limited partner is liable for obligations of the partnership
in excess of his capital contribution and profits, if any, and such other
amounts as he may be liable for pursuant to the Act. Distributions of profits
are made solely at the discretion of the General Partner.
F-8
Everest Futures Fund, L.P.
(An Iowa Limited Partnership)
Notes to Financial Statements (continued)
3. The Limited Partnership Agreement (continued)
Responsibilitv for managing the partnership is vested solely in the General
Partner; however, the General Partner must delegate complete trading authority
to an unrelated party (Note 4).
The partnership bears all expenses incurred in connection with its trading
activities, including commodity brokerage commissions and fees payable to the
trading advisor, as well as legal, accounting, auditing, printing, mailing,
recording, filing, and extraordinary expenses. The General Partner bears all
other operating expenses of the partnership.
Limited partners mav cause any or all of their units to be redeemed as of the
end of any month at net asset value on ten days' prior written notice. The
partnership will be dissolved at December 31, 2020, or upon the occurrence of
certain events, as specified in the limited partnership agreement.
4. Other Agreements
At December 31, 1995, and for the year then ended, the partnership's sole
trading advisor was John W. Henry & Co., Inc. (John Henry). The General Partner
may replace the partnership's advisor or add additional advisors at any time.
John Henry receives from the partnership a monthly management fee equal to
0.3% (4% annually) of the partnership's month-end net asset value, as defined,
and a quarterly incentive fee of 15% (20% prior to April 1, 1995) of the
partnership's new net trading profits, as defined. The incentive fee is
retained by John Henry 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.
As of December 31, 1995, no further incentive fees are payable to John Henry
until trading losses of $15,176 ($10.49 per unit) are recouped.
Cargill Investor Services, Inc. (Cargill), the clearing broker, charges the
partnership monthly brokerage conunissions equal to 0.50% (1.0833% prior to
April 1, 1995) of the partnership's beginning-of-month net asset value, as
defined. Effective November 1, 1995, the General Partner received a management
fee from Cargill of approximately 80% of the brokerage commission paid to
Cargill by the partnership. The General Partner
F-9
Everest Futures Fund, L.P.
(An Iowa Limited Partnership)
Notes to Financial Statements (continued)
4. Other Agreements (continued)
pays a portion of the management fee received to Capital Management Partners,
Inc. (Capital), the affiliated introducing broker and selling agent of the
partnership. Under this agreement, the General Partner retained management fees
of $17,160.
Prior to November 1, 1995, Capital received directly from Cargill a portion of
the brokerage commissions paid by the partnership to Cargill. Under these
agreements, Capital received brokerage commissions of $44,653, $93,354, and
$102,267 for the years ended December 31, 1995, 1994, and 1993, respectively,
after allowing commissions to other brokers.
A portion of the partnership's assets (5 1 % and 0% at December 31, 1995 and
1994, respectively) are deposited with a commercial bank and invested under the
direction of Horizon Cash Management, Inc. (Horizon). Horizon receives a
monthly cash management fee equal to 1/1 2 of 0.25% (0.25% annually) of the
average daily assets under management.
5. Derivative Financial Instruments and Financial Instruments with Off-
Balance-Sheet Risk or Concentration of Credit Risk
The partnership invests in futures, options on futures, and forward contracts
that involve varying degrees of market and credit risk. Market risks may arise
from unfavorable changes in interest rates, foreign exchange rates, or the
market values of the instruments underlying the contracts. All contracts are
stated at fair value and changes in those values are reflected currently in
trading income and (expense) in the statements of operations.
The fair values of the parlnership's derivative financial instruments at
December 31, 1995, and the average fair values of these instniments for the year
then ended, based on month-end amounts, were as follows:
Fair Value Average Fair Value
Asset Liability Asset Liability
Financial futures contracts $ 96,615 $679 $ 47,736 $ 4,390
Commodity futures contracts 2,090 - 8,010 1,425
Foreign currency forward contracts 18,259 32,262 99,485 50,693
$116,964 $32,940 $155,231 $56,508
F-10
Everest Futures Fund, L.P,
(An Iowa Limited Partnership)
Notes to Financial Statements (continued)
5. Derivative Financial Instruments and Financial Instruments with Off-
Balance-Sheet Risk or Concentration of Credit Risk (continued)
Fair values of derivatives with the same clearing broker are reflected net in
the statements of financial condition.
The contract or notional values of the partnership's derivative financial
instruments at December 31, 1995 and 1994, respectively, were as follows:
1995 1994
Futures contracts:
Financial:
To purchase $28,939,808 $ 706,199
To sell 11,581 26,486,892
Commodity:
To purchase - -
To sell 286,385 1,066,945
Foreign currency forward contracts:
To purchase 1,545,451 232,680
To sell 2,943,689 1,297,438
Although contract or notional amounts may reflect the extent of the
partnership's involvement in a particular class of financial instrument, they
are not indicative of potential loss. Futures, options on futures, and forward
contracts are typically closed out by entering into offsetting contracts. For
these contracts, the net unrealized gains or losses, rather than contract or
notional amounts, represent the approximate future cash requirements.
The partnership is exposed to credit risk in the event of nonperformance by
counterparties to financial instruments. The credit risk from counterparty
nonperformance associated with these instruments is the net unrealized gain, if
any, included on the statements of financial condition. At December 3 1, 1995,
there was no net unrealized gain on open forward contracts. The counterparty to
all forward contracts is the partnership's clearing broker. For exchange-traded
contracts, the clearing organization acts as the colinterparty of specific
transactions and, therefore, bears the risk of delivery to and from
counterparties to specific positions.
F-11
Everest Futures Fund, L.P.
(An lowa Limited Partnership)
Notes to Financial Statements (continued)
5. Derivative Financial Instruments and Financial Instruments with Off-
Balance-Sheet Risk or Concentration of Credit Risk (continued)
Cargill is subject to the segregation requirements of the Commodity Futures
Trading Commission. A substantial portion of the partnership's assets
($1,107,093 and $678,936 at December 3 1, 1995 and 1994, respectively) are
deposited with Cargill, and substantially all other assets are deposited with a
commercial bank.
To the best of my knowledge and belief, the information contained herein is
accurate and complete.
Everest Asset Management, Inc.
(Pool Operator)
By Teresa M. Prange
Chief Financial Officer
F-12
EVEREST FUTURES FUND, L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1996 and December 31, 1995
(Unaudited)
June 30, December 31,
1996 1995
ASSETS
Cash and cash equivalents $5,866,606 $1,167,666
Equity in commodity trading accounts:
Net unrealized trading gains on open contracts 323,989 84,024
Amount due from broker 1,449,588 1,023,069
Interest receivable 6,205 4,478
Total assets $7,646,388 $2,279,237
LIABILITIES AND PARTNERS'EQUITY
LIABILITIES
Accrued expenses $9,932 $19,006
Commissions payable 33,895 8,386
Management and incentive fee payable 25,923 7,009
Redemptions payable 0 2,864
Deferred partnership offering proceeds 585,450 149,250
Total liabilities 655,200 186,515
Minority interest 103,096 0
Partners' equity 6,888,092 2,092,722
Total liabilities, minority interest and
partners'equity $7,543,292 $2,279,237
Net asset value per outstanding unit of
partnership interest $1,475.17 $1,445.94
See accompanying notes
F-13
EVEREST FUTURES FUND, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30,1996 and June 30,1995
(Unaudited)
1996 1995
TRADING INCOME AND (EXPENSE)
Net realized trading gains on
closed contracts $37,525 $522,260
Change in net unrealized trading
gains/losses on open contracts 235,744 (89,903)
Brokerage commissions (143,631) (47,777)
TOTAL TRADING INCOME (LOSS) 129,638 384,580
Interest income, net of cash management fees 119,518 26,501
TOTAL INCOME (LOSS) 249,156 411,081
GENERAL AND ADNENISTRATRVE EXPENSES
Advisor's management fees 96,591 22,250
Advisor's incentive fee 2,555 24,468
Administrative expenses 44,216 11,117
TOTAL EXPENSES 143,362 57,835
Minority Interest (3,096) --
NET INCOME (LOSS) $102,698 $353,246
Net income (loss) per unit of partnership interest
(for a unit outstanding throughout each period):
General Partner $29.23 $409.18
Limited Partners $29.23 $409.18
Net Income (loss) allocated to:
General Partner $1,374 $13,316
Limited Partners $101,324 $339,929
See accompanying notes
F-14
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS'EQUITY
For the Six Months Ended June 30, 1996 and June 30, 1995
(Unaudited)
LIMITED PARTNERS' GENERAL PARTNER TOTAL
Units Amount Units Amount Unit Amount
Partners'equity at
December 31, 1995 1,414.77 2,045,667 32.54 47,055 1,447.31 2,092,722
Additions 3,770.61 5,491,587 14.16 20,457 3,784.77 5,512,044
Redemptions (562.73) (819,373) 0.00 0 (562.73) (819,373)
Net income for the
six months
ended June 30, 1996 101,324 1,374 102,698
Partners' equity at
June 30, 1996 4622.65 6,819,205 46.70 68,887 4 669.35 6,888,092
Partners'equity at
December 31, 1994 875.54 901,711 32.54 33,516 908.09 935,227
Additions 0.00 0 0.00 0 0.00 0
Redemptions (101.66) (127,989) 0.00 0 (101.66) (127,989)
Net income for the six months
ended June 30, 1995 339,929 13,316 353,245
Partners' equity
at June 30, 1995 773.88 113,651 32.54 46,831 806.43 1,160,482
See accompanying notes
F-15
Everest Futures Fund, L.P. and Subsidiary
(An Iowa Limited Partnership)
Notes to Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
Cash Equivalent
Cash equivalents represent short-term highly liquid investments with maturities
of three months or less when purchased and include money market accounts,
securities purchased under agreements to resell, short-term commercial paper,
and U.S. government and agency obligations with variable rate and demand
features, that qualify them as cash equivalents. 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.
Income Recognition
Realized and unrealized trading gains and losses on commodity contracts, which
represent the difference between cost and selling price or quoted market value,
are recognized currently. All trading activities are accounted for on a
trade-date basis.
Deferred Partnership Offering Proceeds
Proceeds received during the month from the continuing offering of the
Partnership's units of limited partnership interest are deferred pending
investment on the first day of the following month.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies and gains and losses on
investment activity are translated at the respective month-end exchange rates.
Realized and unrealized foreign exchange gains or losses are included in trading
income in the statements of operations.
Income Taxes
Income taxes are not provided for by the Partnership because taxable income
(loss) of the partnership is includable in the income tax returns of the
partners.
F-16
Everest Futures Fund, L.P. and Subsidiary
(An Iowa Limited Partnership)
Notes to Consolidated Financial Statements (continued)
(Unaudited)
1. Summary of Significant Accounting Policies (continued)
Net Income (Loss) Per Unit
Net income (loss) per unit of Partnership interest is equal to the change in net
asset value per unit from the beginning to the end of each year.
Basis of Presentation
The accompanying financial statements are prepared on a consolidated basis and
include Everest Futures Fund, L.P. (the Partnership) and its limited partnership
investment in Everest Futures Fund II L.P. (the Trading Partnership). All
significant intercompany transactions and balances have been eliminated in the
accompanying consolidated financial statements.
2. Organization of the Partnership and Offering of Partnership Units
The Partnership was organized in June 1988, under the Iowa Uniform Limited
Partnership Act (the Act). On March 24, 1996 the Partnership became the sole
limited partner of the Trading Partnership. The Trading Partnership was formed
as a Delaware limited partnership for the purpose of engaging in speculative
trading of commodity interests for the Partnership. The general partner of the
Partnership is Everest Asset Management, Inc. (the General Partner).
The Partnership was closed to new investors from July 31, 1989 to June 30, 1995.
Effective July 1, 1995, the Partnership reopened to new investors. The private
placement offering is continuing at a gross subscription price per unit equal to
net asset value per unit, plus an organization and offering cost reimbursement
fee, payable to the General Partner, and a selling commission equal to 1% and
3%, respectively, of net asset value per unit. The General Partner may waive,
in whole or in part, the selling commission. Partnership interests are
distributed through Capital Management Partners, Inc. an affiliate of the
General Partner, and certain additional sellers.
F-17
Everest Futures Fund, L.P. and Subsidiary
(An Iowa Limited Partnership)
Notes to Consolidated Financial Statements (continued)
(Unaudited)
3. The Limited Partnership Agreement
The limited partners and General Partner share in the profits and losses of the
Partnership in proportion to the number of units or unit equivalents held by
each. However, no limited partner is liable for obligations of the Partnership
in excess of his capital contribution and profits, if any, and such other
amounts as he may be liable for pursuant to the Act. Distributions of profits
are made solely at the discretion of the General Partner. Responsibility for
managing the Partnership is vested solely in the General Partner; however, the
General Partner must delegate complete trading authority to an unrelated party
(Note 4).
The Trading Partnership bears all expenses incurred in connection with its
trading activities, including commodity brokerage commissions and fees payable
to the trading advisor, as well as legal, accounting, auditing, printing,
mailing, recording, filing, and extraordinary expenses. The General Partner
bears all other operating expenses of the Partnership.
Limited partners may cause any or all of their units to be redeemed as of the
end of any month at net asset value on ten days' prior written notice. The
partnership will be dissolved at December 31, 2020, or upon the occurrence of
certain events, as specified in the limited partnership agreement.
4. Other Agreements
At June 30, 1996, the Trading Partnership's sole trading advisor is John W.
Henry & Co., Inc. Uohn Henry). The General Partner may replace the Trading
Partnership's advisor or add additional advisors at any time.
John Henry receives from the Trading Partnership a monthly management fee equal
to 0.33% (4% annually) of the Partnership's month-end net asset value, as
defined, and a quarterly incentive fee of 15% (20% prior to April 1, 1995) of
the partnership's new net trading profits, as defined. The incentive fee is
retained by John Henry even though trading losses may occur in subsequent
quarters; however, no further incentive fees are payable until any such trading
losses (other than losses attributable to redeemed units and losses attributable
to assets reallocated to another advisor) are recouped by the Trading
Partnership. As of June 30, 1996, $2,554 in incentive fees are payable to John
Henry.
F-18
Everest Futures Fund, L.P. and Subsidiary
(An Iowa Limited Partnership)
Notes to Consolidated Financial Statements (continued)
(Unaudited)
4. Other Agreements (continued)
Cargill Investor Services, Inc. (Cargill), the clearing broker, charges the
Trading Partnership monthly brokerage commissions equal to 0.50% of the
Partnership's beginning-of-month net asset value, as defined. The General
Partner receives a management fee from Cargill of approximately 83% of the
brokerage commission paid to Cargill by the Trading Partnership. The General
Partner pays a portion of the management fee received to Capital Management
Partners, Inc. (Capital), the affiliated introducing broker and selling agent of
the partnership. Under this agreement, the General Partner retained management
fees of $17,160 and $48,734 for the year ended December 31, 1995 and the six
months ended June 30, 1996, respectively.
A portion of the Trading Partnership's assets (70%, 51% and 0%, at the six
months ended June 30, 1996 and at December 31, 1995 and 1994, respectively) are
deposited with a commercial bank and invested under the direction of Horizon
Cash Management, L.L.C. (Horizon). Horizon receives a monthly cash management
fee equal to 1/12 of .25% (.25% annually) of the average daily assets under
management.
5. Derivative Financial Instruments and Financial Instruments With Off-Balance-
Sheet Risk or Concentration of Credit Risk
The Trading Partnership invests in futures, options on futures, and forward
contracts that involve varying degrees of market and credit risk. Market risks
may arise from unfavorable changes in interest rates, foreign exchange rates, or
the market values of the instruments underlying the contracts. All contracts
are stated at fair value and changes in those values are reflected currently in
trading income and (expense) in the statements of operations.
The fair values of the Partnership's derivative financial instruments at
December 31, 1995, and the average fair values of these instruments for the year
then ended, based on month-end amounts, were as follows:
Fair Value Average Fair Value
Asset Liability Asset Liability
Financial futures contracts $ 96,615 $ 678 $ 47,736 $ 4,390
Commodity futures contracts 2,090 0 8,010 1,425
Foreign currency forward contracts 18,259 32,262 99,485 50,693
Total $116,964 $32,940 $155,231 $56,508
F-19
Everest Futures Fund, L.P. and Subsidiary
(An Iowa Limited Partnership)
Notes to Consolidated Financial Statements (continued)
(Unaudited)
5. Derivative Financial Instruments and Financial Instruments With Off-Balance-
Sheet Risk or Concentration of Credit Risk (continued)
The fair values of the Trading Partnership's derivative financial instruments at
June 30, 1996, and the average fair values of these instruments for the six
months then ended, based on month-end amounts, were as follows:
Fair Value Average Fair Value
Asset Liability Asset Liability
Financial futures contracts $ 80,034 $51,145 $145,050 $21,827
Commodity futures contracts 153,810 350 32,497 7,971
Foreign currency forward contracts 158,036 16,396 234,324 116,512
Total $391,880 $67,891 $411,871 $146,310
Fair values of derivatives with the same clearing broker are reflected net in
the statements of financial condition.
The contract or notional values of the Trading Partnership's derivative
financial instruments at June 30, 1996 and December 31, 1995, respectively, were
as follows:
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
Futures contracts:
Financial:
To purchase $79,586,213 $28,939,808
To sell 653,509,362 11,581
Commodity:
To purchase 0 0
To sell 5,351,335 286,385
Foreign currency forward contracts:
To purchase 24,050,959 1,545,451
To sell 23,909,319 2,943,689
Although contract or notional amounts may reflect the extent of the Trading
Partnership's involvement in a particular class of financial instrument, they
are not indicative of potential loss. Futures, options on futures, and forward
contracts are typically closed out by entering into offsetting contracts. For
these contracts, the net unrealized gains or losses, rather than contract or
notional amounts, represent the approximate future case requirements.
F-20
Everest Futures Fund, L.P. and Subsidiary
(An Iowa Limited Partnership)
Notes to Consolidated Financial Statements (continued)
(Unaudited)
5. Derivative Financial Instruments and Financial Instruments With Off-Balance-
Sheet Risk or Concentration of Credit Risk (continued)
The Trading Partnership is exposed to credit risk in the event of nonperformance
by counterparties to financial instruments. The credit risk from counterparty
nonperformance associated with these instruments is the net unrealized gain, if
any, included on the statements of financial condition. At June 30, 1996, there
were net unrealized gains of $141,640 on open forward contracts. The
counterparty to all forward contracts is the Trading Partnership's clearing
broker. For exchange-traded contracts, the clearing organization acts as the
counterparty of specific transactions and, therefore, bears the risk of delivery
to and from counterparties to specific positions.
Cargill is subject to the segregation requirements of the Commodity Futures
Trading Commission. A portion of the Trading Partnership's assets ($1,063,071,
$1,107,093 and $678,936 at June 30, 1996 and December 31, 1995 and 1994,
respectively) are deposited with Cargill, and substantially all other assets are
deposited with a commercial bank.
F-21
ERNST & YOUNG, LLP Sears Tower
233 South Wacker Dr.
Chicago, IL 60606-6301
Report of Independent Auditors
The Board of Directors
Everest Asset Management, Inc.
We have audited the accompanying statement of financial condition of Everest
Asset Management, Inc. (the Company) as of December 31, 1995. This statement of
financial condition is the responsibility of the Company's management. Our
responsibility is to express an opinion on this statement of financial condition
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of financial condition is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of financial condition. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement of financial
condition presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the statement of financial condition referred to above presents
fairly, in all material respects, the financial position of Everest Asset
Management, Inc. at December 31, 1995, in conformity with generally accepted
accounting principles.
July 17, 1996
F-22
Everest Asset Management, Inc.
Statement of Financial Condition
December 31, 1995
Assets
Cash and cash equivalents 53,767
Investment in Everest Futures Fund, L.P. 47,055
Investment in Barclay Futures Fund Limited Partnership 99,693
Investment in Global I Fund, L.P. 45,739
Investment in Global II Fund, L.P. 19,551
Investment in CCA Global Strategic Fund, L.P. 43,518
Investment in Everest Emerging Markets Fund L.P. 22,372
Investment in Everest Institutional Management L.P. 36,525
Furniture and equipment, net of accumulated
depreciation of $13,017 14,773
Other assets 99,792
$482,785
Liabilities and stockholders' equity
Accounts payable $ 49,329
Stockholders' equity:
Common stock, no par value; 8,000 shares authorized;
2,105.25 shares issued and outstanding 433,456
$482,785
See accompanying notes.
F-23
Everest Asset Management, Inc.
Notes to Statement of Financial Condition
1. Organization and Nature of Business
The Company was organized for the purpose of acting as the corporate general
partner of various investment limited partnerships. The Company is registered
with the Commodity Futures Trading Commission as a commodity pool operator and
is a member of the National Futures Association. The Company is the general
partner of Everest Futures Fund, L.P.; Barclay Futures Fund Limited Partnership;
Global I Fund, L.P.; Global II Fund, L.P.; CCA Global Strategic Fund, L.P.;
Everest Emerging Markets Fund L.P.; and with Everest Institutional
Management L.P., is the co-general partner of The Barclay Institutional Futures
Fund L.P. (the Partnerships).
2. Significant Accounting Policies
Cash and Cash Equivalents
The Company's investment in a money market account is considered to be a cash
equivalent.
Partnership Interests
The Company accounts for its partnership interest in each of the Partnerships at
cost plus equity in earnings or losses, which is equal to the fair value. In
determing fair value, the Company utilizes the valuations of the underlying
investment entities and the market value of financial instruments in which the
Partnerships invest. The underlying investment entities value securities and
other financial instruments on a mark-to-market or fair value basis of
accounting. The estimated fair values of certain of the investments of the
underlying investment entities are determined by the general partners of the
respective underlying investment entities and may not reflect amounts that could
be realized upon immediate sale, nor amounts that ultimately may be realized.
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the respective assets.
Income Taxes
The Company has elected S corporation status and, accordingly, the Company's
taxable income or loss is includable in the individual tax returns of the
Company's stockholders.
F-24
Everest Asset Management, Inc.
Notes to Statement of Financial Condition (continued)
2. Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. Related Parties
Capital Management Partners, Inc., an affiliated company, shares certain office
and other administrative costs with the Company.
Other assets include approximately $60,500 for management and incentive fees due
from the Partnerships and $18,500 due from other affiliates. Accounts payable
includes approximately $27,000 payable to Capital Management Partners, Inc. and
$15,200 to other affiliates. During 1995, the Company distributed approximately
$63,400 to its stockholders, which constituted all of the Company's retained
earnings, and approximately $1,200 was a return of capital.
4. Investments in Partnerships
Summarized financial information as of and for the year ended December 31, 1995,
for the Partnerships and Everest Institutional Management L.P., is as follows
(in thousands):
Net
Total Total Partners' Income
Assets Liabilities Equity (Loss)
Everest Futures Fund, L.P. $2,279 $187 $2,092 $371
The Barclay Futures Fund Limited
Partnership 1,173 144 1,029 87
Global I Fund, L.P. 1,967 151 1,816 265
Global 11 Fund, L.P. 1,830 27 1,803 96
CCA Global Strategic Fund, L.P. 3,729 284 3,445 691
Everest Emerging Markets Fund, L.P. 2,116 234 1,882 (825)
The Barclay Institutional Futures
Fund L.P. 1 21,359 128 21,231 546
Everest Institutional Management L.P. 230 1 229 5
F-25
Everest Asset Management, Inc.
Notes to Statement of Financial Condition (continued)
4. Investments in Partnerships (continued)
The Company's investment in The Barclay Futures Fund Limited Partnership exceeds
10% of the Company's total assets at December 31, 1995. In addition,
investments in the Partnerships and Everest Institutional Management L.P.
collectively comprise 65% of total assets of the Company at December 31, 1995.
5. Financial Instruments With Off-Balance-Sheet Risk and Concentrations of
Credit Risk
As the general partner of the Partnerships, the Company is contingently liable
for all obligations of the Partnerships.
The Partnerships invest, both directly and indirectly, in derivative financial
instruments that involve varying degrees of credit and market risk. Generally,
these contracts can be closed out at the discretion of the Partnerships' trading
advisors. However, under certain market conditions, the timely closeout of
unfavorable positions may not be possible, thereby subjecting the Partnerships
and, therefore, the Company to possible loss. Certain of the Partnerships also
invest in other limited partnerships and investment corporations, which, in
turn, have substantial positions in derivative financial instruments. However,
the Partnerships have limited liability in these investments, and therefore
their maximum exposure (and, therefore, the Company's maximwu exposure) to
either market or credit loss is generally limited to their equity in those
investments.
F-26
NOTE: Investors in Everest Futures Fund, L.P. will not acquire any interest in
Everest Asset Management, Inc.
EVEREST ASSET MANAGEMENT, INC.
STATEMENT OF FINANCIAL CONDITION
June 30, 1996
UNAUDITED
Assets
Cash and cash equivalents $114,510
Investment in Everest Futures Fund, L.P. 68,886
Investment in Global I Fund, L.P. 19,194
Investment in Barclay Futures Fund Limited Partnership 17,204
Investment in Global II Fund, L.P. 13,539
Investment in CCA Global Strategic Fund, L.P. 28,901
Investment in Everest Institutional Management L.P. 1,290
Investment in Everest Emerging Markets Fund L.P. 22,311
Other assets 78,116
Total assets $363,950
Liabilities and stockholders' equity
Accounts Payable $47,935
Stockholders'equity:
Common Stock, no par value: 8000 shares authorized; 264,518
2105.25 shares issued and outstanding
Retained Earnings 51,496
Total liabilities and stockholder's equity $363,950
See accompanying notes
F-27
NOTE: Investors in Everest Futures Fund, L.P. will not acquire any interest in
Everest Asset Management, Inc.
Everest Asset Management, Inc.
Notes to Statement of Financial Condition
(Unaudited)
1. Organization and Nature of Business
The Company was organized for the purpose of acting as the corporate general
partner of various investment limited partnerships. The Company is registered
with the Commodity Futures Trading Commission as a commodity pool operator and
is a member of the National Futures Association. The Company is the general
partner of Everest Futures Fund, L.P.; Barclay Futures Fund Limited Partnership,
Global I Fund, L.P.; Global II Fund, L.P.; CCA Global Strategic Fund, L.P.;
Everest Emerging Markets Fund L.P.; and with Everest Institutional
Management L.P . as the co-general partner of The Barclay Institutional Futures
Fund, L.P. (the Partnerships).
2. Significant Accounting Policies
Cash and Cash Equivalents
The Company's investment in a money market account is considered to be a
cash equivalent.
Partnership Interests
The Company accounts for its partnership interest in each of the Partnerships at
cost plus equity in earnings or losses, which is equal to net asset value. In
determining fair value, the Company utilizes the valuations of the underlying
investment entities and the market value of financial instruments in which the
Partnerships invest. The underlying investment entities value securities and
other financial instruments on mark-to-market or fair value basis of accounting.
The estimated fair values of certain of the investments of the underlying
investment entities are determined by the general partners of the respective
underlying investment entities and may not reflect amounts that could be
realized upon immediate sale, nor amounts that ultimately may be realized.
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets.
F-28
NOTE: Investors in Everest Futures Fund, L.P. will not acquire any interest in
Everest Asset Management, Inc.
Everest Asset Management, Inc.
Notes to Statement of Financial Condition
(Unaudited)
2. Significant Accounting Policies (continued)
Income Taxes
The Company has elected S corporation status and, accordingly, the Company's
taxable income or loss is includable in the individual tax returns of the
Company's stockholders.
Uses of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to rnal<e estimates and assumptions
that affect the amounts reported in financial statements and accompanying notes.
Actual results could differ from those estimates.
3. Related Parties
Capital Management Partners, Inc., an affiliated company, shares certain office
and other administrative costs with the Company.
Other assets include approximately $39,000 for management fees due from the
Partnerships and $6,000 due from other affiliates. Accounts payable includes
approximately $9,000 payable to Capital Management Partners, Inc.
4. Investments in Partnerships
Summarized financial information as of June 30, 1996 for the Partnerships and
Everest Institutional Management L.P., is as follows (in thousands):
F-29
NOTE: Investors in Everest Futures Fund, L.P. will not acquire any interest in
Everest Asset Management, Inc.
Everest Asset Management, Inc.
Notes to Statement of Financial Condition
(Unaudited)
4. Investments in Partnerships (continued)
Net
Total Total Partners' Income
Assets Liabilities Equity (loss)
Everest Futures Fund, L.P. $7,483 $595 $6,888 $103
The Barclay Futures Fund Limited
Partnership 1,501 31 1,470 39
Global I Fund, L.P. 1,357 52 1,305 36
Global 11 Fund, L.P. 974 98 876 (124)
CCA Global Strategic Fund, L.P. 2,406 131 2,275 (449)
Everest Emerging Markets Fund L.P. 2,109 498 1,611 284
Everest Institutional Management L.P. 5 - 5 -
Barclay Institutional Futures Fund, L.P. was liquidated during January, 1996 and
as of June 30, 1996 Everest Institutional Management L.P. is in the process of
final liquidation. The Company's investment in the Everest Futures Fund, L.P.
exceeds 10% of the Company's assets at June 30, 1996. In addition, investments
in the Partnerships and Everest Institutional Management L.P. collectively
comprise 47% of total assets of the Company at June 30, 1996.
5. Financial Instruments With Off-Balance-Sheet Risk and Concentrations of
Credit Risk
As the general partner of the Partnerships, the Company is contingently liable
for all obligations of the Partnerships.
The Partnerships invest, both directly and indirectly, in derivative financial
instruments that involve varying degrees of credit and market risk. Generally,
these contracts can be closed out at the discretion of the Partnerships' trading
advisors. However, under certain market conditions, the timely closeout of
unfavorable positions may not be possible, thereby subjecting the Partnerships
and, therefore, the Company, to possible loss. Certain of the Partnerships also
invest in other limited partnerships and investment corporations, which, in
turn, have substantial positions in derivative financial instruments. However,
the Partnerships have limited liability in these investments and, therefore,
their maximum exposure (and, therefore, the Company's maximum exposure) to
either market or credit loss is generally limited to their equity in those
investments.
F-30
Number _____
For The Exclusive Use Of ___________________
EVEREST FUTURES FUND, L.P.
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
AND DISCLOSURE DOCUMENT
DATED AUGUST 21, 1996
UNITS OF LIMITED PARTNERSHIP INTEREST
MINIMUM SUBSCRIPTION : $26,000
PRICE PER UNIT: 104% OF NET ASSET VALUE
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS OFFERING MEMORANDUM. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
__________
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED
UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE
COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS
DISCLOSURE STATEMENT.
Price to
Public (1)(2)
Selling, Organization and Offering Expenses (1)
Proceeds to Partnership (1)(2)(3)
Per Unit
104% of Net Asset
Value (NAV) per Unit
4% of NAV
per Unit
NAV per Unit
Total Maximum
UNLIMITED
4% of Subscription Amount (3)
Indeterminate
(Notes are on page vii)
CAPITAL MANAGEMENT PARTNERS, INC.
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL
CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO
DOING, YOU SHOULD BE AWARE THAT FUTURES AND OPTIONS TRADING
CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH
TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE
POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL.
IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR
ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL
CHARGES FOR MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT
MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE
CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE
DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO
BE CHARGED THIS POOL AT PAGE 21 AND A STATEMENT OF THE
PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO
RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 23.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER
FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS
COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN
THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THIS
DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL
RISK FACTORS OF THIS INVESTMENT, AT PAGES 6 TO 15.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE
FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON
MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS
FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO
REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO
THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES
REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE
ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR
MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS
FOR THE POOL MAY BE EFFECTED.
GENERAL NOTICES
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION NOT CONTAINED IN THIS OFFERING
MEMORANDUM IN CONNECTION WITH THE MATTERS IT DESCRIBES, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS OFFERING
MEMORANDUM DOES NOT CONSTITUTE AN OFFER BY ANY PERSON
WITHIN ANY JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER
WOULD BE UNLAWFUL. THE DELIVERY OF THIS OFFERING MEMORANDUM
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION IT CONTAINS IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF ITS ISSUE.
THIS OFFERING MEMORANDUM CONSTITUTES AN OFFER ONLY TO THE
PERSON WHOSE NAME APPEARS IN THE SPACE PROVIDED ON THE COVER
PAGE. DELIVERY OF THIS OFFERING MEMORANDUM TO ANYONE OTHER
THAN THE PERSON NAMED OR HIS DESIGNATED REPRESENTATIVE IS
UNAUTHORIZED, AND ANY REPRODUCTION OF THIS OFFERING
MEMORANDUM, IN WHOLE OR IN PART, WITHOUT PRIOR WRITTEN
CONSENT OF THE GENERAL PARTNER IS PROHIBITED.
BY ACCEPTING DELIVERY OF THIS OFFERING MEMORANDUM, THE
OFFEREE AGREES TO RETURN THIS OFFERING MEMORANDUM AND ALL
ENCLOSED DOCUMENTS TO THE GENERAL PARTNER, SELLING AGENT OR
ADDITIONAL SELLER UPON REQUEST, IF THE OFFEREE DOES NOT AGREE
TO PURCHASE ANY OF THE UNITS OFFERED.
THERE IS NO ESTABLISHED MARKET FOR THESE SECURITIES AND NONE
WILL DEVELOP.
THE PURCHASER OF THESE SECURITIES MUST MEET CERTAIN SUITABILITY
STANDARDS (SEE "INVESTMENT REQUIREMENTS") AND MUST BE ABLE TO
BEAR AN ENTIRE LOSS OF HIS INVESTMENT.
