10-K/A 1 ef10ka2009.txt 2009 10K A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10Ka Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended Commission File Number December 31, 2009 0-17555 The Everest Fund, L.P. (Exact name of registrant as specified in its charter) Iowa 42-1318186 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1100 North 4th Street, Suite 143, Fairfield, Iowa 52556 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (641) 472-5500 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No X Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes X No Note Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation SK is not contained herein and will not be contained to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of Form 10K or any amendment to this Form 10-K: [ X ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non- accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer Small Reporting Company Filer X Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No X State the aggregate market value of the voting and non- voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. 15,757,993 Note If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in this Form. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No (APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the registrant s classes of common stock, as of the latest practicable date. DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980). None Part I Item 1. Business The Everest Fund, L.P. (the "Partnership" or "Everest") is a limited partnership organized on June 20, 1988 under the Iowa Uniform Limited Partnership Act. The business of the Partnership is the speculative trading of commodity futures contracts and other commodity interests, including forward contracts on foreign currencies (Commodity Interests) either directly or indirectly through other entities, including subsidiaries, partnerships, Partnerships or other limited liability entities, which constitute one industry segment. The Partnership commenced its trading operations on February 1, 1989. Its General Partner is Everest Asset Management, Inc. (the "General Partner") a Delaware corporation organized in December, 1987. During its operation, the Partnership has had various trading advisors. In December 1990, John W. Henry & Company, Inc. (JWH) began trading for the Partnership as one of the Partnership's trading advisors. In May 1994, JWH became the sole trading advisor to the Partnership. On September 13, 1996 the U.S. Securities and Exchange Commission accepted a voluntary filing by the Partnership of a Form 10 - General Form for Registration of Securities, and public reporting of Units of the Partnership sold as a private placement commenced at that time and has continued to the present. In 2009 the Partnership continued previously offered Class A Units (retail shares) and charged an initial 1% Offering and Organization fee as a reduction to capital. In 2009 the Partnership retained the JWH Global Analytics Program ( JWH GAP )as its sole trading program. As of December 31, 2009 100% of the Partnership's assets are being traded by the JWH GAP. Upon fifteen days written notice, a Class A Limited Partner may require the Partnership to redeem all or part of his Units effective as of the close of business (as determined by the General Partner) on the last day of any month at the Net Asset Value thereof on such date. Notwithstanding the above, pursuant to the Amended and Restated Agreement of Limited Partnership, the General Partner may, in its sole discretion, and on ten days' notice, require a Limited Partner to redeem all or part of his Units in the Partnership as of the end of any month. There are no additional charges to the Limited Partner at redemption. The Partnership's Amended and Restated Agreement of Limited Partnership contains a full description of redemption and distribution procedures. Since commencing trading operations, the Partnership has engaged in the speculative trading of Commodity Interests and will continue to do so until its dissolution and liquidation, which will occur on the earlier of December 31, 2020 or the occurrence of any of the events set forth in Paragraph 4(a) of the Agreement of Limited Partnership. Such events are (i) an election to dissolve the Partnership made by over 50% of the Limited Partnership Units at least 90 days prior to dissolution, (ii) withdrawal, insolvency, or dissolution of the General Partner (unless a new general partner is substituted), (iii) decline in the Net Asset Value of the Partnership at the close of any business day to less than $300,000, or (iv) any event which will make it unlawful for the existence of the Partnership to be continued or requiring termination of the Partnership. The address of the General Partner and the Partnership is 1100 North 4th Street, Suite 143, Fairfield, Iowa 52556, and the telephone number at such location is (641) 472- 5500. The General Partner changed its name as of March 1, 1994 and amended its Certificate of Incorporation, with no other changes, accordingly. In accordance with the provisions of the Commodity Exchange Act and the rules of the National Futures Association (NFA), the General Partner is registered as a commodity pool operator and a commodity trading advisor, JWH is registered as a commodity trading advisor and the Commodity Broker is registered as a futures commission merchant, each subject to regulation by the Commodity Futures Trading Commission (CFTC). Each is also a member of the NFA in such capacity. The General Partner, to the exclusion of the limited partners of the Partnership (the Limited Partners ), manages and conducts the business of the Partnership. Thus the General Partner (i) selects and monitors the independent commodity trading advisor(s) and the Commodity Broker; (ii) allocates and/or reallocates assets of the Partnership to or from JWH and/or the advisor(s); (iii) determines if an advisor or commodity broker should be removed or replaced; (iv) negotiates management fees, incentive fees and brokerage commissions; (v) determines its own compensation with respect to management and administrative fees; and (vi) performs such other services as the Partnership may from time to time request, except that all trading decisions are made by JWH and not the General Partner. In addition, the General Partner selects the commodity broker(s) that will clear trades for the advisor(s). Newedge Financial Inc., part of the Newedge Group joint venture between Societe Generale and Calyon currently acts as Everest's commodity broker. The General Partner is responsible for the preparation of monthly and annual reports to the Limited Partners; filing reports required by the CFTC, the NFA, the SEC and any other federal or state agencies having jurisdiction over the Partnership's operations; calculation of the Net Asset Value (meaning the total assets less total liabilities of the Partnership ( for a more precise definition, see the Exhibit Form 10 - General Form for Registration of Securities incorporated by reference hereto ) and directing payment of the management and incentive fees payable to JWH or the advisor(s)under an advisory agreement(s) entered into with the commodity trading advisor(s). Effective November 2003, the General Partner charges the Partnership a monthly management fee equal to 0.50% of the Partnership's Class A beginning-of-month net asset value. The General Partner pays a portion of its fees for actual commission charges to its Clearing Broker. In addition, the Partnership reimburses the General Partner for the actual organization and offering expenses advanced by it, not to exceed one percent of the Class A Net Asset Value of Units sold. Organization and offering expenses shall mean all expenses incurred by the Partnership or the General Partner in connection with and in preparation to offer and distribute the Units to investors, including, but not limited to, expenses for traveling, printing, engraving, mailing, salaries of employees while engaged in sales activity, charges of transfer agents, registrars, trustees, escrow holder, depositories, experts, expenses of qualification of the sales of its securities under state law, including taxes and fees and accountants and attorneys fees. Everest pays John W. Henry & Company, Inc., its current commodity trading advisor, a monthly management fee equal to 0.167% (approximately 2% annually) of Everest s month- end Allocated Assets, as defined, and a quarterly incentive fee equal to 20% of Everest's trading profits allocable to its trading exclusive of interest income on Allocated Assets, as defined. The incentive fee is retained by JWH even though trading losses may occur in subsequent quarters; however, no further incentive fees are payable until any such trading losses (other than losses attributable to redeemed units and losses attributable to assets reallocated to another advisor) are recouped by Everest. The Commodity Broker has agreed to pay Everest interest on 95% of Everest assets (including open trade equity) deposited with it during a month at the average of 91-day U.S. Treasury Bills purchased by the Commodity Broker during each month. The Commodity Broker will retain all excess interest, if any, earned on the Everest assets, above the amount of interest paid to Everest. The interest rate to be paid by the Commodity Broker to Everest is a negotiated rate which has been negotiated between the Commodity Broker and the General Partner. The actual interest income on Everest s assets earned by the Commodity Broker may be greater than or less than the negotiated rate to be paid by the Commodity Broker to Everest. The Commodity Broker will also be responsible for execution and clearance of futures contracts (and possibly certain other Commodity Interests). The Partnership pays no selling commission but does pay an ongoing compensation fee equal to 3% of the Net Asset Value of Class A Units sold, unless waived in whole or in part by the General Partner, to the selling agents in connection with the sale of the Units. The General Partner may pay up to 100% of the Partnerships it receives to the selling agents as additional selling commission. The Partnership is obligated to pay its periodic operating expenses and extraordinary expenses. Although those expenses will vary depending on the Partnership's size, it is estimated that the periodic operating expenses will be approximately $80,000 annually. Extraordinary expenses for these purposes include expenses associated with significant non-recurring litigation including, but not limited to, class action suits and suits involving the indemnification provisions of the Agreement of Limited Partnership or any other agreement to which the Partnership is a party. By their nature, the dollar amount of extraordinary expenses cannot be estimated. All expenses shall be billed directly and paid for by the Partnership. The Partnership's operating expenses for the years 2005-2009 can be found in the table in Item 6 below. As of December 31, 2009, the General Partner had two employees. Further, the General Partner, in its capacity as a CFTC-regulated commodity pool operator, contracts certain services of research, administration, client support and management information systems and analysis to Capital Management Partners, Inc. (Capital). Capital is a CFTC- regulated introducing broker, and an NFA member. Capital is also registered with the Financial Industry Regulatory Authority, Inc. ( FINRA ) as a broker dealer. As of December 31, 2009, Capital had 7 employees. The Partnership's business constitutes only one segment for financial reporting purposes; and the purpose of the Partnership is to trade, buy, sell, spread or otherwise acquire, hold or dispose of Commodity Interests including futures contracts, forward contracts, physical commodities and related options thereon. The objective of the Partnership's business is appreciation of its assets through speculative trading in such Commodity Interests. Financial information about the Partnership's business, as of December 31, 2009 is set forth under Items 6 and 7 herein. For a description of commodity trading and its regulation, see the Prospectus filed on Form S-18 and the Confidential Private Placement Memorandum filed as part of the Form 10 and included in the exhibits hereto. The Current Offering On July 1, 1995 the Partnership reopened for investment as a Regulation D, Rule 506 private placement offering an unlimited amount of limited partnership interests. On September 19, 1996 the Commission accepted a Form 10 - General Form for Registration of Securities submitted by the Partnership thereby making the Partnership a public reporting private placement offering. It also qualified the Partnership as a publicly offered security as defined in the Employee Retirement Income Security Act of 1974 (ERISA) rules permitting it to accept investment of an unlimited amount of plan assets as defined in ERISA. Hitherto, as a private placement the Partnership could accept ERISA plan assets representing no more than 25% of the total investment in the Partnership. The limited partnership interests are offered by the Selling Agent and additional selling agents with a Class A minimum subscription amount of $25,000. (The Class A minimum subscription amount for employee benefit plans and individual retirement accounts is $10,000). Competition JWH and any other advisor(s) of the Partnership, its or their respective principals, affiliates and employees are free to trade for their own accounts and to manage other commodity accounts during the term of the Advisory Agreement and to use the same information and trading strategy which JWH obtains, produces or utilizes in the performance of services for the Partnership through its investment in Everest. To the extent that JWH recommends similar or identical trades to the Partnership and other accounts which it manages, the Partnership may compete with those accounts for the execution of the same or similar trades. Other trading advisors who are not affiliated with the Partnership may utilize trading methods which are similar in some respects to those methods used by JWH, or any other future Partnership's advisor(s). These other trading advisors could also be competing with the Partnership for the same or similar trades as requested by the Partnership's advisor(s). Item 1A. Risk Factors GENERAL Trading in Commodity Interests Is Speculative. Commodity interest prices are highly volatile. Price movements for futures contracts, for example, which may fluctuate substantially during a short period of time, are influenced by numerous factors that affect the commodities markets, including, but not limited to: changing supply and demand relationships, government programs and policies, national and international political and economic events, and changes in interest rates. See, Risk Factors -- Commodity Interests Trading May Be Illiquid. Commodity Interests Trading Is Highly Leveraged. The low margin deposits normally required in trading commodity interests permit an extremely high degree of leverage. Accordingly, a relatively small price movement in a commodity interest may result in an immediate and substantial loss to the investor. For example, if at the time of purchase 5% of the price of a futures contract is deposited as margin, a 5% decrease in the price of the futures contract would, if the contract were then closed out, result in a total loss of the margin deposit (brokerage commission expense would also be incurred). Like other leveraged investments, any commodity interest trade may result in losses in excess of the amount invested. Although more than the initial margin can be lost on a trade, the Partnership, and not investors personally, will be subject to margin calls. The Partnership's Trading Account May Be Leveraged or de-levereged. The general partner may, in its sole discretion, periodically adjust the size of the trading account with JWH by increasing or decreasing the cash, other assets or notional Partnerships allocated to it (and thus the amount by which the Partnership's assets are leveraged). Because the trading account may be leveraged, (i) the Partnership may incur greater risk since the Partnership may experience greater losses, as measured by a percentage of assets actually allocated to JWH, due to the notional Partnership's component; (ii) the Partnership's returns may experience greater volatility compared to the returns which the Partnership would have achieved on a non- leveraged basis; and (iii) the Partnership may receive more frequent and larger margin calls. Because the trading account may be de-leveraged, the partnership may incur smaller gains than it would if the JWH trading program had been fully allocated to. Commodity Interests Trading May Be Illiquid. Most U.S. commodity futures exchanges impose daily limits regulating the maximum amount above or below the previous day's settlement price which a futures contract price may fluctuate during a single day. During a single trading day no trades may be executed at prices beyond the daily limit. Once the price of a particular futures contract has increased or decreased to the limit point, it may be difficult, costly or impossible to liquidate a position. Futures prices in particular contracts have occasionally moved the daily limit for several consecutive days with little or no trading. If this occurs, the Partnership might be prevented from promptly liquidating unfavorable positions, which could result in substantial losses. Those losses could significantly exceed the margin initially committed to the trades involved. In addition, even if prices have not moved the daily limit or there are no limits for the contracts traded, trades might not be able to be executed at favorable prices if little trading in the contracts is taking place. It is also possible that an exchange or the Commodity Futures Trading Commission (CFTC) may suspend trading in a particular contract, order immediate settlement of a contract, or order the liquidation of open positions only. Exchange for Physical. JWH may make use of a trading technique referred to as exchange for physical in which a cash or spot market position (which may be a forward contract) is exchanged, often outside of regular trading hours, for a comparable futures position. The CFTC has released a study of the exchange for physical market that recommended that a number of new regulatory restrictions be applied to it. If these recommendations or restrictions are adopted, the ability of JWH to use this market may be curtailed. Trading Decisions Based on Technical Analysis. JWH uses trading programs that employ technical factors in identifying price moves. The success of technical analysis depends upon the occurrence in the future of price movements. Technical systems will not be profitable, and may in fact produce losses, if there are no market moves of the kind the system seeks to follow. Any factor that would make it more difficult to execute the trades identified, such as a reduction of liquidity, also would reduce profitability. There is no assurance that the trading systems of JWH will generate profits under all or any market conditions. Possible Effects of Other Similar Systems. Commodity trading systems, which use market data like JWH uses, are not new. If many traders follow similar systems, these systems may generate similar buy and sell orders at the same time. Depending on the liquidity of a market, this could cause difficulty in executing orders. The General Partner believes that, although there has been an increase in the number of trading systems in recent years, there also has been an increase in the overall trading volume and liquidity in the futures markets. Any increase in the proportion of Partnerships traded using trend-following systems could alter trading patterns or affect execution of trades to the detriment of the Partnership. No Assurance of JWH'S Continued Services. JWH has exclusive responsibility for trading commodity interests allocated to it. JWH is dependent on the services of certain key persons. The loss of the services of such persons would make it difficult or impossible for JWH to continue to provide services to the Partnership. In addition, the advisory contract between the Partnership and JWH may be terminated by either party on sixty (60) days written notice. Changes in Trading Strategies. The trading strategies of most trading advisors are continually developing. JWH is free to make any changes in trading strategies. Changes in commodity interests traded or leverage used are not considered changes in trading strategy. Possible Effects of Speculative Position Limits. The CFTC and U.S. exchanges have established speculative position limits. These limits control the number of net long or net short speculative futures or options (on futures) positions any person may hold or control in futures or options contracts traded on U.S. exchanges. JWH controls the commodity trading of other accounts. All positions and accounts owned or controlled by JWH and its principals are combined with the Partnership's positions established by JWH for position limit purposes. In order to avoid exceeding position limits, it is possible that JWH will have to modify its trading instructions, and that positions held by the Partnership will have to be liquidated. That could have a negative effect on the operations of the Partnership and its profitability. See, Risk Factors Increase in Amount of Partnerships Managed. In addition, all commodity accounts of the General Partner and its affiliates may also be combined with the Partnership for position limit purposes. Increase in Amount of Partnerships Managed. JWH expects to manage additional Partnerships in the future. It is not known if managing additional Partnerships, including Partnerships raised in this offering, will have any effect on its performance or trading strategies. In many cases, the rates of return achieved by an advisor deteriorate as assets under management increase. Increases in Partnerships managed may affect the number of futures or options positions an advisor would otherwise hold for each account it manages because of speculative position limits imposed by U.S. exchanges. There is no assurance that changes in strategies, if any, in response to increased Partnerships will be successful. There can be no guarantee that the investment results of that portion of the assets allocated to JWH will be similar to those achieved by it in the past in its other accounts. Changes in the Number of Available Futures Contracts and Related Options. U.S. and foreign exchanges have established new futures and options contracts in the past few years. This trend could continue. If JWH trades these contracts in the future, there is no assurance that its trading strategies will produce profits. Past Performance Is Not Necessarily Indicative of Future Results. Although some of the client accounts of JWH have been profitable in the past, you should take seriously the warning the CFTC and the NFA require. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. AN INVESTMENT IN THE PARTNERSHIP IS SPECULATIVE AND INVOLVES A SUBSTANTIAL RISK OF LOSS. Horizon Cash Management, L.L.C. Horizon is an Investment Advisor (IA) with Power of Attorney (POA), to manage Everest Partnership assets on deposit at Northern Trust through investments in short term interest bearing instruments. A substantial portion of the Partnership's assets is held in an omnibus custody account on behalf of the Partnership at The Northern Trust Company in the name of the Partnership. The Partnership has entered into an advisory contract with Horizon pursuant to which Horizon manages such assets in an attempt to maximize their yield through investment in various short-term interest bearing instruments including U.S. Treasury Securities, U.S. Government Agencies Securities, Bankers Acceptances, Certificates of Deposit, Time Deposits, Commercial Paper, Loan Participation Notes and Repurchase Agreements U.S. Treasury Securities and U.S. Government Agencies Securities. As a result, the Partnership's assets managed by Horizon are subject to potential loss resulting from interest rate fluctuations and default. JWH PROGRAMS Effects of Trading Multiple Investment Programs. JWH makes trading decisions for each of its investment programs independently of trading decisions for the other JWH investment programs. Mandatory Closing Out of Offsetting Positions. CFTC rules require offsetting positions taken by JWH for clients be closed out. Swap Transactions. JWH may periodically enter into transactions which are characterized as swap transactions and which may involve interest rates, currencies, securities interests, commodities, and other items. Swap contracts are not traded on exchanges and are not regulated by the CFTC. Swap transactions are individually negotiated, non-standardized agreements between two parties to exchange cash flows measured by different interest rates, exchange rates or prices, with payments calculated by reference to a principal amount or quantity. As a result, the Partnership will not receive the protection afforded by the Commodity Exchange Act in connection with this trading activity by JWH. The absence of regulation could expose the Partnership to significant losses in the event of trading abuses or financial failure by participants in the swap markets. JWH has not previously traded swaps and has no experience in that market. Transactions in these markets also present certain risks similar to those in the futures, forward and options markets. Only the accounts of eligible swap participants as defined in Part 35 of CFTC Regulations, may engage in swaps. Options Transactions. JWH may engage in the trading of options (both puts and calls) on futures on behalf of the Partnership. The value of an option depends largely upon the likelihood of favorable price movements in the underlying futures contract in relationship to the exercise (or strike) price during the life of the option. Therefore many of the risks applicable to trading the underlying futures contract are also applicable to options trading. In addition, there are a number of other risks associated with the trading of options. For example, the purchaser of an option runs the risk of loss of his/her entire investment (the premium he pays). Similarly, the uncovered writer of an option is subject to an adverse price movement in the underlying futures position, any such movement may exceed the premium income from the option transaction. Spread positions using options are subject to the same risks involved in the purchase and writing of options. In addition, in the event the Partnership were to write uncovered options as one part of a spread position and such option were exercised by the purchasing party, the Partnership would be required to purchase and deliver the underlying futures contract in accordance with the terms of the option. Finally, an options trader runs the risk of market illiquidity preventing offsetting positions for any particular option. (See Commodity Trading May Be Illiquid above.) Business Interruption Risk. During both 2004 and 2005, the operations of JWH at its Boca Raton, Florida, offices were disrupted by hurricanes which required recovery periods to re-establish communications and other utilities. JWH continued its trading operations during those periods without interruption from back up locations. Any future business interruption events, whether weather- related or otherwise, that affect the south Florida area could similarly disrupt the trading operations of JWH, despite the back up precautions it has established. JWH has a business continuity plan, but it cannot guarantee that business interruption events will not have an impact on its operations. Electronic Trading and Order Routing Systems. JWH may from time to time trade on electronic trading and order routing systems which differ from traditional open outcry pit trading and manual order routing methods. Transactions using an electronic system are subject to the rules and regulations of the exchanges offering the system or listing the contract. Characteristics of electronic trading and order routing systems vary widely among the different electronic systems with respect to order matching procedures, opening and closing procedures and prices, error trade policies and trading limitations or requirements. There are also differences regarding qualifications for access and grounds for termination and limitations on the types of orders that may be entered into the system. Each of these matters may present different risk factors with respect to the trading on or using a particular system. Each system may also present risks related to system access, varying response times and security. In the case of internet-based systems, there may be additional risks related to service providers and the receipt and monitoring of electronic mail. Trading through an electronic trading or order routing system is also subject to risks associated with system or component failure. In the event of system or component failure, it is possible that for a certain time period, it might not be possible to enter new orders, execute existing orders or modify or cancel orders that were previously entered. System or component failure may also result in loss of orders or order priority. Some contracts offered on an electronic trading system may be traded electronically and through open outcry during the same trading hours. Exchanges offering an electronic trading or order routing system and listing the contract may have adopted rules to limit their liability, the liability of futures brokers and software and communication system vendors and the amount that may be collected for system failures and delays. These limitation of liability provisions vary among the exchanges. Reliance on Timely and Accurate Market Data. JWH's ability to detect market trends and trade them profitably depends on its access to timely and accurate market price data throughout the trend identification and trading processes. If price data is not available or is delayed, JWH would be unable to trade for client accounts until reliable data sources have been restored. Data reconciliation procedures are applied each day to confirm accurate price quotations, and on the subsequent day prices that were employed in the JWH systems are re-reconciled in an attempt to identify changes from previously posted prices. JWH's traders are required to confirm a price from multiple sources before executing a trade, and, during volatile market conditions, traders request confirmation of high and low prices from the floor before placing a trade. Inaccurate information may be generated by a data vendor, or an exchange may transmit inaccurate prices that a vendor then distributes to JWH, but which are later cancelled or amended by