THIS OFFERING MEMORANDUM HAS BEEN PREPARED FROM DATA
SUPPLIED BY SOURCES DEEMED RELIABLE AND DOES NOT KNOWINGLY
OMIT ANY MATERIAL FACT OR KNOWINGLY CONTAIN ANY UNTRUE
STATEMENT OF ANY MATERIAL FACT. IT CONTAINS A SUMMARY OF THE
MATERIAL PROVISIONS OF DOCUMENTS REFERRED TO HEREIN.
STATEMENTS MADE WITH RESPECT TO THE PROVISIONS OF THOSE
DOCUMENTS ARE NOT NECESSARILY COMPLETE AND REFERENCE IS
MADE TO THE ACTUAL DOCUMENT FOR COMPLETE INFORMATION AS TO
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO.
PROSPECTIVE PURCHASERS OF UNITS ARE NOT TO RELY ON THE
CONTENTS OF THIS OFFERING MEMORANDUM AS LEGAL OR TAX ADVICE.
EACH PROSPECTIVE PURCHASER SHOULD CONSULT HIS OWN
PROFESSIONAL ADVISOR AS TO LEGAL, TAX AND RELATED MATTERS
CONCERNING HIS INVESTMENT.
PRIOR TO THE PURCHASE OF UNITS IN THIS OFFERING, EACH PROSPECTIVE
INVESTOR WILL BE GIVEN THE OPPORTUNITY TO ASK QUESTIONS AND
RECEIVE ANSWERS FROM THE GENERAL PARTNER CONCERNING THE
TERMS AND CONDITIONS OF THE OFFERING AND TO OBTAIN ANY
REASONABLY AVAILABLE ADDITIONAL DOCUMENTARY INFORMATION
(INCLUDING COPIES OF ALL MATERIAL CONTRACTS AND AGREEMENTS
REFERRED TO HEREIN) NECESSARY TO VERIFY THE ACCURACY OF THE
INFORMATION SET FORTH.
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE LAWS OF ANY STATE BY REASON OF
SPECIFIC EXEMPTIONS THEREUNDER RELATING TO THE LIMITED
AVAILABILITY OF THE OFFERING. THESE SECURITIES CANNOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF TO ANY PERSON OR ENTITY
UNLESS SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE APPROPRIATE STATE LAW, IF SUCH
REGISTRATION IS REQUIRED.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR
OWN EXAMINATION OF THE PERSON OR ENTITY CREATING THE
SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR
REGULATORY AUTHORITY. FURTHERMORE THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED
THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
STATE SECURITIES LAW LEGENDS
Prospective investors from any of the following states must carefully consider
the applicable legend required by state securities laws, before deciding whether
or not to invest in the Partnership.
____________________
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR
OWN EXAMINATION OF THE PERSON OR ENTITY CREATING THE
SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THESE LIMITED PARTNERSHIP INTERESTS HAVE
NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THIS MEMORANDUM. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE
UNITS ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY
WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME.
____________________
FOR ALABAMA RESIDENTS ONLY:
UNITS ARE OFFERED PURSUANT TO A CLAIM OF EXEMPTION UNDER THE
ALABAMA SECURITIES ACT. A REGISTRATION STATEMENT RELATING TO
THESE UNITS HAS NOT BEEN FILED WITH THE ALABAMA SECURITIES
COMMISSION. THE COMMISSION DOES NOT RECOMMEND OR ENDORSE
THE PURCHASE OF ANY SECURITIES, NOR DOES IT PASS UPON THE
ACCURACY OR COMPLETENESS OF THIS PRIVATE PLACEMENT
MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
____________________
FOR ALASKA RESIDENTS ONLY:
UNITS OFFERED HAVE BEEN REGISTERED WITH THE ADMINISTRATOR OF
SECURITIES OF THE STATE OF ALASKA UNDER PROVISIONS OF 3 AAC
08.500 - 3 AAC 08.506. THE INVESTOR IS ADVISED THAT THE
ADMINISTRATOR HAS MADE ONLY A CURSORY REVIEW OF THE
REGISTRATION STATEMENT AND HAS NOT REVIEWED THIS DOCUMENT
SINCE THE DOCUMENT IS NOT REQUIRED TO BE FILED WITH THE
ADMINISTRATOR. THE FACT OF REGISTRATION DOES NOT MEAN THAT
THE ADMINISTRATOR HAS PASSED IN ANY WAY UPON THE MERITS,
RECOMMENDED, OR APPROVED UNITS. ANY REPRESENTATION TO THE
CONTRARY IS A VIOLATION OF AS 45.55.170.
THE INVESTOR MUST RELY ON THE INVESTOR'S OWN EXAMINATION OF
THE PERSON OR ENTITY CREATING THE LIMITED PARTNERSHIP INTERESTS
AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED, IN MAKING AN INVESTMENT DECISION ON THE UNITS.
____________________
FOR FLORIDA RESIDENTS ONLY:
IF THE INVESTOR IS NOT A BANK, A TRUST COMPANY, A SAVINGS
INSTITUTION, AN INSURANCE COMPANY, A DEALER, AN INVESTMENT
COMPANY AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940 (THE
"1940 ACT"), A PENSION OR PROFIT-SHARING TRUST, OR A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT OF 1933, AS AMENDED), THE INVESTOR ACKNOWLEDGES
THAT ANY SALE OF THE UNITS TO THE INVESTOR IS VOIDABLE BY THE
INVESTOR EITHER WITHIN THREE DAYS AFTER THE FIRST TENDER OF
CONSIDERATION IS MADE BY THE INVESTOR TO THE ISSUER, OR AN
AGENT OF THE ISSUER, OR WITHIN THREE DAYS AFTER THE AVAILABILITY
OF THAT PRIVILEGE IS COMMUNICATED TO THE INVESTOR, WHICHEVER
OCCURS LATER.
____________________
FOR NEW HAMPSHIRE RESIDENTS ONLY:
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN
APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF
THE NEW HAMPSHIRE REVISED STATUTES ANNOTATED ("RSA") WITH THE
STATE OF NEW HAMPSHIRE NOR THE FACT THAT A UNIT IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY
DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT
MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN
EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A
TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN
ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED
OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT
IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE
PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
____________________
FOR NORTH CAROLINA RESIDENTS ONLY:
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR
OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING,
INCLUDING THE MERITS AND RISKS INVOLVED. THESE UNITS HAVE NOT
BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE UNITS ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY
WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME.
____________________
FOR PENNSYLVANIA RESIDENTS ONLY:
IF THE INVESTOR IS NOT A BANKING INSTITUTION, TRUST COMPANY, OR
SAVINGS AND LOAN INSTITUTION ORGANIZED UNDER THE LAWS OF THE
UNITED STATES OR UNDER THE LAWS OF ANY STATE, TERRITORY OR THE
DISTRICT OF COLUMBIA, AND ANY WHOLLY-OWNED SUBSIDIARY
THEREOF, ANY INSURANCE COMPANY, ANY PENSION OR PROFIT-SHARING
PLAN OR TRUST, ANY INVESTMENT COMPANY AS DEFINED IN THE 1940
ACT, AND ANY CORPORATION OR BUSINESS TRUST, INCLUDING A
WHOLLY-OWNED SUBSIDIARY THEREOF, WHICH HAS BEEN IN EXISTENCE
FOR AT LEAST 18 MONTHS AND WHICH HAS A TANGIBLE NET WORTH ON A
CONSOLIDATED BASIS, AS REFLECTED IN ITS MOST RECENT AUDITED
FINANCIAL STATEMENTS, OF AT LEAST $10,000,000, THE INVESTOR SHALL
HAVE THE RIGHT TO WITHDRAW THE INVESTOR'S SUBSCRIPTION
WITHOUT INCURRING ANY LIABILITY TO THE ISSUER, THE SELLING AGENT
OR ANY OTHER PERSON WITHIN TWO BUSINESS DAYS FROM THE DATE OF
RECEIPT BY THE ISSUER OF THE SUBSCRIPTION AGREEMENT.
TO ACCOMPLISH THIS WITHDRAWAL, THE INVESTOR NEED ONLY SEND A
LETTER OR TELEGRAM INDICATING SUCH INVESTOR'S INTENTION TO
WITHDRAW TO THE GENERAL PARTNER AT THE ADDRESS SET FORTH
HEREIN. SUCH LETTER OR TELEGRAM SHOULD BE SENT AND
POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED SECOND
BUSINESS DAY. IT IS PRUDENT TO SEND SUCH LETTER BY CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED
AND ALSO TO EVIDENCE THE TIME WHEN IT WAS MAILED. IF THE
REQUEST IS MADE ORALLY (IN PERSON OR BY TELEPHONE), YOU SHOULD
ASK FOR WRITTEN CONFIRMATION THAT YOUR REQUEST HAS BEEN
RECEIVED.
____________________
FOR VERMONT RESIDENTS ONLY:
EVERY INVESTOR WHO IS NOT AN "ACCREDITED INVESTOR", AS DEFINED
BY THE SECURITIES ACT OF 1933, REGULATION D, RULE 501(a), WHO
ACCEPTS AN OFFER TO PURCHASE SECURITIES DIRECTLY FROM AN
ISSUER OR AN AFFILIATE OF AN ISSUER, SHALL HAVE THE RIGHT TO
WITHDRAW HIS OR HER ACCEPTANCE WITHOUT INCURRING ANY
LIABILITY TO THE ISSUER OR ANY OTHER PERSON WITHIN (3) THREE
CALENDAR DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE
BY SUCH INVESTOR TO THE ISSUER, AN AGENT OF THE ISSUER, OR AN
ESCROW AGENT, OR WITHIN (3) THREE CALENDAR DAYS AFTER THE
AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH
PURCHASE, WHICHEVER OCCURS LATER.
SPECIAL DISCLOSURE FOR LEVERAGED ACCOUNTS
The funds allocated to individual commodity trading advisors selected to direct
trading for the Partnership may be less than the amount of cash or other assets
(Actual Funds) which should be deposited to the advisor's trading program for
the Partnership's account to be considered "Fully-Funded". This is the amount
upon which the commodity trading advisor will determine the number of contracts
traded in the Partnership's account and should be an amount sufficient to make
it unlikely that any further cash deposits would be required from the
Partnership over the course of its participation in the commodity trading
advisor's program.
You are reminded that the amount of the Partnership's account with a commodity
trading advisor is not the maximum possible loss that the Partnership's account
may experience. To the extent that the equity in the Partnership's account is
at any time less than the amount which the commodity trading advisor has been
directed to trade on the Partnership's behalf, you should be aware of the
following:
1. Although the Partnership's gains and losses, fees and commissions measured in
dollars will be the same, they will be greater when expressed as a percentage of
account equity.
2. The Partnership may receive more frequent and larger margin calls.
NOTES TO COVER PAGE
(1) The amounts shown in the table reflect the sale of Units at a formula based
on the Net Asset Value per Unit. The minimum subscription per subscriber is
$26,000, subject to the discretion of Everest Asset Management, Inc. (the
"General Partner") to accept subscriptions in a lesser amount. The $26,000
represents $750 for selling commissions, $250 for offering and organization
expenses, and the balance of $25,000 which will be retained by the Partnership
to trade commodities or other financial investments as permitted by the
Agreement of Limited Partnership. Existing Limited Partners may make a minimum
additional investment of at least $10,000, subject to the discretion of the
General Partner to accept subscriptions in lesser amounts.
The Units are being offered by the Partnership through Capital Management
Partners, Inc. ("Capital"), a broker-dealer registered with the Securities and
Exchange Commission ("SEC") and a member of the National Association of
Securities Dealers, Inc. ("NASD"), on a best efforts basis. The General
Partner has the right to appoint other members of the NASD to also act as
Selling Agents ("Additional Selling Agents"). A selling commission of 3% of
the Net Asset Value of the Units sold, unless waived in whole or in part by the
General Partner, will be paid by the Limited Partners for the sale of the Units.
The General Partner receives a monthly management fee from Cargill Investor
Services, Inc. the ("Clearing Broker"), the Partnership's clearing broker, equal
to approximately 83% of the amount paid by the Partnership to the Clearing
Broker. It is anticipated that this amount will be approximately 5% of the
Partnership's average annual net asset value. The General Partner may pay
Capital and the Additional Selling Agents up to 100% of this amount as
additional selling commission.
The General Partner will pay CIS Investments, Inc. ("CISI"), the co-general
partner of Everest Futures Fund II, L.P., a Delaware limited partnership to
which the Partnership transferred all of its assets in March, 1996, a monthly
co-general partner fee equal to 1/12 of 0.40% of the month-end Net Asset Value
of Everest II (a 0.40% annual rate). In the event that an opinion of counsel is
obtained which permits CISI to reduce its capital account to 0.5% or less of
Everest II's Net Asset Value, the annual rate of the monthly administrative fee
paid by the General Partner to CISI shall thereafter be 0.25%.
(2) The Partnership will continue indefinitely to offer and sell Units at a
formula based on the Net Asset Value, calculated to three decimal places, on the
last day of the month in which subscriptions are accepted (the "Extended
Offering Period"). Subscribers whose subscriptions are accepted by the General
Partner during the Extended Offering Period will be admitted to the Partnership
on the first business day of the month next following the month in which their
subscription was accepted. Subscriptions received during the Extended Offering
Period will be held in a non-interest bearing Partnership account until
contributed to the Partnership. The General Partner is not required to accept
any subscriptions and is not required to accept subscriptions in the order in
which they are received. See "Plan of Distribution."
(3) The General Partner advances all of the Partnership's organization and
offering expenses, which totaled $65,193 in 1995 and which are estimated at
approximately $70,000 for 1996. It will be reimbursed for these expenses in an
amount not to exceed the lower of actual expenses or 1% of the Net Asset Value
of the Units sold. This amount will be paid from the proceeds of the offering.
The Partnership will retain all of the interest earned on its assets. The
Clearing Broker has agreed to pay the Partnership an interest rate equal to the
average interest rate of 91 day U.S. Treasury Bills auctioned during the month
on the average of the Partnership's Net Asset Value as of the beginning and
end of the month.
TABLE OF CONTENTS
RISK DISCLOSURE STATEMENT i
SPECIAL DISCLOSURE FOR LEVERAGED ACCOUNTS vi
NOTES TO COVER PAGE vii
SUMMARY 1
CAPITALIZATION 3
INTRODUCTORY STATEMENT 4
INVESTMENT REQUIREMENTS 4
FINANCIAL INFORMATION 5
POTENTIAL ADVANTAGES OF THE PARTNERSHIP 6
RISK FACTORS 6
CONFLICTS OF INTEREST 15
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER 19
FEES, COMPENSATION AND EXPENSES 21
PARTNERSHIP OPERATIONS 25
USE OF PROCEEDS 25
THE GENERAL PARTNER 26
CIS INVESTMENTS, INC. 28
COMMODITY BROKER 29
REDEMPTIONS 30
PLAN OF DISTRIBUTION 30
THE COMMODITY MARKETS 31
THE AGREEMENT OF LIMITED PARTNERSHIP 36
FEDERAL INCOME TAX ASPECTS 40
INVESTMENT BY BENEFIT PLAN INVESTORS 49
SUBSCRIPTION PROCEDURE 51
LEGAL MATTERS 51
PARTNERSHIP PAST PERFORMANCE 52
THE ADVISOR 53
FINANCIAL STATEMENTS 63
AGREEMENT OF LIMITED PARTNERSHIP EXHIBIT A
SUBSCRIPTION REQUIREMENTS EXHIBIT B
INVESTOR QUESTIONNAIRE EXHIBIT C
REPRESENTATIONS BY EMPLOYEE BENEFIT PLANS EXHIBIT D
REQUEST FOR REDEMPTION EXHIBIT E
AGREEMENT OF LIMITED PARTNERSHIP OF
EVEREST FUTURES FUND II L.P. EXHIBIT F
SUMMARY
This Summary is intended to highlight certain information contained in the body
of this Offering Memorandum. The Summary is qualified in its entirety by the
information appearing elsewhere in this Offering Memorandum and the description
of any document is qualified in its entirety by reference to that document.
The Partnership
The Partnership
The Partnership is a limited partnership organized on June 20, 1988 pursuant to
the Iowa Uniform Limited Partnership Act. See "The Agreement of Limited
Partnership." The Partnership commenced its operations on February 2, 1989.
The Partnership's fiscal year is the calendar year. On March 29, 1996, the
Partnership became the sole limited partner of Everest Futures Fund II, L.P.
("Everest II"), a Delaware limited partnership which invests directly in
commodity interests. The Partnership transferred all of its assets to
Everest II in return for its limited partnership interest in Everest II. The
Partnership's contracts with the Advisor, CISFS (as herein defined), the
Clearing Broker and Horizon Cash Management L.L.C. were terminated and replaced
with substantially identical contracts entered into by Everest II. References
to "the Partnership" contained in this document shall, as the context requires,
be references to Everest II.
Termination of
Partnership
The Partnership will terminate on December 31, 2020 or upon the earlier
occurrence of any event requiring termination. See "The Agreement of Limited
Partnership."
Location and
Telephone
The principal offices of the Partnership and the General Partner, where their
books and records (as well as certain records of Everest II) will be kept, are
508 North Second Street, Suite 302, Fairfield, Iowa 52556. The General
Partner's telephone number is (515) 472-5500. The records of Everest II
relating to trading are kept at the principal office of CIS Investments, Inc.
("CISI"), a subsidiary of the Clearing Broker and the co-general partner,
along with the General Partner, of Everest II, at 233 S. Wacker Drive,
Suite 2300, Chicago, Illinois 60606. CISI's telephone number is (312) 460-4000.
Business
The Partnership will engage in the speculative trading of Commodity Interests
(as herein defined) through Everest II. The General Partner has the right to
select additional or replacement trading advisors to direct a portion of
Everest II's trading.
Management
The General Partner of the Partnership is Everest Asset Management, Inc., which
acts as the commodity pool operator. The General Partner administers the
business and affairs of the Partnership other than making commodity trading
decisions. The General Partner and Capital are affiliates. CISI, Everest II's
co-general partner, is registered with the CFTC as a commodity pool operator and
is a member of the NFA in such capacity. As of the date of this Offering
Memorandum and Disclosure Document assets are traded by John W. Henry & Company,
Inc. ("JWH" or the "Advisor"). See "The Advisor".
Expenses
Each Limited Partner will pay the Selling Agent or the Additional Sellers, if
any, a selling commission of 3% of the Net Asset Value of Units sold, unless
waived in whole or in part by the General Partner. The General Partner will
be reimbursed for the offering and organization expenses in an amount not to
exceed the lower of actual expenses or 1% of the net proceeds of the offering.
The price per Unit of each Unit sold will be increased by 1% to fund this
amount.
The Partnership will pay the Clearing Broker a monthly brokerage commission
charge equal to 0.5% of the Partnership's Beginning Net Asset Value. It is
anticipated that this amount will equal approximately 6% of the Partnership's
annual average Net Asset Value. Of this amount, the General Partner will
receive a management fee paid by the Clearing Broker equal to approximately 83%
of the fees paid by the Partnership to the Clearing Broker. It is anticipated
that this will be equal to approximately 5% of the Partnership's average
annual Net Asset Value. The General Partner will pay CISI a monthly co-general
partner fee equal to 1/12 of 0.40% of the month-end Net Asset Value of
Everest II (a 0.40% annual rate). In the event that an opinion of counsel is
obtained which permits CISI to reduce its capital account to 0.5% or less of
Everest II's Net Asset Value, the annual rate of the monthly administrative fee
paid by the General Partner to CISI shall thereafter be 0.25%. The Partnership
will retain all interest income earned on the Partnership's assets. The
compensation to be paid to the Partnership's commodity trading advisor is
described under "The Advisor".
During the initial 12 months of an investor's investment, the Partnership must
earn trading income equal to 9.13% of its assets in order for the investor to
have achieved the break-even point, i.e., the amount which the Partnership must
earn for the investor's Net Asset Value per Unit at the end of the initial 12
month period to equal his initial investment. Fees and expenses as well as a
more detailed explanation of the break even point are described under "Fees,
Compensation and Expenses" at page 21.
Redemption of Units
A Limited Partner may require the Partnership to redeem some or all of his Units
at their Net Asset Value per Unit as of the end of any calendar month on 10 days
prior written notice to the General Partner. See "Redemptions."
The Offering
Securities Offered
There is no maximum number of Units being offered. The offering may continue
indefinitely. The offering is a private offering conducted in reliance on an
exemption from the federal registration requirements of the Securities Act of
1933 pursuant to Rule 506 of Regulation D thereunder. The Partnership intends
to use this Offering Memorandum on or after the date on the cover page of this
document.
Minimum Subscription
$26,000 subject to the General Partner's discretion to accept lesser amounts.
Existing limited partners may make a minimum additional investment of $10,000;
subject to the discretion of the General Partner to accept subscriptions in
lesser amounts.
Plan of
Distribution
The Units will be offered to subscribers by Capital and the Additional Selling
Agents. A selling commission equal to 3% of the Net Asset Value per Unit, which
may be waived in whole or in part by the General Partner, will be paid by the
investors. The General Partner may also pay a selling commission to certain
Additional Selling Agents. The Partnership continues to offer and sell Units at
a formula based on their month-end Net Asset Value per Unit, calculated to three
decimal places. See Note (2) in the Notes to Cover Page. Although the
Clearing Broker, the Advisor and their affiliates and principals may purchase
Units, none of those parties intends to do so at the present time, except that
one of the principals of Capital purchased one Unit as the initial limited
partner to facilitate the formation of the Partnership and as of May 31, 1996,
the General Partner owned 42.525 Units. See "Plan of Distribution."
Use of Proceeds
The net proceeds of the offering are used to trade Commodity Interests. All of
the assets of the Partnership may be committed as margin and option premiums for
trading or other investment opportunities. Any interest on the Partnership's
assets will be retained by the Partnership. See "Use of Proceeds."
CAPITALIZATION
The Partnership commenced trading during February 1989. The Table below shows
the Partnership's capitalization as of May 31, 1996. There is no maximum number
of Units which may be sold.
Title of Class Outstanding as of May 31, 1996
Units of General $61,328.70 42.525 Units (1)
Partnership Interest
Units of Limited
Partnership Interest $5,774,251.22 4,003.835 Units
Total $5,835,579.92 4,046.360 Units (2)
(1) The General Partner will contribute and maintain an amount necessary to make
its capital contribution sufficient to give it at least a 1% interest in all
material items of Partnership gain, loss deduction or credit, unless an opinion
of counsel is received which permits the maintenance of a general partner
interest of less than 1%.
(2) A selling commission of 3% of the Net Asset Value of Units sold will be paid
by the Limited Partner unless waived in whole or in part by the General Partner.
In addition, investors will pay 1% of the Net Asset Value of Units sold to
reimburse the General Partner for the offering and organization expenses.
INTRODUCTORY STATEMENT
Everest Futures Fund, L. P. was organized on June 20, 1988, as a limited
partnership under the laws of the State of Iowa and will terminate not later
than December 31, 2020. It is administered by Everest Asset Management, Inc.,
its General Partner (see "The General Partner"). The Partnership trades
Commodity Interests through Everest II, a Delaware limited partnership organized
on March 15, 1996, of which the Partnership is the sole limited partner. The
Agreement of Limited Partnership of Everest II provides that a commodity
trading advisor will make commodity transaction decisions for Everest
II. At this time, Everest II's futures and options transactions will be cleared
through Cargill Investor Services, Inc. See "Commodity Broker."
The General Partner may be deemed to be a "parent" and "promoter" of the
Partnership within the meaning of the Securities Act of 1933, as amended.
INVESTMENT REQUIREMENTS
The Partnership has adopted a general investor suitability standard which
requires that each subscriber for Units represent in writing that (a) he is
acquiring the Units for investment and not with a view to resale or
distribution; (b) he can bear the economic risk of losing his entire
investment; (c) his overall commitment to investments which are not readily
marketable is not disproportionate to his net worth and his investment in the
Units will not cause his overall commitment to become excessive; (d) he has
adequate means of providing for his current needs and personal contingencies and
has no need for liquidity in his investment in the Units; and (e) his net worth
(exclusive of home, furnishings and automobiles) is at least $175,000 or his net
worth (as defined above) is at least $100,000 and his annual income is at least
$100,000.
In addition, all but 35 subscribers for Units must represent in writing that
they meet any of the following conditions:
(i) an individual income in excess of $200,000 in each of the two most recent
years or a joint income with that person's spouse in excess of $300,000 in each
of those years and a reasonable expectation of reaching the same income level in
the current year; or
(ii) an individual's net worth or a joint net worth with the subscriber's
spouse, at the time of purchase, in excess of $1,000,000 (net worth for these
purposes includes home, home furnishings and automobiles); or
(iii) the subscriber otherwise satisfies the General Partner that he is an
Accredited Investor, as defined in Rule 501 of Regulation D adopted pursuant to
the Securities Act of 1933, as amended.
Other categories of investors included within the definition of Accredited
Investor include the following: certain institutional investors, whether acting
in their individual or fiduciary capacities, certain insurance companies,
federally registered investment companies, business development companies (as
defined under the Investment Company Act of 1940), Small Business Investment
Companies licensed by the Small Business Administration, certain employee
benefit plans, broker-dealers, private business development companies (as
defined in the Investment Advisers Act of 1940), tax-exempt organizations (as
defined in Section 501(c)(3) of the Internal Revenue Code), corporations,
business trusts or partnerships not formed for the specific purpose of
acquiring Units, with total assets in excess of $5,000,000, any trust with
assets in excess of $5,000,000, not formed for the purpose of acquiring Units,
whose purchase is directed by a sophisticated person as described in
Section 230.506 of the Regulations under the Securities Act of 1933, and
entities in which all of the equity owners are Accredited Investors.
Each purchaser who is not an Accredited Investor either alone or with his
purchaser representative(s) must have such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
investment in the Partnership. Each purchaser will be required to complete and
submit an Investor Questionnaire, Exhibit C.
Pursuant to CFTC requirements, the Partnership will deliver monthly reports to
Limited Partners containing unaudited financial information (including
performance data) and annual reports containing audited financial statements
audited by independent certified public accountants.
FINANCIAL INFORMATION
The Partnership was organized on June 20, 1988 and commenced its operations on
February 2, 1989. Its audited financial statements for the period ended
December 31, 1995 can be found under "Financial Statements."
The Partnership pays its periodic operating expenses plus extraordinary
expenses. It is estimated that the periodic operating expenses for the current
year will be approximately $40,000 (depending on the size of the Partnership)
consisting of estimated legal fees ($3,000), accounting, bookkeeping and
auditing ($35,000), and miscellaneous expenses ($2,000). 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.
POTENTIAL ADVANTAGES OF THE PARTNERSHIP
Investment in the Units is speculative and involves a high degree of risk. See
"Risk Factors." However, investment in the Partnership offers the following
potential advantages which might otherwise be unavailable to a Limited Partner
if he were to engage individually in commodity futures transactions:
Investment Diversification. An investor who is not prepared to spend
substantial time trading the commodity markets may nevertheless participate in
these markets through the Partnership, thereby obtaining diversification from
other investments such as stocks, bonds and real estate. The General Partner
believes, on the basis of past experience, that the profit potential of the
Partnership does not depend upon favorable general economic conditions and
that it may be as advantageous during periods of declining stock, bond and
real estate markets as at any other time. Conversely, the Partnership may be
unprofitable during periods of generally favorable economic conditions.
Limited Liability. Unlike an individual who invests directly in commodity
interests, an investor in the Partnership cannot individually be subjected to
margin calls and cannot lose more than the amount of his original investment and
any profits earned thereon as required by state law. See "The Commodity Markets
-- Margins" and Agreement of Limited Partnership.
Professional Trading Management. The Partnership's advisors will be selected
based on the General Partner's analysis. It will periodically review the
appropriate allocation of the Partnership's assets and selection of trading
advisors. It is expected that there will be periodic reallocations of the
Partnership's assets between existing or replacement advisors. All commodity
trading decisions made by John W. Henry & Company, Inc. ("JWH" or the "Advisor")
will be pursuant to an advisory agreement with JWH. For information concerning
the Partnership's trading advisor see "The Advisor" below.
Administrative Convenience. The Partnership provides the Limited Partners with
many services designed to reduce the administrative details involved in engaging
in commodity transactions. The General Partner will perform services for the
Partnership, including keeping books and records, distributing account
statements to the Limited Partners, handling redemptions and transfers,
facilitating distributions and liquidation and monitoring the Partnership's
trading activity.
RISK FACTORS
Prospective purchasers of Units should read the Risk Disclosure Statements
included in this Offering Memorandum and Disclosure Document and carefully
consider the following risks before subscribing for Units. As the Partnership
previously transferred all of its assets to Everest II in return for its limited
partnership interest in Everest II, references to "the Partnership" contained
herein shall, as the context requires, be references to Everest II.
Trading in Commodity Interests is Speculative. The prices of most, if not all,
Commodity Interests are highly volatile. Price movements for futures contracts,
for example, which may fluctuate substantially during a short period of time,
are influenced by numerous factors that affect the commodities markets,
including, but not limited to: changing supply and demand relationships;
government programs and policies; national and international political and
economic events and changes in interest rates. See "Commodity Interest
Trading May be Illiquid," below.
Commodity Interests Trading is Highly Leveraged. The low margin deposits
normally required in trading Commodity Interests permit an extremely high degree
of leverage. Accordingly, a relatively small price movement in a futures
contract may result in immediate and substantial loss to the investor. For
example, if at the time of purchase 5% of the price of a futures contract is
deposited as margin, a 5% decrease in the price of the futures contract would,
if the contract were then closed out, result in a total loss of the margin
deposit (brokerage commission expense would also be incurred). In addition, to
the extent that certain advisors are instructed to trade the Partnership's
account with a higher degree of leverage than the one usually used by that
advisor, the leverage risk is increased. Like other leveraged investments, any
futures trade may result in losses in excess of the amount invested. Although
the Partnership may lose more than its initial margin on a trade, the
Partnership, and not the Limited Partners personally, will be subject to margin
calls. See "The Commodity Markets-Margins."
Advisors May Be Instructed to Use Increased Leverage. The General Partner may
instruct certain advisors to use increased leverage in trading the Partnership's
account. This means that the Partnership is exposed to a greater volatility in
its trading results than may be experienced by other clients of that advisor.
The instruction to use increased leverage means that the Partnership may, for
example, allocate $150,000 to an advisor with instruction to trade the
Partnership's account as if $300,000 had been allocated to the advisor.
Because of this increased leverage, an Advisor's past performance may not be
reflective of the performance which may be experienced by the Partnership.
Leverage can result in increased profits and increased losses. In addition to
increased volatility, the Partnership will usually pay a management fee to the
advisor on the higher amount. This results in the management fees paid by the
Partnership as being a greater percentage of the Partnership's actual assets
than the specific amount shown. Since the variation in the percentage is
affected by both the amount of capital allocated to the advisor as well as the
amount of increased leverage, it is impractical to give any meaningful estimate
of the potential increase in the effective management fee for the life of the
Partnership. Currently, JWH has not been instructed to use leverage. Leverage
levels may change from time to time.
Cross-Margining May Increase Risks Because of Increased Leverage. Certain
futures brokers allow equity not used to meet margin requirements in one of a
futures fund's accounts to be applied to the margin requirements in that futures
fund's other accounts with the futures broker, a practice called
"cross-margining." This practice may be used by the Partnership from time to
time. Cross-margining increases the leverage of certain trades by reducing
the futures fund's capital contribution requirements. While this increased
leverage may result in greater gains, it also exposes the futures fund to the
greater risk of loss.
Commodity Interests Trading May Be Illiquid. Most United States commodity
futures exchanges, for example, limit the maximum amount above or below the
previous day's settlement price which futures contract prices may fluctuate
during a single day by regulations referred to as "daily limits." During a
single trading day, no trades may be executed at prices beyond the daily
limit. Once the price of a particular futures contract has increased or
decreased to the limit point, it may be difficult, costly or impossible to
liquidate a position unless traders are willing to effect trades at or within
the limit (which, typically, they are unwilling to do). Futures prices in
particular contracts have occasionally moved the daily limit for several
consecutive days with little or no trading. If this were to occur, the
Partnership might be prevented from promptly liquidating unfavorable positions,
which could subject the Partnership to substantial losses. Those losses could
significantly exceed the margin initially committed to the trades involved.
In addition, even if prices have not moved the daily limit or no limits are in
effect for the contracts traded by the Partnership, the Partnership may not be
able to execute trades at favorable prices if little trading in the contracts is
taking place. It is also possible that an exchange or the CFTC may suspend
trading in a particular contract, order immediate settlement of a contract or
order that trading in a contract be conducted for liquidation of open positions
only. See "The Commodity Markets-Commodity Regulation."
Cash Flow. Futures contracts gains and losses are marked to market daily.
Options positions generally are not, although short options will require
additional margin if the position moves against the Partnership. Due to these
differences in margin treatment between futures and options, there may be
periods where positions on both sides must be closed down prematurely due to
short term cash flow needs. Were this to occur during an adverse move in the
spread or straddle relationships, a real loss could occur. The General
Partner believes that cash allocations established at this time are sufficiently
flexible to accommodate cash flow needs. Should it become necessary to alter
these allocations in the future, it could affect the potential of return on
assets accordingly.