the exchange. In addition, JWH may obtain from third parties, such as clearing firms, information about price or about contract specifications and changes to them. Inaccurate price information may cause JWH to enter or close trades that it would not otherwise have entered or closed, to trade or fail to trade at times that would have been indicated by accurate data, or to be completely unable to place a trade. Communications or technical failure may also cause an electronic trading tool to fail, which could cause JWH to fail to act when a trading stop is reached. As a result of such potential data problems, client accounts may be unable to exit positions or miss the opportunity to establish new positions. JWH receives price data electronically. Data providers typically make no representations or warranties about the accuracy or timeliness of the data they provide, and assume no financial liability for lost profits, trading losses or other consequential damages. Data providers also disclaim any responsibility for events of force majeure, as well as for actions (or inaction) of third party information, hardware and software providers, and for interruption of means of communication. Because all of the data required for JWH s trading is provided from third parties, JWH, cannot, despite its employment of the precautions described above, make any assurances that its efforts will detect erroneous or incomplete data, or prevent client accounts from incurring losses or missing profit opportunities. PARTNERSHIP ISSUES Substantial Charges to Partnership. The Partnership pays substantial fees and charges and has substantial operating costs. As a result, it must make substantial profits for your units to increase in value. These include an incentive fee to JWH that is based on, among other things, unrealized appreciation in open commodity interest positions. The incentive fee is paid (and retained by JWH) even if that portion of the Partnership s assets traded by it experience subsequent losses or the appreciation is never realized. It is therefore possible that the Partnership may pay an incentive fee in years in which the Partnership breaks even or experiences losses. Possible Misallocation of Incentive Fees. The Partnership pays quarterly incentive fees on trading profits, if any, earned by JWH. Trading profits are calculated on the overall profits earned by JWH on its allocated assets and not just on increases in the Net Asset Value of each unit. As a result, the Partnership might pay incentive fees even if Partnership units decline in value. In addition, if, at the time limited partners purchase units, there is an accrued incentive fee expense, that accrued expense will reduce the purchase price of their units. If the accrual is reversed because of later losses, the incentive fee will be misallocated because the reversal of the accrued incentive fee expense will be allocated equally to all outstanding units rather than only to those outstanding during the period when the incentive fee expense accrued. Similarly, if you buy units after an incentive fee has been paid and after a later loss attributable to JWH, your units will not be assessed an incentive fee until there are new trading profits, even if your units have increased in value. There Is No Intrinsic Value to the Partnership's Investments. The Partnership must be profitable for it to provide beneficial diversification to a limited partner's portfolio. Trading in commodity interests is a zero-sum activity in which for every gain there is an equal and offsetting loss (disregarding transaction costs). This differs from a typical securities investment, in which there is an expectation of consistent yields (in the case of bonds) or participation over time in general economic growth (in the case of stocks). The Partnership could lose money while stock and bond prices rise. Stocks and bonds (except penny stocks) generally have some intrinsic value. Limited partners generally can realize some value for their stocks or bonds even if they sell in a down market. In trading commodity interests, on the other hand, investors risk losing all of their investment if prices move against them. In general, performance statistics do not reflect the different risk profiles or tax treatment of traditional and managed commodity interest investments. See, Risk Factors Limited Partners Will Be Taxed on Profits whether or Not Distributed or Realized. Partnership Trading Is Not Transparent. JWH makes all of the trading decisions for the portion of the Partnership's assets allocated to it. While the General Partner receives daily trade confirmations from the commodity broker, only the monthly performance of the Partnership is reported to limited partners. Accordingly, an investment in the Partnership does not offer limited partners the same transparency, i.e., an ability to review all investment positions daily that a personal trading account offers. Non-Correlated, Not Negatively Correlated, Performance Objective. Historically, managed futures have been generally non-correlated to the performance of other asset classes such as stocks and bonds. Non-correlation means that there is no statistically valid relationship between the past performance of futures and forward contracts on the one hand and stocks or bonds on the other hand (as opposed to negative correlation, where the performance would be exactly opposite between two asset classes). Because of this non-correlation, the Partnership cannot be expected to be automatically profitable during unfavorable periods for the stock market, or vice versa. The futures and forward markets are different from the securities markets in that for every gain in futures and forward trading, there is an equal and offsetting loss. If the Partnership's investments do not perform in a manner non-correlated with the general financial markets, or do not perform successfully, limited partners will obtain no diversification benefits by investing in the units and the Partnership may have no gains to offset their losses from other investments. Limited Partners Will Not Participate in Management. Limited Partners will not participate in the management of the Partnership. Under principles of limited partnership law, limited partners participation in the Partnership's management could result in unlimited liability for them. The limited partnership agreement provides that certain actions may be taken, or approved, by the vote of limited partners owning more than 50% of the units, but their role in the Partnership is passive and the profitability of their investment depends entirely on the efforts of others. Indemnification of Partnership by Limited Partners. If someone signs the subscription agreement and the General Partner accepts their subscription, they will become a limited partner. Under the agreement, they will be required to indemnify the Partnership for any liability that it incurs as a result of their actions. LIQUIDITY Limited Ability to Liquidate Investment in Units. Limited partners cannot immediately liquidate their units. There is no market for the units and none is likely to develop. They may, however, redeem their Class A units, without penalty, on the last day of any month on fifteen (15) days prior written notice to the General Partner or such lesser time as is acceptable to the General Partner Because of the time delay between your Class A notice to the General Partner and the end of the month when their investment is redeemed, the value of their investment on the date of redemption may be substantially less than at the time they notify the General Partner of their request to redeem. Possible Effect of Redemptions on Unit Values. The Partnership will lose money if it has to sell positions at a loss in order to raise capital so that the Partnership can pay substantial redemptions. If a large number of redemptions occur simultaneously, the need to liquidate positions could continue even after the redemption date. The Partnership would have fewer assets to trade after a high level of redemptions. This might make it more difficult for it to recover losses or generate trading profits. Market illiquidity could make it difficult to liquidate positions on favorable terms, and may also result in losses and thus a decline in the value of Partnership units. Automatic Trading Suspension. Limited Partners should buy units only if you are looking for a long-term investment. If the net asset value per unit declines as of the close of business on any day to a trading suspension level (50% of the highest prior month-end net asset value per unit, after adjustment for prior distributions), the Partnership will liquidate its open positions and notify limited partners. The Partnership cannot assure limited partners that it can liquidate its investments without incurring substantial additional losses or that limited partner will receive any specific value for the units they own. See, Risk Factors Commodity Interest Trading May Be Illiquid. Counterparty Creditworthiness -- U.S. Markets. Commodity exchanges provide centralized market facilities for trading in futures contracts relating to specified commodities. Each of the commodity exchanges in the United States has an associated clearinghouse. Once trades made between members of an exchange have been confirmed, the clearing house becomes substituted for the clearing member acting on behalf of each buyer and each seller of contracts traded on the exchange and in effect becomes the other party to the trade. Thereafter, each clearing member firm party to the trade looks only to the clearinghouse for performance. Clearinghouses do not deal with customers, but only with member firms, and the guarantee of performance under open positions provided by the clearinghouse does not run to customers. If a customer's commodity broker becomes bankrupt or insolvent, or otherwise defaults on such broker's obligations to such customer, the customer in question may not receive all amounts owing to such customer in respect of his or her trading, despite the clearing house fully discharging all of its obligations. A substantial portion of the Partnership's assets are held in a custodial account and managed by Horizon. Failure of this firm might result in losses to the Partnership. FOREIGN INSTRUMENTS Counterparty Creditworthiness -- Non-U.S. Markets. JWH may trade commodity interests on foreign exchanges and in the over-the-counter markets. Unlike U.S. exchange traded futures contracts where the exchange clearing corporation acts as the counterparty to each customer transaction, the over-the-counter markets and some foreign markets are principals markets. This means that the performance of the contract is the responsibility only of the individual firm or member on the other side of the trade and not of any exchange or clearing corporation. In those transactions, the Partnership will be subject to the risk of the inability of, or refusal by, the counterparty to perform. Trading on Foreign Exchanges and Currency Exchange Rate Fluctuations. Neither existing CFTC regulations nor regulations of any other U.S. governmental agency apply to transactions on foreign markets. If a foreign clearinghouse default or bankruptcy occurs, the Partnership's rights and responsibilities are likely to differ from those existing on U.S. exchanges. The Partnership is at risk for fluctuations in the exchange rate between the currencies in which the commodity interest is traded and U.S. dollars. It also is possible that in the future, U.S. or foreign governments could impose exchange controls. There is no restriction on how much of the Partnership's trading can be conducted on foreign markets. The Partnership may pay brokerage commissions in foreign currencies. If the exchange rate of those currencies and the U.S. dollar fluctuates, the commission rate paid for those trades might increase (decrease). Possibility of Forward and Cash Trading. The Partnership might make spot and forward contracts for certain commodities, primarily currencies with U.S. or foreign banks or dealers. A forward contract is a contractual right to purchase or sell a commodity, such as a currency, at or before a specific date in the future at a specific price. Because forward contracts are not traded on exchanges, there is no regulatory protection provided by any exchange or the CFTC. There is no limit on daily price moves for forward contracts. Banks and dealers are not required to continue to make markets in any commodity. In the past, there have been times when certain banks have refused to quote prices for forward contracts or have quoted prices with an unusually wide spread between the price at which the bank is prepared to buy and that at which it is prepared to sell. There is a risk that the banks or dealers through which the Partnership trades could fail or refuse to perform. The CFTC is studying questions about the regulation of off-exchange instruments such as forward contracts. A number of the major U.S. commodity exchanges have also expressed concerns about these instruments. The CFTC has indicated that it would regard marketing of forward contracts on a retail basis to the U.S. public at large as a violation of the CEAct. The CFTC might, in the future, prohibit the Partnership from trading in the forward markets. TAX AND REGULATORY ISSUES Possibility of Taxation as a Corporation. General Partner believes that under current federal income tax law and regulations the Partnership will be classified as a partnership and not as an association taxable as a corporation. The General Partner will not obtain a ruling from the Internal Revenue Service (IRS) or an opinion of counsel to confirm its belief. If the Partnership is taxed as a corporation for federal income tax purposes in any taxable year, its income or losses will not be passed through to you, and the Partnership will be subject to tax on its income at the corporate tax rate. In addition, any distributions made to you could be taxable to you as dividend or capital gain income, and those distributions will not be deductible in computing taxable income. Possible Legislative Tax Changes. All of the statements in this Memorandum about taxes are based upon the current Internal Revenue Code (the Code). Congress and the IRS regularly revise the Code and the regulations. Those revisions could materially affect you and the Partnership. Unrelated Business Taxable Income (UBTI) for Employee Benefit Plans. If the Partnership were a publicly-traded partnership and limited partners are a tax-exempt entity, or if they are a tax-exempt entity and debt finance their investment, their share of gross income less Partnership deductions is treated as UBTI, and subject to tax. The General Partner does not believe that the Partnership is publicly-traded for this purpose. However, if it were decided that the Partnership is publicly-traded, it may not be an appropriate investment for employee benefit plans, including individual retirement accounts (IRAs). In addition, if investing in commodity interests results in UBTI, each partner that is a tax-exempt entity would take into account its share of the Partnership's UBTI and the deductions attributable to that income (including a $1,000 deduction against UBTI which is generally available to all tax-exempt entities) in computing its tax liability. Benefit plan investors should consult with their own legal and financial advisers about the tax consequences of plan investments in the Partnership. Limited Partners Will Be Taxed on Profits whether or Not Distributed or Realized. The Partnership is not required, and the General Partner does not intend, to distribute profits. If the Partnership has taxable income for a fiscal year, the income will be taxable to them based on their distributive share of Partnership profit even if no profits have been distributed. As a result, limited partners might owe taxes on undistributed profits. It is also possible that those profits could be lost by the Partnership after the end of its fiscal year, so that limited partners might never receive the profits on which they are taxed. However, they may redeem units to pay taxes, but this would result in a reduction in their interest in the Partnership's future profits (if any). Foreign Limited Partners. If limited partners are not citizens or residents of the U.S. and are not otherwise engaged in a trade or business in the U.S., they will generally not be required to pay U.S. income tax on capital gains from commodity interest trading. Interest income will be taxable to them, if they are a foreign investor, unless there is an exemption from tax in an appropriate tax treaty. If the law requires the General Partner to withhold a portion of the income they earn because they are a foreign limited partner, the General Partner may redeem their units to pay the U.S. Department of Treasury taxes they owe. If a limited partner believes amounts were improperly withheld, they must deal directly with the U.S. Department of Treasury. Failure of Commodity Brokerage Firms. Futures commission merchants must maintain the Partnership's assets in a segregated account. If the Partnership's futures clearing broker Newedge becomes bankrupt, the Partnership could lose money.In addition, even if Newedge adequately segregates the assets of the Partnership, the Partnership may be able to recover only a pro rata share of the property available for distribution to all of Newedge's customers. Forex Trading Counterparty Creditworthiness. The Partnership will enter into an agreement with an equity in the Newedge Group which will result in such entity acting as the counter-party to the Partnership s foreign currency transactions. That is, the counterparty will be the seller of all forex instruments purchased by the Partnership and the buyer of all forex instruments sold by the Partnership. The counterparty's financial benefit from entering into these transactions with the Partnership is derived from its ability to participate in the foreign exchange interbank markets, which are only available to large institutional investors. The counterparty's compensation will be derived from a mark-up on the bid/ask spread price quoted to the Partnership on each transaction, and the counterparty's ability to offset these transactions in the foreign exchange interbank market. In the event that the counterparty is unable to successfully participate in this market, the ability of the counterparty to enter into transactions with the Partnership may be interrupted. In addition, the counterparty has entered into similar agreements with other persons, and thus acts as the counter-party in transactions effected by these other persons. Because the counterparty acts as counter-party in these transactions, the Partnership is subject to the additional risk that the counterparty will be unable to fulfill its obligations to the Partnership. Moreover, in the event of a bankruptcy of the counterparty, the Partnership may be unable to recover assets held at the counterparty, even if such assets are directly traceable to the Partnership. In the event of the counterparty's bankruptcy, there is no equivalent of the Securities Investors Protection Corporation insurance as applicable in the case of securities broker dealers bankruptcies. A substantial portion of the Partnership's assets are held in a custodial account and managed by Horizon. Failure of this firm might result in losses to the Partnership. Possibility of Tax Audit. The IRS might audit the tax returns of the Partnership, or adjustments to its returns might be made as a result of an audit. Uncertainty regarding the federal income tax treatment of certain management and incentive fees paid by the Partnership, or ongoing fees paid to others, may increase the likelihood of an audit. If an audit results in an adjustment, limited partners may be required to pay additional taxes, interest and penalties and may be subject to audit. The IRS is currently authorized to impose an interest penalty on tax deficiencies based on prevailing private sector interest rates. Risk that Units Will Not Be Considered Publicly-Offered Securities under the Employee Retirement Income Security Act of 1974 (ERISA). The General Partner believes that it is reasonable to take the position that the units qualify as publicly-offered securities under Title I of ERISA, and that the underlying assets of the Partnership will therefore not be considered for any purposes of ERISA or Section 4975 of the Code to be assets of employee benefit plans and IRAs that purchase units. However, this position is not binding on the Department of Labor (DOL) and, therefore, there is no certainty that the units qualify. If the units are determined not to qualify as such publicly-offered securities, the General Partner intends to redeem units held by certain limited partners that are employee benefit plans or IRAs to the extent necessary to prevent the underlying assets of the Partnership from thereafter being considered for purposes of Title I of ERISA or Section 4975 of the Code to be assets of such employee benefit plans or IRAs. However, for any period that the underlying assets of the Partnership are considered to be assets of employee benefit plans or IRAs, the provisions of Title I of ERISA and Section 4975 of the Code would apply to the operation of the Partnership and could adversely affect the Partnership's investments and activities. Absence of Regulation Applicable to Investment Companies. The Partnership is not registered as an investment company or mutual Partnership. Therefore, the SEC does not regulate it under the Investment Company Act of 1940 (the 1940 Act). Although the Partnership has the right to invest in securities, limited partners are not protected by the 1940 Act. The General Partner is, however, registered with the CFTC as commodity pool operator (CPO), JWH is registered with the CFTC as a CTA and Newedge Financial Inc. is registered with the CFTC as a futures commission merchant (FCM). Item 1B. N/A Item 2. Properties The Partnership does not utilize any physical properties in the conduct of its business. The General Partner uses its offices to perform its administrative functions. The address of the General Partner and the Partnership is 1100 North 4th Street, Suite 143, Fairfield, Iowa 52556, and the telephone number at such location is (641) 472- 5500. Item 3. Legal Proceedings Neither the Partnership, nor the General Partner, is party to any pending material legal proceeding. Item 4. None - Removed and reserved by SEC. PART II Item 5. Market for Registrant s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. (a) There is no established public market for the Units and none is expected to develop. (b) As of December 31, 2009, there were 4,730.89 Class A Units held by Limited Partners. A total of 273.41 Class A units were purchased by Limited Partners during 2009. A total of 483.17 Units were redeemed by Class A Limited Partners during 2009. RECENT SALES OF UNREGISTERED SECURITIES IN 2009 A UNITS 2009 1st quarter 2nd quarter 3rd quarter 4th quarter Units Sold 13.34 0 164.3358 95.7348 Value of Units Sold $50,000 0 $525,000 $289,000
RECENT SALES OF UNREGISTERED SECURITIES IN 2008 A UNITS 2008 1st quarter 2nd quarter 3rd quarter 4th quarter Units Sold 0 752.77 406.73 13.57 Value of Units Sold 0 $ 2,178,218 $1,096,049 $82,743
1% of the proceeds from the above sales were used to pay the Partnership's Organization and Offering charge. The remaining 99% was invested in the Partnership. The Seventh Amended and Restated Agreement of Limited Partnership for the Partnership contains a full description of redemption and distribution procedures. The Agreement of Limited Partnership does not provide for regular or periodic cash distributions, but gives the General Partner sole discretion in determining what distributions, if any, the Partnership will make to its partners. The General Partner has not declared any such distributions to date, and does not currently intend to declare any such distributions. Item 6. Selected Financial Data 2005 2006 2007 2008 2009 ------- ------- ------- ------- ------ (In thousands, except amounts per Unit) 1. Net trading Gain* $165 $-1,117 $2,438 $9,192 $ -2,618 2. Interest and other income $988 $940 $2,323 $453 $138 3. Expenses $2,466 $6,089 $995 $2,849 $1,333 4. Net Income -2,302 -7,206 3,766 6,796 3,813 5. Income (Loss) Per Unit: A Shares -193.95 -321.57 522.26 1,348.35 -810.50 I Shares -122.38 -270.57 630.86 0.00 0.00 AA Shares -7.77 -1,342.5 2,703.69 0.00 0.00 II Shares -8.08 -1,396.40 2,812.13 0.00 0.00 6. Total Assets 33,192 19,769 11,976 19,945 14,396 7. Long Term Obligations 0 0 0 0 0 8. Cash Dividend per Unit 0 0 0 0 0 9. Total partners capital 32,539 18,711 11,693 18,713 14,085 10. Increase/decrease in NAV -3,770 -13,828 -7,018 7,020 4,628 * Certain prior year amounts have been reclassified to conform to the current year presentation.
Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources We receive our capital resources from investor's contributions. Net Asset Value of an interest is defined in the Partnership Agreement to mean the Net Assets allocated to the capital account represented by such interest on the date of calculation and includes that interest's pro-rata share of all assets attributable to that Class of units less all liabilities attributable to that Class of units determined in accordance with the principles specified in the Partnership Agreement or, where no principle is specified, in accordance with U.S. generally accepted accounting principles consistently applied under the accrual basis of accounting Past performance is not necessarily indicative of future results. An investment in the partnership is speculative and involves a substantial Risk of loss. Off-Balance Sheet Risk The term "off-balance sheet risk" refers to an unrecorded potential liability that, even though it does not appear on the balance sheet, may result in future obligation or loss. The Partnership trades in futures and forward contracts and is therefore a party to financial instruments with elements of off-balance sheet market and credit risk. In entering into these contracts there exists a risk to the Partnership, market risk, that such contracts may be significantly influenced by market conditions, such as interest rate volatility, resulting in such contracts being less valuable. If the markets should move against all of the futures interests positions of the Partnership at the same time, and if the commodity trading advisors were unable to offset futures interest positions of the Partnership, the Partnership could lose all of its assets and the Limited Partners would realize a 100% loss. Everest Asset Management, Inc., the General Partner, minimizes market risk through diversification of the portfolio allocations to JWH, which in turn trades a diversified portfolio, and maintenance of a margin-to-equity ratio that rarely exceeds 30%. In addition to market risk, in entering into futures and forward contracts there is a risk that the counterparty will not be able to meet its obligations to the Partnership. The counterparty for futures contracts traded in the United States and on most foreign exchanges is the clearinghouse associated with such exchange. In general, clearinghouses are backed by the corporate members of the clearinghouse who are required to share any financial burden resulting from the non-performance by one of their members and, as such, should significantly reduce this risk. In cases where the clearinghouse is not backed by the clearing members, like some foreign exchanges, it is normally backed by a consortium of banks or other financial institutions. In the case of forward contracts, which are traded on the inter-bank market rather than on exchanges, the counterparty is generally a single bank or other financial institution, rather than a group of financial institutions; thus there may be a greater counterparty risk. Everest Asset Management, Inc. utilizes only those counterparties that it believes to be creditworthy for the Partnership. All positions of the Partnership are valued each day on a mark-to-market basis. There can be no assurance that any clearing member, clearinghouse or other counterparty will be able to meet its obligations to the Partnership. The Partnership will utilize high grade short-term commercial paper, which is an unsecured, short-term debt instrument issued by a corporation with maturities rarely longer than 365 days. Commercial paper is not usually backed by any form of collateral, so only firms with high-quality debt rating will be used. As commercial paper is not backed by the full faith and credit of the U.S. Government, if the issuing corporation defaults on their obligations to the Partnership, the Partnership bears the risk of loss of the amount expected to be received. The Partnership has no Contractual Obligations. Most U.S. commodity exchanges limit by regulations the amount of fluctuation in commodity futures contract prices during a single trading day. These regulations specify what are referred to as "daily price fluctuation limits" or "daily limits". The daily limits establish the maximum amount the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular commodity, no trades may be made at a price beyond the limit. Positions in the commodity could then be taken or liquidated only if traders are willing to effect trades at or within the limit during the period from trading on such day. Because the "daily limit" rule only governs price movement for a particular trading day, it does not limit losses. In the past, futures prices have moved the daily limit for numerous consecutive trading days and thereby prevented prompt liquidation of futures positions on one side of the market, subjecting commodity futures traders holding such positions to substantial losses for those days. It is also possible for an exchange or the CFTC to suspend trading in a particular contract, order immediate settlement of a particular contract, or direct that trading in a particular contract be for liquidation only. For the year ended December 31, 2009, Limited Partners redeemed a total of 483.17 Class A Units for $$1,671,496. . During 2009, investors purchased 273.41 Class A Units for $864,000. The Partnership trades on recognized global futures exchanges. In addition, the Partnership trades over the counter contracts in the form of forward foreign currency transactions. See Footnote 4 of the 2009 Financial Statements for procedures established by the General Partner to monitor and minimize market and credit risks for the Partnership. The General Partner of the Partnership reviews on a daily basis reports of the performance of the Partnership, including monitoring the daily net asset value of the Partnership. The financial situation of the Commodity Broker is monitored on a monthly basis to monitor specific credit risks. The Commodity Broker does not engage