Substantial Charges to Partnership. The Partnership will pay the Advisor a
monthly management fee equal to .333% (4% annually) of the Allocated Assets and
an incentive fee equal to 15% of the Partnership's quarter-end Trading Profits
allocable to JWH. In addition, all other liabilities, expenses and costs of the
Partnership, including charges incidental to trading (primarily brokerage
commissions) as well as legal, accounting, filing and printing fees, and taxes,
if any, will be paid by the Partnership regardless of whether the Partnership
realizes profits. The incentive fee, if paid, is based upon, among other
things, unrealized appreciation in open futures positions (as is the Net Asset
Value of the Units) and all fees paid will be retained even if the Partnership
subsequently experiences losses or the appreciation is never realized. The
amount of unrealized appreciation may often be substantial. The Partnership
will pay a monthly brokerage commission charge equal to 0.5% of its Beginning
Net Asset Value as of the first day of each month. It is anticipated that
this amount will equal approximately 6% of the Partnership's average annual
Net Asset Value. These payments may cause the Partnership to suspend trading if
its Net Asset Value per Unit declines below certain levels. See "The
Agreement of Limited Partnership." The charges to which the Partnership is
subject, excluding incentive fees based solely on increases in cumulative
Trading Profits, are such that the Partnership will be required to make profits
for the Net Asset Value of a Unit to increase. The Partnership must achieve
profits of at least 9.13% for the Net Asset Value per Unit at the end of the
initial 12 month period to equal the initial Net Asset Value per Unit paid by
the investor.
Possibility of Trading on Foreign Exchanges and Currency Exchange Rate
Fluctuations. The Partnership may engage in trading on foreign exchanges and
other markets located outside of the United States. Neither existing CFTC
regulations nor regulations of any other United States governmental agency
currently apply to transactions executed on foreign markets. However, the CFTC
has proposed certain rules which will regulate the offer and sale of foreign
futures and options in the U.S. Some foreign markets, in contrast to domestic
exchanges, are "principals' markets" in which contractual performance is the
responsibility only of the individual member with whom the trader has entered
into a commodity transaction and not of the exchange or clearing corporation.
In those cases, the Partnership will be subject to the risk or the inability of,
or refusal by, the counterparty to perform with respect to a transaction. Also
with respect to trading on foreign markets, the Partnership would be subject to
the risk of fluctuations in the exchange rate between the currencies in which
trading is done on foreign markets and United States Dollars and the possibility
that exchange controls could be imposed in the future. There is no limit to
the percentage of Partnership assets which may be committed to trading on
foreign markets. Finally, the Partnership may pay brokerage commissions
based on British Pounds or other foreign currencies for trades on certain London
or foreign markets. If the exchange rate between the British Pound or other
foreign currency and the United States Dollar fluctuates, the commissions paid
by the Partnership for those trades may increase (or decrease). See "Risk
Disclosure Statement."
Possibility of Forward Trading. Spot transactions and forward contracts for the
trading of certain commodities, primarily currencies, may be entered into with
United States or foreign banks or other dealers. A forward contract is a
contractual right to purchase or sell a commodity, such as a currency, at or
before a specified date in the future at a specified price. Forward contracts,
however, are not traded on exchanges and, as a consequence, investors in forward
contracts are not afforded the regulatory protection of any exchange or the
CFTC. There is no limitation on daily price moves of forward contracts traded
through banks. Banks are not required to continue to make markets in
any commodity. There have been periods during which certain banks have refused
to quote prices for forward contracts or have quoted prices with an unusually
wide spread between the price at which the bank is prepared to buy and that at
which it is prepared to sell. The Partnership will be subject to the risk of
bank failure or inability or refusal to perform with respect to forward
contracts.
In the future, the CFTC might assert that forward contracts on currencies
constitute futures transactions subject to the CFTC's jurisdiction but which
have not received the required regulatory approval and attempt to prohibit the
Partnership from participating in transactions involving those contracts. The
CFTC is currently studying questions relating to the regulation of
"off-exchange instruments" such as forward contracts. Furthermore, a number
of the major U.S. commodity exchanges have expressed concern regarding the
proliferation of those instruments. The CFTC has indicated in the past that if
forward contracts were marketed on a retail basis to the U.S. public at large,
it would regard that activity as a violation of the Exchange Act. The CFTC may,
in the future, determine to extend this position to include prohibiting an
entity, like the Partnership, from trading in the forward markets.
Exchange For Physicals. Certain trading advisors may make use of a trading
technique referred to as "exchange for physical" in which a cash or spot market
position (which may be a forward contract) is exchanged, often outside of
regular trading hours, for a comparable futures position. The CFTC has released
a study of the exchange for physical market which recommended that a number of
new regulatory restrictions be applied to it. If these recommendations or
restrictions are adopted, the ability of trading advisors to use this market
may be curtailed.
Trading Decisions Based on Technical Analysis. Certain trading advisors may
utilize technical trading programs that seek to take into account "technical"
factors in identifying price trends. The success of a trading method that
relies on technical analysis depends upon the occurrence in the future of
major price movements or trends in the relevant markets. In the past there
have been periods without discernible trends and presumably similar periods
will occur in the future. Technical trend-following systems will not be
profitable and may in fact produce losses if there are no trends of the kind the
system seeks to follow. Any factors which reduce the prospect of major trends
in the future (such as increased governmental control of, or participation in,
the markets or governmental support of price levels of commodities) may reduce
the prospect that any technical trend-following system will be profitable. Any
factor which would make it more difficult to execute the trades indicated, such
as significant lessening of liquidity in a particular market, also would be
detrimental to profitability. No assurance can be given that the trading
systems of trading advisors will be successful under all or any market
conditions.
Possible Effects of Other Technical Systems. Commodity trading systems
employing technical signals, based either upon technical analysis or a
combination of technical and fundamental analysis, are not new. If many traderS
follow similar systems, these systems may generate similar buy and sell orders
at the same time. Depending on the liquidity of a market, this could cause
difficulty in executing orders. See "The Commodity Markets-Commodity
Regulation." The General Partner believes that while there has been an
increase in the number of technical systems in recent years, there also has been
an increase in the overall trading volume and liquidity in the futures markets.
Any increase in the proportion of funds traded using trend-following systems
could alter trading patterns or affect execution of trades to the detriment of
the Partnership.
Decisions Based on Fundamental Analysis. The trading decisions made on behalf
of the Partnership may be based in part on trading strategies which utilize in
whole or in part fundamental analysis of underlying market forces in combination
with analysis of technical factors relating to market behavior. Fundamental
analysis attempts to examine factors external to the trading market which affect
the supply and demand for a particular futures interest in order to predict
future prices. Such analysis may not result in profitable trading because the
analyst may not have knowledge of all factors affecting supply and demand,
prices may often be affected by unrelated factors, and purely fundamental
analysis may not enable the trader to determine quickly that his previous
trading decisions were incorrect. In addition, because of the breadth of
fundamental data which exists, a fundamental trader may not be able to follow
developments in all such data, but instead may specialize in analyzing a narrow
set of data. For this reason, the trading approach of a fundamental trader may
dictate trading in fewer futures interests. Consequently, a fundamental trader
may have less flexibility, in adverse markets, to trade other futures interests.
Reliance on Key Personnel. Pursuant to the advisory contract between the
Partnership and the advisors which the Partnership may engage, each trading
advisor will have exclusive responsibility for trading commodity futures
contracts and other commodity interests for that portion of the Partnership's
assets allocated to it. Most trading advisors are dependent on the services of
one or two key persons. The loss of these services would result in the
inability of a trading advisor to continue to effectively advise or trade
the Partnership's account. If this occurs, the General Partner may terminate
the contract.
No Assurance of Advisor's Continued Services. The advisory contract between the
Partnership and the Advisor may be terminated by each party on written notice.
Changes in Trading Strategies. The trading strategies of most trading advisors
are continually developing. Although the trading advisors must conform to the
Partnership's investment objective described under "The Agreement of Limited
Partnership - Investment Objective," each is free to make any changes in trading
strategies if it feels that doing so will be in the Partnership's best
interests. Changes in commodities traded or leverage used shall not be deemed
a change in trading strategy.
New Trading Advisors. In the future, the General Partner may designate
additional and replacement trading advisors to manage funds of the Partnership.
Such additional or replacement trading advisors may be experienced or
inexperienced in the management of customer funds but will, in the subjective
judgment of the General Partner, be suitable trading advisors for the
Partnership. The General Partner may appoint a new trading advisor or
advisors at any time and may reallocate the Partnership's assets among the then
current trading advisors in such amounts as the General Partner may determine in
its sole discretion. Any additional and replacement trading advisors would be
selected by the General Partner without prior notice to, or approval from,
Limited Partners who would not have the opportunity to review their performance
record and the terms of their agreement with the Partnership prior to their
selection. Pursuant to the Limited Partnership Agreement, the General Partner
is authorized to enter into management agreements with new trading advisors on
such terms and conditions as the General Partner in its sole discretion deems
advisable. The compensation payable to any new trading advisor may include a
fixed management fee based on net assets under its management and/or an
incentive fee based on appreciation of the assets under its management.
Depending upon the compensation arrangements negotiated between the General
Partner and any new trading advisor, if such new trading advisor were to be
designated following a decline in Net Asset Value of the Partnership, such
trading advisor might receive an incentive fee based on any subsequent
appreciation experienced by the net assets under such trading advisor's
management in spite of the fact that such appreciation does not exceed trading
losses incurred by any previous or existing trading advisor or advisors or by
the Partnership as a whole.
Possible Effects of Speculative Position Limits. The CFTC and United States
exchanges have established limits referred to as "speculative position limits"
on the maximum net long or net short speculative futures or option (on futures)
positions which any person may hold or control in futures or option contracts
traded on United States exchanges. See "The Commodity Markets-Commodity
Regulation." Most trading advisors which would be selected by the General
Partner currently control and will continue to control the commodity trading of
other accounts. All positions and accounts owned or controlled by any trading
advisor and its principals will be combined with the Partnership's positions
established by it for position limit purposes. It is possible that trading
instructions will have to be modified and that positions held by the Partnership
will have to be liquidated, in order to avoid exceeding position limits.
Modification or liquidation, if required, could adversely affect the operations
and profitability of the Partnership. See "Increase in Amount of Funds Managed"
below. In addition, all commodity accounts of the General Partner, its
officers, directors, affiliates and stockholders may also be combined with the
Partnership for position limit purposes.
Increase in Amount of Funds Managed. As a general rule, trading advisors which
are selected by the General Partner will expect to manage additional funds in
the future. It is not known what effect, if any, the increased funds managed by
a trading advisor including funds raised in this offering, will have on its
performance or trading strategies. For example, increases in funds managed
may affect the number of futures or options positions a trading advisor would
otherwise hold for each account it manages because of speculative position
limits imposed by U.S. exchanges. No assurance can be given that changes in
a trading advisor's strategies (if any) in response to increased funds it
manages will be successful. In any case there can be no guarantee that the
investment results of the Partnership will be similar to those achieved by the
trading advisors in the past.
Possibility of Trading in Options. A portion of the Partnership's trading may
be in options on futures. An option is a right, purchased for a certain price,
to either buy or sell a particular type of commodity contract during a certain
period of time for a pre-established price. The Partnership will engage in
options trading. Although successful commodity options trading would require
many of the same skills as does successful commodity futures trading, the risks
involved are somewhat different. For example, if the Partnership buys an
option (either to sell or purchase a contract), it will be required to pay a
"premium" representing the market value of the option. Unless it becomes
profitable to exercise or offset the option before it expires, the Partnership
will lose the entire amount of the premium. Conversely, if the Partnership
sells an option (either to sell or purchase a futures contract), it will be
credited with the premium but will have to deposit margin due to its contingent
liability to take the underlying futures position in the event the option is
exercised. Traders who sell options are subject to the entire loss that may
occur in the underlying futures position (less any premium received). Commodity
options trading on United States exchanges is subject to regulation by both the
CFTC and those exchanges.
Changes in the Number of Available Futures Contracts and Related Options. There
has been substantial interest in establishing new futures and options contracts
in the United States and on foreign exchanges and it is probable that the number
of different futures and options available to the Partnership may change
substantially in the foreseeable future, as it has done over the past few years.
There can be no assurance that any trading advisor's trading strategy will be
able to accommodate a substantial increase in the number of contracts or
options available for trading or its application to those contracts will
produce profits for the Partnership.
Other Clients of Advisors. Each trading advisor employed by the Partnership
will have exclusive responsibility for making trading decisions for that portion
of the Partnership's assets allocated to it. In all likelihood, these trading
advisors presently, and in the future, will manage other accounts. This could
increase the level of competition for the same trades which the Partnership
otherwise may make, including the priority of order entry. Furthermore, the
trading advisors may manage other accounts under different financial terms
than those contained in the advisory contract with the Partnership. Each
trading advisor therefore has a potential conflict of interest with respect to
the Partnership because the potential financial benefit from managing another
account may be greater than the potential financial benefit from managing the
Partnership's account. The Partnership expects each trading advisor it engages
to represent that it will not knowingly or deliberately favor one customer
account it manages over any other account. However, no assurance is given
that the results of the Partnership's trading will be similar to the results
of any other customer accounts managed by any Advisor or its principals.
Multiple Advisors. When the Partnership has more than one trading advisor and
since the trading advisors will be acting independently, the Partnership could,
in effect, buy and sell the same commodity interest, thereby incurring
commission and transaction costs with no net change in its holdings. The
advisors also may compete, from time to time, for the same trades or other
transactions, thereby increasing the cost of making trades or transactions or
causing some of them to be foregone altogether. Since the trading advisors
may trade many of the same futures contracts at the same time, the use of
multiple advisors may not necessarily increase the diversity of futures
contracts traded by the Partnership. In addition, it is possible that one or
more of the trading advisors could be paid incentive fees even though, because
of losses suffered in trading directed by the other trading advisors, the Net
Asset Value per Unit declines during the period in which the incentive fee is
paid. The individual performance records of the advisors do not reflect the
effect that these factors may have on the overall performance of the Partnership
and the General Partner has not independently determined what effect, if any,
these factors will have on performance.
One of the effects of using multiple advisors is that the success of one or even
a number of advisors may have little effect on the overall profitability of the
Partnership. Even if one or a few advisors achieve an exceptionally high rate
of return, their performance may be diluted by losses incurred by other
advisors.
Investment Concentration. It is possible that a number of the trading advisors
utilized by the Partnership might take substantial positions in the same or
similar futures interest at the same time.
Automatic Trading Suspension. The Units are designed for investors who desire
longer term investments. The Partnership will terminate on December 31, 2020,
and will suspend trading if there is a decrease in the Partnership's Net Asset
Value per Unit to or below a Trading Suspension Level. The Partnership will
suspend trading if the Net Asset Value per Unit declines as of the close of
business on any day to an amount which represents a decline of 50% or more in
Net Asset Value per Unit from the highest Net Asset Value per Unit as of any
prior month end (after adjustments for prior distributions). See "The
Agreement of Limited Partnership - Trading Suspension." However, no assurance
can be given that the investor will receive a Trading Suspension Level value or
any other specified amount since the impossibility of executing trades under
certain conditions may deplete the Partnership's assets below this amount. See
"Risk Factors-Commodity Interests Trading May Be Illiquid" above.
Limited Ability to Liquidate Investment in Units. A purchaser may not be able
to immediately liquidate an investment in the Units. No market for the Units
exists and none is likely to develop. A purchaser may, however, liquidate his
investment through redemption of his Units. A Limited Partner may require the
Partnership to redeem, without penalty, all of his Units at their Net Asset
Value per Unit as of the last day of any calendar month upon 10 days written
notice to the General Partner. The value of a Unit on the date of redemption
(when its redemption price is determined) may be substantially less than at
the time the request to redeem is submitted.
Possible Effect of Redemptions on Unit Values. Substantial redemptions of Units
could require the Partnership to liquidate positions more rapidly than otherwise
desirable in order to raise the necessary cash to fund the redemptions and, at
the same time, achieve a market position appropriately reflecting a smaller
equity base. In the event of a high volume of redemptions, the liquidation of
positions could continue even after the redemption date and could make it more
difficult to recover losses or generate Trading Profits. Illiquidity in the
market could make it difficult to liquidate positions on favorable terms, and
may result in losses to the Partnership which decrease the Net Asset Value of
outstanding Units. If Limited Partners, other than Limited Partners who redeem
their entire interests, redeem within any period of 12 consecutive months,
Partnership interests representing 50% or more of the outstanding Units, the
Partnership will terminate for federal income tax purposes, with certain
potentially adverse tax consequences.
Mandatory Redemptions. The General Partner has the right to require Units held
by any benefit plan investor to be redeemed at any time and for any reason. It
is expected that this right will only be exercised if necessary for the
Partnership to comply with certain numerical limits imposed by existing
regulations. Depending on the length of time Units have been held by an
investor or the profitability of the Partnership's trading activities, a Limited
Partner who is forced to redeem his Units may not have recouped the selling
commission and portion of the offering and organization expenses paid in
connection with the purchase of Units.
Limited Partners will not Participate in Management. Purchasers of the Units
will not be entitled to participate in the management of the Partnership. Any
participation could, under principles of limited partnership law, subject a
Limited Partner to unlimited liability as a de facto general partner. The
Agreement of Limited Partnership provides that certain actions may be taken,
or approved, upon the affirmative vote of Limited Partners owning more than
50% of the Units, but the role of a Limited Partner is essentially that of a
passive investor, entirely dependent of the efforts of others for the
profitability of his investment. See "The Agreement of Limited Partnership."
Indemnification of Partnership by Limited Partners. By signing the Subscription
Agreement, each investor whose subscription is accepted will become a Limited
Partner. Under the terms of the Partnership Agreement, each Limited Partner
indemnifies the Partnership for any liability which it may be obligated to pay
to a governmental agency because of a Limited Partner's status or the liability
is otherwise specifically attributable to the Limited Partner.
Operating History for the Partnership. The Partnership commenced its operations
during February 1989 and has been operating for more than six years.
Accordingly, the past performance of other commodity pools operated by the
General Partner and by CISI are not included. However, the Partnership's past
performance is set forth under "Past Performance". Investors should note that
during its operation the Partnership has had various advisors. JWH became the
sole advisor to the Partnership during May 1994.
Past Performance Is Not Necessarily Indicative of Future Results. Although the
advisors selected or to be selected may have achieved significant success in
trading futures in the past, the General Partner cautions prospective investors
to take seriously the warning required by both the CFTC and the NFA. PAST
RESULTS ARE NOT INDICATIVE OF FUTURE PERFORMANCE; AN INVESTMENT IN THE
PARTNERSHIP IS SPECULATIVE AND INVOLVES A SUBSTANTIAL RISK OF LOSS.
Asset Allocation Strategies Are Recent Developments. Asset allocation
strategies, such as the Partnership's investment strategy, are comparatively
recent developments. Although a number of such strategies have performed well,
prospective investors must recognize that these strategies are, in general, new
developments, and may be subject to unanticipated limitations and risks.
Possibility of Taxation as a Corporation. The Partnership has received an
opinion from Sidley & Austin, the Partnership's counsel, that under current
federal income tax law and regulations both the Partnership and Everest II will
be classified as partnerships and not as associations taxable as corporations.
This status has not been confirmed by a ruling from the IRS, and an opinion of
counsel is not binding on the IRS. No ruling has been or will be requested.
The facts and authorities relied upon by counsel in their opinion may change
in the future. If either the Partnership or Everest II should be taxed as a
corporation for federal income tax purposes in any taxable year, income or
losses from Everest II's trading activities would not be passed through to the
Limited Partners and the affected partnership would be subject to tax on its
income at the rate of tax applicable to corporations. In addition, all or a
portion of any distributions made to Limited Partners could be taxable to them
as dividend or capital gain income, and the amount of the distributions would
not be deductible by the affected partnership in computing its taxable income.
See "Federal Income Tax Aspects".
Possible Legislative Tax Changes. All of the statements contained in this
Offering Memorandum as to federal tax aspects are based upon the existing
provisions of the Internal Revenue Code and existing administrative and judicial
interpretations thereunder. It is emphasized that no assurance can be given
that legislative, administrative or judicial changes will not occur which would
modify those statements.
Limited Partners will be Taxed on Profits Whether or Not Distributed or
Realized. The Partnership is not required to distribute profits and the General
Partner has no present intention of doing so. If the Partnership has taxable
income for a fiscal year, the income will be taxable to the Limited Partners in
accordance with their distributive shares of Partnership profit whether or not
any profits have been distributed. See "Federal Income Tax Aspects" and "The
Agreement of Limited Partnership." Also, the Partnership might sustain losses
offsetting any trading profits after the end of its fiscal year so that a
Limited Partner might never receive the profits on which it is taxed. Limited
Partners may redeem Units to provide funds for payment of taxes, but this would
result in diminution of their interest in future profits (if any) achieved by
the Partnership.
Possibility of Tax Audit. There can be no assurance that the Partnership's or
Everest II's tax returns will not be audited by the Internal Revenue Service or
that adjustments to their returns will not be made as a result of such an audit.
Uncertainty regarding the federal income tax treatment of certain management and
incentive fees paid by Everest II may increase the likelihood of such an audit.
If an audit results in an adjustment, Limited Partners may be required to pay
additional taxes, interest and penalties and may themselves be subject to
audit. The Internal Revenue Service is currently authorized to impose an
interest penalty on tax deficiencies based upon prevailing private sector
interest rates.
No Assurance that Units will be Sold. The offering of Units is being made by
the Selling Agent on a best efforts basis and no assurance can be given that any
Units will be sold. The smaller the number of Units sold, the less the capital
available for the Partnership's trading.
Failure of Commodity Brokerage Firms. Under the Commodity Exchange Act, as
amended, (the Exchange Act) futures commission merchants are required to
maintain customers' assets (other than assets used to trade foreign futures or
options on foreign boards of trade) in a segregated account. The Partnership
will be subject to a risk of loss in the event of the bankruptcy of its Clearing
Broker. In addition, irrespective of adequate segregation of accounts by the
Clearing Broker, the Partnership will be able to recover, even in respect of
property specifically traceable to the Partnership, only a pro rata share of
the property available for distribution to all of its customers. See "The
Commodity Markets -- Commodity Regulation."
Possible Reduced Ability To Suspend Trading Activity. Pursuant to the
Partnership's Agreement of Limited Partnership, the Partnership will close all
open positions as expeditiously as possible and suspend trading in the event the
Net Asset Value per Unit decreases on the close of business on any day to a
Trading Suspension Level (as defined in the Agreement of Limited Partnership).
Absence of Regulation Applicable to Investment Companies. The Partnership has
not registered as a securities investment company or "mutual fund" and thus is
not subject to the extensive regulation imposed by the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940 ("ICA"). Although
the Partnership has the right to invest in securities, which may or may not
represent interests in other commodity pools, investors will not be accorded the
protections provided by the ICA. The General Partner and CISI are, however,
each registered with the CFTC as a commodity pool operator, the trading
advisors will be registered with the CFTC as commodity trading advisors and
the Clearing Broker is registered with the CFTC as a futures commission
merchant. See "The Commodity Markets -- Commodity Regulation."
Foreign Limited Partners. If, as a result of the tax status of a Foreign
Limited Partner, the General Partner is required to withhold a portion of the
income earned by a Foreign Limited Partner, the Agreement of Limited Partnership
authorizes the General Partner to redeem Units owned by such a Foreign Limited
Partner to generate the funds necessary to make the required payments to the
U.S. Department of Treasury. If this occurs, then the Foreign Limited Partner
will be required to deal directly with the U.S. Department of Treasury, if he
believes that this amount was improperly withheld.
The foregoing list of Risk Factors does not purport to be a complete explanation
of the risks involved in this offering. Prospective investors should read this
entire Offering Memorandum before determining whether to purchase Units.
CONFLICTS OF INTEREST
The following inherent or potential conflicts of interest should be considered
by prospective investors before subscribing for Units (references to "the
Partnership" are, as the context requires, references to Everest II).
Other Commodity Pools. The General Partner and CISI each currently acts as the
general partner for other commodity pools. Each may continue to act as a
general partner in other commodity pools, either alone or jointly with others.
If this occurs, such entity may have a financial incentive to favor such
accounts over the Partnership. However, each of the General Partner, CISI,
the Clearing Broker and the Advisor represent that they will not knowingly
favor any customer account over the Partnership on an overall basis.
Relationship of CISI and the Clearing Broker. CISI, one of the general partners
of Everest II, is an affiliate of the Clearing Broker. The responsibilities of
CISI include selecting brokers to act on behalf of the Partnership, obtaining
appropriate commission rates for the Partnership, and ensuring that the Advisor
does not engage in excessive trading. Cargill Investor Services, Inc. is
currently acting as the clearing broker of the Partnership. In such
circumstances, the Clearing Broker receives brokerage commissions for
commodity transactions effected by the Partnership. Although the Partnership
will trade only at the direction of independent commodity trading advisors, CISI
has a conflict of interest between its duty to the Partnership's Limited
Partners to limit or reduce the cost of brokerage commissions and its interest
in the generation of brokerage commissions which would benefit the Clearing
Broker, an affiliate of CISI. CISI does not intend to negotiate with any other
brokerage firm for brokerage services for the Partnership so long as the
brokerage agreement with Cargill Investors Services, Inc. is in effect.
Because decisions determining the volume and frequency of trading by the
Partnership will be made by independent commodity trading advisors, CISI
believes that the effects of this conflict of interest will be mitigated. CISI
does not have authority to influence the trading decisions of the Advisor
regarding the volume or frequency of trades, except that CISI is required to
monitor compliance with the Partnership's trading policies, and may from time
to time direct the Advisor to liquidate positions held by the Partnership in
order to meet redemption requests. The Clearing Broker may charge other
customers, including other commodity pool accounts, brokerage commissions at
rates which are higher or lower than those paid by the Partnership.
The Clearing Broker may receive more brokerage commission revenue from
Everest II's trading if no distributions are made to the Partnership, its
limited partner. CISI's fee received from the General Partner will also be
larger if no distributions are made to the Partnership, since those fees are
based on Everest II's Net Asset Value. All decisions as to distributions
will be made by the General Partner and CISI; the General Partner and
CISI have no current intentions to declare distributions to Everest II's limited
partners. The General Partner and CISI may therefore have a conflict of
interest between their interest in making decisions about distributions in the
best interest of Everest II and its Limited Partners and their interest in
maximizing the assets of Everest II which are available for trading and for
the generation of brokerage commissions, and as the basis for the fees payable
to them.
Relationship of CISI and the Advisor. CISI sponsors and operates a number of
managed futures funds, and the Advisor manages a significant amount of CISI
client assets. In serving as co-general partner of Everest II, CISI may be
influenced by its business relationship with the Advisor, as well as by CISI's
interest in the Advisor's continued availability and willingness to manage
assets for other CISI funds.
Relationship of CISI and CIS Financial Services Inc. CISI is also affiliated
with CIS Financial Services, Inc. ("CISFS"). CISFS acts as the agent for the
Partnership with respect to forward contract transactions in foreign currencies
and gold bullion, and contracts on behalf of the Partnership with large banks
(capitalization in excess of $100 million) in order to make future delivery of
specified lots of foreign currencies and gold bullion for the Partnership. In
such capacity, CISFS will receive brokerage commissions for the foreign
currency and gold bullion contracts it effects for the Partnership's account.
Although the Partnership will trade only at the discretion of the Advisor, CISI
has a conflict of interest between its duty to the Partnership's Limited
Partners to limit or reduce the cost of brokerage commissions and its interest
in the generation of brokerage commissions for CISFS which would benefit the
Clearing Broker, an affiliate of CISI. CISI does not intend to negotiate with
any other brokerage firms for forward contract brokerage services for the
Partnership so long as the brokerage agreement with CISFS is an effect. CISI
believes that the consequences of this conflict of interest will be mitigated
by the fact that all trading decisions will be made by independent commodity
trading advisors.
The conflicts of interest described above related to distributions to the
Partnership's Limited Partners and the generation of brokerage commissions, and
a conflict of interest related to the inclination of CISI to favor the retention
of CISFS as the Partnership's forward contract broker even when circumstances
may indicate the desirability of replacing CISFS in that capacity, also apply
to the selection of CISFS as the Partnership's forward contract broker.
Possible Effects of Competition. The Partnership may experience increased
competition for the same Commodity Interests, because of the utilization by
other traders of trading strategies similar to those of the Advisor (see "Risk
Factors"). In addition, accounts currently managed by the Advisor will seek
execution of trading orders similar to those of the Partnership. In addition,
CISI, the Advisor, the General Partner, the Clearing Broker and their affiliates
may trade for their own accounts or the accounts of their principals. Accounts
managed by the Advisor and its principals will be aggregated for purposes of
applying the speculative positions limits which may result in an alteration of
the Partnership's trading patterns if those limits apply. See "The Commodity
Markets - Regulation." In addition, certain principals, officers, directors and
employees of the General Partner, CISI, the Advisor and the Clearing Broker and
their affiliates, may from time to time trade commodity interests for their own
accounts. The records of that trading will not be made available to Limited
Partners. It is possible that those persons may take positions either similar
or opposite to or ahead of positions taken by the Partnership and may from time
to time compete with the Partnership for commodity positions. It is also
possible that the Clearing Broker may have orders for certain trades from the
Partnership and other accounts, including other pools operated by the General
Partner, CISI, the Advisor or their affiliates, and the Partnership trades may
be executed at more or less favorable prices. The Clearing Broker may be deemed
to have a conflict of interest as to the sequence in which orders will be
transmitted to the floor of the exchange. CFTC regulations require that the
Clearing Broker transmit all orders to the floor in the order in which they are
received regardless of the source. In addition, CFTC regulations prohibit a
futures commission merchant from using knowledge of the Partnership's trades
for their or their other customers' benefit.
Trading by the Advisors for Their Own Accounts. Advisors selected by the
General Partner, their principals, and their employees may or may not trade
for their own accounts. If they trade for those accounts, the General Partner
may review those accounts but Limited Partners may not. As a result of this
trading, if any, the advisors, their principals and employees may take positions
opposite to or ahead of positions taken for the Partnership. Investors should
note that the trading methods used for the Partnership's account may be applied
in a substantially different manner in trading directed by the principal of a
trading advisor for their and the advisor's own accounts. Generally,
principals of an advisor review a substantial number of trading methods in
addition to the one presently utilized. As a result, performance of the
Partnership's account may differ significantly over time from the performance of
the accounts of an advisor, its principals and employees. In general, these
potential differences are due to the willingness of these individuals to
accept greater risks for what are perceived to be greater opportunities for
profits in the trading they conduct.
The Advisor and Mr. John W. Henry, its Chairman, may engage in discretionary
trading for their own accounts, and may trade for the purpose of testing new
investment programs and concepts, as long as such trading does not amount to a
breach of fiduciary duty. In the course of such trading, the Advisor and Mr.
Henry may take positions in their own accounts which are the same or opposite
from client positions, and on occasion orders may be filled better for their
accounts than for client accounts due to testing a new quantitative model or
program, a neutral allocation system, and/or trading pursuant to individual
discretionary methods. Records for these accounts will not be made available
to clients. Employees and principals of the Advisor (other than Mr. Henry) are
not permitted to trade on a discretionary basis in futures, options on futures
or forward contracts. However, such principals and employees may invest in
investment vehicles that trade futures, options on futures, or forward
contracts, when an independent trader manages trading in that vehicle, and in
the JWH Employee Fund, Ltd., which is managed by the Advisor. The records of
these accounts also will not be made available to clients.
Commodity Transactions of Affiliates and Customers of the Partnership.
Corporate affiliates of the Clearing Broker, including Cargill, Inc. the parent
company of the Clearing Broker, trade in Commodity Interests from time to time
for their own accounts. In addition, the Clearing Broker is a substantial
futures commission merchant handling transactions in commodities and commodity
futures contracts for large numbers of customers, including commodity pools,
other than the Partnership. The Clearing Broker may effect transactions for
the accounts of the Partnership which other parties to the transaction may be
affiliates of or other commodity pools operated by affiliates of the Clearing
Broker. In addition, it is likely that the volume of trading by such other
parties will result in the Partnership competing with such other parties from
time to time in bidding on similar purchases or sales of commodities and
commodity futures contracts. Transactions for such other parties might be
effected when similar trades for the Partnership are not executed or are
executed at less favorable prices. The operating policies of the Clearing
Broker require that orders be transmitted to the trading floors of the
commodity exchanges in the sequence received, regardless of customer size or
identity. Limited Partners will not be permitted to inspect the trading records
of the Clearing Broker in light of the proprietary and confidential nature of
such trading records.
Other Activities of the Clearing Broker and its Affiliates. As part of its
commodity brokerage services, certain account executives of the Clearing Broker
offer and service discretionary and non-discretionary commodity account programs
for customers. The selection of commodity trades for such accounts is made by
the particular account executive handling the accounts or by a commodity trading
advisor engaged for such purpose. It should be noted, however, that the
Clearing Broker, its employees and affiliates will not perform any advisory
services for the Partnership. Since the Partnership will be advised by the
Advisor, which is not affiliated with the Clearing Broker, the Partnership
may take positions similar to or opposite to those taken by other discretionary
programs offered by the Clearing Broker or by the commodity research of the
Clearing Broker. Certain of the officers and employees of the Clearing Broker
may be members of various exchanges and may from time to time serve on the
governing bodies and standing committees of such exchanges and their clearing
houses. In addition, certain of the officers and/or employees of the Advisor,
the Clearing Broker, and CISI may also be members of committees of the NFA,
Futures Industry Association ("FIA") and Managed Futures Association ("MFA") .
In such capacities these individuals have a fiduciary duty to the exchanges or
organizations on which they serve and they are required to act in the best
interests of such exchanges or organizations, even if such actions were to be
adverse to the interest of the Partnership. In addition, principals of
such firms may devote portions of their time to other business activities
unrelated to the business of those firms.
Duties to Contract Markets and the NFA. Certain officers, directors and
employees and principals of the General Partner, CISI, the Clearing Broker and
the Advisor serve and may serve on various committees and boards of U.S.
commodity exchanges and the NFA and, thereby, assist in establishing their rules
and policies. In those capacities, they have a fiduciary duty to the exchanges
and NFA and are required to act in their best interests, even if the action
may be adverse to that of the Partnership.
Additional Compensation. A portion of the brokerage commission charges paid by
the Partnership to the Clearing Broker may be paid to Capital and the other
Selling Agents from the portion of these charges remitted to the General Partner
by the Clearing Broker. Because this compensation is based on the number of
Units they service which are outstanding at month end, they have a conflict of
interest in advising Limited Partners as to whether they should redeem their
Units.
Independent Review. The Partnership and General Partner are affiliated entities
and are represented by the same counsel. No independent experts or
professionals have been retained on behalf of the Limited Partners. To the
extent that this offering would benefit by further independent review, that
benefit will not be available to Limited Partners and they should seek
independent counsel. See "Legal Matters."Other than the conflicts set out
above, there are no other conflicts of interest known to the General Partner
between the General Partner, the Partnership, the Advisor, CISI, the Clearing
Broker and their principals.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER
The General Partner has a fiduciary responsibility to the Limited Partners to
exercise good faith and fairness in all dealings affecting the Partnership.
This is in addition to the duties and obligations of the General Partner set
forth in the Agreement of Limited Partnership. See Exhibit A.
Although the General Partner may terminate the advisory contract with any
advisor, the General Partner may not direct any part of the Partnership's
trading. To the extent the General Partner's fiduciary duty would otherwise
require intervention in the selection of Partnership trades, it may be prevented
from so acting.
Cases have been decided under the common law or statutory law of partnerships in
certain jurisdictions to the effect that a limited partner may institute legal
action on behalf of himself and all other similarly situated limited partners (a
"class action") to recover damages from a general partner for violations of
fiduciary duties, or on behalf of a partnership (a partnership "derivative
action") to recover damages from a third party where a general partner has
filed or refused to institute proceedings to recover such damages. In addition,
Limited Partners may have the right, subject to applicable procedural and
jurisdictional requirements, to bring partnership class actions in federal
court to enforce their rights under federal securities laws and the rules and
regulations promulgated thereunder by the SEC. Limited partners who have
suffered losses in connection with the purchase or sale of their interest in a
limited partnership may be able to recover such losses from a general partner
where the losses result from a violation by such general partner of the
anti-fraud provisions of the federal securities laws.
Under certain circumstances, Limited Partners also have the right to institute a
reparations proceeding before the CFTC or an arbitration proceeding before the
NFA against the General Partner (a registered commodity pool operator), the
Advisor (a registered commodity trading advisor) and the Clearing Broker (a
registered futures commission merchant) as well as those of their employees who
are registered under the Exchange Act and the rules and regulations promulgated
thereunder. See "The Commodity Markets - Commodity Regulation."
However, in endeavoring to recover damages in these actions, it would generally
be difficult for Limited Partners to establish as a basis for liability that
commodity trading has been excessive. This is due to the broad discretion given
to the advisors, the exculpatory provisions contained in the Agreement of
Limited Partnership and the vagueness of standards defining excessive trading.
Finally, certain violations of the Exchange Act may be actionable in a private
suit for damages (see "The Commodity Markets - Commodity Regulation").
This summary describes in general terms the remedies available to Limited
Partners under federal law and is based on statutes, rules and decisions as of
the date of this Offering Memorandum. This is a rapidly developing and changing
area of the law. Therefore, Limited Partners who believe that the General
Partner, the Advisor or the Clearing Broker may have violated the law should
consult their own counsel as to their evaluation of the status of the applicable
law.
The General Partner, and any affiliate of the General Partner engaged in the
performance of services on behalf of the Partnership, shall be indemnified for
any liability or loss suffered by the General Partner or such affiliate and
shall have no liability to the Partnership or to any Limited Partner for any
liability or loss suffered by the Partnership which arises out of any action
or inaction of the General Partner or such affiliate if (1) the General Partner
has determined, in good faith, that such course of conduct was in the best
interests of the Partnership and (2) such liability or loss was not the result
of negligence or misconduct by the General Partner or any such affiliate.
Notwithstanding the foregoing, the General Partner, and any affiliate engaged in
the performance of services on behalf of the Partnership, shall not be
indemnified by the Partnership for any liability imposed by judgment, and
costs associated therewith, including attorney's fees, arising
from or out of a violation of state or federal securities laws or rules. The
General Partner and such affiliates may, however, be indemnified for settlements
and related expenses of lawsuits alleging securities law violations, and for
expenses incurred in successfully defending such lawsuits, under certain
circumstances. Any amounts payable to the General Partner or its affiliates
pursuant to the foregoing are recoverable only out of the assets of the
Partnership and not from the Limited Partners. The Partnership shall not
incur the cost of that portion of liability insurance which insures the General
Partner and its affiliates for any liability as to which the General Partner and
its affiliates are prohibited from being indemnified. Payment of any indemnity
by the Partnership would reduce the Partnership's assets. The CFTC has issued a
statement of policy relating to indemnification of officers and directors of a
futures commission merchant and its controlling persons under which it has taken
the position that whether indemnification is consistent with the policies
expressed in the Exchange Act will be determined by the CFTC on a case-by-case
basis. See Agreement of Limited Partnership - Exhibit A.
The Agreement of Limited Partnership further provides that the General Partner
has the authority to enter into brokerage agreements for the Partnership with
its affiliate under which the Partnership may pay brokerage commissions at a
rate in excess of the rates charged by other commodity brokers or in excess of
the lowest rate charged by the Clearing Broker. See "Conflicts of Interest."
FEES, COMPENSATION AND EXPENSES
The Partnership bears all of its liabilities, expenses and costs, including the
charges described below. The General Partner will be reimbursed for its
organization and offering expenses (from the proceeds of the offering), as
described in Note (3) to the Notes to Cover Page, which expenses were $65,193 in
1995 and are estimated at approximately $70,000 for 1996. References to "the
Partnership" herein are references to Everest II, as the context requires.
Entity
Form of Compensation
Amount of Compensation
Everest Asset Management, Inc.
(The General Partner)
Management Fee
Approximately 83% of the Brokerage Commission charges paid to the Clearing
Broker by the Partnership (estimated to equal approximately 5% of the
Partnership's annual average Net Asset Value) less that portion paid to Capital
and Additional Selling Agents, if any, and less the co-general partner's fee
paid to CISI.
Offering and Organization Expenses
Reimbursement for actual organization and offering expenses advanced by it, not
to exceed 1% of the Net Asset Value of Units sold.
John W. Henry & Company, Inc. (The Advisor)
Monthly Management Fee
Quarterly Incentive Fee
0.333% (approximately 4% annually) of the month-end Allocated Assets.
15% of the Partnership's New Net Trading Profits as of the end of each calendar
quarter.
CIS Investments Inc. (Co-General Partner of Everest II)
Co-General Partner Fee
The General Partner pays CISI a monthly fee of 1/12 of 0.40% of the month-end
Net Asset Value of Everest II (a 0.40% annual rate), subject to reduction to a
0.25% annual rate if an opinion of counsel permitted a reduction of CISI's
capital account to 0.5% or less of Everest II's Net Asset Value.
Cargill Investor Services, Inc.
(The Clearing Broker)
Brokerage Commissions
Brokerage commission charge equal to 0.5% of the Partnership's Beginning Net
Asset Value as of the first day of each month, less that amount rebated to the
General Partner.
Capital Management Partners, Inc.
(and other Selling Agents)
Selling Commission
3% of the Net Asset Value of the Units sold, unless waived in whole or in part
by the General Partner. In addition, the General Partner may pay to Capital and
other Selling Agents additional selling commission out of the funds it receives.
Periodic expenses
Legal, accounting, copying, postage and bookkeeping
Actual expenses incurred. This category includes fees paid to Horizon Cash
Management L.L.C. for managing the Partnership's cash which is not deposited
with the Clearing Broker. However, Horizon will only receive a fee if the
accrued monthly interest income earned on the Partnership's assets managed by
Horizon exceeds the 91 day U.S. Treasury Bill rate.
The Partnership is obligated to pay substantial trading and operational expenses
and to pay an incentive fee to its trading advisor. These expenses materially
affect the net results of an investment in the Partnership, reducing net profits
and increasing net losses. The following table shows that the Partnership would
have to earn trading income equal to 9.13% of its assets during the initial year
in order for a Limited Partner to break even during the Limited Partner's first
year of investment in the Partnership. The following is a summary of this first
year break-even analysis.
First Year Break-Even Analysis
Selling Price per unit
$1,040.00
Selling Commission (1)
$30.00
Organizational and Offering Expense Reimbursement (1)
$10.00
The Partnership's Operating Expense (2)
$5.00
Trading Advisors' Management Fee (3)
$40.00
Trading Advisors' Incentive Fees (4)
$0
Brokerage Commissions and Trading Fees (5)
$60.00
Less Interest Income (6)
($50.00)
Amount of Trading Income Required for the Partnership's Net Asset Value per Unit
(Redemption Value) at the End of One Year to Equal the Selling Price Per Unit
$95.00
Percentage of Initial Selling Price Per Unit
9.13%
EXPLANATORY NOTES
(1) Investors will purchase units at 104% of the Partnership's month-end Net
Asset Value Per Unit. A selling commission equal to 3% of the net subscription
amount will be deducted from each subscription, unless waived in whole or in
part. In addition an organizational offering charge equal to 1% of the net
subscription amount will be deducted from each subscription to reimburse the
General Partner for the syndication and selling expenses incurred on behalf of
the Partnership.
(2) The Partnership's actual accounting, auditing, legal and other operating
expenses will be borne by the Partnership. These expenses are expected to
amount of approximately 0.5% of the Partnership's Net Asset Value at the current
level of Partnership assets. Extraordinary expenses are not subject to estimate
and are in addition to this amount.
(3) John W. Henry & Company, Inc., trading advisor for the Everest Futures Fund,
L.P., will be paid a monthly management fee of l/12th of 4% (4% annually) of
Allocated Assets.
(4) John W. Henry & Company, Inc. will receive an incentive fee of 15% of
Trading Profits exclusive of interest income on Allocated Assets. The
incentive fee shown above equals $0 because the total trading income of $95.00
required to break even is less than the sum of the $60.00 of brokerage
commissions and trading fees and the $50.00 of management fees.
(5) Brokerage commissions and trading fees are fixed at 6.0% of net asset value
based upon the specific rates contracted by the Partnership and described in
"Fees, Compensation and Expenses."
(6) The Partnership will earn interest on margin deposits with its clearing
broker and bank based on current interest rates. Interest income is estimated
at 5.00% of the Net Asset Value. Horizon Cash Management, L.L.C. ("Horizon")
will, directly or indirectly, invest the cash portion of the Partnership's
assets not held by the Clearing Broker or in a Partnership checking account.
Horizon will receive an annual fee of 0.25% computed on the daily balance of
the Partnership's assets administered by Horizon. Horizon's fee will accrue on
a daily basis and be payable monthly. However, Horizon will only receive its
service fee provided the accrued monthly interest income earned on the
Partnership's assets managed by Horizon exceeds the 91 day U.S. Treasury Bill
rate.
Cargill Investor Services, Inc. Cargill Investor Services, Inc. will act as the
Partnership's Clearing Broker for all trading directed by the Partnership's
commodity trading advisors, if any, pursuant to a commodity customer agreement
terminable at any time on notice by either party. See "Commodity Broker."
The Clearing Broker has agreed to pay the Partnership interest on its assets
(including open trade equity) deposited with it during a month at the average of
91 day U.S. Treasury Bills purchased by the Clearing Broker during each month.
The Clearing Broker will retain all interest earned on assets not paid to the
Partnership. The Clearing Broker will also be responsible for execution and
clearance of futures contracts (and possibly certain other commodity interests).
The Partnership will pay commodity brokerage commissions charges to the Clearing
Broker equal to 0.5% of the Partnership's Beginning Net Asset Value as of the
beginning of each calendar month. It is estimated that this amount will equal
approximately 6% of the Partnership's average annual Net Asset Value. If there
is a material change in the Partnership's brokerage commission structure,
investors and Limited Partners will be informed. The Clearing Broker may, in
the future, increase the fee charged to the Partnership. See Notes to Cover
Page and "Risk Factors -- Substantial Charges to Partnership."
Capital Management Partners, Inc. and Other Selling Agents. A selling
commission of 3% of the Net Asset Value of Units sold will be paid, unless
waived in whole or in part by the General Partner, by the investors to Capital
or other Selling Agents in connection with the sale of the Units. The General
Partner may pay up to 100% of the funds it receives from the Clearing Broker to
Capital and the other Selling Agents as additional selling commission.
Other Periodic Expenses. The Partnership is obligated to pay its periodic
operating expenses and extraordinary expenses. Although those expenses will
vary depending on the Partnership's size, it is estimated that the periodic
operating expenses will total approximately $40,000 annually, consisting of
estimated legal fees of $3,000, accounting, bookkeeping and auditing of $35,000
and miscellaneous expenses of $2,000. 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 1995 were $21,011.47.
Certain Definitions.
Allocated Assets. Allocated Assets means the amount which the General Partner
directs an Advisor to trade on the Partnership's behalf, which may be higher
than the Partnership's Net Asset Value, together with any appreciation or
depreciation in that amount plus any accrued distributions, redemptions and
management and advisory fees and the prior month's taxes, if any. Redemptions,
distributions and interest income received by the Partnership shall be allocated
among the Partnership's advisors in the same proportion that the Allocated
Assets allocated to an advisor bears to all of the Allocated Assets.
Net Asset Value. Net Asset Value means the Partnership's total assets less
total liabilities, determined on the basis of generally accepted accounting
principles, consistently applied.
Net Asset Value per Unit. Net Asset Value per Unit means the Net Asset Value
divided by the number of Units and units of general partnership interest then
outstanding.
Trading Profits. Trading Profits (for purposes of calculating an Advisor's
incentive fees only) during a fiscal quarter shall mean the cumulative profits
(over and above the aggregate of previous period profits) during the quarter
allocable to an Advisor's trading (after deduction for accrued brokerage
commissions and accrued management fees payable to an Advisor). Trading Profits
shall include both realized and unrealized profits. Trading Profits shall
not include interest received by the Partnership on its assets. If Trading
Profits for a quarter are negative, it shall constitute a "Carryforward Loss"
for the beginning of the next quarter. No incentive fees shall be payable to an
Advisor until future Trading Profits attributable to an Advisor's trading for
the ensuing quarters exceed the Advisor's aggregate Carryforward Loss. To the
extent any Units are redeemed at a loss or assets are allocated away from an
Advisor, any loss attributed to those Units or amounts allocated away shall not
be carried forward to reduce future Trading Profits.
PARTNERSHIP OPERATIONS
The Partnership commenced its trading operations during February 1989. The
General Partner has and may, from time to time, changed the allocation of assets
among advisors, replace advisors or add additional advisors. The Partnership's
past performance is set forth under "Past Performance". The current Advisor is
John W. Henry & Company, Inc., and is described under "The Advisor".
The Partnership may in the future invest in managed accounts with commodity
trading advisors who engage in the speculative trading of commodity futures
contracts and other commodity interests (Commodity Interests) as defined in the
Partnership's Agreement of Limited Partnership; and/or, the Partnership may
invest in cash, forward contracts, options and other investment vehicles. If
any such investments are made in the future, the Limited Partners will be
informed regarding the investment with the next period statement following the
investment.
USE OF PROCEEDS
Currently, approximately between 20% and 50% of the Partnership's assets are
deposited in the Partnership's account at the Clearing Broker and used to engage
in trading Commodity Interests. The proceeds from the offering are allocated in
the sole discretion of the General Partner. The Partnership's current Advisor
is described under "The Advisor".
The balance of the Partnership's assets are deposited in an account at the Trust
Department of Citibank, N.A. to be invested in U.S. government securities and
other high quality interest-bearing obligations at the direction of Horizon.
Horizon, directly or indirectly, is responsible for the investment management of
the Partnership's assets not deposited with the Clearing Broker. Horizon is
registered with the SEC as an investment adviser. Horizon will receive for its
services an annual fee of 0.25% payable monthly, computed on the assets as of
the end of the immediately preceding month on the balance of funds administered
by Horizon. Horizon's fee will accrue on a daily basis and be payable monthly.
However, Horizon will only receive its service fee provided the accrued monthly
interest income earned on the Partnership's assets managed by Horizon exceeds
the 91 day U.S. Treasury Bill rate. Horizon may use appropriately-registered
sub-advisors in efforts to increase yield enhancement. The Partnership
anticipates investing, at Horizon's direction, in U.S. government securities,
including repurchase agreements for such instruments, commercial paper,
certificates of deposit, bankers' acceptances, Eurodollar time deposits, loan
participation notes, as well as securities issued by the U.S. Government
agencies.
The Partnership's assets held by the Clearing Broker will be segregated funds as
that term is defined in the Commodity Exchange Act. The Partnership's assets
not on deposit with the Clearing Broker are and will be deposited in a bank in
the United States. The amount committed as margin and on deposit with the
Clearing Broker will vary depending on the allocation of the Partnership's
assets. However, all of the Partnership's assets may be committed as margin
and as option premiums for its trading or invested in other investment vehicles.
The Partnership's assets deposited with the Clearing Broker will be either
maintained in cash or Treasury securities. The Clearing Broker will credit the
Partnership with interest at the average of the interest rate on 91 day U.S.
Treasury Bills purchased each month on the Partnership's assets (which includes
open trade equity) on deposit with the Clearing Broker. If the Partnership's
cash is invested in U.S. Treasury securities, the Partnership will receive
directly all interest earned on such securities. The Clearing Broker will earn
interest on Partnership assets not paid to the Partnership.
The Partnership may not invest in securities, other than those which may be held
as segregated funds under the CFTC's rules, or make loans. In particular, the
Partnership will not make loans to its affiliates, including affiliates of the
General Partner, or its Limited Partners. All of the Partnership's assets which
are deposited in an account will be deposited in Partnership accounts and all
investments on the Partnership's behalf will be made for the Partnership's
benefit. The Partnership's assets will not be commingled with any other person.
Depositing the Partnership's assets with the Clearing Broker as segregated funds
is not commingling for these purposes.
THE GENERAL PARTNER
Everest Asset Management, Inc. is the Partnership's General Partner and
commodity pool operator. 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 508 North Second Street, Suite 302, Fairfield,
Iowa 52556 and its telephone number is (515) 472-5500. The Partnership's past
performance is set forth in under "Past Performance".
The company's officers, directors and shareholders are listed below:
John P. Lass. Mr. Lass has been associated with the General Partner as its
Chief Operating Officer since 1987 and in 1991 became the Chief Executive
Officer and President. Mr. Lass has also served as President of Capital
Management Partners, Inc. since 1987. Since December 1990, Mr. Lass has been a
director of Barclay Research Group, Ltd. From 1984 until 1987, Mr. Lass served
as President of John P. Lass & Co., Inc., a professional management and
investment consulting firm. From September 1983 until January 1984, he acted as
an independent consultant. From July 1986 until November 1987, Mr. Lass also
served as Director of Pay'n Save Inc., a retail chain based in Seattle,
Washington. From August 1982 until September 1983, Mr. Lass served as a
Consultant with the Boston Consulting Group based in Chicago. Mr. Lass received
an M.B.A. from Harvard Business School, graduating as a Baker Scholar in 1982.
Mr. Lass received his B.A. degree from the University of Washington. Mr. Lass
was born in 1950.
Steven L. Foster. Mr. Foster has been associated with the General Partner since
1987, initially as its Chief Executive Officer and a director and since 1991 as
a director. Since 1987, Mr. Foster has been a director of Capital Management
Partners, Inc. Mr. Foster has served as Executive Vice-President of United
Fuels International, Inc., an oil brokerage firm based in Waltham,
Massachusetts, since 1980. From 1990 to 1994, he served as President of
Jillian's Entertainment Corp. and now serves as Chairman of the Board.
During 1978-1979, Mr. Foster served as President of Spin Off, Inc., a
Boston-based entertainment firm. From May 1977 until June 1978, Mr. Foster
served as a law clerk and from July 1978 until May 1979 as an attorney with the
firm of Gordon, Hurwitz, Butowski, Baker, Weitzen and Shalov in New York City.
Mr. Foster received his J.D. from Boston University, graduating Magna Cum Laude
in 1978. Mr. Foster received his B.A. degree from Brandeis University. Mr.
Foster was born in 1948.
Steven L. Rubin. Mr. Rubin has been associated with the General Partner as a
director since 1987. Since 1987, Mr. Rubin has been a director of Capital
Management Partners, Inc. Mr. Rubin has served as President of United Fuels
International, Inc., an oil brokerage firm based in Waltham, Massachusetts,
since 1980. United Fuels International's affiliated companies include: United
Crude Oil, Inc. based in Westport, Connecticut; United Crude U.K. based in
London; and United Fuels International. Mr. Rubin served for one year as an oil
broker with Amerex Oil Associates in Livingston Manor, New York. Mr. Rubin is a
graduate of Brown University. Mr. Rubin was born in 1952.
Noel C. Reilly. Mr. Reilly has been associated with the General Partner as its
legal counsel since October 1993 and as Vice President since February 1995.
Mr. Reilly was in private practice as an attorney in New York and Fairfield,
Iowa from January 1991 to October 1993. From May 1989 through December 1990,
Mr. Reilly was associated with the London, England office of the Philadelphia
law firm of Dechert, Price & Rhoads. He received his M.A. in Jurisprudence from
Oxford University, England in 1985 and an LL.M. from New York University Law
School in 1988. Mr. Reilly was born in 1953.
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 against
the General Partner or its principals during the preceding five years or ever.
Minimum Net Worth Requirement of the General Partner. The General Partner will
maintain registration as a commodity pool operator with the CFTC. At present
the CFTC imposes no minimum net worth or "net capital" requirements on commodity
pool operators. However, the General Partner will maintain, in the aggregate, a
net worth equal to an amount which does not affect the classification of the
Partnership as a partnership for tax purposes and not an association taxable as
a corporation. It is expected that if required, a significant portion of the
General Partner's net worth will be in the form of promissory notes or stock
subscriptions. See "Financial Statements" and "Federal Income Tax Aspects."
Minimum Purchase Requirements Imposed on the General Partner. Pursuant to the
Agreement of Limited Partnership, the General Partner may reduce its capital
contribution to less than a 1% interest in all material items of Partnership
gain, loss, deduction or credit upon its obtaining an opinion of counsel for the
Partnership as to the level of capital contribution necessary for the
Partnership to be classified as a partnership for federal income tax purposes.
This capital contribution will be evidenced by Units of General Partnership
Interest. The General Partner will share in the Partnership's profits and
losses pro rata to the extent of its investment.
Other Commodity Pools Operated by the General Partner. The General Partner
currently acts as the pool operator for other commodity pools and expects to
organize other pools in the future. Since the Partnership has been operating
for more than one year, the past performance of the other commodity pools
operated by the General Partner is not included. The Partnership's past
performance is set forth under "Past Performance".
CIS INVESTMENTS, INC.
CIS Investments, Inc. ("CISI"), the co-general partner of Everest II, is
registered with the NFA as a commodity pool operator effective
December 13, 1985. The records of Everest II relating to trading are kept at
CISI's principal offices at 233 S. Wacker Drive, Suite 2300, Chicago, Illinois
60606. CISI's telephone number is (312) 460-4000. The directors and officers
of CISI are as follows:
Hal T. Hansen (born in November, 1936), President and Director. Mr. Hansen has
been President of Cargill Investor Services, Inc. since November, 1978. He
serves on the Executive Committees of the Board of Directors of NFA and the
Futures Industry Association ("FIA") and is the Chairman of the NFA. Mr. Hansen
graduated from the University of Kansas in 1958. He started work at Cargill,
Incorporated in 1958, and was employed by Cargill S.A.C.I. in Argentina from
1965 to 1969. Mr. Hansen has been employed by Cargill Investor Services, Inc.
since 1974.
L. Carlton Anderson (born in August, 1937), Vice President and Director. Mr.
Anderson is a graduate of Northwestern University, Evanston, Illinois. He
started work at Cargill, Incorporated in 1959, in the Commodity Marketing
Division. He served as President of Stevens Industries Inc., Cargill's peanut
shelling subsidiary from 1979 to 1981. He has been employed by Cargill Investor
Services, Inc. since 1981, and is currently the Director in charge of the
Portfolio Diversification Group. Mr. Anderson recently served on the Board of
Directors of the Managed Futures Association.
Richard A. Driver (born in September, 1947), Vice President and Director of
CISI. Mr. Driver became a Vice President and Director of CISI on June 29, 1993.
Mr. Driver graduated from the University of North Carolina in 1969 and he
received a Masters Degree from the American Graduate School of International
Management in 1973. Mr. Driver began working for Cargill, Incorporated in 1973
and joined Cargill Investor Services, Inc. in 1977 as Vice President of
Operations.
Christopher Malo (born in August, 1956), Vice President. Mr. Malo graduated
from Indiana University in 1976. He started work at Cargill, Incorporated in
June, 1978 as an internal auditor. He transferred to Cargill Investor Services,
Inc. in August, 1979, and served as Secretary/Treasurer from November, 1983
until July, 1991. He was elected Vice President and Secretary in July, 1991.
He is a member of the FIA Operations Division and has served as Chairman of the
FIA Finance Committee.
Barbara A. Pfendler (born in May, 1953), Vice President. Ms. Pfendler is a
graduate of the University of Colorado, Boulder. She started work at Cargill,
Incorporated in 1975 as a meal merchant and regional sales manager for the Flax
and Sunflower Department in Minneapolis. In 1979, she was named senior merchant
for the Domestic Soybean Processing Division ("DSP") in Cedar Rapids, Iowa and
later was an account manager for DSP facilities in Savage, Minnesota and Sidney,
Ohio. She joined CIS in 1986 as the Sales Manager for the Portfolio
Diversification Group in Chicago.
Donald Zyck (born in October, 1961), Secretary and Treasurer, Mr. Zyck graduated
from Northern Illinois University, DeKalb, Illinois in 1983. He began working
at Cargill Investor Services, Inc. in April, 1985 as a Staff Accountant. From
January 1988 to October 1994 he was a Manager of Treasury Operations at CIS. He
was elected Controller, Secretary and Treasurer of CIS in October, 1994.
Bruce H. Barnett (born in June, 1947), Assistant Secretary. Mr. Barnett
graduated in 1968 from Southern Connecticut State College. New York University
Law School awarded Mr. Barnett a J.D. in 1971 and an LL.M. in 1973. He started
work at Cargill, Incorporated in 1990 as Vice President, Taxes. From 1987 to
1990, Mr. Barnett was employed in various positions held at Unilever, a European
based multi-national corporation.
Neither CISI nor its individual principals trade or intend to trade commodity
interests for their own accounts.
COMMODITY BROKER
The Partnership's current clearing broker is Cargill Investor Services, Inc.
From time to time, the General Partner may select additional or replacement
clearing brokers as dictated by the Partnership's needs. If this occurs, the
Limited Partners will be informed in the next monthly report issued following
such an addition or replacement. The Clearing Broker will handle all of the
Partnership's futures transactions (and options thereon). If the Partnership
engages in trading of forward contracts, such trading may be through the
Clearing Broker or other firms engaged by the Partnership or the Clearing
Broker. The fees the Partnership will pay the Clearing Broker are described
under "Fees, Compensation and Expenses."
The Clearing Broker, the Partnership and the General Partner have entered into a
Customer Agreement pursuant to which the Clearing Broker will be responsible for
execution and clearance of Commodity Interests as well as for certain
administrative duties such as recordkeeping, transmittal of confirmation
statements, and calculating equity balances and margin requirements for the
Partnership's account.
The Clearing Broker is acting only as clearing broker for the Partnership. It
does not supervise the business of the Advisor. It is not responsible for
monitoring or determining whether the Partnership has reached the Trading
Suspension Level.
The Clearing Broker does not endorse this offering nor the accuracy of the facts
herein stated (except as such facts relate to it). The Clearing Broker will not
participate in or have any responsibility for the management of the affairs of
the Partnership in any way whatsoever. Therefore, an investor cannot rely on
the Clearing Broker in deciding whether to invest in the Partnership.
The Clearing Broker is registered as a futures commission merchant with the CFTC
and is a member of the NFA. It is a clearing member of all major U.S. commodity
exchanges, including the Chicago Board of Trade, Chicago Mercantile Exchange and
Commodity Exchange, Inc.
There have been no material administrative, civil or criminal proceedings
against the Clearing Broker or its principals in the five years preceding the
date of this Confidential Private Placement Memorandum and Disclosure Document.
REDEMPTIONS
Limited Partners may require the Partnership to redeem any or all of their Units
at the Net Asset Value per Unit as of the end of any calendar month on ten (10)
days' prior written notice to the General Partner.
PLAN OF DISTRIBUTION
The Units will be offered by Capital and Additional Selling Agents on a best
efforts basis. A selling commission of 3% of the Net Asset Value of the Units
sold, unless waived in whole or in part by the General Partner, in its sole
discretion, will be paid by each Limited Partner to the Selling Agent and the
Additional Selling Agents for the sale of the Units. The General Partner may
pay up to 100% of the funds it receives from the Clearing Broker to Capital
and the Additional Selling Agents as additional selling commission.
The Units are offered at 104% of their Net Asset Value as of the first day of
each month calculated to three decimal places. Individuals who subscribe at
this time will be admitted to the Partnership (at the General Partner's sole
discretion) on the first business day of the month next following the month in
which their subscription was accepted. Subscriptions will be held in a
non-interest bearing account at the Bank until contributed to the Partnership.
Except for the original Limited Partner who was a principal of Capital, none of
the General Partner,, the Advisor, the Clearing Broker or their principals
intends to purchase Units (other than the Units of General Partnership Interest
to be purchased by the General Partner) (see "Capitalization"), but may do so.
If any such person does purchase Units, the purchase will be for investment
purposes only and not with a view toward immediate resale.
During the Offering, Units shall be offered at a gross subscription price per
Unit equal to the sum of: i) the Net Asset Value per Unit as of the last day of
the month in which subscriptions are accepted; ii) the organization and offering
expense reimbursement fee equal to 1% of the Net Asset Value per Unit, and iii)
the selling commission equal to 3% of the Net Asset Value per Unit, that is 104%
of the Net Asset Value per Unit. An investor will be admitted as a limited
partner and his investment contributed to the Partnership's capital as of the
first day of the month following the month in which his subscription is
accepted.
For example, assume that on April 30th the Net Asset Value per Unit was $1,500.
The gross subscription price per Unit would therefore be equal to $1,560 per
Unit ($1,500 NAV per Unit plus $15 per Unit organization and offering expense
reimbursement plus $45 per Unit selling commission). As a result, if an
investor contributed the gross subscription amount of $26,000, the investor
would subscribe for a total of 16.667 Units ($26,000 divided by $1,560 per
Unit). Of the gross subscription amount of $26,000, proceeds would be applied
as follows: i) $25,000 contributed to the Partnership's capital; ii) $250
applied to organization and offering expense reimbursement ($25,000 x 1%) and
iii) $750 paid as a selling commission to the Selling Agent ($25,000 X 3%).
Subscriptions received during the Offering will be reduced by 3% for the selling
commission, unless waived in whole or in part by the General Partner and 1% will
be deducted to reimburse the General Partner for offering and organization
expenses. The difference will then be divided by the applicable Net Asset Value
per Unit to determine the number of Units purchased. Once the General Partner
has been reimbursed, the amount deducted will be contributed to the
Partnership's capital.
The General Partner is not required to accept any subscription and it is not
required to accept subscriptions in the order in which they are received.
THE COMMODITY MARKETS
Futures Trading
Commodity futures contracts are contracts, made on a commodity exchange, which
provide for the future delivery of various agricultural and non-agricultural
commodities, currencies or financial instruments at a specified time and place.
These contractual obligations, depending on whether one is a buyer or a seller,
may be satisfied either by taking or making, as the case may be, physical
delivery of an approved grade of the commodity or by making an offsetting sale
or purchase of an equivalent commodity futures contract on the same (or a
linked) exchange prior to the designated date of delivery. The contractual
obligations of certain futures contracts such as stock index futures are
satisfied by an offsetting sale or purchase or by a cash settlement of an amount
based on the value of the contract on the settlement date (the trader's profit
or loss equalling the difference between the price at which he acquired the
position and its value on the settlement date).
An option on a futures contract or on a currency gives the purchaser of the
option the right but not the obligation to take a position at a specified price
(the "striking," "strike" or "exercise" price) in the underlying futures
contract. A "call" option gives the purchaser the right to take a long position
in the underlying futures contract, and the purchaser of a "put" option acquires
the right to take a short position in the underlying contract. The purchase
price of an option is referred to as its "premium." The seller (or "writer")
of an option is obligated to take a futures position at a specified price
opposite to the option buyer if the option is exercised. Thus, in the case of a
call option, the seller must stand ready to take a short position in the
underlying futures contract at the strike price if the buyer should exercise the
option. A seller of a put option, on the other hand, stands ready to take a
long position in the underlying futures contract at the strike price.