in proprietary trading and thus has no direct market exposure which provides the General Partner with assurance that the Partnership, will not suffer trading losses through the Commodity Broker. Results of Operations Calendar Year 2009 At December 31, 2009 the Partnership had approximately $14.1 million in Class A assets .The JWH allocation was approximately $14.1 million. The balance was being held in interest-bearing accounts in anticipation of future allocations to JWH or other traders. The Partnership recorded a loss of $3,812,810 or $810.50 per Class A unit, for the year 2009. That represents a loss of 21.40% for the year. The Partnership continued to employ John W. Henry & Company, Inc. s (JWH) GlobalAnalyticsR Family of Programs. Class A Units were negative 2.49% in January 2009 resulting in a Net Asset Value per unit of $3,693.33 as of January 31, 2009. While macro-economic conditions continued to deteriorate in January and pressure global equity prices, extreme short-term volatility in certain markets around year-endand uncertainty regarding the impact of future policy steps upset long-standing trends across multiple market sectors. The stock market began to focus acutely on the shaping of economic policy by the new administration. Uncertainty on this front proved to be a clear negative for the stock market as most major averages posted their worst January performance on record. January represented a month of change for many of the markets and sectors traded by the Fund. While overall market volatility seems to have declined during the month, January performance was affected by price spikes and reversals that impacted long-term trends carried over from 2008 creating a challenging environment for the Fund. The Fund's two largest sector exposures are in interest rates and currencies which were both hit by major reversals in January. Class A Units were positive 0.94% in February 2009 resulting in a Net Asset Value per unit of $3,728.18 as of February 28, 2009. The Fund gained 0.94 percent in February as the focus of the markets and trading conditions were very similar to those that prevailed in January. The S&P 500 followed up its worst January on record with a near 11 percent decline in February. Class A Units were negative 5.53% in March 2009 resulting in a Net Asset Value per unit of $3,522.05 as of March 31, 2009. The Fund's performance was negative in March, marking the first meaningful month-on-month correction since the Fund's strong 2008 rally. The Fund's decline in performance coincided with the S&P 500's best monthly return since 1987. While it is never comforting to incur losses during these reversal periods it is a natural component of trend-following. The Fund gained 121% between September 2007 and December 2008 from a broad diversity of markets and market sectors. It is not unusual or unexpected that we will experience a period of give-back in some of these markets as new trends emerge. The advisor's position size is currently light with a margin to equity ratio of approximately 6-9% (JWH can go as high as 24-28%). In addition, at the Fund level, the Partnership remained approximately 80% allocated to JWH with the remaining assets gaining interest income at the cash management firm. Class A Units were negative 2.76% in April 2009 resulting in a Net Asset Value per unit of $3,424.69 as of April 30, 2009. The Partnership's performance was negative in April. Gains in the energy, equity and agricultural sectors were not enough to offset losses in currency, metals and interest rates. The currency sector was the worst-performing sector for the Partnership. A portion of the losses in this sector came from trading in the Japanese yen. The Partnership held a mix of long and short positions in interest rates for most of April, which resulted in a small net loss on the month. The energy markets on balance had a positive effect on performance in April with much of the gains coming from the sustained downtrend in natural gas prices. The agricultural sector of the portfolio made a positive contribution to performance in April. The Partnership's trading in the metal sector was quiet as exposures were low for most of the month. Gold continues to trade in a choppy fashion, alternately taking its cues from its status as a store of value in times of strife and as a hedge against inflation and as a de facto currency. The changing winds on all these fronts have made Gold a very difficult market to trade. Similarly, the Partnership suffered small losses in its trading in the Silver market. Class A Units were positive 5.10% in May 2009 resulting in a Net Asset Value per unit of $3,599.32 as of May 31, 2009. All but one sector in the Partnership made a positive contribution to the Partnership's gains. Currency trading led the way in May as the U.S. dollar suffered a significant decline during the month. Trading in the interest rate sector was also profitable in May. A number of agricultural markets turned in strong performance in May. Soybeans was the best-performing market in this sector as it benefited from global macro factors, such as the weaker U.S. dollar, but also from positive seasonal supply factors. The coffee market was also quite strong and an important driver of the Partnership's performance in May. While energies were hardly left out of the broad commodity market rally in May, the Partnership's trading suffered small losses making it the lone unprofitable sector for the month. Class A Units were negative 4.87% in June 2009 resulting in a Net Asset Value per unit of $3,423.92 as of June 30, 2009. In June, the Partnership gave back most of the gains from the previous month as many of the trends that emerged in May stalled or reversed direction. The interest rate sector was negative for the month, where there was at least a temporary reversal in the trend toward higher global interest rates. Performance in currencies was slightly negative in June as gains from trading in the British pound were not enough to offset losses from trading in European currencies and the Japanese yen. While equity markets worldwide have recovered from the multi-year lows put in during March, the rally lost momentum in June. The Partnership suffered losses in its trading of gold and silver. The energy markets contributed positively to the Partnership's performance in June. The direction of crude oil has loosely followed the path of equities for much of the past year. While crude oil is up substantially from the lows of February and March upside momentum did seem to slow in June. The Partnership's trading models reduced exposure to the market at different points during the month which limited overall losses. Class A Units were negative 5.09% in July 2009 resulting in a Net Asset Value per unit of $3,249.81 as of July 31, 2009. The Fund suffered from negative performance in July. The Fund had a substantial allocation to interest rates and currencies where the markets have been devoid of trends. The markets continue to consolidate after the large moves of 2008 and while many continue to forecast "the worst is over" after a substantial move higher in the stock markets, others point out that uncertainty around the levels of massive consumer debt, estimated at 124% of disposable income, unencumbered government spending and slow improvement in the real estate markets are risks for sustained recovery. These conflicting views have left many market sectors in an extended state of "whipsaw". Class A Units were negative 3.21% in August 2009 resulting in a Net Asset Value per unit of $3,145.60 as of August 31, 2009. In August, the trading environment that prevailed for most of the month was very similar to what has been in place in prior months. Interest rates, certain commodity prices and the dollar continue to trade in broad ranges, limiting the profit opportunities for the Fund's trend-following approach. The Fund's positions in U.S., European and Japanese stock index futures were all profitable in August. The energy sector produced the worst performance in August for the Fund as crude oil and crude oil products finished down on the month. Gains from natural gas only partially offset the losses from the other markets in the sector. Trading in the metals sector was dominated by the price action which continues to trade in a directionless manner albeit at higher prices. The price of gold changed little month on month as it entered August trading near $955 per ounce and closed the month trading just $2 lower near $953. The intra-month swings were significant, however, which created false signals for the shorter-term models used by the Fund. Trading in gold was unprofitable in August, while trading in the silver market produced profitable performance. The Fund was able to generate gains from trading in the agricultural sector as it continues to profit from the bull market in sugar. The Fund also benefited from the bear market in certain grain prices. Position in wheat, corn and sugar were profitable for the month. Class A Units were positive 1.17% in September 2009 resulting in a Net Asset Value per unit of $3,182.47 as of September 30, 2009. The Fund closed out the quarter on a positive note, returning 1.17 percent in September. While price action was relatively subdued during the month, there was enough movement for the Fund to capture returns in three of the six market sectors in the portfolio. The largest gains during September came from the currency sector. Currency investors are beginning to focus on more traditional drivers of exchange rates such as expectations for interest rate differentials, and are focusing on which currency will benefit from future interest rate increases. Trading in the interest rate sector was slightly positive in September as positioning and model direction was mixed across the portfolio. The net effect for September was a market that ground slowly higher. Positions in Japanese Government Bonds were the best-performing market in the sector. The metals market was profitable as the Fund gained from rallies in the price of both gold and silver. The energy markets had a negative impact on the Fund. Losses from crude oil and the crude oil product markets were modest and due to the absence of any clear trend during the period. Performance from the agricultural sector was also negative for the month. There was no significant theme tying the markets together. Class A Units were a negative -3.58% in October 2009 resulting in a Net Asset Value of $3,068.57 as of October 31, 2009. The Fund suffered losses in October as the rally in certain volatile assets, including equities, paused after seven consecutive months of positive returns. The Fund's positions in U.S., European and Japanese equity futures all suffered small losses in October. The currency sector was also down slightly for the month; however, performance within the sector was mixed. Performance from the energy sector was slightly negative as losses from trading in natural gas offset small gains from the petroleum sector. The agricultural sector was also negative in October. Cotton and coffee both contributed positively to performance but these gains were not enough to offset losses from grains and sugar prices. Class A Units were a positive 8.97% in November 2009 resulting in a Net Asset Value of $3,343.97 as of November 30, 2009 November was a strong month for performance. The metals sector was best-performing sector in the portfolio for the month on the back of a surge in the price of gold. The precious metal rallied 12.7 percent and closed the month at $1181 per ounce, which represents a year-to-date gain of more than 30 percent. The speculative demand for gold is being fueled by concerns about the U.S. budget deficit, the value of the U.S. dollar and the prospects for future inflation. The move in gold is in part linked to the value of the U.S. dollar, which declined in November against both the euro and the yen. Equity prices continued to climba wall of worry as most indices made yearly highs during November. A notable laggard has been the Japanese Nikkei, which actually declined 7 percent in November. The energy sector continues to benefit from the intra-sector divergence between petroleum-based energy prices and natural gas. Natural gas made new lows during the month as gas in storage is at all-time highs at the same time end demand remains soft. On the other hand, crude oil managed to move higher on the month as industry data showed that inventories were tighter than what was being priced in the market. The agricultural markets in the Fund traded in a subdued pattern, but nonetheless profitable. Class A Units were a negative 10.97% in December 2009 resulting in a Net Asset Value of $2,977.15 as of December 31, 2009. The market action in the portfolio during December exemplified the difficult markets encountered during the year. There were gains from long-term trends, but these gains were offset by sharp reversals and an extended period of choppy trendless activity. The currency sector of the Fund was particularly hard hit by a significant rally in the dollar versus the Japanese yen. The dollar was recently in a downtrend versus the yen. In fact, in late November it traded at a fourteen-year low. It opened December trading at 86.41 and surged 7.6 percent to close the month at 93.02. The interest rate sector was also difficult as trading patterns in a number of bond markets mirrored the price action in the currency markets. Unfortunately, trading in precious metals, and gold in particular, followed a similar pattern. Gold had its largest one-month price gain in history in November, only to give most of it back in December. Gold was undermined by the strength of the dollar and position squaring in less liquid year-end trading.Trading in silver was also unprofitable. The portfolio suffered small losses in the energy sector. Crude oil and petroleum-based products continue to swing back and forth, lacking any clear direction. Natural gas was more volatile and also experienced trends similar to the trading patterns that affected much of the Fund. Sugar was one of the best markets in the Fund for the month and for the year.In the grain sector most markets continued trading in a choppy directionless manner. Overall, this sector produced positive performance in December. Results of Operations Calendar Year 2008 At December 31, 2008 the Partnership had approximately $18.7 million in Class A assets .The JWH allocation was approximately $ 14.7 million. The balance was being held in interest-bearing accounts in anticipation of future allocations to JWH or other traders. The Partnership recorded a gain of $6,796,320 or $1,348.35 per Class A unit, for the year 2008. That represents a gain of 55.28% for the year. The Partnership continued to employ John W. Henry & Company, Inc. s (JWH) GlobalAnalyticsR Family of Programs. Class A Units were positive 8.62% in January 2008 resulting in a Net Asset Value per unit of $ 2,649.47 as of January 31, 2008. The Partnership experienced strong positive performance for the month of January.Fear returned to the markets as the December holiday season proved to be just a brief respite from the turbulence of last quarter. An important shift in the markets focus seemed to be emerging at the start of 2008.Last year the global economy was relatively strong. The market consternation was idiosyncratic and related to specific issues affecting the housing and credit markets in the U.S. In January, the concern