A call option on a futures contract is said to be "in-the-money" if the strike
price is below current market levels and "out-of-the-money" if that price is
above market. Similarly, a put option on a futures or currency contract is said
to be "in-the-money" if the strike price is above current market levels and
"out-of-the-money" if the strike price is below current market levels.
Options have limited life spans, usually tied to the delivery or settlement date
of the underlying futures contract. Some options, however, expire significantly
in advance of that date. An option that is "out-of-the- money" and not offset
by the time it expires becomes worthless. On certain exchanges, "in-the-money"
options are automatically exercised on their expiration date, but on others,
unexercised options simply become worthless after their expiration date.
Options usually trade at a premium above their intrinsic value (the difference
between the market price for the underlying futures contract and the strike
price) because the option trader is speculating on (or hedging against)
future movements in the price of the underlying contract. As an option nears
its expiration date, the market and intrinsic value typically move into parity.
The difference between an option's intrinsic and its market value is referred to
as the "time value" of the option.
The two broad classifications of persons who trade in commodity interests are
"hedgers" and "speculators." Commercial interests, including farmers, which
market or process commodities, use the futures markets primarily for hedging.
Hedging is designed to minimize losses which may result from price fluctuations,
for example, between the time a merchandiser or processor makes a contract to
sell a raw or processed commodity and the time he must perform the contract.
The usual objective of the hedger is to protect the profit which he expects to
earn from his farming, merchandising or processing operations, rather than to
profit from his futures trading. Unlike the hedger, the speculator generally
expects neither to deliver nor receive physical commodities, but rather to
profit from price fluctuations in the value of commodity futures contracts. The
Partnership's trading will be exclusively speculative.
In market terminology, a trader who purchases a futures contract or option is
"long" in the futures or options market, and a trader who sells a futures
contract or option is "short" in the futures or options market. Before a trader
closes his long or short positions, his outstanding contracts or options are
known as "open trades" or "open positions." The aggregate number of
outstanding contracts on any particular commodity or outstanding option on any
particular futures (for each outstanding contract or option there will be one
trader with a "short" and one trader with a "long" position) is referred to as
the "open interest" in such contract or option.
The Partnership (which includes Everest II, as the context requires) may engage
in forward trading. A forward contract is a contractual right to purchase or
sell currencies or other commodities at or before a specified date in the future
at a specified price, and is therefore similar to a futures contract. However,
forward contracts are not traded on exchanges and are not uniform as to the
quantity, quality or time at which a commodity is to be delivered. Rather,
they are privately negotiated transactions. Banks, brokers or dealers act as
principals in the transaction and maintain a "bid/ask" spread which includes
an anticipated profit and transaction costs for the bank, broker or dealer
through which the transaction was effected. Moreover, there is no direct means
of "offsetting" a forward contract by purchasing an offsetting position as can
be done with a futures contract on a U.S. exchange. Trading of forward
contracts on currencies takes place through a trading system known as the
interbank market. It is not a market with a specific location but rather a
network of participants electronically linked. Documentation of trades
generally consists of an exchange of telex messages. Neither the interbank
market nor the forward contracts traded are regulated by exchanges or any
government authority. Thus, there is no limitation on daily price moves.
Banks, brokers and dealers are not required to make or to continue to make
markets in any commodity. There have been periods when market participants
have refused to quote prices or have quoted prices with an unusually wide
spread between the price at which the bank is willing to buy and that at which
it is prepared to sell. The Partnership will be subject to the risk of the
failure of the bank, broker or dealers or their inability or refusal to perform
with respect to such contracts. See "Risk Factors -- Risk of Forward Trading."
Commodity Regulation
Commodity exchanges provide centralized market facilities for trading in futures
contracts relating to specified commodities and in options on such contracts.
Members of, and trades executed on, a particular exchange are subject to the
rules of that exchange.
Commodity exchanges in the United States operate through "clearing houses,"
which, among other things, make possible the offsetting of positions taken on
the same exchange by assuming the opposite side of all open positions acquired
during a day's trading. After trading has closed on any given day, the clearing
house matches the records of each clearing member of the contracts each member
has bought or sold for the accounts cleared through it during the day. Records
of trades which disagree are referred back to the clearing brokers for
adjustment. Trades on which brokers are in agreement are "cleared," and the
clearing house (which has the financial backing of all its members), rather
than the individual broker who sold or purchased the particular contract,
becomes obligated to perform under each contract. Because each trader whose
trades have been cleared enters into a contract with the clearing house rather
than the other trader from whom he actually purchased or to whom he actually
sold a contract, when a trader wishes to offset his position, he need only
execute an opposite trade on the same (or a linked) exchange. Any such trade
will (and under CFTC rules is required to) offset the opposite position held
by the trader because the other party to both trades is the same (the clearing
house) and the futures contracts traded on any given exchange are fungible.
Another function which the clearing house performs is the daily
"marking-to-market" of open positions. At the end of each day's trading, each
member of an exchange (certain commodity brokers are the members of the
exchanges, and they, not their customers, are responsible to the exchange for
performance under open contracts) must pay over to the clearing house the
amount of all unrealized losses incurred that day in the open positions held
by the accounts traded through that member. At the same time, the clearing
house will pay out to other members the amount of any unrealized profit in their
open positions. ember brokers deduct unrealized losses from (and credit
unrealized profits to) their customer's accounts. If a customer's account is
charged with unrealized losses, those losses are deducted from the customer's
margin on account, and when the margin declines below required levels (exchanges
set minimum margin requirements and brokers may set whatever margin
requirements in excess of such minimums they deem appropriate), the broker is
required to demand that the customer deposit additional funds in his account to
the extent of any deficiency. If a customer does not do so within a reasonable
time, the broker can liquidate the customer's open positions to the extent
necessary to supply the deficiency. See "Margins," below. The daily
marking-to-market procedure is designed to help ensure the financial integrity
of participants in the futures markets.
Commodity exchanges in the United States are subject to regulation under the
Commodity Exchange Act by the CFTC. The NFA is the self-regulatory body of the
futures industry and discharges functions similar to those which the National
Association of Securities Dealers, Inc. performs with regard to the securities
industry. Under the Commodity Exchange Act, the CFTC is the government agency
having responsibility for regulation of commodity exchanges and commodity
futures trading thereon. The CFTC must approve all futures contracts and
related options prior to trading. The function of the CFTC is to implement the
objectives of the Exchange Act to prevent price manipulation and excessive
speculation and to promote orderly and efficient commodity futures markets.
Under the Commodity Exchange Act, futures trading in all commodities traded on
domestic exchanges is regulated. The CFTC has exclusive jurisdiction to
regulate the activities of "commodity trading advisors" and "commodity pool
operators" and has adopted regulations with respect to certain of such persons'
activities. In December, 1984, the CFTC delegated to the NFA authority to
administer the registration of futures commission merchants, commodity trading
advisors, commodity pool operators and their associated persons and to maintain
records on such persons. In accordance with the Commodity Exchange Act, each
of the General Partner and CISI is registered as a commodity pool operator and
the Advisor is registered as a commodity trading advisor. The Commodity
Exchange Act requires a registered commodity pool operator to make annual
filings with the CFTC describing its organization, capital structure, management
and controlling persons, and authorizes the CFTC to require the maintenance of
specified books and records of, and to review the books, records and other
documents prepared by, registered pool operators. Pursuant to that authority,
the CFTC requires a commodity pool operator to keep accurate, current and
orderly records with respect to each pool it operates. The Commodity Exchange
Act authorizes the CFTC to suspend the registration of a commodity pool
operator under certain circumstances. The Exchange Act gives similar
authority to the CFTC with respect to the activities of commodity trading
advisors. If the registration of any trading advisor engaged by the Partnership
was suspended or terminated, the trading advisor would be unable to render
commodity trading advice to the Partnership. Suspension or termination of the
General Partner's registration as a commodity pool operator would prevent it
from managing the Partnership and if the General Partner's registration was lost
or suspended, termination of the Partnership might result.
The Clearing Broker is also subject to regulation by, and registration with, the
CFTC. It is required to be registered as a "futures commission merchant" in its
capacity as commodity broker for the Partnership. The Commodity Exchange Act
requires all futures commission merchants to meet and maintain specified fitness
and financial requirements, account separately for all customers' funds and
positions and maintain specified books and records open to inspection by the
staff of the CFTC. Regulation as a futures commission merchant involves the
most extensive regulation of any category of registrant imposed by the CFTC.
The Commodity Exchange Act authorizes the CFTC to regulate trading by commodity
brokerage firms and their officers and directors and permits the CFTC to require
action by exchanges in the event of market emergencies. The Commodity Exchange
Act and the regulations promulgated thereunder make it unlawful for any futures
commission merchant, commodity pool operator, commodity trading advisor, any
principal thereof or any person who solicits therefor (natural persons who
solicit customers for CFTC registered entities must, in general, register as
associates of such entities), to represent or imply in any manner that they
have been recommended or approved by the CFTC or any governmental agency. The
registrations of the General Partner, the Clearing Broker, CISI and the Advisor
and their principals described above are not and should not be taken as
evidence of any such recommendation or approval.
Limited Partners are afforded certain rights to institute reparations
proceedings under the Exchange Act. The CFTC has adopted rules implementing the
reparations provisions of the Exchange Act which provide that any person may
file a complaint for a reparations award with the CFTC for violation of the
Exchange Act by floor brokers and by futures commission merchants, commodity
trading advisors, commodity pool operators or their associates. The NFA and the
various commodity exchanges also provide forums in which arbitrations of such
claims may proceed. Individuals are also granted the specific statutory right
to seek legal relief in court for certain violations of the Exchange Act. In
addition, the Exchange Act gives the states certain powers to enforce its
provisions and the regulations of the CFTC.
Most United States exchanges (but generally not foreign exchanges) have
established daily limits which restrict the maximum amount that the price of a
contract may fluctuate above or below the previous day's settlement price during
a single day's trading. Once the daily price limit has been reached no trades
may be made in the futures contract in question at a price beyond the limit.
Position limits restricting the number of contracts a trader may control have
also been established on each of the various futures contracts and options.
For a description of the impact of proprietary trading of the General Partner's
principals and affiliates on position limits, see "Conflicts of Interest."
The above-described regulatory scheme may be modified from time to time by
statute or rules promulgated by the CFTC, the NFA and the exchanges.
Trading on foreign markets may differ from trading on United States exchanges in
a variety of ways and may, accordingly, subject the Partnership to additional
risks. See "Risk Factors -- Trading on Foreign Exchanges and Currency Rate
Fluctuations."
Margins
Futures contracts on U.S. exchanges are customarily bought and sold on margins
which range upward from less than two percent of the purchase price of the
contract being traded. Margin is the minimum amount of funds which must be
deposited by the futures trader with his broker in order to initiate futures
trading or to maintain his open positions in futures contracts. A margin deposit
is like a cash performance bond. It helps assure the trader's performance of
the futures contract (consistent with the "security deposit" function of
commodity margins, the margin requirements imposed on hedgers are typically
significantly lower than those imposed on speculators because their futures
positions are offset in other markets). Open futures or option position are
marked-to-market daily. If the position reflects an unrealized loss that
reduces the trader's equity on deposit below the level required to be
maintained, an additional deposit must be made. If the position reflects an
unrealized gain that results in excess of the required margin
deposit, the broker may release the excess amount to the trader.
The minimum amount of margin required for a particular futures contract is set
from time to time by the exchange upon which that futures contract is traded and
may be modified from time to time by that exchange during the term of the
contract. Exchanges typically increase margin requirements on particularly
volatile contracts and reduce margins on those contracts the trading of which is
thought to require stimulation. Commodity brokers may impose their own margin
requirements, provided that those requirements are no lower than exchange
minimums. No margin deposit is required when a trader purchases an option,
although an option premium must be paid and is deducted from the trader's
equity available for trading. When a trader sells an option, on the other hand,
he is required to deposit margin in an amount determined by the margin
requirements established for the futures contract underlying the option, and, in
addition, an amount substantially equal to the current premium for the option.
The margin requirements imposed on the writing of options, although adjusted to
reflect the probability that "out-of-the-money" options will not be exercised,
can in fact be higher than those imposed in dealing in the futures market
directly. Complicated margin requirements apply to "spreads" and "conversions,"
complex trading strategies in which a trader acquires a mixture of related
futures and options positions. Most exchanges and commodity brokers permit
traders to deposit margin in the form of Treasury bills as well as cash. For a
description of margin requirements on foreign exchanges, see "The Commodity
Markets -- Regulation."
The Clearing Broker may require additional margin for any commodity contract, as
may any commodity exchange. Maintenance margins (the amount of margin which
must be kept on deposit once a position is initiated in order to avoid a margin
call) are generally lower than the initial margins.
THE AGREEMENT OF LIMITED PARTNERSHIP
Set forth below is a description of certain terms and provisions of the
Agreement of Limited Partnership (the "Agreement"). A copy of the Agreement is
attached to this Confidential Private Placement Memorandum as Exhibit A and
incorporated by reference. This description is a summary only, is not intended
to be complete and is qualified in its entirety by the Agreement.
Nature of the Partnership
The Partnership was organized on June 20, 1988, under the Iowa Uniform Limited
Partnership Act. On March 29, 1996, the Partnership became the sole limited
partner of Everest II, a Delaware limited partnership which invests directly in
commodity interests. The Partnership transferred all of its assets to
Everest II in return for its limited partnership interests in Everest II.
References to "the Partnership" shall, as the context requires, be references to
Everest II. Interests in the Partnership are Units of Limited
Partnership Interest which when purchased and paid for pursuant to this offering
will be fully paid and nonassessable. See "Management of Partnership Affairs"
below for a description of the extent to which a Limited Partner may become
liable for obligations of the Partnership. In addition, a Limited Partner is
obligated to indemnify the Partnership for any losses or expenses incurred by
the Partnership in connection with any Limited Partner's activities unrelated to
the Partnership's business. The General Partner will be liable for all
obligations of the Partnership to the extent that assets of the Partnership and
amounts which may be claimed against Limited Partners, as described above, are
insufficient to discharge Partnership obligations. No interest will be paid by
the Partnership on any capital contribution. The Agreement provides that the
death of a Limited Partner will not terminate or dissolve the Partnership and
that the legal representatives of a deceased Limited Partner have the right to
withdraw or demand an accounting of the value of his interest to the extent that
a Limited Partner has these rights under the Agreement.
Management of Partnership Affairs
The Limited Partners will take no part in the management and will have no voice
in the operation of the Partnership. Management responsibility must be vested
solely in the General Partner in order to limit the liability of the Limited
Partners as described above. If by exercise of the voting rights under the
Limited Partnership Agreement (see "Amendments; Meetings," below) Limited
Partners participate in the management of Partnership affairs, those Limited
Partners may lose their limited liability for obligations of the Partnership.
To facilitate the execution of various documents by the General Partner on
behalf of the Partnership and the Limited Partners, the Limited Partners will
appoint the General Partner as their attorney-in-fact with power of substitution
by executing the Subscription Agreement/Power of Attorney, in the form attached
to this Confidential Private Placement Memorandum. These documents include,
without limitation, Certificates of Limited Partnership, the Limited Partnership
Agreement, agreements with third parties and any amendments. The General
Partner is also authorized to prosecute, defend and settle litigation, claims or
arbitrations in which the Partnership is involved.
Sharing of Profits and Losses; Distributions
Partnership Accounting. Each partner (including the General Partner) will have
a capital account, the initial balance of which will consist of each partner's
net contribution to the Partnership. The Net Asset Value of the Partnership
will be determined monthly and any increase or decrease in the Net Asset Value
of the Partnership will be added or subtracted from the partners' respective
capital accounts on a monthly basis in the ratio that the balance of each
such account bears to the total balance of all accounts. The amount of
any distributions to any Limited Partners as of the end of each month and any
amount paid upon redemption of Units as of the end of the month shall be charged
against the capital account of the Limited Partners.
Federal Tax Allocations. At the end of each fiscal year, the Partnership's
income and expense and capital gain or loss will be allocated among the
partners, and each partner will be required to include in his personal income
tax return his share of such items. Allocations of capital gain or loss will
be pro rata from short-term capital gain or loss and long-term capital gain or
loss. Items of ordinary income, such as interest and expense, fees, brokerage
commissions and administrative expenses, shall be allocated pro rata among the
Limited Partners based on their respective capital accounts as of the end of
each month in which the items of ordinary income and expense accrue.
Capital gain shall be allocated first to each partner who has redeemed a Unit
during the fiscal year up to any excess of the amount received upon redemption
of the Unit over the tax basis account maintained for the redeemed Unit.
Capital gain remaining after the allocation described in the previous paragraph
shall be allocated among all partners whose capital accounts are in excess of
their tax basis accounts after the adjustments described in the previous
paragraph in the ratio that each such partner's excess bears to all such
partners' excesses. If the gain to be so allocated is greater than the excess
of all such partners' capital accounts over all such tax basis accounts, the
excess shall be allocated among all partners in the ratio that each partner's
capital account bears to all partners' capital accounts.
Capital loss shall be allocated first to each partner who has redeemed a Unit
during the fiscal year up to any excess of the tax basis account maintained for
the redeemed Unit over the amount received upon redemption of the Unit.
Capital loss remaining after the allocation described in the previous paragraph
shall be allocated among all partners whose tax basis accounts are in excess of
their capital accounts after the adjustments described in the previous paragraph
in the ratio that each partner's excess bears to all partners' excesses. If the
loss to be so allocated is greater than the excess of all such tax basis
accounts over all partners' capital accounts, the excess loss shall be
allocated among all partners in the ratio that each partner's capital account
bears to all partners' capital accounts.
Any gain or loss required to be taken into account in accordance with Section
1256 of the Code shall be considered a realized capital gain or loss.
These tax allocations shall be made to each holder of a Unit, whether or not the
holder is a substituted Limited Partner.
This allocation of profit and loss for federal income tax purposes is intended
to allocate taxable profit and loss among partners generally in the ratio and to
the extent that profit and loss are allocated to such partners so as to
eliminate, to the extent possible, any disparity between a partner's capital
account and his tax basis account, consistent with principles set forth in
Section 704 of the Code.
Upon liquidation of the Partnership, the assets of the Partnership will be
distributed to each partner in the ratio that his interest in the Partnership
bears to the interest of all partners.
The Agreement of Limited Partnership, which does not provide for regular or
periodic cash distributions, gives the General Partner sole discretion in
determining what distributions, if any, the Partnership will make to its
partners. The General Partner does not presently anticipate making any
distributions to the Limited Partners.
Additional Partners and Transfers of Units
The Limited Partnership Agreement provides that after the termination of this
offering, the General Partner may, in its discretion, offer and sell additional
Units on either a public or private basis, provided that in no event may the per
Unit proceeds to the Partnership from any sale be less than the Net Asset Value
of a Unit at the time of sale. The General Partner may also consent to and
admit any assignee of Units as a substituted Limited Partner.
The Agreement of Limited Partnership also provides that no assignment or
transfer of units may be made without providing written notice to the General
Partner. All costs related to such transfer (including attorney's fees) shall
be borne by the assignor/transferor. An assignee may not became a substituted
Limited Partner without the prior consent of the General Partner. An assignee
who does not become a substituted Limited Partner will have none of the rights
of a Limited Partner except the right to receive distributions and to redeem
Units to the extent to which the assigning Limited Partner would have otherwise
been entitled to do so. Under the Iowa Uniform Limited Partnership Act, an
assigning Limited Partner remains liable to the Partnership for any amounts
for which he may be liable under the Act (see "Management of Partnership
Affairs," above) regardless of whether any assignee to whom he has assigned
Units becomes a substituted Limited Partner. Further, a Limited Partner who
assigns all of his Units nevertheless remains a Limited Partner unless and until
his assignee is accepted as a substitute Limited Partner.
Investment Objective
The Partnership will engage in, among other things, the speculative trading of
commodity futures contracts and other commodity interests. The Partnership's
objective is to achieve substantial capital appreciation over the long term (at
least two to three years) through the application of a single advisor strategy.
Additional advisors, if any, will be selected on the basis of a variety of
factors -- including past performance, trading experience, and diversity of
strategies. The particular advisors retained by the Partnership may change over
time.
Trading Suspension
If the Net Asset Value per Unit at the close of business on any business day
equals a Trading Suspension Level (as defined below), the Partnership will close
all open positions as expeditiously as possible and suspend trading. No
assurance is given that the Partnership will be able to close all open positions
without incurring substantial additional losses. See "Risk Factors."
If the Net Asset Value per Unit at the close of business on any business day
equals a Trading Suspension Level (as defined below), the Partnership will close
all open positions as expeditiously as possible and suspend trading. No
assurance is given that the Partnership will be able to close all open
positions without incurring substantial additional losses. See "Risk Factors."
The Trading Suspension Level will be determined as of the close of business on
any business day and represents a decline of 50% in Net Asset Value per Unit
from the highest Net Asset Value per Unit (after adjustment for previous
distributions).
Within 10 business days after the date of a suspension of trading due to a
decrease in Net Asset Value per Units to a Trading Suspension Level, the General
Partner must either give notice to the Limited Partners of its intention to
withdraw from the Partnership, or declare a business day within 30 business days
from the date of suspension of trading to be a special redemption date. Notice
of a special redemption date must be sent to each Limited Partner at least 10
business days before such date. Any Limited Partner who elects to have his
Units redeemed on a special redemption date will receive from the Partnership,
for each Unit redeemed, an amount equal to the Net Asset Value per Unit
determined as of the close of business on the special redemption date. See "
Agreement of Limited Partnership - Redemptions." If after the special
redemption date the Partnership's Net Asset Value is at least $300,000, it will
resume trading, unless the General Partner elects to withdraw from the
Partnership. The General Partner may also, in its discretion, add additional
Special Redemption Dates if it determines it is in the Partnership's best
interests to do so. The Partnership will automatically terminate if its
Net Asset Value as of the close of business on any day declines at any time to
less than $300,000. See Agreement of Limited Partnership, Exhibit A.
Termination of the Partnership
The affairs of the Partnership will be wound up and the Partnership liquidated
as soon as practicable upon the first to occur of the following:
(i) December 31, 2020; (ii) receipt by a General Partner of an election to
dissolve the Partnership at a specified time by Limited Partners owning more
than 50% of the Units then outstanding, notice of which is sent by registered
mail to the General Partner not less than 90 days prior to the effective date of
such dissolution; (iii) withdrawal (including withdrawal after suspension of
trading), admitted or court decreed insolvency or dissolution of the General
Partner; (iv) a decline in the Net Asset Value of the Partnership to less than
$300,000; (v) termination of the Partnership pursuant to the provisions of the
Agreement of Limited Partnership or (vi) any event which shall make it unlawful
for the existence of the Partnership to be continued or requiring termination
of the Partnership. The General Partner may withdraw at any time upon written
notice to the Limited Partners. If the Partnership is dissolved as the result
of the General Partner's withdrawal, insolvency or dissolution, the Limited
Partners have the right to elect a new general partner within 90 days of such
withdrawal, insolvency or dissolution. Upon such election, the Partnership will
be re-constituted.
Amendments; Meetings
The Limited Partnership Agreement, may, subject to certain limitations described
therein, be amended by an instrument signed by the General Partner and Limited
Partners owning more than 50% of the Units then owned by Limited Partners.
There is no notice requirement or meeting procedure necessary in the case of
amendments to the Limited Partnership Agreement to which the General Partner
consents.
In addition, any Limited Partner, upon written request addressed to the General
Partner, may obtain from the General Partner, a list of the names and addresses
of record of all Limited Partners and the number of Units held by each, provided
that the Limited Partner represents that the list will not be used for
commercial purposes. Upon receipt of a written request, signed by Limited
Partners owning at least 10% of the Units then owned by Limited Partners, that
a meeting of the Partnership be called to consider any matter upon which
Limited Partners may vote pursuant to the Agreement of Limited Partnership,
the General Partner shall by written notice to each Limited Partner of record
mailed within 15 days after receipt thereof, call a meeting of the Partnership.
The meeting shall be held at least 30 but not more than 60 days after the
mailing of such notice, and the notice shall specify the date, a reasonable
time and place and the purpose of such meeting.
At any such meeting, upon the affirmative vote of Limited Partners owning more
than 50% of the Units (or otherwise as provided by state law), the following
actions may be taken: (i) the Limited Partnership Agreement may, with certain
exceptions, be amended; (ii) the Partnership may be dissolved; (iii) the General
Partner may be removed and replaced; (iv) a new general partner or general
partners may (to the extent permitted by the Iowa Uniform Limited Partnership
Act) be elected if it elects to withdraw from the Partnership; and (v) the
sale of all or substantially all of the assets of the Partnership may be
approved. In the event the General Partner is removed or withdraws from the
Partnership, its general partner's interest shall be valued on a Unit-equivalent
basis and immediately be paid to it.
Reports to Limited Partners
Limited Partners have the right at all times during reasonable business hours to
have access to and copy the Partnership's books and records, in person or by
their authorized attorney or agent. The General Partner will report the
information on a monthly basis as the CFTC may require to be given to the
participants in commodity pools such as the Partnership, which currently
includes periodic statements of account, and any such other information as
the General Partner may deem appropriate. There will be distributed to the
Limited Partners, no more than 90 days after the close of the Partnership's
fiscal year, an annual report containing audited financial statements prepared
by an independent certified public accountant. Tax information necessary for
the preparation of the Limited Partners' annual federal income tax returns will
be delivered after the close of the Partnership's fiscal year. The General
Partner will keep all Partnership records for at least six (6) years. All
books and records of the Partnership shall be maintained at the General
Partner's offices.
Indemnification
The Agreement of Limited Partnership provides that the General Partner, and any
affiliate of the General Partner engaged in the performance of services on
behalf of the Partnership, shall be indemnified for any liability or loss
suffered by the General Partner or such affiliate and shall have no liability to
the Partnership or to any Limited Partner for any liability or loss suffered
by the Partnership which arises out of any action or inaction of the General
Partner or such affiliate if (i) the General Partner has determined, in good
faith, that such course of conduct was in the best interests of the Partnership
and (ii) such liability or loss was not the result of negligence or misconduct
by the General Partner or any such affiliate. Notwithstanding the foregoing,
the General Partner, and any affiliate engaged in the performance of services
on behalf of the Partnership, shall not be indemnified by the Partnership for
any liability imposed by judgment, and costs associated therewith, including
attorney's fees, arising from or out of a violation of state or federal
securities laws or rules. The General Partner and such affiliates may, however,
be indemnified for settlements and related expenses of lawsuits alleging
securities law violations, and for expenses incurred in successfully defending
such lawsuits, under certain circumstances. Any amounts payable to the General
Partner or affiliates pursuant to the foregoing are recoverable only out of the
assets of the Partnership and not from the Limited Partners. The Partnership
shall not incur the cost of that portion of liability insurance which insures
the General Partner and its affiliates for any liability as to which the
General Partner and its affiliates are prohibited from being indemnified.
Payment of any indemnity by the Partnership would reduce the Partnership's
assets. The CFTC has issued a statement of policy relating to indemnification
of officers and directors of a futures commission merchant and its controlling
persons under which it has taken the position that whether indemnification is
consistent with the policies expressed in the Exchange Act will be determined by
the CFTC on a case-by-case basis. For a complete description of
indemnification, see Exhibit A - Agreement of Limited Partnership.
FEDERAL INCOME TAX ASPECTS
The following is a summary of certain federal income tax consequences relating
to an investment in the Partnership. It is primarily intended to be a
discussion of the federal income tax consequences to prospective investors who
are individual citizens or residents of the United States holding the Units as
a capital asset. It is based upon the Internal Revenue Code of 1986, as
presently amended (the "Code"), existing laws, judicial decisions, and
administrative regulations, rulings and practice, all of which are subject to
change at any time. Any such changes could be retroactive so as to apply to
transactions and assets of the Partnership. In addition, it is impractical to
set forth in this summary all aspects of federal, state and local tax law that
may be relevant to participation in the Partnership. The analysis contained
herein is not intended as a substitute for careful tax planning by Limited
Partners. Therefore, each prospective Limited Partner should consult his own
tax advisor to satisfy himself as to the tax consequences of this investment.
Classification as a Partnership
The Partnership believes that, under current federal income tax law, judicial
decisions and administrative practice, each of the Partnership and Everest II
will be classified as a partnership and not as an association taxable as a
corporation. No tax opinion or ruling has been obtained from counsel or the
Internal Revenue Service confirming this federal income tax treatment (or
other tax consequences discussed herein) and the Partnership does not intend
to request such a ruling or opinion.
The Partnership's belief is based, in part, on the following: (1) both the
Partnership and Everest II will be organized and operated in substantial
compliance with applicable state statutes concerning limited partnerships and
the provisions of their Agreements of Limited Partnership; (2) neither the
limited partners nor the Partnership, as sole limited partner of Everest II,
will at any time, directly or indirectly, either individually or collectively,
own more than 20% of the capital stock of the General Partner, CISI, or any
of their affiliates; and (3) the General Partner will maintain throughout the
life of the Partnership an interest of at least 1% of the Partnership's income,
gains, losses, deductions, credits and capital, and the General Partner and CISI
will maintain throughout the life of Everest II an interest of at least 1% of
Everest II's income, gains, losses, deductions, credits and capital, unless an
opinion of counsel is received which permits the maintenance of a general
partner interest of less than 1%.
The continued treatment of the Partnership as a partnership for federal income
tax purposes is in any event dependent upon federal income tax laws, judicial
decisions and administrative practices, all of which are subject to change.
At present, Treasury Regulations provide that, in the absence of other relevant
factors, a partnership will not be treated as a corporation (and thus will be
treated as a partnership) for federal income tax purposes unless it possesses at
least three of the following four corporate characteristics: (1) continuity of
life; (2) free transferability of interests; (3) limited liability; and
(4) centralized management. Based upon representations made, counsel has
concluded that both the Partnership and Everest II will lack at least two of the
corporate characteristics and should therefore be classified as partnerships and
not corporations for federal income tax purposes.
The Partnership's belief regarding its classification as a partnership takes
into account that certain publicly traded partnerships are treated as
corporations for tax purposes. A publicly traded partnership is defined as
including any partnership in which interests are traded on an established
securities market, a secondary market or the substantial equivalent of a
secondary market. Even if the Partnership were determined to be publicly
traded, a publicly traded partnership is not treated as a corporation for tax
purposes if at least 90% of its gross income consists of certain kinds of
qualifying income. Qualifying income includes interest and income and gains
from trading in commodities, futures, forwards and options on futures contracts
for a partnership that has buying and selling of commodities, futures, forwards
and options as a principal activity. It is expected that more than 90% of
Everest II's income will consist of qualifying income as so defined and,
therefore, that the Partnership will not be treated as a corporation.
The continued treatment of the Partnership and Everest II as partnerships for
federal income tax purposes is in any event dependent upon federal income tax
laws, judicial decisions and administrative practices, all of which are subject
to change.
If either the Partnership or Everest II were treated for federal income tax
purposes as a corporation, income and deductions and gains and losses of the
Partnership would be reflected only on its or Everest II's tax return rather
than being passed through to the Partners. In such event, the affected
partnership would be required to pay federal income tax at corporate tax rates,
thereby substantially reducing the amount of cash available for distribution
to the Limited Partners. In addition, distributions made to the Limited
Partners could be taxable to them as ordinary dividend income regardless of the
source from which they were generated, and losses realized by Everest II would
not be available as deductions for Limited Partners on their individual tax
returns.
Taxation of Limited Partners. The Partnership itself will not be subject to
federal income tax as long as it is treated as a partnership and not as an
association taxable as a corporation. The Partnership will report its
operations for tax purposes on the accrual method of accounting for each year
and will file a partnership information income tax return. Included in the
computation of the results from operations will be the Partnership's share of
items of gain, loss, deduction and credit flowing from those commodity pools
in which Everest II makes an investment. The characterization of these
items for tax purposes will be the same as it would be if the Partnership's
Limited Partners were limited partners in the commodity pools in which
Everest II invests.
For federal income tax purposes, a Limited Partner's distributive share of
Partnership income, gain, loss, deduction and credit will be determined by the
Third Amended and Restated Agreement of Limited Partnership unless allocations
under that agreement do not have "substantial economic effect." or are not in
accordance with the Partners' interests in the Partnership. Under the Third
Amended and Restated Agreement of Limited Partnership allocations are generally
made in proportion to Partners' capital accounts and therefore should have
substantial economic effect. However, the allocations required by the
Agreement of Limited Partnership when redemptions of Units occur generally
will not be in proportion to capital accounts. Nonetheless, the General Partner
believes such allocations are permitted for tax purposes and the income tax
regulations seem to support that belief. However, there can be no assurance
that the Internal Revenue Service will not challenge a Partnership allocation.
If an allocation is challenged by the IRS and ultimately determined not to have
"substantial economic effect" and not to be in accordance with the Partners'
interests in the Partnership, adjustments to prior tax returns may be required
in later years to previously allocated items.
In computing his own federal income tax liability for a taxable year, each
Limited Partner will be required to take into account his distributive share of
all items of Partnership income, gain, loss, deduction, credit and tax
preference for each taxable year of the Partnership ending within or with such
taxable year of the Limited Partner, regardless of whether the Limited Partner
has received any distributions from the Partnership. Therefore, a Limited
Partner's share of taxable income from the Partnership might exceed the amount
of cash actually distributed to him. Furthermore, income tax payable by a
Limited Partner with respect to such taxable income might exceed the amount of
cash actually distributed to him. Deduction by a Limited Partner of his
distributive share of Partnership losses will be allowed within the limits
prescribed by the federal income tax provisions described herein.