was more generalized, as the market began to adjust for the possibility of a U.S. recession and a significant slowdown in global growth. The Partnership was able to provide clients with a strong positive, uncorrelated return during a difficult month for traditional investments. Class A Units were positive 10.18% in February 2008 resulting in a Net Asset Value per unit of $2,919.21 as of February 28, 2009. Trading performance for the Partnership in February was exceptional. The data released during the month continues to point to a weakening in the U.S. economy. As the severity of the credit crisis and its ramifications become more apparent, numerous remedies have been enacted or proposed. Pessimism about the deteriorating state of the economy was often met with optimism about the prospects of official forms of economic stimulus, creating an interesting trading dynamic during the month. Some sectors were confined to broad ranges, while others experienced explosive moves. The Partnership benefited from historic movement in the price of many commodities as energies, grains, metals and soft commodities all contributed positively to the Partnerships performance. As global demand pushed commodity prices to historic levels, the commodity markets generated the majority of the Partnerships February returns. While all commodity sectors were profitable, the greatest profits came from the agriculture markets, particularly from grains and soft commodities. The energy sector was also profitable as crude oil surged above $100 per barrel; this indicates the drop in prices at the start of the year was simply a stall on the way to continued new highs. In addition to the old themes of strong demand and dollar weakness, the perception in the market that OPEC would defend levels below $90 per barrel helped to support prices. Natural gas was a significant contributor to the sectors profits during the month as it rallied in response to colder weather across much of the country. Performance from the metals sector was positive for the month. Februarys return continued the strong performance for the Partnership since September of 2007 with six consecutive positive months, four of which returned in excess of 10 percent. The Partnership benefited from powerful moves in the commodity markets and also benefited from strong performance from many other parts of the portfolio. Class A Units were positive 0.36% in March 2008 resulting in a Net Asset Value per unit of $2,929.86 as of March 31, 2008. Currencies were the most profitable sector this month as interest rate differentials between the U.S. and Europe widened further, providing a fresh incentive to sell the U.S. dollar. The interest rate sector was once again at the center of the storm in March as the U.S. Federal Reserve was active in its effort to restore confidence in the markets. Performance from this sector was slightly positive as gains from early March eroded as trends corrected later in the month. Positions in U.S. and Japanese interest rates outperformed positions in European rates. In general, price action in the precious metals keyed off of developments in the financial markets. Gold soared to record highs above $1,000 per ounce early in the month as it enjoyed its status as a safe haven and store of value. When the markets staged their recovery, gold sold off sharply. Positions In both precious and base metals were unprofitable for the month. While crude oil prices forged new ground above $100 per barrel in March, it was natural gas that supplied a majority of the profits in the sector. Natural gas rallied more than 7% during the month as colder-than-expected temperatures and increased demand are expected to slow the build in natural gas inventories. Positions in London gas oil were also profitable. Crude oil prices rallied during the first half of the month only to give back gains at the end of March as the dollar recovered and forecasts for global growth were revised lower. The agricultural sector was a significant drag on performance in March as trading in all component markets was negative. Trading and price action in the grain markets was largely independent from the moves in the financial markets and the dollar. Most grain prices were enjoying a remarkable bull market heading into March and arguably due for a correction. While the month contained significant reversals in some trends that resulted in performance finishing March below the inter-month peak, the Partnership was pleased with the continued positive results for the month and the quarter. JWH models performed as expected, given the volatile price action across multiple market sectors. Class A Units were negative 5.45 % in April 2008 resulting in a Net Asset Value per unit of $ 2,770.30 as of April 30, 2008. The Partnership's performance was negative in April as many of the long- term trends that have contributed to the positive year-to-date performance were interrupted or came to an end. In retrospect, the actions taken by the Federal Reserve Board(the Fed) in the second half of March to bail out Bear Stearns and add liquidity to the financial system marked an intermediate turning point in many markets. As volatility subsided and sentiment improved into April, long held positions were unwound. The performance of the Partnership during the month was attributable to widespread trend reversals in most market sectors, including positions in global equity indices, interest rates, currencies, and precious metals. Performance in agricultural commodities was mixed for the month. Price action was relatively tame when compared to the extreme volatility of the first quarter. The Partnership's performance in the energy sector was positive in April. Crude oil continued its march higher bolstered by the positive backdrop of strong demand and tight supplies, which advanced crude oil prices more than 12 percent for the month. While the performance of the Partnership was negative in April, it was not unusual given the significant moves of the last 7 months. Positive performance from the energy sector served to partially offset significant reversals in most of the financial markets during April. Class A Units were positive 4.45% in May 2008 resulting in a Net Asset Value per unit of $2,893.59 as of May 31, 2008. The Partnership bounced back in May to produce positive performance for the month. The majority of the markets traded were relatively quiet and directionless with the exception of the energy sector which was the main driver of monthly trading profits. In the most notable market activity, crude traded above $135 per barrel, gasoline topped $4.00 at the pump in the U.S. and natural gas rallied more than 11 percent during the month. The Partnership's trading in energies was profitable and accounted for a majority of the Partnership's gains for the month. Outside of the energy markets, the interest rate sector also contributed to the monthly gains, as the prospect for higher inflation globally and more stable financial markets outweighed concerns over slowing economic activity in the U.S. and other developed nations. Global equity markets, on the surface, were stable in May. The ranges were relatively tight and offered few opportunities for trend-followers. The currency markets were also quiet in May. Trading in the metals markets was also calm in May as price action was directionless. Trading in the agricultural markets was mixed and largely uneventful in May. Overall, the Partnership is pleased with the positive performance achieved in May. The portfolio's diversification and balance provided the Partnership the ability to minimize losses in sectors that are not trending while capitalizing on markets that are trending which is the foundation of the Partnership's trend following philosophy. Class A Units were positive 1.34 % in June 2008 resulting in a Net Asset Value per unit of $2,932.49 as of June 30, 2008. The Partnership was positive in June marking the ninth month in the past ten of positive performance. The majority of the gains for the Partnership came from the commodity markets where the global demand for energy continues to push prices higher at the same time major flooding in the Midwest was impacting the outlook for the future supply of grain. The Partnership's long-term perspective has allowed it to continue to benefit from the extended bull market in commodities even as the currency and bond portions of the Partnership struggle to find clear trends amidst a seemingly ever changing outlook for both growth and inflation. June's market headlines were dramatic and spoke to the very real issues of declining global stock markets, floods, strains in the financial system and a global energy crisis. The long running trends in commodity prices once again generated gains for the Partnership while the turmoil in the world economy had the effect of disrupting price action in the financial markets which created challenges for other parts of the Partnership's portfolio. Class A Units were negative 14.06% in July 2008 resulting in a Net Asset Value per unit of $2,520.23 as of July 31, 2008. July was a difficult month for the Partnership as many global markets experienced abrupt reversals in trend. The Partnership experienced losses in every market sector it trades. The largest losses came from the interest rate sector as the markets struggled to find direction amidst the conflicting effects of both inflationary and deflationary forces. Losses were also incurred in the energy sector resulting from dramatic falls in the price of both natural gas and crude oil during the month. The weakness in the energy markets spilled into other commodity markets possibly as a function of asset allocation shifts out of commodities in general. Trading in currencies was also unprofitable as the dollar responded to the headlines of the month in a manner similar to the global bond market. The combination of abrupt price reversals in many major market sectors and the absence of sustained trends made it a difficult environment for products employing a long-term trend following strategy. Class A Units were positive 7.47% in August 2008 resulting in a Net Asset Value per unit of $2,708.54 as of August 31, 2008. The Partnership's performance was positive for the month of August. A number of major market moves that began last month and contributed negatively to July's performance followed through in August to serve as a major source of the Partnership's returns as the portfolio shifted to reflect new trends in energy, metals and the U.S. dollar. The Partnership's repositioning after the sharp reversals experienced in many markets sectors last month led to the significant recovery in August. The market action and intensity was varied throughout the many sectors traded as commodities and currencies experienced sharp moves and increased volatility while other major market sectors, including equities and bonds, traded quietly through the turmoil. The JWH GlobalAnalytics program ability to utilize multiple position signals that vary timing from very short-term to very long-term allowed for a quick recovery of a good portion of July's losses. Class A Units were positive 14.25% in September 2008 resulting in a Net Asset Value per unit of $3,094.59 as of September 30, 2008. September was one of the most unstable and volatile periods in the history of the U.S. financial markets. During the month, the world's credit markets virtually seized up, commodity prices plunged, some major stock indices declined by more than 10 percent, while some of the largest U.S. financial institutions were pushed to extinction. High volatility across most market sectors was a manifestation of investor fears and anxiety. The lingering but still powerful effect of the housing and sub-prime credit crisis continued to wreak havoc on Wall Street, while at the same time generating social and political acrimony across the U.S. as the nation debated the cost and merit of the government's policy response. Amidst this backdrop, the Partnership thrived while generating a double-digit return for the month. Class A Units were a positive 13.62% in October 2008 resulting in a Net Asset Value of $3,516.01 as of October 31, 2008. The Partnership's performance was exceptionally strong in October. The Partnership gained in excess of 13 percent for the month and was able to navigate through extreme volatility and capitalize on market moves of historic proportions. Continued weakness in the credit markets and a global decline in equity prices were themes that have been in place for much of the summer. Currency trading was positive during the month as the foreign exchange markets were roiled by the worldwide financial crisis. The dollar, reasserting its status as the world's reserve currency, strengthened appreciably as investors sought a haven from plunging emerging market stocks, bonds and currencies. Arguably, the center of the storm shifted from the credit markets to the equity markets during October as stock prices across the globe reeled amidst unprecedented volatility. The Partnership's positions in European, Japanese and U.S. equity index futures were all profitable in October. Trading in interest rates was slightly unprofitable in October. The multitude of cross currents that passed through the markets during the month affected interest rate trends and led to mixed performance in specific markets across this part of the Partnership's portfolio. The Partnership's trading in commodities in general was profitable in October as many markets suffered record declines. In addition to poor returns and credit concerns, investors in long-only commodity indices may be further disheartened by the rise in commodity correlation with other assets and their failure to provide much needed diversification. The energy markets in particular made significant contributions to the Partnership's performance for the second month running as the prices of energy of all kinds continue to freefall. The benchmark crude oil contract dropped 36 percent during the month. Energies were the best performing sector for the Partnership with all positions producing positive performance. Trading in the precious metals markets was mixed in October. The Partnership's trading in gold was slightly unprofitable during the month. Silver on the other hand did produce profits for the Partnership during October as it fell along with other commodities, unabated by any safe haven flows. Agricultural markets, like most commodities, also declined in October while generating profits for the Partnership. Class A Units were a positive 4.53% in November 2008 resulting in a Net Asset Value of $3,675.46 as of November 30, 2008. The Partnership's run of strong performance continued in November as many of the themes that were behind the Partnership's outstanding October results remain in place. Most trading sectors contributed positively to performance during the month as the global economy and world markets remained under pressure. In November, interest rates were the best-performing sector for the month as the market began to price in the next phase of the "less conventional" Federal Reserve Board (the Fed) policy. Currency trading continued to contribute to the positive returns with positions in the Japanese yen among the most profitable in the group. The metals sector was the only unprofitable sector as precious metals traded in an uneven fashion during the month. Class A Units were a positive 3.05% in December 2008 resulting in a Net Asset Value of $3,787.64 as of December 31, 2008. The performance of the Partnership was positive during this period, even as certain long-running trends came to an end or were correcting. The interest rate sector was the best-performing element of the portfolio this month and was responsible for more than half of the Partnership's gain. Trading in the currency sector was slightly profitable. A continuation in the trend toward a stronger Japanese yen was positive for the Partnership as well as the continued decline in the value of the British pound. Trading in the energy sector was also profitable as crude oil continued its fall for most of the month. Trading performance from the metals sector was relatively tame in December with small gains attributable to profits from positions in precious metals. Erratic price action in gold and silver for an extended period of time left the Partnership with underweighted positions or on the sideline for much of the month. Trading in agricultural commodities was not noteworthy. Inflation Inflation does have an effect on commodity prices and the volatility of commodity markets; however, inflation is not expected to have an adverse effect on the Partnership's operations or assets. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Introduction Past Results Are Not Necessarily Indicative of Future Performance The Partnership is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes, and all or substantially all of the Partnership's assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the main line of business of the Partnership. Market movements result in frequent changes in the fair market value of the open positions of the Partnership and, consequently, in its earnings and cash flow. The market risk of the Partnership is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments, the diversification effects among the open positions of the Partnership and the liquidity of the markets in which it trades. The Partnership can acquire and/or liquidate both long and short positions in a wide range of different financial and metals markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the past performance of the Partnership is not necessarily indicative of its future results. Value at Risk is a measure of the maximum amount which the Partnership could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Partnership's speculative trading and the recurrence in the markets traded by the Partnership of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the experience of the Partnership to date (i.e., "risk of ruin"). In light of the foregoing as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification included in this section should not be considered to constitute any assurance or representation that the losses of the Partnership in any market sector will be limited to Value at Risk or by the attempts of the Partnership to manage its market risk. Standard of Materiality Materiality as used in this section, "Qualitative and Quantitative Disclosures About Market Risk," is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage, optionality and multiplier features of the market sensitive instruments of the Partnership. Quantifying the Trading Value at Risk of the Partnership Qualitative Forward-Looking Statements The following quantitative disclosures regarding the market risk exposures of the Partnership contain "forward-looking statements" within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward- looking statements for purposes of the safe harbor, except for statements of historical fact. The risk exposure of the Partnership in the various market sectors traded by the commodity trading advisor is quantified below in terms of Value at Risk. Due to the mark-to-market accounting of the Partnership, any loss in the fair value of the Partnership's open positions is directly reflected in the earnings (realized or unrealized) of the Partnership and cash flow (at least in the case of exchange-traded contracts in which profits and losses on open positions are settled daily through variation margin). Exchange maintenance margin requirements have been used by the Partnership as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%- 99% of any one-day intervals. The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component which is not relevant to Value at Risk. In the case of market sensitive instruments which are not exchange traded (almost exclusively currencies in the case of the Partnership), the margin requirements for the equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, margins of the dealers have been used. In quantifying the Value at Risk of the Partnership, 100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have simply been aggregated to determine the aggregate Value at Risk for each trading category. The diversification effects resulting from the fact that the positions of the Partnership are rarely, if ever, 100% positively correlated have not been reflected. The Trading Value at Risk in Different Market Sectors of the Partnership The following table indicates the trading Value at Risk associated with the open positions of the Partnership by market category as of December 31, 2009. All open position trading risk exposures of the Partnership have been included in calculating the figures set forth below. As of December 31, 2009, the total capitalization of the Partnership was approximately $14,084,536 , all in Class A shares. . December 31, 2009 of Total Market Sector Value at Risk % Capitalization Commodities 0.20 1.41% Energies 0.12 0.83% Financial Stock Indices 0.12 0.86% Interest Rates 0.21 1.49% Metals 0.00 0.00% Currencies 0.07 0.52% Total 0.72 million 5.11%
December 31, 2008 of Total Market Sector Value at Risk % Capitalization Commodities 0.18 0.96% Energies 0.22 1.19% Financial Stock Indices 0.007 0.04% Interest Rates 0.22 1.19% Metals 0.025 0.14% Currencies 0.32 1.69% Total 0.97 million 5.20%
Material Limitations on Value at Risk as an Assessment of Market Risk The face value of the market sector instruments held by the Partnership is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally ranging between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Partnership. The magnitude of the open positions of the Partnership creates a "risk of ruin" not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions that are unusual, but historically recurring from time to time, could cause the Partnership to incur severe losses over a short period of time. The foregoing Value at Risk table, as well as the past performance of the Partnership, give no indication of this "risk of ruin." Non-Trading Risk The Partnership has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as any market risk they represent) are immaterial. The Partnership holds a portion of its assets in cash on deposit with Newedge Financial Inc. ("Newedge") with substantially all of the remainder on deposit with Horizon Cash Management, LLC. (Horizon) in short term, highly liquid investments. The Partnership has cash flow risk on these cash deposits because if interest rates decline, so will the interest paid out by Newedge at the 91-day Treasury bill rate. In addition, should short term interest rates decline, so will the interest earnings for assets on deposit with Horizon. The Partnership assets managed by Horizon are deposited in an account in the custodial department of the Northern Trust Company, and invested in U.S. government securities and other interest- bearing obligations at the direction of Horizon. Horizon is responsible for the investment management of the assets of the Partnership not deposited with Newedge as margin monies or held in Partnership operating accounts. Horizon is registered with the Securities and Exchange Commission (SEC) as an investment adviser. Horizon may invest in U.S. government securities and other instruments as permitted by the agreement with the Partnership. Horizon receives an annual fee of 0.25% payable monthly on the assets it manages. However, Horizon only receives its service fee if the accrued monthly interest income earned on the assets of the Partnership managed by Horizon exceeds the 91-day U.S. Treasury Bill rate. As of December 31, 2009, the Partnership had approximately $14.2 million in cash on deposit with Newedge and Horizon. Qualitative Disclosures Regarding Primary Trading Risk Exposures The following qualitative disclosures regarding the market risk exposures of the Partnership, except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Partnership and the Trading Advisor manage the primary market risk exposures of the Partnership, constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The primary market risk exposures of the Partnership as well as the strategies used and to be used by the Trading Advisor for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the risk controls of the Partnership to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Partnership. There can be no assurance that the current market exposure and/or risk management strategies of the Partnership will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of their investment in the Partnership. The following were the primary trading risk exposures of the Partnership as of December 31,2009, by market sector. Interest Rates. Interest rate risk is a major market exposure of the Partnership. Interest rate movements directly affect the price of the sovereign bond positions held by the Partnership and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries materially impact the profitability of the Partnership. The primary interest rate exposure of the Partnership is to interest rate fluctuations in the United States and the other G-7 countries. However, the Partnership also takes positions in the government debt of smaller nations - e.g., Australia. The General Partner anticipates that G-7 interest rates will remain the primary market exposure of the Partnership for the foreseeable future. The changes in interest rates which have the most effect on the Partnership are changes in long-term, as opposed to short- term, rates. Most of the speculative positions held by the Partnership are in medium to long-term instruments. However, since February 2000, the JWH program added a European short rate, the Euribor, which is closely tied to the actions of the European Central Bank. This was done to add short term interest rate diversification. Currencies. The currency exposure of the Partnership is to exchange rate fluctuations, primarily fluctuations which disrupt historical pricing relationships between different currencies and currency pairs. These fluctuations are influenced by interest rate changes as well as political and general economic conditions. The Partnership trades in a large number of currencies, including cross-rates - i.e., positions between two currencies other than the U.S. dollar. However, the Partnership's major exposures have typically been in the dollar/yen, dollar/Euro, dollar/Swiss franc, dollar/Australian dollar and dollar/pound positions. The General Partner does not anticipate that the risk profile of the Partnership's currency sector will change significantly in the future. The currency trading Value at Risk figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the dollar-based Partnership in expressing Value at Risk in a functional currency other than dollars. Stock Indices. The primary equity exposure of the Partnership is to equity price risk in the G-7 countries. The stock index futures traded by the Partnership are by law limited to futures on broadly based indices. Ordinarily the primary exposures are in the FTSE (England), Nikkei (Japan) and All Ordinaries (Australia) stock indices. However, in February 2000, the JWH firm added the German DAX Index Futures. The General Partner anticipates little trading in non-G-7 stock indices. The Partnership is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Japanese indices. (Static markets would not cause major market changes but would make it difficult for the Partnership to avoid being "whipsawed" into numerous small losses.) Metals. The metals market exposure of the Partnership is to fluctuations in the price of gold and silver (precious metals) and the base metals of copper, aluminum, zinc, and nickel at JWH. Commodities. The exposure to commodities of the Partnership from JWH GAP includes corn, soybeans, soybean meal, soybean oil, wheat, and the softs of coffee, cotton, and sugar, as well as a full complement of other agricultural commodities. Energy. The exposure of the Partnership to energy contracts in the JWH GAP is heating oil, unleaded gasoline, crude oil natural gas and others. Qualitative Disclosures Regarding Non-Trading Risk Exposure The following were the only non-trading risk exposures of the Partnership as of December 31, 2009. Foreign Currency Balances. The primary foreign currency balances of the Partnership are in Japanese yen, Euros, British pounds and Australian dollars. The Partnership controls the non-trading risk of these balances by regularly converting these balances back into dollars (no less frequently than twice a month). Cash Position. The Partnership holds a portion of its assets in cash at Newedge Financial Inc and Newedge SNC. 95% of these assets earn interest at the average rate paid on 91-day U.S. Treasury Bills purchased during the month. Substantially all of remainder is held at Horizon in short term liquid investments. Qualitative Disclosures Regarding Means of Managing Risk Exposure The General Partner monitors the performance of the Partnership and the concentration of its open positions, and consults with the commodity trading advisor concerning the overall risk profile of the Partnership. If the General Partner felt it necessary to do so, the General Partner could require the commodity trading advisor to close out individual positions as well as entire programs traded on behalf of the Partnership. However, any such intervention would be a highly unusual event. The General Partner primarily relies on the commodity trading advisor's own risk control policies while maintaining a general supervisory overview of the Partnership's market risk exposures. Risk Management JWH attempts to control risk in all aspects of the investment Process - from confirmation of a trend to determining the optimal exposure in a given market, and to money management issues such as the startup or upgrade of investor accounts. JWH double checks the accuracy of market data, and will not trade a market without multiple price sources for analytical input. In constructing a portfolio, JWH seeks to control overall risk as well as the risk of any one position, and JWH trades only markets that have been identified as having positive performance characteristics. Trading discipline requires plans for the exit of a market as well as for entry. JWH factors the point of exit into the decision to enter (stop loss). The size of the JWH positions in a particular market is not a matter of how large a return can be generated but of how much risk it is willing to take relative to that expected return. To attempt to reduce the risk of volatility while maintaining the potential for excellent performance, proprietary research is conducted on an ongoing basis to refine the JWH investment strategies. Research may suggest substitution of alternative investment methodologies with respect to particular contracts; this may occur, for example, when the testing of a new methodology has indicated that its use might have resulted in different historical performance. In addition, risk management research and analysis may suggest modifications regarding the relative weighting among various contracts, the addition or deletion of particular contracts from a program, or a change in position size in relation to account equity. The weighting of capital committed to various markets in the investment programs is dynamic, and JWH may vary the weighting at its discretion as market conditions, liquidity, position limit considerations and other factors warrant. JWH may determine that risks arise when markets are illiquid or erratic, such as may occur cyclically during holiday seasons, or on the basis of irregularly occurring market events. In such cases, JWH at its sole discretion may override computer-generated signals and may at times use discretion in the application of its quantitative models, which may affect performance positively or negatively. Adjustments in position size in relation to account equity have been and continue to be an integral part of the JWH investment strategy. At its discretion, JWH may adjust the size of a position in relation to equity in certain markets or entire programs. Such adjustments may be made at certain times for some programs but not for others. Factors which may affect the decision to adjust the size of a position in relation to account equity include ongoing research, program volatility, assessments of current market volatility and risk exposure, subjective judgment, and evaluation of these and other general market conditions. Item 8. Financial Statements and Supplementary Data Reference is made to the financial statements and the notes thereto attached to this report. THE EVEREST FUND, LIMITED PARTNERSHIP Supplementary Summarized Quarterly Data For the four Quarters for 2009 and 2008 March 31, 2009 June 30, 2009 September 30, 2009 December 31, 2009 Class A Class A Class A Class A Net Income $-1,301,369 $-444,619 $-1,106,752 $-960,069 Increase in Net Asset Value Per Unit $-265.59 $-98.14 $-241.45 $-205.32 Net Asset Value Per Unit $3,522.05 $3,423.92 $3,182.47 $2,977.15 Ending Net Asset Value $17,118,494 $15,757,993 $14,960,078 $14,084,536