Adjusted Basis and At Risk Limitations. The amount of Partnership loss,
including capital loss, which a Limited Partner will be entitled to include on
his federal income tax return is limited to the lesser of his at risk amount or
the adjusted basis of his Partnership interest at the end of the taxable year in
which the loss occurs. A Limited Partner is generally considered to be at
risk to the extent of cash and the adjusted basis of other property contributed
to a partnership. A Limited Partner is also generally at risk with respect to
money borrowed for purchase of a partnership interest if he is personally liable
for repayment. A Limited Partner's initial tax basis will be the amount paid
for his Units. A Limited Partner's tax basis for his Units and the amount for
which he is at risk is reduced by his share of Partnership distributions, losses
and expenses and increased by his share of Partnership income, including gains.
Limited Deduction for Certain Expenses. The Code provides that expenses of
producing income, including investment advisory fees, are to be aggregated with
unreimbursed employee business expenses and other expenses (collectively, the
"Aggregate Investment Expenses"), and the aggregate amount of such expenses will
be deductible only to the extent that such amount exceeds 2% of a noncorporate
taxpayer's adjusted gross income. In addition, Aggregate Investment Expenses in
excess of the 2% threshold, when combined with certain other itemized
deductions, are subject to a reduction equal to, generally 3% of the taxpayer's
adjusted gross income in excess of a certain threshold amount. Moreover, such
Aggregate Investment Expenses are miscellaneous itemized deductions that are
not deductible by a noncorporate taxpayer in calculating his alternative minimum
tax liability. The 1995 threshold amount is $114,700 ($57,350 for married
filing separately).
Substantially all of the expenses related to an investment in the Partnership
are incurred and paid by Everest II. The General Partner intends to treat the
ordinary and necessary business expenses incurred by Everest II in conducting
its trading businesss not subject to the 2% floor or the 3% phaseout described
above. Investors should be aware that the Internal Revenue Service could
contend, or that a court could decide, that the contemplated trading activities
of Everest II do not constitute a trade or business for federal income tax
purposes. To the extent that a characterization of Everest II's expenses as
investment advisory expenses were to be sustained, each noncorporate Limited
Partner's pro rata share of the amounts so characterized would be deductible
only to the extent that such Limited Partner's Aggregate Investment Expenses
exceeded the 2% floor and, when combined with certain other itemized deductions,
exceeded the 3% phaseout, as described in the previous paragraph. In addition,
each noncorporate Limited Partner's distributive share of the income allocated
to the Partnership by Everest II would be increased (solely for tax purposes) by
such Limited Partner's pro rata share of amounts so recharacterized.
Offering and Organizational Expenses; Selling Commissions. The offering and
organizational expenses paid to the General Partner and the 3% selling
commission paid to Capital Management Partners, Inc. (and other selling agents)
will not be deductible by the Limited Partners.
Interest Income. Interest received by the Partnership will be taxed as ordinary
income. Capital losses incurred by the Partnership may more than offset the
interest income received by it from a financial perspective, but tax will still
be due on the interest income because of the limited deductibility of capital
losses against ordinary income.
Gains and Losses from Commodity Transactions. The mark-to-market and income
characterization rules apply to all section 1256 contracts. The term "section
1256 contract" is used to refer to four financial products now taxed under the
commodity tax rules. A section 1256 contract is (1) any regulated futures
contract; (2) certain foreign currency contracts; (3) any nonequity option; and
(4) any dealer equity option.
A regulated futures contract is any contract traded on or subject to the rules
of a qualified board or exchange with respect to which the amount required to be
deposited and the amount which may be withdrawn depends upon a system of marking
to market. A qualified board or exchange is a domestic board of trade
designated as a contract market by the CFTC, a national securities exchange
registered with the Securities and Exchange Commission or any other board of
trade, exchange or market as determined by the Secretary of the Treasury.
A foreign currency contract is a contract which is traded in the interbank
market and entered into at arm's length at a price determined by reference to
the price in the interbank market. To qualify as a section 1256 contract, the
foreign currency contract must either require delivery of a foreign currency
which is also traded through regulated futures contracts or require settlement
which depends upon the value of such a currency. For forward foreign currency
contracts traded in the interbank market there are special rules.
A nonequity option is any option traded on or subject to the rules of a
qualified board or exchange other than: (1) a right to acquire stock from the
issuer; (2) an option to buy or sell stock; and (3) an option which has a value
determined by reference to any stock, group of stocks or stock index unless,
with respect to a group of stocks or stock index, the Commodity Futures Trading
Commission has designated a contract market for a contract based upon such a
group of stocks or index or the Secretary of the Treasury determines that the
option meets the requirements for such a designation. Options on regulated
futures contracts and options on broad-based stock indices are included within
the definition of nonequity options and are thus taxed in the same manner as
regulated futures contracts.
A dealer equity option is an equity option purchased or granted by an options
dealer in the normal course of his activity of dealing in options. To qualify
as a dealer equity option, it must be listed on the board or exchange where the
dealer is registered. Everest II will not trade in dealer equity options.
Under the Code, any termination or transfer during the taxable year of a
taxpayer's obligations or rights with respect to a section 1256 contract by
offsetting, delivery, exercise or otherwise results in the recognition of gain
or loss. In addition, any section 1256 contract held by a taxpayer at the close
of a taxable year is treated as if sold for its fair market value on the last
business day of the year. Thus, all section 1256 contracts are subject to
taxation of unrealized gains and losses as well as realized gains and losses
under a mark-to-market system. The gain or loss from Everest II's transactions
in section 1256 contracts, including gain or loss resulting from the
mark-to-market system of taxing unrealized gain or loss, must be taken into
account by the Partnership in determining income taxable to the Partners under
ordinary principles of partnership taxation. Partners may therefore have a
tax liability for unrealized gains in Everest II's open positions at year-end.
However, unrealized gains and losses at year-end subject to federal income tax
under the mark-to-market rule cause an adjustment to the tax basis of the
positions so that such gain or loss is not recognized again when the positions
are closed.
As a general rule, each Limited Partner's distributive share of gain or loss
from Everest II's transactions in section 1256 contracts (including gain or loss
resulting from the mark-to-market rule) will be characterized as follows,
regardless of the period of time the contracts were held and regardless of
whether they were long or short positions: 40% as short-term capital gain or
loss and 60% as long-term capital gain or loss. Such gain or loss will be
combined with each Limited Partner's other capital gains and losses in
determining his federal income tax liability.
For 1996, a 36% marginal tax rate applies to taxable income in excess of the
following threshold amounts: $147,700 for married individuals filing jointly and
surviving spouses; $134,500 for heads of households; $121,300 for single
individuals; $73,850 for married individuals filing separately; and $5,800 for
estates and trusts. Also, a 39.6% rate applies to taxable income over $263,750
($131,875 for married individuals filing separately and $7,900 for estates and
trusts).
The maximum tax rate imposed on net capital gains of individuals is 28%. Up to
the 28% maximum, all capital gains, whether short-term or long-term, are taxed
at the same marginal rate as ordinary income. There is no special deduction for
long-term capital gains.
Subject to an annual limitation of $3,000 ($1,500 for a married individual
filing a separate return), the excess of capital losses over capital gains is
deductible by an individual against ordinary income. The unused portion of
capital losses may be carried forward indefinitely. If an individual taxpayer
elects, net losses from section 1256 contracts may be carried back to each of
the three preceding years to the extent of his net section 1256 gains in those
years and to the extent that such carryback does not increase or produce a net
operating loss for any such year. Moreover, the amount of the carryback to any
such year cannot exceed the capital gain net income for such year. As a result
of the above limitations on deductibility together with other limitations
discussed below, an individual limited partner should not anticipate that his
share of the Partnership's losses from section 1256 contracts will materially
reduce his federal income tax arising from other sources. Moreover, the
Partnership may incur significant capital losses but a Limited Partner may,
nevertheless, be required to pay substantial taxes in respect of his allocable
share of the Partnership's ordinary income.
In the case of a corporate Limited Partner, all capital gains are fully included
in income. Capital losses can be offset only against capital gains, but unused
capital losses can be carried back three years or forward five years. The
amount that can be carried back is limited to an amount that does not cause or
increase a net operating loss in a carryback year. Currently the maximum rate
applicable to gains from section 1256 contracts is 34% (or 39% for taxable
income between certain levels) for corporations with taxable income under $10
million.Gains and Losses from Non-Section 1256 Contracts. The foregoing rules
with respect to section 1256 contracts will not be applicable to the
Everest II's transactions in non-section 1256 positions, such as forward
contracts and contracts traded on a foreign exchange that is not designated as a
qualified board or exchange. Gain or loss on non-section 1256 Contracts is
taken into account for tax purposes only when realized. In general, gains and
losses derived from Everest II's trading certain foreign forward currency
contracts traded on the interbank market will be treated as ordinary income
under Internal Revenue Code Section 988. Futures contracts that are
denominated in terms of or determined by reference to the value of one or more
non-functional currencies and that are not regulated futures contracts (i.e.,
traded on certain nonqualified foreign exchanges) will also generally receive
ordinary income or loss treatment rather than capital gain or loss treatment.
A partner may elect to treat currency related regulated futures contracts and
options on such futures contracts as ordinary income. This election generally
must be made by the partner by the first day of his taxable year and shall apply
to such year and succeeding years unless revoked with the consent of the
Secretary.
Certain partnerships are entitled to make an election to be treated as a
"qualified fund". If this election is made, the tax treatment for transactions
in these non-section 1256 positions is affected. However, since Everest II does
not intend to trade in these types of commodity interests, the General Partner
does not intend to make this election at this time.
Straddles and Wash Sale Rules. There are special rules applicable to straddles.
A straddle is the simultaneous holding of two or more offsetting positions
(including a futures or forward contract or option) with respect to personal
property if there is a substantial diminution of risk of loss from holding one
position by reason of holding one or more other positions. Positions are
presumed to be offsetting under certain circumstances such as when the positions
are in the same personal property and the value of one position ordinarily
varies inversely with the value of another position. For purposes of applying
the straddle rules, positions held by persons related to the taxpayer, including
a partnership in which he is a partner, will generally be treated as held by
him. The tax rules applicable to straddles depend in part upon whether the
straddle is composed entirely of section 1256 contracts, partially section 1256
contracts or entirely non-section 1256 positions (such as outright ownership of
the asset, for example). Straddles composed entirely of section 1256 contracts
are taxed under the mark-to-market system discussed above. Straddles composed
entirely of non-section 1256 positions are subject to the straddle rules
discussed below. Straddles composed partially of section 1256 contracts and
partially of other personal property (e.g. cash positions or contracts
traded on certain foreign exchanges) are known as mixed straddles. Mixed
straddles are subject to the straddle rules discussed below. In addition,
section 1256 contracts that are part of a mixed straddle are also subject to
taxation under the mark-to-market system unless the taxpayer makes certain
elections.
Any loss with respect to one or more positions in a straddle is taken into
account for a taxable year only to the extent that the amount of the loss
exceeds any unrecognized gain with respect to offsetting positions making up the
straddle. Any loss not taken into account is treated as sustained in the next
tax year, subject to application of the loss deferral rules in that year. In
addition, the wash sale and short sale rules may apply to straddle positions.
The effect of these rules is to generally provide for deferral of losses and
to prevent the conversion of ordinary income or short-term capital gain into
long-term capital gain or long-term capital loss into short-term capital loss.
Interest and other carrying charges allocable to personal property that is part
of a straddle are not currently deductible to the extent that they are not
offset by ordinary income generated from the property. Such expenses must be
capitalized and recovered through a decrease in capital gain or an increase in
capital loss upon disposition of the property.
Cash Distributions and Gain or Loss on Sale or Redemption of Interests in the
Partnership. Cash distributions, including distributions on partial
redemptions, made to Limited Partners will generally represent a return of
capital. A return of capital in most cases does not result in the recognition
of any gain or loss for federal income tax purposes but reduces a partner's
adjusted tax basis and at risk basis in his Partnership interest. Loss
will be recognized only if after a complete redemption of a Limited Partner's
Units he has any tax basis remaining in the Partnership. In that case he will
recognize a loss to the extent of such remaining basis. If the Limited Partner
is not a "dealer" in securities and to the extent that the consideration
received is not attributable to certain types of Partnership assets, such gain
or loss will be capital gain or loss.
Any gain or loss recognized by a partner upon the sale or exchange of his
interest in the Partnership is measured by the difference between the amount
realized on the sale or exchange and the partner's adjusted tax basis in the
interest.
Capital gain or loss recognized upon the sale or exchange of a Partnership
interest or upon redemption of a Partnership interest will be long-term if the
partner held the interest for more than one year. The long-term capital gain
holding period is currently more than one year. A partner who redeems or sells
his Partnership interest will be required to take into account in computing his
own federal income tax liability, his distributive share of all items of
Partnership income, gain, loss, deduction, credit and tax preference for the
period he was a partner. If a partner redeems or sell a portion of his
Partnership interests, he will be required to take into account in computing his
own federal income tax liability, his distributive share of the above items
considering his varying interest in the Partnership during the year. Because a
partner's tax basis in his partnership interest is not increased to account
for his distributive share of the partnership's income until the end of
the partnership's taxable year, redemptions or sales during the taxable year
could result in taxable gain to a partner, even though no gain would result if
the same redemption or sale were made at the end of the taxable year.
Tax Elections. The Code provides for optional adjustments to the basis of
Partnership property upon distributions of Partnership property to a partner
(Section 734) and transfers of Units, including by reason of death
(Section 743), provided that a Partnership election has been made pursuant to
Section 754. The general effect of such an election is that transferees of
Units are treated, for purposes of computing gain, as though they had
acquired a direct interest in the Partnership assets and the Partnership is
treated for such purposes, upon certain distributions to the partners, as though
it had newly acquired an interest in the Partnership assets and therefore
acquired a new cost basis for such assets. Any such election is irrevocable
without the consent of the Internal Revenue Service. As a result of the
complexities and added expense of the tax accounting required to implement
such an election, the General Partner does not presently intend to make such
an election. Therefore, any benefits which might be available to the partners
by reason of such an adjustment of basis will be foreclosed.
Tax Audits and Penalties. Partnership audit procedures generally require that
tax treatment of Partnership items be determined at the Partnership level rather
than at the partner level. Thus, Partnership tax audits will be handled
administratively as if the Partnership were a separate taxpayer. Partnerships
are required to notify the Internal Revenue Service and all partners of their
respective items of Partnership income, gain, loss, deduction, credit and tax
preference. Partners are required to use the reported amounts in preparing
their own individual income tax returns. A partner who files a return using
information inconsistent with that provided by the Partnership must file a
statement with the Internal Revenue Service identifying the inconsistency.
Penalties are provided for intentional disregard of this requirement. If items
are consistently reported by a partner, the Internal Revenue Service cannot
assess additional income tax against the partner based upon his treatment of
Partnership items, without first conducting a proceeding at the Partnership
level to determine whether the Partnership has treated the item correctly.
Audit examinations will be conducted at the Partnership level under the same
rules applicable to any tax audit. Partners are generally entitled to receive
notice of the Partnership audit and any resulting adjustments. All partners are
entitled to participate in the proceedings. The General Partner will generally
have authority to enter into binding agreements with the Internal Revenue
Service and to determine in which court to conduct tax litigation. (Partners
who file a statement indicating that the General Partner does not have authority
to enter a settlement on their behalf will not be bound by its settlement
authority.) The General Partner may also consent for all partners to extend the
three year limitation period for assessing tax against a partner attributable to
a partnership item.
The Internal Revenue Service may impose a penalty on a taxpayer who
substantially understates his tax liability. A substantial understatement is an
understatement that exceeds the greater of 10% of the tax required to be shown
on a return or $5,000 ($10,000 for certain corporations). No penalty will be
imposed to the extent that substantial authority exists for the tax treatment
of any item by a taxpayer, or the relevant facts are adequately disclosed on
the return or in a statement attached to the return, and there is a reasonable
basis for the tax treatment of such item by the taxpayer.
Alternative Minimum Tax. Non-corporate taxpayers are subject to an alternative
minimum tax (AMT) that applies if it is greater than the taxpayer's regular
federal income tax as adjusted. It is imposed upon alternative minimum taxable
income (AMTI) which is generally computed by adding certain tax preference
amounts to adjusted gross income, applying certain different methods of
accounting, and subtracting certain specified deductions. The net amount is
further reduced by an allowed exemption. Certain amounts of AMT are
creditable against future years' regular income tax liability. Since
AMT computations are complicated, a prospective Limited Partner should consult
his own tax advisor to determine the potential application of the AMT to his tax
situation.
A corporate alternative minimum tax is imposed upon regular taxable income plus
certain tax preferences, and by applying certain different methods of
accounting, less an exemption. The corporate alternative minimum tax is payable
only to the extent that it exceeds the regular tax. Generally, all amounts of
alternative minimum tax are creditable against future years' regular income tax
liability.
Deduction of Interest. The interest expense incurred on borrowings used to
acquire an interest in the Partnership will likely be treated as interest
subject to the investment interest limitation. Generally, investment interest
will be deductible only up to the amount of net investment income as defined in
the Code. Net investment interest is, generally, the excess of (i) gross
income from interest, dividends, rents and royalties, and (ii) certain gains
from the disposition of investment property, over the expenses directly
connected with the production of such investment income. An individual Limited
Partner's net capital gain from the disposition of investment property will be
included in clause (ii) of the preceding sentence only to the extent such
Limited Partner elects to make a corresponding reduction in the amount of net
capital gain that is subject to tax at the maximum 28% rate described above.
Any investment interest expense disallowed as a deduction in a taxable year
solely by reason of the above limitation is treated as investment interest
paid or accrued in the succeeding taxable year. A prospective limited
partner should consult with his own tax advisor regarding application of the
interest deduction rules to his own tax situation.
Limitation on Losses from Passive Activities. A limitation is imposed on the
ability of taxpayers to offset net losses from passive activities against other
income such as salary, interest, dividends and active business income. Net
losses from passive activities can, however, be used to offset income from other
passive activities. It applies to individuals, estates, trusts and certain
corporations.
A passive activity is generally defined as any activity involving the conduct of
a trade or business (or other activities identified in Treasury regulations) in
which the taxpayer does not materially participate. In the case of a limited
partnership, the limited partners are generally treated as being engaged in a
passive activity. However, "portfolio income" is excluded from the
calculation of net income or loss derived from passive activities. Portfolio
income generally includes interest, dividends, and gain or loss from disposition
of property held for investment.
Treasury regulations state that an activity of trading personal property (such
as commodities) for the account of owners of interests in the activity is not a
passive activity, even if the activity is a trade or business. Since the
Partnership intends to trade personal property for the account of the Limited
Partners, the Partnership's activity will not constitute a passive activity.
As a result, a Limited Partner's distributive share of the Partnership's
income or gain will constitute portfolio income or other income not from a
passive activity and may not be used to offset his losses from passive
activities.
Investment by Retirement Plans. Tax-exempt retirement plans including corporate
pension and profit sharing plans, simplified employee pension plans, Keogh
plans, and IRAs should consider the special tax rules relating to such
retirement plans before investing in the Partnership. Such retirement plans are
generally exempt from federal income taxation except to the extent that their
"unrelated business taxable income" exceeds $1,000 for any taxable year.
Interest, as well as gains or losses from the sale, exchange or other
disposition of property other than inventory or property held primarily for
sale in the ordinary course of trade or business, will generally be excluded
from the computation of unrelated business income, unless such income or gain is
derived from "debt-financed property," meaning generally property acquired with
debt, such as securities purchased on margin or sold short using borrowed
securities. If a Benefit Plan Investor borrows funds to make its investment
in the Partnership, that investment in the Partnership would be "debt-financed
property."
To the extent that investing in commodity futures contracts results in unrelated
business taxable income, each Benefit Plan Investor would, in computing its tax
liability, take into account its share of the Partnership's unrelated business
taxable income and the deductions attributable to that income.
Benefit Plan Investors are urged to consult with their own legal and financial
advisors regarding the possibility that an investment in the Partnership might
result in income derived from the Partnership being treated as unrelated
business taxable income. Tax-exempt retirement plans including corporate
pension and profit sharing plans, simplified employee pension plans, Keogh
plans, and IRAs should consider the special tax rules relating to such
retirement plans before investing in the Partnership.
United States Tax on Foreign Investors. A Limited Partner who is not a citizen
or resident of the United States and is not otherwise engaged in a trade or
business in the United States will generally not be required to pay U.S. income
tax on capital gains from commodity trading, provided, that the commodities are
of a kind customarily traded on an organized exchange and the transactions are
of a kind customarily consumated at such a place. Interest income earned by
the Partnership (other than income attributable to original issue discount
earned on bonds or other evidences of indebtedness payable six months or less
from the date of original issue, interest on commercial bank deposits, and
certain portfolio interest exempt from tax) will be taxable to foreign investors
unless there is an exemption from tax in an appropriate tax treaty. Such
federal income tax will be subject to withholding at a 30% rate by the
Partnership. Foreign investors are advised to ascertain from local tax counsel
whether a treaty exemption is applicable to them. Notwithstanding the general
rule, a foreign investor will be subject to federal income tax on trading
gains and gains realized on the sale or exchange of Units, if he is present
within the United States or its possessions or territories for an aggregate of
183 days or more during the tax year or if the sum of all days on which the
individual is present during the current year plus the number of days he was
present in the first preceding year multiplied by 1/3 plus the number of days he
was present in the second preceding year multiplied by 1/6 equals or exceeds
183 days. In addition, to the extent the Partnership income is treated as
effectively connected with the conduct of a trade or business in the United
States, a foreign Limited Partner's share of partnership income which is not
subject to withholding at the 30% rate generally will be subject to withholding
at the highest rate applicable to U.S. taxpayers. If any such amount is due,
then the General Partner has the right to redeem Units held by such a Foreign
Limited Partner.
State and Local Taxes. The Limited Partners may be subject to taxation by their
state of residence on their shares of Partnership taxable income other than
interest on U.S. government obligations. Since Limited Partners may be affected
in different ways by state and local law, each prospective Limited Partner is
advised to consult with his personal tax advisor regarding the state and local
taxes payable in connection with an investment in the Partnership.
The foregoing analysis is not intended as a substitute for careful tax planning,
particularly since certain of the income tax consequences of an investment in
the Partnership may not be the same for all taxpayers. In addition, the
foregoing does not discuss estate tax, gift tax or other estate planning
aspects of this investment. Accordingly, prospective investors are urged to
consult with their tax advisors with specific reference to the effects of this
investment on their own tax situation.
It is emphasized that no assurance can be given that, in addition to the various
revisions to the Code during the past several years, other legislative,
administrative or judicial changes will not occur which would modify the
foregoing statements, which are based upon the existing provisions of the Code
and the existing administrative and judicial interpretations thereof and the
current information available with respect to the Code. In recent years,
legislative and administrative changes have resulted in some Partnerships
being classified as associations taxable as corporations. Similar changes may
be proposed and adopted in the future, but the form of such changes, their
effective date and their effect on the Partnership, if any, cannot be
determined. In addition, given the broad changes in tax law, Treasury
Regulations substantially modifying the interpretation of the tax law may be
promulgated.
INVESTMENT BY BENEFIT PLAN INVESTORS
Special ERISA Considerations
The purchase of Units in the Partnership might be a suitable investment for
Benefit Plan Investors. The term "Benefit Plan Investor" includes (a) employee
benefit plans defined in and subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), (b) employee benefit plans as defined in but
not subject to ERISA, (c) all plans as defined in section 4975 of the Code, and
(d) all entities that hold plan assets due to investments made in such entities
by already described benefit plan investors. In addition, all or a portion of
an investment made by an insurance company using assets from its general
account may be treated as a Benefit Plan Investor. "Employee benefit plans" as
defined in and subject to ERISA and "plans" as defined in section 4975 of the
Code shall be referred to herein as "Plans".
Benefit Plan Investors' eligibility for participation herein are subject to
numerous restrictions under the Internal Revenue Code, as well as under each
plan's particular terms. In addition, corporate retirement plans, Keogh plans
that include employees, and Individual Retirement Accounts that are part of a
program sponsored by an employer or employee organization are governed by the
provisions of ERISA.
A regulation issued under ERISA (the "ERISA Regulation") contains rules for
determining when an investment by a Plan in a limited partnership will result in
the underlying assets of the partnership being assets of the Plan for purposes
of ERISA and Section 4975 of the Code (i.e., "plan assets"). Those rules
provide that assets of a limited partnership will not be plan assets of a Plan
which purchases an interest therein if the investment by all Benefit Plan
Investors is not "significant" or certain other exceptions apply. Investments
by Benefit Plan Investors will be deemed not significant if Benefit Plan
Investors own, in the aggregate, less than 25% of the total capital of each
class of equity interests of the partnership (determined by not including the
investments of persons with discretionary authority or control over the assets
of such partnership, of any person who provides investment advice for a fee
(direct or indirect) with respect to such assets, and "affiliates" (as defined
in the regulations issued under ERISA) of such persons).
In order to avoid causing assets of the Partnership to be "plan assets," the
General Partner intends to restrict the aggregate investment by Benefit Plan
Investors to under 25% of the total capital of each class of equity interests of
the Partnership (not including the investments of the General Partner, CISI, the
Advisor, Horizon Cash Management L.L.C., any person who provides investment
advice for a fee (direct or indirect) with respect to the assets of the
Partnership, and any entity that is directly or indirectly through one or more
intermediaries controlling, controlled by or under common control with any
of such entities (including a partnership for which General Partner is the
general partner or provides investment advice), and each of the principals,
officers and employees of any of the foregoing entities who has the power to
exercise a controlling influence over the management or policies of such
entity or of the Partnership.) Furthermore, because the 25% test is ongoing,
it not only restricts additional investments by Benefit Plan Investors,
but also can cause the General Partner to require that existing Benefit Plan
Investors withdraw from the Partnership in the event that other investors
withdraw. If rejection of subscriptions or such mandatory withdrawals are
necessary, as determined by the General Partner, to avoid causing the assets of
the Partnership to be "plan assets," the General Partner will effect such
rejections or withdrawals in such manner as the General Partner, in its sole
discretion, determines.
The ERISA Regulation also provide that assets of a limited partnership will not
be "plan assets"of a Plan which purchases an equity interest in the partnership
if the equity interest purchased is a "publicly offered security" (the
"Publicly-Offered Security Exception"). The General Partner intends to comply
with the requirements of the Publicly-Offered Security Exception in the future.
The Partnership has adopted a general investor suitability standard which
requires that each Benefit Plan Investor which subscribes for Units represents
in writing that (a) it is acquiring the Units for investment and not with a view
to resale or distribution; (b) it can bear the economic risk of losing its
entire investment; (c) its overall commitment to investments which are not
readily marketable is not disproportionate to its net worth and its investment
in the Units will not cause its overall commitment to become excessive;
(d) a trustee or an individual for whom the IRA is established subscribing for
Units on behalf of a Benefit Plan Investor assumes responsibility for evaluating
the appropriateness of the investment and has performed his duties with respect
to the plan solely in the interest of the participants of the plan and with the
care, skill and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such matters would use
in the conduct of a similar enterprise; and (e) that none of the General
Partner, CISI, CISFS, the Advisor, Capital, the Clearing Broker, Additional
Selling Agents or Horizon Cash Management L.L.C. nor any of their respective
employees or affiliates: (1) has investment discretion with respect to the
investment of such plan assets; (2) has authority or responsibility to regularly
give investment advice with respect to such plan assets, for a fee, and
pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such plan assets and that
such advice will be based on the particular investment needs of the plan; or
(3) are employers maintaining or contributing to such plan. The trustee or
custodian of a Benefit Plan Investor must complete and sign the Representation
Letter (Exhibit D) and return it with the Subscription Agreement. The General
Partner requires each person making the investment decision for a Benefit Plan
Investor to certify that the investment by the Benefit Plan Investor in the
Partnership does not exceed 10% of such Benefit Plan Investor's assets (this
does not apply to IRAs or Keogh Plans in which only owner-employees
participate.)
Each person making the investment decision on the part of each plan, either
alone or with his purchaser representative(s), must have such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of investment in the Partnership. Each purchaser will be
required to complete and submit an Investor Questionnaire, Exhibit C.
Each person making the investment decision on behalf of a Benefit Plan Investor
should consult with their own legal and financial advisers regarding the
considerations involved in such an investment, including the following:
1. whether the purchase of Units is permitted under the governing instruments of
the plan;
2. whether the purchase of Units is appropriate for the plan in view of its
investment policy;
3. the applicability of certain state laws;
4. applicable restrictions under the Internal Revenue Code; and
5. the requirements of ERISA.
A fiduciary who is considering whether to invest in the Partnership should
consider, among other things, whether the investment would satisfy the
diversification requirement of Section 404(a)(1)(C) of ERISA and whether the
investment would be prudent for purposes of Section 404(a)(1)(B) of ERISA.
In making these determinations, the fiduciary should take into account, among
other things, the nature of the investments and operations of the Partnership
and the fact that the Partnership has no history of operations, that there is
no readily accessible market for Partnership Units, and that investment in
futures contracts is inherently risky. In addition, a fiduciary who is
considering whether to invest in the Partnership must determine that such an
investment is permitted by the plan documents.
Investors should consult with their own legal and financial advisors as to the
tax consequences of plan investments in the Partnership and as to whether the
alternative of adopting their own retirement plan in connection with this
offering is in fact available to them in their specific circumstances.
PURCHASE OF THE UNITS OFFERED HEREBY SHOULD BE MADE ONLY BY
THOSE PERSONS WHO CAN AFFORD TO BEAR THE RISK OF A TOTAL LOSS
OF THEIR INVESTMENT. THE GENERAL PARTNER RESERVES THE RIGHT TO
REJECT ANY SUBSCRIPTION IN WHOLE OR IN PART.
SUBSCRIPTION PROCEDURE
In order to purchase Units, an investor must (i) complete and execute a copy of
the Subscription Agreement/Power of Attorney attached as Exhibit B (ii) complete
and execute a copy of the Investor Questionnaire attached as Exhibit C and
(iii) deliver the Subscription Agreement/Power of Attorney and Investor
Questionnaire and a check (made payable as described below) or a wire transfer
for the full purchase price of the Units subscribed for, to the Partnership.
Trustees of Pension Plans and KEOGH Plans must complete and return the
Representation Letter (Exhibit D). Checks should be made payable to Everest
Futures Fund, L.P. The initial minimum subscription is $26,000, subject to the
General Partner's discretion to accept less. Existing Limited Partners may
make a minimum additional investment of at least $10,000; subject to the
discretion of the General Partner to accept subscriptions in lesser amounts.
All subscriptions are irrevocable absent consent of the General Partner.
Potential investors must meet the requirements set forth in "Subscription
Requirements" in order to subscribe for Units.
LEGAL MATTERS
Legal matters in connection with the securities being offered and tax matters
were passed upon by Sidley & Austin, counsel to the Partnership. Sidley &
Austin has in the past, and may in the future, represent the General Partner and
Capital.
EXHIBIT A
EVEREST FUTURES FUND, L.P.
Third Amended and Restated
Agreement of Limited Partnership
This Third Amended and Restated Agreement of Limited Partnership is made in
Fairfield, Iowa as of March 15, 1996, by and between Everest Asset Management,
Inc., (formerly known as Everest Futures Management, Inc.) 508 N. Second Street,
Suite 302, Fairfield, Iowa 52556 (the General Partner), and each other party who
shall execute this agreement, as amended, whether in counterpart, by separate
instrument or otherwise, as limited partners (collectively Limited Partners)
(the General Partner and Limited Partners are sometimes collectively referred to
as Partners). It replaces in its entirety the Agreement of Limited Partnership
effective as of November, 1988.
1. Formation and Name
The parties hereto do form and continue a limited partnership under the Iowa
Uniform Limited Partnership Act, as amended and in effect on the date of this
agreement (the Act). The name of the limited partnership is, Everest Futures
Fund, L. P. (the Partnership). The General Partner may, without the approval of
the Limited Partners, change the name of the Partnership. The General Partner
shall execute and file a Certificate of Limited Partnership in accordance with
the provisions of the Act and execute, file, record and publish (as appropriate)
those amendments, assumed name certificates and other documents as are or
become necessary or advisable in connection with the operation of the
Partnership, as determined by the General Partner. Each Limited Partner
undertakes to furnish to the General Partner, if the General Partner so
requests, a power of attorney which may be filed in those jurisdictions as the
General Partner may deem appropriate with the Certificate of Limited
Partnership and any amendments and any additional information as is required
from the General Partner to complete any documents, including Certificates of
Limited Partnership, amendments and assumed name certificates, and to execute
and cooperate in the filing, recording and publishing of those documents at the
request of the General Partner. The General Partner shall not be required to
deliver a Certificate of Limited Partnership to each Limited Partner.
2. Principal Office
The address of the principal office of the Partnership shall be c/o Everest
Asset Management, Inc., (formerly known as Everest Futures Management, Inc.)
508 N. Second Street, Suite 302, Fairfield, Iowa 52556 or such other place as
the General Partner may designate from time to time. John P. Lass, or such other
person as the General Partner shall designate, shall be the Partnership's agent
for service of process at the above described address.
3. Business
The Partnership's business and purpose is to trade, buy, sell or otherwise
acquire, hold or dispose of futures and forward contracts for commodities,
financial instruments, stock indexes and currencies, any rights pertaining
thereto and any options thereon or on physical commodities. The Partnership may
also engage in hedge, arbitrage and cash trading of commodities and futures.
The Partnership may engage in the foregoing business directly, through
investing in other partnerships and funds and through investing in subsidiary
limited partnerships or other limited liability entities.
4. Term, Dissolution and Fiscal Year
(a) Term. The term of the Partnership shall commence on the day on which the
Certificate of Limited Partnership is filed in the Office of the Secretary of
State of Iowa, pursuant to the provisions of the Act and shall end upon the
first to occur of the following: (I) December 31, 2020; (2) receipt by the
General Partner of an election to dissolve the Partnership at a specified time
by Limited Partners owning more than 50% of the Units of Limited Partnership
Interest (Units) then outstanding, notice of which is sent by registered mail
to the General Partner not less than 90 days prior to the effective date of
dissolution; (3) withdrawal (including after suspension of trading), insolvency
or dissolution of the General Partner unless a new general partner has been
substituted; (4) a decline in the Net Asset Value of the Partnership as of the
close of business on any day to less than $300,000; or (5) any event which shall
make it unlawful for the existence of the Partnership to be continued or
requiring termination of the Partnership.
(b) Dissolution. Upon the occurrence of an event causing the dissolution of the
Partnership, the Partnership's affairs shall be wound up and the Partnership
terminated. Termination, payment of creditors and distribution of the
Partnership's assets shall be effected as soon as practicable in accordance with
this Agreement and the Act, and the General Partner and each Limited Partner
(and any assignee) shall share in the net assets of the Partnership pro rata
in accordance with its or his respective interests in the Partnership, less
any amount owing by any Partner (or assignee) to the Partnership.
(c) Fiscal Year. The fiscal year of the Partnership shall be the calendar year
or such other year end as the General Partner, with the approval of the Internal
Revenue Service, shall determine.
5. Net Worth of General Partner
The General Partner will maintain, in the aggregate, a net worth equal to an
amount which does not affect the classification of the Partnership as a
partnership for tax purposes and not as an association taxable as a corporation.
For purposes hereof, net worth shall include stock subscriptions from third
parties, including affiliates or shareholders of the General Partner.
6. Capital Contributions and Units of Limited Partnership Interest
The General Partner will maintain a capital contribution equal to a 1% interest
in all material items of Partnership gain, loss, deduction or credit as a
general partnership interest. As long as it is general partner of the
Partnership, the General Partner will maintain this required minimum investment.
The General Partner may withdraw any interest it may have as a general partner
in excess of this requirement, and may redeem any Units of General Partner
Interest as of any month-end on the same terms as any Limited Partner, provided
that no reduction will reduce its interest below its required contribution to
the Partnership as described above.
The requirements of the preceding paragraph may be modified if the General
Partner obtains an opinion of counsel for the Partnership that a proposed
modification will not adversely affect the classification of the Partnership as
a partnership for Federal income tax purposes.
Interests in the Partnership shall be Units of Limited Partnership Interest
(Units or, individually, a Unit), and the Partnership may issue whole or
fractional Units. The General Partner and the initial Limited Partner have each
contributed $1,000 in cash to the capital of the Partnership in order to form
the Partnership. The General Partner shall, on behalf of the Partnership and in
accordance with the latest Prospectus of the Partnership from time to time
filed with the Securities and Exchange Commission pursuant to Rule 424 (the
Prospectus), issue and sell Units to other persons (including the General
Partner and its affiliates). In connection with the initial offering of Units
pursuant to the Prospectus, the General Partner may be reimbursed for offering
and organization expenses incurred by it subject to a limitation that this
reimbursement will not exceed the lower of (a) actual offering and organization
expenses or (b) 2% of the gross proceeds of the offering. As set forth in
Paragraph 12 of this agreement, following termination of the initial offering
of the Units, additional Units (including fractional Units) may be sold,
provided that the net proceeds per any Unit of any Unit sales shall, in no
event, be less than the Net Asset Value per Unit at the time of sale. In any
subsequent offering of Units, the above restriction on the reimbursement of
offering and organization costs need not apply.
If the Partnership does not obtain during the period of the public offering of
the Units (Offering Period) subscriptions for at least 1,000 Units, this
agreement shall terminate, and the initial contributions of the General Partner
and the initial Limited Partner shall be returned to them. Any interest earned
on the contributions of the General Partner and the initial Limited Partner
prior to the time the Partnership commences trading shall be paid to all
contributors pro rata. The Partnership shall not commence trading operations
unless and until the General Partner has accepted subscriptions (which may
include Units subscribed for by the General Partner, any Selling Agent,
Additional Selling Agent, Clearing Broker, Advisor or affiliates thereof) for at
least 1,000 Units, not including the Unit initially purchased by the initial
Limited Partner. The General Partner may terminate the offering of Units at
any time. The aggregate of all capital contributions shall be available to the
Partnership to carry on its business and no interest shall be paid by the
Partnership to subscribers on any funds after their contribution to the
Partnership.
All Units are subscribed for upon receipt of a check or draft of the subscriber
and are issued subject to the collection of the funds represented by the check
or draft. If a check or draft is returned unpaid, the Partnership shall cancel
the Units issued to that subscriber represented by the returned check or draft
and the General Partner shall file an amendment to the Partnership's
Certificate of Limited Partnership or to this Agreement reflecting the
cancellation in any jurisdiction where the filing may be necessary. Any
losses or profits sustained by the Partnership in connection with the
Partnership's commodity trading allocable to any canceled Units shall be deemed
an increase or decrease in Net Asset Value and allocated among the remaining
partners as described in Paragraph 7. Each subscriber agrees to reimburse the
Partnership for any expense or losses incurred in connection with any
cancellation of Units issued to him.
7. Allocation of Profits and Losses
(a) Capital Account and Allocations. A capital account shall be established for
each Partner. The initial balance of each Partner's capital account shall be the
amount of his initial contribution to the Partnership. As of the close of
business (as determined by the General partner) on the last business day of each
month, the following determinations and allocations shall be made:
(1) Any increase or decrease in the Partnership's Net Asset Value (reduced by
fees) as compared to the last such determination of Net Asset Value shall then
be credited or charged to the capital account of each Partner in the ratio that
the balance of each such account bears to the total balance of all accounts.
(2) The amount of any distributions to any Partners as of the end of each month
and any amount paid upon redemption of Units as of the end of the month shall be
charged against the capital account of the Partners.
(b) Allocation of Profit and Loss for Federal Income Tax Purposes. As of the end
of each fiscal year, the Partnership's income and expense and capital gain or
loss from trading shall be allocated among the Partners pursuant to the
following subparagraphs for federal income tax purposes. Allocations shall be
pro rata from short-term capital gain or loss and long-term capital gain or loss
and operating income or loss realized and recognized by the Partnership.
(1) Items of ordinary income, such as interest and expenses, fees, brokerage
commissions and administrative expenses, shall be allocated pro rata among the
Partners based on their respective capital accounts as of the end of each month
in which the items of ordinary income and expense accrue.
(2) Capital gain or loss from the Partnership's trading activities shall be
allocated as follows. There shall be established a tax basis account with
respect to each outstanding Unit. The initial balance of each tax basis account
shall be the amount paid to the Partnership for each Partner's Units. As of the
end of each fiscal year:
(A) Each tax basis account shall be increased by the amount of income allocated
to the partner or his assignee pursuant to subparagraph (b)(1) above and
subparagraph (4) below.
(B) Each tax basis account shall be decreased by the amount of expense or loss
allocated to the Partner or assignee pursuant to subparagraph (b)(1) above and
subparagraph (6) below and by the amount of any distribution received by the
Partner or his assignee with respect to the Unit, other than on redemption of
Units.
(C) When a Unit is redeemed, the tax basis account attributable to such Unit or
redeemed portion of such Unit shall be eliminated.
(3) Capital gain shall be allocated first to each Partner who has redeemed a
Unit during the fiscal year up to any excess of the amount received upon
redemption of the Unit over the tax basis account maintained for the redeemed
Unit.
(4) Capital gain remaining after the allocation in subparagraph (3) shall be
allocated among all Partners whose capital accounts are in excess of their tax
basis accounts after the adjustments in subparagraph (3) in the ratio that each
such Partner's excess bears to all such Partner's excesses. If the gain to be so
allocated is greater than the excess of all such Partners' capital accounts
over all such tax basis accounts, the excess shall be allocated among all
Partners in the ratio that each Partner's capital account bears to all Partners'
capital accounts.
(5) Capital loss shall be allocated first to each Partner who has redeemed a
Unit during a fiscal year up to any excess of the tax basis account maintained
for the redeemed Unit over the amount received upon redemption of the Unit.
(6) Capital loss remaining after the allocation in subparagraph (5) shall be
allocated among all Partners whose tax basis accounts are in excess of their
capital accounts after the adjustments in subparagraph (5) in the ratio that
each such Partner's excess bears to all such Partners' excesses. If the loss to
be so allocated is greater than the excess of all tax basis accounts over all
Partners' capital accounts, the excess loss shall be allocated among all
Partners in the ratio that each Partner's capital account bears to all Partners'
capital accounts.
(7) Any gain or loss required to be taken into account in accordance with
Section 1256 of the Internal Revenue Code, as amended, shall be considered a
realized capital gain or loss for purposes of this Paragraph 7, subsection (b).
(8) The tax allocations prescribed by Paragraph 7, subsection (b) shall be made
to each holder of a Unit, whether or not the holder is a substituted Limited
Partner.
(9) The allocation of profit and loss for federal income tax purposes set forth
in this agreement is intended to allocate taxable profit and loss among Partners
generally in the ratio and to the extent that profit and loss are allocated to
such Partners so as to eliminate, to the extent possible, any disparity between
a Partner's capital account and his tax basis account, consistent with
principles set forth in Section 704 of the Internal Revenue Code, as amended.
(c) Expenses. The Partnership shall reimburse the General Partner for its
organizational costs from the proceeds of the initial offering, not to exceed 2%
of the gross proceeds of that offering. The Partnership shall bear all of its
liabilities, costs and expenses. Appropriate reserves may be created, accrued
and charged against Net Asset Value for contingent liabilities, if any, as of
the date any contingent liability becomes known to the General Partner. Any
reserves shall reduce the Net Asset Value of a Unit for all purposes, including
redemptions.
(d) Limited Liability of Limited Partners. Each Unit, when purchased in
accordance with this Limited Partnership Agreement, shall be fully paid and
nonassessable. Except as provided in Paragraph 16(b), no Limited Partner shall
be liable for Partnership obligations in excess of the capital contributed by
him plus his share of profits remaining in the Partnership, if any, and any
other amounts as he or she may be liable for pursuant to the Act.
(e) Return of Limited Partners' Capital Contributions. Except to the extent that
a Limited Partner shall have the right to withdraw capital in accordance with
the terms of this Limited Partnership Agreement, no Limited Partner shall have
any right to demand the return of his capital contribution or any profits added
thereto, except upon termination and dissolution of the Partnership. In no event
shall a Limited Partner be entitled to demand or receive property other than
cash.
8. Management of the Partnership
The General Partner, to the exclusion of all Limited Partners, shall conduct and
manage the business of the Partnership and shall be compensated therefore as
described in the Partnership's Prospectus. No Limited Partner shall be entitled
to any salary, draw or other compensation from the Partnership on account of his
investment in the Partnership. The General Partner shall have sole discretion in
determining what distributions of profits and income, if any, shall be made to
the Partners (subject to the allocation provisions of this agreement), shall
execute various documents on behalf of the Partnership and the Partners pursuant
to powers of attorney and supervise the liquidation of the Partnership if any
event causing termination of the Partnership occurs. In order to facilitate the
foregoing, each Limited Partner shall execute a power of attorney as described
in Paragraph 13.
The General Partner may cause the Partnership to buy, sell, hold or otherwise
acquire or dispose of commodities and commodity interests including futures
contracts and forward contracts and options traded on exchanges or otherwise,
arbitrage positions, repurchase agreements and other assets. The General
Partner may cause Partnership assets to be deposited in bank, checking, savings,
safekeeping or other custodial accounts. In addition, the General Partner on
behalf of the Partnership may retain a trading manager to make any or all
trading decisions regarding the Partnership and may delegate complete trading
decisions regarding the Partnership. The General Partner may engage, and
compensate on behalf of the Partnership from funds of the Partnership, persons,
firms or corporations, including the General Partner and any affiliated person
or entity, as in its sole judgment it shall deem advisable for the conduct and
operation of the business of the Partnership, provided, however, that the
General Partner may not engage an affiliate as a commodity trading advisor.
The General Partner is specifically authorized to enter into the
Commodity Brokerage Agreement, the Advisory Contract and the Selling Agreement
described in the Prospectus, and each Limited Partner consents to the terms of
those agreements (including, in particular, the fees set forth in those
agreements). If the Advisory Contract described in the Prospectus is terminated,
the General Partner has the right to receive a management fee at least equal to
the fee it will receive under the Advisory Contract from the Partnership. No
trading advisor or other person acting in that capacity shall receive an
advisory fee if it shares or participates in commodity brokerage commissions.
The maximum period covered by any advisory contract shall be one year
and any such agreement must be terminable by the Partnership after such period,
without penalty, on 60 days prior written notice.
The General Partner may subdivide or combine the Units in its discretion,
provided that no subdivision or combination shall affect the aggregate Net Asset
Value of any Partner's interest in the Partnership.
The General Partner has a fiduciary responsibility with respect to safekeeping
of the Partnership's assets regardless of whether those assets are in its
immediate possession. It shall not permit another to employ those assets in any
manner other than for the exclusive benefit of the Partnership.
The Partnership shall make no loans. The Partnership shall not utilize borrowing
except if the Partnership takes delivery of commodities or if the Partnership's
commodity broker obtains lines of credit for the trading of forward contracts as
described below.
The Partnership will adhere to the following policies:
(1) The Partnership will not acquire additional positions in any futures
contract or option if such additional positions would result in aggregate net
long or short positions for all such positions requiring more than 90% of the
Partnership's Net Asset Value as margin or option premium.
(2) The Partnership will not ordinarily enter into an open position in a futures
contract in any commodity after delivery has commenced in the commodity for the
contract month of the contract. The Partnership may, however, occasionally make
or accept delivery of a commodity when such action is deemed by an advisor to be
in the best interests of the Partnership. All physical commodities purchased in
such transactions shall meet the delivery specifications under the futures or
forward contracts corresponding to such physical commodities.
(3) The Partnership will not employ the trading technique commonly known as
"pyramiding," in which the speculator uses unrealized profits on existing
positions as margin for the purchase or sale of additional positions in the same
commodity. However, an advisor may take into account the Partnership's open
trade equity on existing positions in determining generally whether to acquire
additional commodity futures contracts on behalf of the Partnership.
(4) The Partnership will not utilize borrowing in connection with the execution
of its commodity transactions, except to finance the Partnership's taking
delivery of cash commodities or to the extent that the Partnership's commodity
broker obtains lines of credit with banks for the trading of forward contracts
on foreign currencies or for exchange for physical transactions.
(5) Except for forward contracts and the occasional making or taking of delivery
under commodity futures contracts and exchange for physical contracts, the
Partnership will not engage in cash commodity transactions unless the cash
position is hedged.
(6) The Partnership will not purchase, sell or trade in securities (other than
securities in which "customers' funds" may be invested under the Exchange Act).
(7) The Partnership may from time to time employ trading techniques such as
spreads or straddles. The term "spread" or "straddle" describes a commodity
futures transaction involving the simultaneous buying and selling of commodity
futures contracts dealing with the sale of a related commodity but involving
different delivery dates or different markets, or dealing with different but
related commodities in the same or different months. In a spread or straddle
transaction, the trader expects to earn profits from a widening or narrowing
movement of the prices of the different commodity futures contracts.
(8) The Partnership will not permit rebates or give-ups to be received, directly
or indirectly, by any advisor or affiliates of any advisor nor will the General
Partner enter into any business relationships which would circumvent the
foregoing. The use of floor brokers associated with United Energy, Inc. and the
related payment of brokerage fees to them by the Partnership's clearing broker
will not be deemed a violation of this policy.
(9) The Partnership will not commingle its assets with those of other persons,
except as permitted under the Exchange Act, as amended, and the rules and
regulations promulgated thereunder.
(10) The Partnership will not permit churning of its commodity trading account.
(11) The Partnership may trade in futures contracts through foreign and domestic
commodity exchanges, including the International Monetary Market of the Chicago
Mercantile Exchange. The Partnership may also establish positions through banks
or in the interbank market. Forward contracts will be transacted only with banks
having combined capital and surplus in excess of $100,000,000. No specific
limitation on the percentage or amount of forward contracts, if any, engaged in
by the Partnership has been imposed, other than the limitations generally
applicable to commodity positions described above.
(12) No loans may be made by the Partnership to any person, including the
General Partner and its affiliates.
Material changes in the trading policies described above must be approved by a
vote of a majority of the outstanding Units (not including Units of General
Partnership Interest and Units held by the General Partner or its affiliates).
Material changes in an advisor's trading methods not involving the
aforementioned trading policies will be communicated to the Limited Partners by
the General Partner upon notice to the General Partner by the advisor. A change
in commodities traded, however, will not be deemed to be a material change in
the trading policies or strategies. If the General Partner shall, in its sole
discretion, determine that any trading instructions issued by the Partnership's
advisor violate established trading policies of the Partnership, the General
Partner may cause those trades to be reversed.
No person dealing with the General Partner shall be required to determine the
General Partner's authority to make any undertaking on behalf of the
Partnership, nor to determine any fact or circumstance bearing upon the
existence of its authority.
9. Audits and Reports to Limited Partners
The Partnership books shall be audited annually by an independent certified
public accountant. The Partnership will use its best efforts to send (i) within
90 days after the close of each fiscal year certified financial statements
(including a balance sheet and statement of income) of the Partnership for the
fiscal year then ended, (ii) within 75 days after the close of each fiscal
year tax information as is necessary for a Limited Partner to complete his
federal income tax return and ( ii) any other annual and monthly information
as the Commodity Futures Trading Commission may by regulation require. The
General Partner is authorized to expend Partnership funds to provide the
foregoing information and to notify the Limited Partners of other information as
the General Partner may deem appropriate. Limited Partners or their authorized
representatives may inspect the Partnership books and records during normal
business hours upon reasonable written notice to the General Partner.
Partnership records will be maintained for at least six years.
10. Assignability of Units; Redemption of Units; Suspension of Trading in
Certain Events.
Each Limited Partner expressly agrees that he will not assign, transfer or
dispose of, by gift or otherwise, any of his Units or any part of all of his
right, title and interest in the capital or profits of the Partnership without
giving written notice of the assignment, transfer or disposition to the General
Partner and that no assignment, transfer or disposition shall be effective
against the Partnership or the General Partner until the General Partner
receives the written notice described below. Any assignment, transfer or
disposition by an assignee of Units of his interest in the capital or profits of
the Partnership shall not be effective against the Partnership or the General
Partner until the General Partner receives the written notice described below,
and the General Partner shall not be required to give any assignee any rights
under this agreement prior to receipt of such notice. If an assignment, transfer
or disposition occurs by reason of the death of a Limited Partner or assignee,
written notice may be given by the duly authorized representative of the estate
of the Limited Partner or assignee and shall be supported by proof of legal
authority and valid assignment as may reasonably be requested by the General
Partner. The written notice required by this paragraph shall specify the name
and address of the assignee,and the date of assignment, shall include a
statement by the assignee that he agrees to give the above described written
notice to the General Partner upon any subsequent assignment and to be bound by
the terms of this Limited Partnership Agreement and authorizes the General
Partner, should the General Partner consent to the admission of the assignee
as a substituted Limited Partner, to sign such assignee's name to this Limited
Partnership Agreement and to an amendment to the Partnership's Certificate of
Limited Partnership (should such an amendment be advisable) as such assignee's
attorney-in-fact. The General Partner may, in its sole discretion, waive receipt
of the above described notice or waive any defect therein. No assignee, except
upon consent of the General Partner may become a substituted Limited Partner nor
will the estate or any beneficiary of a deceased Limited Partner or assignee
have any right to withdraw any capital or profits from the Partnership except
by redemption of Units. An estate or any beneficiary of a deceased Limited
Partner shall have all the rights and responsibilities which the Limited
Partner had under this Agreement. A substituted Limited Partner shall have all
the rights and powers and shall be subject to all the restrictions and
liabilities of his assignor; provided, however, that a substituted Limited
Partner shall not be subject to those liabilities of which he was ignorant at
the time he became a substituted Limited Partner and which could not be
ascertained from the Certificate of Limited Partnership. Each Limited Partner
agrees that with the consent of the General Partner any assignee may become a
substituted Limited Partner without the further act or consent of any Limited
Partner. Each Limited Partner agrees that he or she has no right to consent to
and will not consent to any person or entity becoming a substituted Limited
Partner, except as set forth in the preceding sentence. If the General Partner
withholds consent for the above stated reasons, an assignee shall not become a
substituted Limited Partner and shall not have any of the rights of a Limited
Partner, except that the assignee shall be entitled to receive that share of
capital or profits and shall have the right of redemption to which his assignor
would otherwise have been entitled. An assigning Limited Partner shall remain
liable to the Partnership as provided in the Act, regardless of whether his
assignee becomes a substituted Limited Partner.
A Limited Partner (or any assignee of Units of whom the General Partner has
received written notice as described above) who purchases during the Initial
Offering Period may withdraw from the Partnership all or any part of his capital
contributions and undistributed profits, if any (such withdrawal being referred
to as a "redemption"), effective as of the end of the first calendar month (and
the end of any month thereafter) following the first six months of trading
operations, by requiring the Partnership to redeem any or all of those Units at
the Net Asset Value of a Unit, calculated as of the close of business (as
determined by the General Partner) on the effective date of redemption;
provided, that (1) all liabilities, contingent or otherwise, of the Partnership,
except any liability to Partners on account of their capital contributions, have
been paid or there remains property of the Partnership sufficient to pay them
and (2) the General Partner shall have timely received a Request for Redemption,
as defined below. As used in this agreement, a Request for Redemption shall
mean a letter, in the form specified by the General Partner, sent by a Limited
Partner (or any assignee of whom the General Partner has received a written
notice as described above) and received by the General Partner at least 15 days,
or such lesser period as shall be acceptable to the General Partner, in advance
of the requested effective date of redemption. A Limited Partner purchasing
Units after the commencement of trading operations may redeem those Units
as of the end of the first calendar month (and the end of any calendar month
thereafter) following six months from the date of the purchase of those Units. A
form of Request for Redemption is included in the Prospectus. Additional forms
of Request for Redemption may be obtained by written request to the General
Partner. The General Partner may declare additional redemption dates upon notice
to the Limited Partners. The General Partner may, but need not, permit
redemption of partial Units. Upon redemption, a Partner (or any assignee of
whom the General Partner has received notice as described above) shall receive
from the Partnership for each Unit redeemed an amount equal to the Net Asset
Value of a Unit on the date of redemption less any amount owing by such
Partner (and assignees, if any) to the Partnership pursuant to Paragraph 16(b)
hereof. If redemption is requested by an assignee, all amounts owed under
Paragraph 16(b) by the Partner to whom such Unit was sold by the Partnership, as
well as all amounts owed by all other assignees who owned such Unit prior to the
current assignee shall be deducted from the amount paid to such assignee upon
redemption of his Units. As described above, an assignee shall not be entitled
to redemption until the General Partner has received written notice of the
assignment, transfer or disposition under which the assignee claims an interest
in the Units to be redeemed and shall have no claim against the Partnership or
the General Partner with respect to distributions on amounts paid on redemption
of Units prior to the receipt by the General Partner of such notice.
If at any time the General Partner, in its sole good faith judgment, determines
that the withdrawal from the Partnership by any benefit plan investor or IRA is
necessary to avoid possible violation by the Partnership and/or other Limited
Partners which are benefit plan investors or IRAs of any of the provisions of
ERISA or the Internal Revenue Code or is necessary to avoid the characterization
of the Partnership assets as "plan assets", the General Partner may require that
such plan withdraw from the Partnership (in whole or in part) through
redemption of its Units. The General Partner shall, in its sole discretion,
determine which plans or IRAs and in what amounts shall so withdraw.
If the Net Asset Value per Unit decreases on the close of business on any day to
a Trading Suspension Level (as defined below), the Partnership will close all
open positions as expeditiously as possible and suspend trading. The Trading
Suspension Level will be determined at the close of business on any business day
and represents a decline of 50% or more in the Net Asset Value per Unit from the
highest Net Asset Value per Unit as of any prior month-end. For the purpose of
computing the Trading Suspension Level, the highest Net Asset Value per Unit
as of any prior month end shall be decreased by previous distributions, if any.
The General Partner will notify all Limited Partners within seven business days
from the date of any decline in the Net Asset Value per Unit to less than 50% of
its Net Asset Value per Unit as of the previous month end. In any event,
within 10 business days after the date of suspension of trading due to a
decrease in Net Asset Value per Unit to a Trading Suspension Level, the General
Partner must either give notice to the Limited Partners of its intention to
withdraw from the Partnership, or declare a business day within 30 business
days from the date of suspension of trading to be a Special Redemption Date.
Notice of a Special Redemption Date must be sent to each Limited Partner at
least 10 business days before the Special Redemption Date. The notice will
contain a description of the Limited Partners' voting rights. Any Limited
Partner who elects to have his Units redeemed on a Special Redemption Date will
receive from the Partnership for each Unit redeemed an amount equal to the Net
Asset Value per Unit determined as of the close of business on the Special
Redemption Date. If after the Special Redemption Date the Partnership's Net
Asset Value is at least $300,000, it will resume trading, unless the General
Partner elects to withdraw from the Partnership. The Partnership will
automatically terminate if its Net Asset Value as of the close of business
on any day declines at any time to less than $300,000. The General Partner may
also at any time and in its discretion declare a Special Redemption Date should
the General Partner determine that it is in the best interest of the Partnership
to do so. If the General Partner declares a Special Redemption Date, the
General Partner need not again call a Special Redemption Date (whether or not
a Special Redemption Date would be required to be called as described above);
and the General Partner in its notice of a Special Redemption Date may, in its
discretion, establish the conditions, if any, under which other Special
Redemption Dates must be called, which conditions may be determined in the
sole discretion of the General Partner, irrespective of the provisions of this
paragraph. The General Partner may also, in its discretion, declare additional
regular redemption dates for some or all of the Units.
Payment will be made within 10 business days after the effective date of
redemption, except that under special circumstances, including but not limited
to inability to liquidate commodity positions as of a date of redemption,
including a special redemption date, or default or delay in payments due the
Partnership from commodity brokers, banks or other persons, the Partnership
may in turn delay payment to Partners requesting redemption of Units of the
proportionate pan of the Net Asset Value of the Units equal to that
proportionate part of the Partnership's Net Asset Value represented by the sums
which are the subject of such default or delay.
11. Offering of Units of Limited Partnership Interests
The General Partner on behalf of the Partnership shall (i) cause to be filed a
Registration tatement or Registration Statements and such amendments as the
General Partner deems advisable with the Securities and Exchange Commission for
the registration and public offering of Units (ii) use its best efforts to
qualify Units for sale under the securities laws of the States of the United
States or other jurisdictions as the General Partner shall deem advisable and
(iii) take action with respect to the matters described in (i) and (ii) as the
General Partner shall deem advisable or necessary. All expenses of the General
Partner in connection with initial filings, qualifications and offering shall be
borne by the Partnership (unless subscriptions for less than 1,000 Units are
received and accepted by the General Partner during the Initial Offering Period
as defined in the Prospectus), subject to a maximum amount equal to 2% of the
gross proceeds of the offering.
The General Partner is authorized to take the action and make arrangements for
the sale of the Units as it deems appropriate, subject to the provisions of
Paragraph 12.
12. Admission of Additional Partners
After the initial public offering of Units has been terminated by the General
Partner, the General Partner may, in its discretion, make additional public or
private offerings of the Units, provided that in no event shall the proceeds to
the Partnership of any Unit sales be less than the Net Asset Value of a Unit at
the time of sale. Pursuant to Paragraph 10, the General Partner may consent to
and admit any assignee of Units as a substituted Limited Partner.
Additional or substitute general partners may be admitted to the Partnership as
if their admission was an amendment to this Limited Partnership Agreement
pursuant to Paragraph 17 (a) or (c) depending on whether the General Partner
consents. Upon the admission of any substitute or additional general partner or
general partners, this Limited Partnership Agreement shall be amended (and
each Limited Partner consents to such amendment) so that the provisions of
this agreement shall apply to such general partner or general partners in the
same manner as now applicable to the General Partner, to the extent practicable.
13. Special Power of Attorney
Each Limited Partner by his execution of this agreement does irrevocably
constitute and appoint the General Partner, with full power of substitution, as
his true and lawful attorney-in-fact, with full power and authority in his name,
place and stead, to admit additional Limited Partners to the Partnership, to
file, prosecute, defend, settle or compromise any litigation, claims or
arbitrations on behalf of the Partnership and to execute, acknowledge, swear
to and deliver (as may be appropriate) on his behalf and file and record in
the appropriate public offices and publish (as may be appropriate): (i) this
Limited Partnership Agreement, including any amendments adopted as provided
herein, (ii) certificates of limited partnership in various jurisdictions, and
amendments thereto, and certificates of assumed name or doing business under a
fictitious name with respect to the Partnership: (iii) all conveyances and
other instruments which the General Partner deems appropriate to qualify or
continue the Partnership in the jurisdictions in which the Partnership may
conduct business which may be required to be filed by the Partnership or
the Partners under the laws of any jurisdiction to reflect the dissolution or
termination of the Partnership or to reorganize or refile the Partnership in a
different jurisdiction, provided that the reorganization or refiling does not
result in a material change in the rights of the partners and/or all agreements
with third parties (including affiliates of the General Partner) necessary to
carry out the Partnership's business. The General Partner may also admit
additional Limited Partners and, to the extent that it is necessary under the
laws of any jurisdiction, to file amended certificates or agreements of limited
partnership or other instruments to reflect such admission, to execute, file and
deliver such certificates, agreements and instruments; and may file, prosecute,
defend, settle or compromise litigation, claims or arbitrations on behalf of the
Partnership. The Power of Attorney granted herein shall be irrevocable and
deemed to be a power coupled with an interest and shall survive the incapacity
or death of a Limited Partner. Each Limited Partner agrees to be bound by any
representation made by the General Partner and by any successor thereto,
acting in good faith pursuant to such Power of Attorney. In addition to
the Power of Attorney granted hereby, each Limited Partner agrees to execute a
special Power of Attorney on a document separate from this Limited Partnership
Agreement. The form of Power of Attorney to be executed is included in the
Subscription Agreement attached to the Prospectus. In the event of any conflict
between this Limited Partnership Agreement and any instruments filed by such
attorney pursuant to the Power of Attorney granted in this Paragraph 13, this
Limited Partnership Agreement shall control.
14. Withdrawal of a Partner
The Partnership shall be dissolved upon the withdrawal (including withdrawal
after suspension of trading), dissolution, admitted or court decreed insolvency
or the removal of the General Partner (unless the Partnership is continued
pursuant to the provisions of Paragraph 17). In additions the General Partner
[may withdraw from the Partnership at any time on 90 days' written notice by
first class mail, postage prepaid, to each Limited Partner (without breach of
this Limited Partnership Agreement). The death, incompetency, withdrawal,
insolvency or dissolution of a Limited Partner shall not terminate or dissolve
the Partnership, and a Limited Partner, his estate, custodian or personal
representative shall have no right to withdraw or value the Limited Partner's
interest in the Partnership except as provided in Paragraph 10. Each Limited
Partner (and any assignee of a Limited Partner's interest) waives on behalf of
himself and his estate, and directs the legal representatives of his estate and
any person interested therein to waive, the furnishing of any inventory,
accounting or appraisal of the assets of the Partnership and any right to an
audit or examination of the books of the Partnership except as provided in this
Agreement.
15. No Personal Liability for Return of Capital
Subject to the provisions of Section 16, the General Partner shall not be liable
for the return or repayment of all or any portion of the capital or profits of
any Partner (or assignee), it being expressly l agreed that any return of
capital or profits made pursuant to this Limited Partnership Agreement shall be
made solely from the assets (which shall not include any right of contribution
from the General Partner) of the Partnership.
16. Indemnification
(a) The General Partner, and any affiliate of the General Partner engaged in the
performance of services on behalf of the Partnership acting within the scope of
the General Partner's authority, shall be indemnified for any liability or loss
suffered by the General Partner or such affiliate and shall have no liability to
the Partnership or to any Limited Partner for any liability or loss suffered by
the Partnership which arises out of any action or inaction of the General
Partner or such affiliate if (1) the General Partner has determined, in good
faith, that such course of conduct was in the best interests of the Partnership
and (2) such liability or loss was not the result of negligence or misconduct
by the General Partner or any such affiliate.
Notwithstanding the foregoing, the General Partner, and any affiliate engaged in
the performance of services on behalf of the Partnership and any person acting
as a broker-dealer, shall not be indemnified for any liability imposed by
judgment, and costs associated therewith, including attorney's fees, arising
from or out of a violation of state or federal securities laws or rules. The
General Partner and such affiliates shall be indemnified for settlements and
related expenses of lawsuits alleging securities law violations, and for
expenses incurred in successfully defending such lawsuits, provided that a
court either (I) approves the settlement and finds that indemnification of the
settlement and related costs should be made, or (2) approves indemnification of
litigation costs if a successful defense is made; provided, however, that the
General Partner must apprise the court of the positions of the Securities and
Exchange Commission, the Tennessee Securities Division, the Massachusetts
Securities Division and all other appropriate state securities regulatory
agencies with respect to indemnification for securities laws violations before
seeking court approval for indemnification.
Any amounts payable to the General Partner or its affiliates pursuant to the
foregoing are recoverable only out of the assets of the Partnership and not from
the Limited Partners. Unless ordered by a court, any amounts payable to the
General Partner or its affiliates pursuant to the foregoing may only be paid
upon a determination by independent legal counsel in a written opinion that
payment to the General Partner or its affiliates is proper in the circumstances
because it or they have met the applicable standard of conduct set forth above.
The Partnership shall not incur the cost of that portion of liability insurance
which insures the General Partner and its affiliates for any liability as to
which the General Partner and its affiliates are prohibited from being
indemnified.
(b) By the Partners. (i) In the event the Partnership is made a party to any
claim, dispute or litigation or otherwise incurs any loss or expense as a result
of or in connection with any Partner's (or assignee's) actions unrelated to the
Partnership's business, the Partner (or assignees, cumulatively) shall indemnify
and reimburse the Partnership for all loss and expense incurred, including
reasonable attorney's fees and (ii) if the Partnership is obligated to pay any
amount to a governmental agency (or otherwise makes a payment) because of a
Limited Partner's status or otherwise specifically attributable to a Limited
Partner (including, without limitation, federal withholding taxes with respect
to foreign partners, state personal property taxes, state unincorporated
business taxes, etc.), then the Limited Partner (the Indemnifying Partner)
shall indemnify the Partnership in full for the entire amount paid (including,
without limitation, any interest, penalties and expenses associated with such
payments). The amount to be indemnified shall be charged against the Capital
account of the Indemnifying Partner, and, at the option of the General Partner,
either:
(A) promptly upon notification of an obligation to indemnify the Partnership,
the Indemnifying Partner shall make a cash payment to the Partnership equal to
the full amount to be indemnified (and the amount paid shall be added to the
Indemnifying Partner's capital account), or
(B) the Partnership shall reduce subsequent distributions which would otherwise
be made to the Indemnifying Partner, until the Partnership has recovered the
amount to be indemnified.
17. Amendments; Meetings
(a) Amendments with Consent of the General Partner. If at any time during the
term of the Partnership the General Partner shall deem it necessary or desirable
to amend this Limited Partnership Agreement, the General Partner may proceed to
do so, provided that the amendment shall be effective only if embodied in an
instrument signed by the General Partner and by Limited Partners owning more
than 50% of the Units then owned by the Limited Partners and if made in
accordance with and to the extent permissible under the Act. Any supplemental
or amendatory agreement shall be adhered to and have the same effect from and
after its effective date as if the same had originally been embodied in and
formed a part of this Limited Partnership Agreement, provided, however, that no
supplemental or amendatory agreement shall, without the consent of all Limited
Partners, change or alter this Paragraph 17, extend the term of the Partnership,
reduce the capital account of any Partner or modify the percentage of profits,
losses or distributions to which any Partner is entitled. In addition, reduction
of the capital account of any assignee or modifications of the percentage of
profits, losses or distributions to which an assignee is entitled shall not be
affected by amendment or supplement to this Limited Partnership Agreement
without the assignee's consent. No meeting procedure or specified notice
period is required in the case of amendments made with the consent of the
General Partner, mere receipt of an adequate number of unrevoked consents being
sufficient. The General Partner may amend this Limited Partnership Agreement
without the consent with applicable laws or regulations or reconcile any
inconsistency, provided that the amendment is not materially adverse to the
Limited Partners.
(b) Meetings. Any Limited Partner upon written request addressed to the General
Partner shall be entitled to obtain from the General Partner, at the Limited
Partner's expense, a list of the names and addresses of record of all Limited
Partners and the number of Units held by each; provided that the Limited Partner
represents that the list will not be used for commercial purposes. Upon receipt
of a written request, signed by Limited Partners owning at least 10% of the
Units then owned by Limited Partners, that a meeting of the Partnership be
called to vote upon any matter which the Limited Partners may vote upon pursuant
to this Limited Partnership Agreement, the General Partner shall, by written
notice to each Limited Partner of record mailed within fifteen days after such
receipt, call a meeting of the Partnership. The meeting shall be held at least
thirty but not more than sixty days after the mailing of the notice, and the
notice shall specify the date of, a reasonable place and time for, and the
purpose of the meeting.
(c) Amendments and Actions without Consent of the General Partner. At any
meeting called pursuant to Paragraph 17(b), upon the affirmative vote (which may
be in person or by proxy) of Limited Partners owning more than 50% of the Units
then owned by the Limited Partners, the following actions may be taken,
irrespective of whether the General Partner concurs: (i) this Limited
Partnership Agreement may be amended in accordance with and only to the extent
permissible under the Act, provided, however, that consent of all Limited
Partners shall be required in the case of amendments which require the consent
of all Limited Partners, i.e., changing or altering this Paragraph 17, extending
the term of the Partnership, reducing the capital account of any Partner or
modifying the percentage of profits, losses or distributions to which any
Partner is entitled; in addition, reduction of the capital account of any
assignee or modification of the percentage of profits, losses or distributions
to which an assignee is entitled shall not be effected by amendment or
supplement to this Limited Partnership Agreement without such assignee's
consent; (ii) the Partnership may be dissolved; (iii) the General Partner may be
removed and replaced in accordance with state law; (iv) a new general partner or
general partners may be elected if the General Partner elects to withdraw from
the Partnership in accordance with state law; (v) the sale of all or
substantially all of the assets of the Partnership may be approved; and
(vi) any contract for services with the General Partner or its affiliates may
be canceled on 60 days written notice without penalty. If the General Partner
is removed or withdraws, its general partnership interest shall be valued on a
Unit-equivalent basis and immediately redeemed.
18. Governing Law
The validity and construction of this Limited Partnership Agreement shall be
determined and governed by the laws of the State of Iowa, without regard to its
conflict of laws provisions.
19. Miscellaneous
(a) Priority Among Limited Partners. No Limited Partners shall be entitled to
any priority or preference over any other Limited Partner in regard to the
affairs of the Partnership, except to the extent that this Limited Partnership
Agreement may be deemed to establish a priority or preference.
(b) Notices. All notices under this Agreement of Limited Partnership shall be in
writing and, except as set forth in the following sentence, shall be effective
upon personal delivery, or if sent by first class mail, postage prepaid
addressed to the last known address of the party to whom the notice is to be
given, upon the deposit of the notice in the United States mails. Requests for
Redemption and notices of assignment, transfer or disposition of Units or any
interest therein shall be effective upon receipt by the General Partner.
(c) Binding Effect. This Agreement of Limited Partnership shall inure to and be
binding upon all of the parties, their successors and assigns, custodians, heirs
and personal representatives. For purposes of determining the rights of any
Partner or assignee, the Partnership and the General Partner may rely upon the
Partnership records as to who are Partners and assignees and all Partners and
assignees agree that their rights shall be determined and that they shall be
bound thereby, including all rights which they may have under Paragraph 10 to 17
hereof.
(d) Captions. Captions in no way define, limit, extend or describe the scope of
this Agreement of Limited Partnership nor the effect of any of its provisions.
IN WITNESS WHEREOF, the parties have executed this Limited Partnership Agreement
as of the day and year first above written.
General Partner:
EVEREST ASSET MANAGEMENT, INC.
By:
John P. Lass, President
Limited Partners:
EVEREST ASSET MANAGEMENT, INC.
As Attorney-in-Fact for the Limited Partners
By:
John P. Lass, President
EXHIBIT B
SUBSCRIPTION REQUIREMENTS
SUBSCRIPTION AGREEMENT/POWER OF ATTORNEY
EXHIBIT B
EVEREST FUTURES FUND, L.P.
Subscription Requirements
By executing the Signature Page for the Subscription Agreement and Power of
Attorney for Everest Futures Fund, L.P. (the "Fund"), each purchaser
("Purchaser") of Limited Partnership Units in the Fund ("Units") irrevocably
subscribes for Units at a price of 104% of the Net Asset Value per Unit at the
close of business on the last day of each month, as applicable, as described in
the Fund's Offering Memorandum (the "Memorandum"). The minimum subscription is
$26,000 subject to the General Partner's discretion to accept less. Units
sold at this time will be sold in fractions calculated to three decimal places.
Checks should be made payable to Everest Futures Fund, L.P. Purchaser is also
delivering to Capital Management Partners, Inc. (the "Selling Agent") or to an
additional selling agent ("Additional Seller") an executed Subscription
Agreement and Power of Attorney Signature Page (Exhibit B to the Memorandum).
If Purchaser's Subscription Agreement and Power of Attorney is accepted,
Purchaser agrees to contribute Purchaser's subscription to the Fund and to be
bound by the terms of the Fund's Limited Partnership Agreement (Exhibit A to the
Memorandum). Purchaser agrees to reimburse the Fund and Everest Asset
Management, Inc. (the "General Partner") for any expense or loss incurred as a
result of the cancellation of Purchaser's Units due to a failure of Purchaser
to deliver good funds in the amount of the subscription price. By execution
of the Subscription Agreement and Power of Attorney Signature Page, Purchaser
shall be deemed to have executed the Limited Partnership Agreement.
As an inducement to the General Partner to accept this subscription, Purchaser
(for the Purchaser and, if Purchaser is an entity, on behalf of and with respect
to each of Purchaser's shareholders, partners or beneficiaries), by executing
and delivering Purchaser's Subscription Agreement and Power of Attorney (through
executing and delivering the Signature Page), represents and warrants to the
General Partner, the Selling Agent, the Additional Seller, if any, who solicited
Purchaser's subscription and the Fund, as follows:
(a) Purchaser is of legal age to execute the Subscription Agreement and Power of
Attorney Signature Page and is legally competent to do so. Purchaser
acknowledges that Purchaser has received (prior to any solicitation of
Purchaser's investment) a copy of the Memorandum, including the Limited
Partnership Agreement.
(b) All information that Purchaser has heretofore furnished to the General
Partner or that is set forth in the Subscription Agreement and Power of Attorney
Signature Page submitted by Purchaser is correct and complete as of the date of
such Subscription Agreement and Power of Attorney Signature Page, and if there
should be any change in such information prior to acceptance of Purchaser's
subscription, Purchaser will immediately furnish such revised or corrected
information to the General Partner.
(c) Unless (d) or (e) below is applicable, Purchaser's subscription is made with
Purchaser's funds for Purchaser's own account and not as trustee, custodian or
nominee for another.
(d) The subscription, if made as custodian for a minor, is a gift Purchaser has
made to such minor and is not made with such minor's funds or, if not a gift,
the representations as to net worth and annual income set forth below apply only
to such minor.(e) If Purchaser is subscribing as a trustee or custodian of an
employee benefit plan with an individual beneficiary or of an individual
retirement account, Purchaser is legally competent to sign the Subscription
Agreement and Power of Attorney (through execution of the Signature Page) and
the representations set forth herein apply only to the beneficiary of such plan
or account.
(f) If Purchaser is subscribing in a representative capacity, Purchaser has full
power and authority to purchase the Units and enter into and be bound by the
Subscription Agreement and Power of Attorney on behalf of the entity for which
he is purchasing the Units, and such entity has full right and power to purchase
such Units and enter into and be bound by the Subscription Agreement and Power
of Attorney and become a Limited Partner pursuant to the Limited Partnership
Agreement.
(g) The representations and statements set forth herein may be asserted in the
defense of the Fund, the General Partner, the Selling Agent, any Additional
Seller or others in any subsequent litigation or other proceeding.
(h) Purchaser understands that the purchase of Units may be made only by persons
who meet one of the following:
(i) an individual income in excess of $200,000 in each of the two most recent
years or a joint income with that person's spouse in excess of $300,000 in each
of those years and a reasonable expectation of reaching the same income level in
the current year; or
(ii) an individual's net worth or a joint net worth with the subscriber's
spouse, at the time of purchase, in excess of $1,000,000 (net worth for these
purposes includes home, home furnishings and automobiles); or
(iii) the subscriber otherwise satisfies the General Partner that he is an
Accredited Investor, as defined in Rule 501 of Regulation "D" adopted pursuant
to the Securities Act of 1933, as amended.
SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY
EVEREST FUTURES FUND, L.P.
c/o Everest Asset
Management, Inc.
508 N. Second Street Sales Commission: 3% of the
Suite 302 Net Asset Value at Which
Fairfield, Iowa 52556 Units are Purchased
Dear Sirs:
1. SUBSCRIPTION FOR UNITS. The undersigned hereby irrevocably subscribes for
Limited Partnership Units ("Units") in Everest Futures Fund, L.P. (the "Fund")
in the amount of $______________ (minimum investment of $26,000 subject to the
General Partner's discretion to accept less) at the price per Unit as set forth
in the Offering Memorandum relating to the Fund (the "Memorandum"). The
undersigned's check payable to Everest Futures Fund, L.P., in the full amount of
the undersigned's subscription, accompanies the Subscription Agreement and Power
of Attorney Signature Page. The General Partner may, in its sole and absolute
discretion, accept or reject this subscription in whole or in part. If this
subscription is rejected, all funds remitted by the undersigned herewith will be
returned without interest.
2. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER. The undersigned
has read and understands the Subscription Requirements set forth in Exhibit B to
the Memorandum. The undersigned understands that by submitting this
Subscription Agreement and Power of Attorney, the undersigned makes the
representations and warranties set forth therein, including those relating to
the undersigned's net worth and annual income.
3. ACCEPTANCE OF LIMITED PARTNERSHIP AGREEMENT. I agree that as of the
date of the acceptance of my subscription by the Partnership I shall become a
Limited Partner, and I hereby agree to each and every term of the Limited
Partnership Agreement as if my signature were subscribed thereto.
4. SPECIAL POWER OF ATTORNEY. I irrevocably constitute and appoint Everest
Asset Management, Inc. (the General Partner), with power of substitution, as my
true and lawful attorney-in-fact, in my name, place and stead, to execute,
acknowledge, swear to (and deliver as may be appropriate) on my behalf and file
and record in the appropriate public offices and publish (as may be
appropriate): (i) the Partnership's Limited Partnership Agreement, including
any amendments adopted as provided therein, (ii) certificates of limited
partnership in various jurisdictions, and amendments thereto, and certificates
of assumed name or doing business under a fictitious name with respect to the
Partnership; (iii) all conveyances and other instruments which the General
Partner deems appropriate to qualify or continue the Partnership in the
jurisdictions in which the Partnership may conduct business which may be
required to be filed by the Partnership or the Partners under the laws of any
jurisdiction to reflect the dissolution or termination of the Partnership or
to reorganize or refile the Partnership in a different jurisdiction, provided
that the reorganization or refiling does not result in a material change in the
rights of the partners; (iv) to admit additional Limited Partners and, to the
extent that it is necessary under the laws of any jurisdiction, to file amended
certificates or agreements of limited partnership or other instruments to
reflect such admission, to execute, file and deliver such certificates,
agreements and instruments; (v) to file, prosecute, defend, settle or compromise
litigation, claims or arbitrations on behalf of the Partnership and (vi) to
enter into agreements with third parties (including affiliates of the General
Partners) to carry out the Partnership's business. This Power of Attorney is
irrevocable and is deemed to be a power coupled with an interest and shall
survive my incapacity or death. I agree to be bound by any representation
made by the General Partner and by any successor thereto, acting in good faith
pursuant to this Power of Attorney, and I hereby waive any and all defenses
which may be available to contest, negate or disaffirm the action of the General
Partner and any successor thereto, taken in good faith under this Power of
Attorney.
NOTICE TO PENNSYLVANIA RESIDENTS: By signing the subscription agreement
Pennsylvania residents agree that they will not sell the Units for at least
12 months following the date of purchase, unless certain limited conditions
exist, which generally will not be applicable to most purchasers.
NOTICE TO MASSACHUSETTS RESIDENTS: By signing the subscription agreement
each Massachusetts resident agrees that if he is a natural persons, then the
amount of his subscription does not exceed 25% of his net worth (excluding
principal residence and its furnishings). The net worth of the purchasers
spouse may be used for this purpose.
5. GOVERNING LAW. The undersigned hereby acknowledges and agrees that this
Subscription Agreement and Power of Attorney shall be governed by and be
interpreted in accordance with the internal laws of the State of Delaware,
without regard to its laws of conflict.
EVEREST FUTURES FUND, L.P.
LIMITED PARTNERSHIP UNITS
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE
PAGE
Please print or type.
The investor named below, by execution and delivery of this Signature Page and
by payment of the purchase price for Limited Partnership Units in Everest
Futures Fund, L.P. ("Units") by enclosing a check payable to Everest Futures
Fund, L.P., subscribes for the purchase of Units is deemed to have executed the
Agreement of Limited Partnership.
By each payment, the named investor further acknowledges receipt of the
Memorandum of the Fund, including the Limited Partnership Agreement, the
Subscription Requirements and the Subscription Agreement and Power of Attorney
set forth therein, the terms of which govern the investment in the Units being
subscribed for hereby.
1.
Total $ Amount of Subscription
(minimum $26,000)
TAXABLE INVESTORS
NON-TAXABLE INVESTORS
2. - -
Social Security # of:
(check one)
____ Individual Ownership
____ Joint Tenants with
Right of Survivorship
____ Tenants in Common
____ Community Property
____ Grantor or other
Revocable Trust
OR -
Taxpayer ID # for: (check one)
____ Trust other than a
Grantor or Revocable Trust
____ Estate
____ UGMA/UTMA (Minor)
____ Partnership
____ Corporation
-
Taxpayer
ID # for: (check one)
____ IRA
____ IRA Rollover
____ Pension
____ Profit Sharing
____ Defined Benefit
____ Other (specify)
3. ____ If investor is a non-resident alien individual, foreign corporation,
foreign partnership or foreign trust or estate, check here and complete Item 9
below.
4.
Name(s) of Investor(s)
Mailing Address of Investor(s) (If P.O. Box, Item 6 MUST be completed)
City State Zip Code
5. State of Residence
EVEREST FUTURES FUND, L.P.
LIMITED PARTNERSHIP UNITS
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE
PAGE (continued)
6. The information requested below MUST be provided if the investor's mailing
address is a P.O. Box.
Legal Street Address
City State Zip Code
7. The information requested below MUST be provided if there is a custodian.
Name of Custodian
Legal Street Address
City State Zip Code
8. UNITED STATES TAXABLE INVESTORS ONLY
I have checked the following if I am subject to backup withholding under the
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code: __. Under
the penalties of perjury, by signature above I hereby certify (i) that the
Social Security Number or Taxpayer ID Number shown on the front of this
Subscription Agreement and Power of Attorney Signature Page is my true, correct
and complete Social Security Number or Taxpayer ID Number; (ii) the address
shown on the front of this Subscription Agreement and Power of Attorney
Signature Page is my true, correct and complete address; (iii) the information
given in the immediately preceding sentence is true, correct and complete;
(iv) I am not, or if this Subscription Agreement and Power of Attorney Signature
Page is being executed on behalf of an investor that is not an individual, the
investor is not, a nonresident alien individual, foreign corporation, foreign
partnership or foreign trust or estate; and (v) I, or the investor, will notify
the Fund of any change in the immediately preceding statement within
sixty (60) days of such change.
9. FOREIGN INVESTORS ONLY
The undersigned foreign investor certifies that:
1. The undersigned is not a U.S. person and is not acquiring the securities for
the account or benefit of any U.S. person or is a U.S. person who purchased
securities in a transaction that did not require registration under the
Securities Act of 1933 (the Act);
2. The undersigned agrees to resell such securities only in accordance with the
provisions of Regulation S, pursuant to registration under the Act, or pursuant
to an available exemption from registration;
3. The undersigned acknowledges that the Partnership and the General Partner may
refuse to register any transfer of the Units by the Undersigned to another
person unless the transfer is made in accordance with the Act and the
Regulations adopted thereunder.
X
Signature of Foreign Investor Date
10. Check here if you are employed by an NASD member firm.
11. FOR USE BY INVESTOR
X
Signature of Investor Date
( ) -
Telephone Number of Investor
X
Signature of Joint Investor (if any) Date
X
Sign if Trust, Corporation, Partnership or Other Entity
12. Account Executive
First Name M.I. Last Name
Name of Broker/Dealer (
)
Area Code Telephone Number
Sales Office Address
City State Zip Code
13. FOR USE BY INVESTOR
THE UNDERSIGNED ACKNOWLEDGES THAT HE/THEY/IT HAVE RECEIVED
THE PARTNERSHIP'S OFFERING MEMORANDUM AND DISCLOSURE
DOCUMENT DATED AUGUST 21, 1996.
X
Signature of Investor
Date
Accepted by:
Everest Asset Management, Inc.
as General Partner of
Everest Futures Fund, L.P.
By:
An authorized representative
Date:
EXHIBIT C
INVESTOR QUESTIONNAIRE
EXHIBIT C
EVEREST FUTURES FUND, L.P.
Investor Questionnaire
Name of Prospective Offeree
This Questionnaire has been prepared in connection with the proposed offering of
Units of Limited Partnership Interest (Units) of Everest Futures Fund, L.P. (the
Partnership). The offering is intended to qualify as a private placement
pursuant to the Securities Act of 1933, as amended, Regulation D under the Act
and applicable state laws and regulations.
In order to obtain preliminary information needed to determine the applicability
of these exemptions it is necessary for each prospective purchaser to complete
this questionnaire. Please answer all applicable questions, date and sign the
form, and forward it with the Subscription Agreement to Everest Asset
Management, Inc.
If additional space is needed for the response to any item, please attach an
appropriate rider.
Your cooperation is appreciated.
INSTRUCTIONS
Individuals: For each individual purchasing interests in his own name, complete
questions 1 through 12.
Partnerships: On behalf of a Partnership, complete all questions except
questions 3 and 4.
Corporations: On behalf of a Corporation, complete all questions except
questions 3 and 4.
Trusts: On behalf of a Trust, complete all questions except questions 3 and 4.
(1) Name(s):
(2) Principal Address:
(a) Home:
Telephone:
(b) Business:
Telephone:
(3) Individual purchasers only.
(a) Age: (b) Marital Status:
(c) Number of Dependents:
(4) Individual purchasers only. College, professional or graduate school, other
pertinent education:
(5) Principal occupation or employment during last 5 years. For purchasers
other than individuals, state nature of business.
(6) (a) Annual individual income for calendar years 1994, 1995, and 1996
(excluding any income of your spouse, unless subscription is joint):
1994
1995
1996
estimate
____
____
____
$100,000 - $199,999
____
____
____
____
____
____
$200,000 - $500,000
Over $500,000
(b) If you represent a corporation, trust, or partnership, was such
organizations's gross income greater than $100,000 for each of the last two
years?
Yes (____) No (____)
(7) Net worth (including, for individuals, spouse's net worth):
_____ $100,000 - $199,999
_____ $200,000 - $299,999
_____ $300,000 - $749,999
_____ $750,000 - $999,999
_____ Over $1,000,000
(8) Are you able to bear the economic risk of investment in the Partnership?
(There is the possibility of substantial loss of your investment in the
Partnership. The Units are restricted as to their assignability, there is no
public market for the Units and no public market will develop in the future.)
Yes (____) No (____)
(9) Do you have such knowledge and experience in financial and business matters
that you are capable of evaluating the merits and risks of this investment on
your own?
Yes (____) No (____)
Previous Investment Experience
(i) Do you have a brokerage account?
Yes (____) No (____)
(ii) Have you ever before bought securities which were exempt from federal and
state registration (private placements or offerings)?
Yes (____) No (____)
(iii) How many offerings did you invest in last year?
(___)0 (____)1 (____)2 or more
(iv) Have you previously purchased a speculative investment?
Yes (____) No (____)
(v) Have you ever invested in a limited partnership?
(____) No (____) Once (____) Twice or more
(vi) Have you recently invested in commodity futures?
Yes (____) No (____)
(vii) Have you ever invested in a partnership which invested in commodity
futures contracts?
Yes (____) No (____)
(10) Will you acquire your Units for your own account without any intention of
transferring them to others?
Yes (____) No (____)
(11) Please initial or check, as applicable:
_____ (1) I am not an accredited investor, as defined below, but I meet the
general suitability standards for investors set forth in the Offering Memorandum
under "Investment Requirements", including minimum income and net worth
requirements.
_____ (2) I qualify as an "accredited investor" as defined in Section 501(a) of
Regulation D of Section 4(2) of the Securities Act of 1933, and similar
provisions under state securities laws and regulations; that is:
_____ (a) I am an individual and had an income in excess of $200,000 in each of
the two most recent years or a joint income with my spouse in excess of $300,000
in each of those years and have a reasonable expectation of reaching the same
income level in the current year; or
_____ (b) I am an individual and my net worth or joint net worth with my spouse,
at the time of purchase, is in excess of $1,000,000 (net worth for these
purposes includes home, home furnishings, and automobiles); or
_____ (c) I am a corporation, business trust, partnership or an organization
described in Paragraph 501(c)(3) of the Internal Revenue Code that was not
formed for the specific purpose of investing in the Partnership and whose total
assets exceed $5,000,000; or
_____ (d) I am a trust of the type that: (i) has total assets exceeding
$5,000,000, (ii) was not formed for the specific purpose of investing in the
Partnership and (iii) whose investment in the Partnership is directed by a
person with such knowledge and experience in financial and business matters that
he is capable of evaluating the merits and risks of investing in the Fund.
_____ (e) I am an entity in which all of the equity owners are either natural
persons and meet the requirements of (a) or (b) above or are other entitities
which meet the requirements of (c) or (d) above or some combination of both.
(12) Are you relying upon the advice of any Purchaser Representatives who has
(have) assisted you in evaluating the merits and risks of an investment in the
Units? If so, give name, address and professional affiliation of your Purchaser
Representative(s):
Yes (____) No (____)
Complete (a) and (b) only if answer to 12 is yes.
(a) The above-named Purchaser Representative(s) has (have) such knowledge and
experience in financial and business matters that he (they) is (are) capable of
evaluating the merits and risks of an investment in the Units. ______ (Purchaser
Representative to initial.)
(b) Has the Purchaser Representative disclosed to you, in writing, of any
material relationship between such person or his affiliates and the Partnership
or the General Partner?
Yes (____) No (____)
(13) If the Prospective Purchaser is a partnership, corporation or trust please
also give the following information:
Was the entity formed for the purpose of investing in Everest Futures
Fund, L.P.?
Yes (____) No (____)
(14) (a) If Investor is an entity, Investor represents and warrants to the
Partnership and Everest Asset Management, Inc. that either (check all that
apply):
(i) it is operated by a person which is registered with the CFTC as a commodity
pool operator and is a member of the NFA; or
(ii) it is not a commodity pool and there is no requirement that its management
or general partner, as applicable, register as a commodity pool operator for the
reasons set forth below in subsection b.
(b) The Investor represents and warrants that it is not a commodity pool or, in
the alternative, its management or general partner is not required to register
as a commodity pool operator with the CFTC and become a member of the NFA for
the reasons set forth below (check all that are applicable):
The entity is not operated for the purpose of investing in commodities and does
not come within the definition of pool as set forth in Rule 4.10(d) of the
CFTC's regulations.
The total gross capital contribution in all pool operated or intended to be
operated by the pool operator does not exceed $200,000 and none of the pools
operated by the pool operator has more than 15 participants at any one time.
The CFTC has granted an exemption from the requirement to register as a
commodity pool operator (copy of such exemption is attached).
All of the beneficial owners or beneficiaries of the entity are related family
members and no solicitation of non-family members has or will occur.
The entity is organized outside of the United States and has no investors who
are U.S. Persons as that term is defined by the CFTC.
PARTNERSHIPS COMPLETE
Type: General _____ Limited _____
Number of Partners: General _____ Limited _____
Date and State of formation: Date __________ State __________
Principal Business:
CORPORATIONS COMPLETE
Date and State of Incorporation: Date ___________ State __________
Number of Shareholders:
Principal Business:
TRUSTS COMPLETE
Type of Entity:
Date and State of Formation:
Number of Known Beneficiaries:
TO BE SIGNED BY ALL PROSPECTIVE PURCHASERS
The undersigned certifies that the answers given in this questionnaire are
complete and accurate and are furnished with knowledge that they will be relied
on by Everest Asset Management, Inc., general partner of the Partnership in
admitting a prospective purchaser to the Partnership.
A. SIGN HERE IF YOU ARE AN INDIVIDUAL PURCHASER.
Date: , 199___.
Date: , 199___.
Signature of Joint Investor, if any.
B. SIGN HERE IF THE PURCHASER IS A CORPORATION, TRUST
(INCLUDING A PENSION, KEOGH OR OTHER ERISA PLAN), PARTNERSHIP OR
OTHER ENTITY.
Date: , 199___
Name of Entity
By:
Its:
EXHIBIT D
REPRESENTATIONS BY EMPLOYEE BENEFIT PLAN
EXHIBIT D
EVEREST FUTURES FUND, L.P.
Representations by Employee Benefit Plans
The undersigned, on behalf of the subscribing employee benefit plan, represents
that all of the obligations and requirements of the Employee Retirement Income
Security Act of 1974, including prudence and diversification, with respect to
the investment of trust assets in Everest Futures Fund, L.P. (the Partnership)
have been considered prior to subscribing for units of partnership interest in
the Partnership (Units). The person with investment discretion on behalf of
the plan has consulted his attorney or other tax adviser with regard to whether
the purchase of Units might generate "unrelated business taxable income" under
Section 512 of the Internal Revenue Code. By signing this representation
letter, the trustee or custodian subscribing for Units assumes full
responsibility for evaluating the appropriateness of the investment and
represents that he has performed his duties with respect to the plan solely in
the interest of the participants of the plan with the care, skill and diligence
under the circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of a similar
enterprise.
Units may not be purchased with the assets of an employee benefit plan if the
General Partner, the Selling Agent, an Additional Seller or any of their
affiliates either: (a) has investment discretion with respect to the investment
of such plan assets; (b) has authority or responsibility to regularly give
investment advice with respect to such plan assets, for a fee, and pursuant to
an agreement or understanding that such advice will serve as a primary basis
for investment decisions with respect to such plan assets and that such advice
will be based on the particular investment needs of the plan; (c) has
discretionary authority or discretionary responsibility for administration of a
plan; or (d) are employers maintaining or contributing to such plan. These
restrictions are intended to prevent potential violations of certain provisions
of ERISA. Each fiduciary who authorizes a purchase of Units by a plan must
determine for himself whether such purchase would constitute a prohibited
transaction.
The Partnership's Agreement of Limited Partnership provides that if at any time
the General Partner, in its sole good faith judgment, determines that the
withdrawal by an employee benefit plan or IRA from the Partnership is necessary
to avoid possible violation by the Partnership and/or other Limited Partners,
which are employee benefit plans or IRA's of any of the provisions of ERISA or
the Internal Revenue Code, the General Partner may require in its sole
discretion that such a plan withdrawal in whole or part from the Partnership
through redemption of its Units is in accordance with the Partnership's
Agreement of Limited Partnership.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF EMPLOYEE BENEFIT
PLANS OR IRA'S IS IN NO RESPECT A REPRESENTATION BY THE GENERAL
PARTNER THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL
REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR
PLAN. THE PARTNERSHIP RESERVES THE RIGHT TO REJECT THE
SUBSCRIPTIONS OF ANY EMPLOYEE BENEFIT PLAN OR IRA, IN ITS SOLE
DISCRETION, IF IT BELIEVES THAT THE ACCEPTANCE OF ADDITIONAL
EMPLOYEE BENEFIT PLAN SUBSCRIPTIONS MAY JEOPARDIZE THE
STANDING OF THE PARTNERSHIP UNDER APPLICABLE LAW AS A
PERMISSIBLE INVESTMENT BY EMPLOYEE BENEFIT PLANS.
Subscribing for Units in the Partnership does not create an employee benefit
plan. Those considering the purchase of Units on behalf of an employee benefit
plan must first insure that the plan has been properly established and funded.
Then after the considerations discussed above have been taken into account, the
trustee or custodian of a Plan who decides or who is instructed to do so may
subscribe for Units in the Partnership, subject to the applicable minimum
subscription.
(Name of Plan)
By:
Trustee
EXHIBIT E
REQUEST FOR REDEMPTION
EXHIBIT E
EVEREST FUTURES FUND, L.P.
Request for Redemption
Everest Futures Fund, L.P.
c/o Everest Asset Management, Inc.
508 N. Second Street
Suite 302
Fairfield, Iowa 52556
Dear Sirs:
I hereby request redemption, as defined in and subject to all of the terms and
conditions of the Agreement of Limited Partnership for Everest Futures
Fund, L.P. (the Partnership), of (insert number of Units to be redeemed) _____
of my Units of Limited Partnership Interest in the Partnership. Redemptions
shall be effective as described in the Partnership's Agreement of Limited
Partnership. I (either in my individual capacity or as a authorized
representative of an entity, if applicable) hereby represent and warrant that I
am the true, lawful and beneficial owner of the Unit or Units of Limited
Partnership Interest of the Partnership to which this Request relates with full
power and authority to request redemption of the Units. The Units are not
subject to any pledge or otherwise encumbered in any fashion.
SIGNATURES MUST BE IDENTICAL TO NAME(S) IN WHICH
UNITS OF LIMITED PARTNERSHIP INTEREST ARE REGISTERED.
Name Street
City State Zip Code
Date
Signature of trustee, partner or Signature of Limited Partner or
authorized officer assignee