March 31, 2008 June 30, 2008 September 30, 2008 December 31, 2008 Class A Class A Class A Class A Net Income $2,343,822 $32,626 $864,739 $3,555,133 Increase in Net Asset Value Per Unit $490.57 $2.63 $162.10 $693.05 Net Asset Value Per Unit $2,929.82 $2,932.49 $3,094.59 $3,787.64 Ending Net Asset Value $13,292,071 $15,168,875 $16,157,162 $18,713,395
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A(T). Controls and Procedures Evaluation of Disclosure Controls and Procedures The General Partner carried out an evaluation, under the supervision and with the participation of the General Partner's management, including its principal executive Officer, Peter Lamoureux, of the effectiveness of the design and operation of the Partnership's disclosure controls and procedures as contemplated by Rule 13(a)-15(e) of the Securities Exchange Act of 1934, as amended. Any control system, no matter how well designed and operated, can provide only reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Based on their evaluation as of December 31, 2009, the General Partner's principal executive officer and principal financial officer concluded that the Partnership's disclosure controls and procedures were effective. Changes In Internal Control Over Financial Reporting There was no change in the Partnership's internal control over financial reporting in the 12 months ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, the Partnership's internal control over financial reporting. The General Partner's management has conducted the evaluation of the internal control over financial reporting, as required by Exchange Act Rules 13a-15 and 15d-15. Report on Management's Assessment of Internal Control Over Financial Reporting The management of the General Partner is responsible for establishing and maintaining adequate internal control over financial reporting by the Partnership. The General Partner's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. The Partnership's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Partnership are being made only in accordance with authorizations of management of the Partnership; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Partnership's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Partnership's internal control over financial reporting , based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on that assessment, management concluded that, as of December 31, 2009, the Partnership's internal control over financial reporting was effective based on the criteria established in Internal Control-Integrated Framework. This annual report does not include an attestation report of the Partnership's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report. Item 9B. Other Information. None Part III Item 10. Director and Executive Officer of the Registrant. The General Partner, Everest Asset Management, Inc., is the sole General Partner and commodity pool operator of the Partnership. It is a Delaware corporation incorporated in 1987, is and has been registered with the CFTC as a commodity pool operator since July 1, 1988 and is and has been a member of the National Futures Association since that date. Its address is 1100 North 4th Street, Suite 143, Fairfield, Iowa 52556 and its telephone number at such location is (641) 472-5500. The officer and director of the General Partner as of December 31, 2009 is listed below: Peter Lamoureux. Mr. Lamoureux, (born in 1950), has been President, Treasurer and Secretary of the General Partner since November 1996. He joined the General Partner and Capital Management Partners, Inc., a selling agent and affiliate of the Partnership at that time, in 1991 and has had primary responsibility for Partnership syndication since October 1994. Prior to joining the General Partner, Mr. Lamoureux was Manager of Refined Products with United Fuels International, Inc., an energy brokerage firm in Waltham, Massachusetts. He received his B.S. in Education from Rhode Island College, R.I. The General Partner does not trade commodities for its own account but its principals may. Because of their confidential nature, records of such trading will not be available to Limited Partners for inspection. There have been no material criminal, civil or administrative actions during the preceding five years or ever against the General Partner or its principal. Audit Committee Financial Expert The Board of Directors of Everest Asset Management, Inc. has determined that Peter Lamoureux, President, Treasurer and Secretary of the General Partner, qualifies as an audit committee financial expert in accordance with the applicable rules and regulations of the U.S. Securities and Exchange Commission. Mr. Lamoureux is not "independent" as that term is defined in Item 7(a)(3)(iv) of Schedule 14A under the Exchange Act. Code of Ethics The General Partner has adopted a code of ethics for its chief executive officer and persons performing similar functions. A copy of the General Partner's code of ethics may be obtained at no charge by written request to Everest Asset Management, Inc., 1100 North 4th Street, Suite 143, Fairfield, Iowa 52356 or by calling 641-472-5500. Item 11. Executive Compensation. The Partnership has no directors or executive officers. As a limited partnership, the business of the Partnership is managed by its General Partner which is responsible for the administration of the business affairs of the Partnership and receives the compensation described in Item 1 "Business" hereof. The officers and directors of the General Partner receive no compensation from the Partnership for acting in their respective capacities with the General Partner. The General Partner is the manager of the Partnership. General Partner receives .05% management fees monthly. Item 12. Security Ownership of Certain Owners and Management and Related Stockholder Matters. (a) As of December 31, 2009 there were two partners known to the Partnership to own beneficially more than 5% of the outstanding Units: RBRF Limited Partnership 5.47% Alan L Schoolcraft 15.91% (b) As of December 31, 2009, management ownership was: by Peter Lamoureux with 61.431 class A units. This represents 1.2985% of class A units of the Partnership. (c) As of December 31, 2009, no arrangements were known to the Partnership, including no pledge by any person of Units of the Partnership or shares of the General Partner or the affiliates of the General Partners, such that a change in control of the Partnership may occur at a subsequent date. Item 13. Certain Relationships and Related Transactions. (a) None other than the compensation arrangements described herein. (b) None. (c) None. The Partnership filed Registration Statements on Form S-18 and Form 10, therefore this information is not required to be included. Item 14. Principal Accounting Fees and Services Audit Fees For the year ended December 31,2009 the aggregate fee billed by Donahue Associates, LLC, Independent Registered Public Accountant, for professional services rendered for the audit of the financial statements included in this annual report was $13,700. For the year ended December 31,2008 the aggregate fee billed by McGladrey and Pullen, LLP, Independent Registered Public Accountant, for professional services rendered for the audit of the financial statements included in this annual report was $55,000. Audit Related Fees None. Tax Fees The audit committee pre-approved all fees for the Everest Partnership, L.P. for fiscal year 2009 and 2008. For the year ended December 31, 2009, the aggregate fees billed by Donahue Associates, LLC for federal and state tax return preparation totaled $5,000. For the year ended December 31, 2008, the aggregate fees billed by RSM McGladrey, Inc.( an associated entity of McGladrey & Pullen, LLP) for federal and state tax return preparation totaled $20,000. All Other Fees None. Part IV Item 15. Exhibits, Financial Statement, Schedules. (a) The following documents are included herein: (1) Financial Statements: a. Report of Independent Registered Public Accounting Firm: Donahue Associates, LLC for 2009 McGladrey & Pullen for 2008 b. Statements of Financial Condition, December 31, 2009 and 2008.. c. Statements of Operations, Years Ended December 31, 2009 and 2008. d. Statements of Changes in Partners' Capital, Years Ended December 31, 2009 and 2008. e. Statements of Cash Flows, Years Ended December 31, 2009 and 2008. f. Schedule of Investments, December 31, 2009 g. Schedule of Investments, December 31, 2008 Notes to Financial Statements. Acknowledgment (2) All financial statement schedules have been omitted because the information required by the schedules is not applicable, or because the information required is contained in the financial statements included herein or the notes thereto. (3) Exhibits: See the Index to Exhibits annexed hereto. See form 8-K None Exhibits: See The Index to Exhibits annexed hereto. (c) Financial Statement Schedules None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 24, 2010 The Everest Fund, L.P. By: Everest Asset Management, Inc. (General Partner) By: /s/ Peter Lamoureux Peter Lamoureux, President Secretary, Treasurer, and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Partnership and in the capacities and on the date indicated. Date: November 24, 2010 By: /s/ Peter Lamoureux Peter Lamoureux, President, Secretary, Treasurer, and Director Index to Exhibits: Exhibit No. Description 3.4 Amended and Restated Agreement of Limited Partnership dated as of May 1, 1995. Advisory Contract between the Partnership, the General Partner and John W. Henry & Company, Inc. dated December 1, 1990. 10.6 Amendment to Advisory Contract between the Partnership, the General Partner and John W. Henry & Company, Inc. dated April 1, 1995. 10.9 Certificate of Limited Partnership for Everest Futures Fund II L.P. dated March 15, 1996. Limited Partnership Agreement for Everest Futures Fund II L.P. dated as of March 29, 1996. Confidential Private Placement Memorandum and Disclosure Document dated August 21, 1996. Notes to the Exhibits: Exhibits 3.4, 10.5, 10.6, 10.9, 10.10 and 28.1 are incorporated by reference to the Partnership's Form 10 accepted on September 19, 1996. The Exhibits referenced above bear the exhibit numbers corresponding to those indicated in the Partnership's Registration Statements. Number of Attached Exhibits None. Yours truly, Peter Lamoureux President 39 73 EVEREST FUND, L.P. (An Iowa Limited Partnership) ACKNOWLEDGEMENT 119 The Everest Fund, L.P. (an Iowa Limited Partnership) FINANCIAL REPORT For the Years Ending December 31, 2009 and December 31, 2008 The Everest Fund, L.P. (an Iowa Limited Partnership) Table of Contents Page(s) I. Report of Independent Registered Public Accounting Firm 1-2 II. Financial Statements Statements of Financial Condition 3 Statements of Operations 4 Statements of Changes in Partners' Capital 5 Statements of Cash Flows 6 Condensed Schedules of Investments 7 III. Notes to the Financial Statements 8-18 DONAHUE ASSOCIATES, LLC Certified Public Accountants REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the General Partner The Everest Fund, L.P. We have audited the accompanying statement of financial condition, including the condensed schedules of investments, of The Everest Fund, L.P. as of December 31, 2009, and the related statements of operations, changes in partners' capital and cash flows for the year then ended. These financial statements are the responsibility of management.Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Everest Fund, L.P. as of December 31, 2009, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Donahue Associates LLC Monmouth Beach, New Jersey March 6, 2010 McGladrey & Pullen Certified Public Accountants REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the General Partner of The Everest Fund, L.P. We have audited the accompanying statement of financial condition, including the condensed schedule of investments, of The Everest Fund, L.P. (the "Partnership") as of December 31, 2008, and the related statements of operations, changes in partners' capital (net asset value) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Everest Fund, L.P. as of December 31, 2008, and the results of its operations, its cash flows and changes in its partners' capital (net asset value) for the year then ended in conformity with U.S. generally accepted accounting principles. We were not engaged to examine management's assessment of the effectiveness of The Everest Fund, L.P.'s internal control over financial reporting as of December 31, 2008, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting and, accordingly, we do not express an opinion thereon. /S/ McGladrey & Pullen, LLP Chicago, Illinois March 30, 2009 The Everest Fund, L.P. (an Iowa Limited Partnership) Statements of Financial Condition As of December 31, 2009 and December 31, 2008 ASSETS 2009 2008 -------- -------- Equity in broker trading accounts: Cash and cash equivalents $13,926,125 $19,223,344 Net unrealized gain (loss) on open contracts 150,734 659,646 ------------ ----------- Total Equity at broker trading accounts $14,076,859 $19,882,990 Cash and cash equivalents 271,494 42,444 Interest receivable 47,952 19,985 ------------ ----------- Total Assets $14,396,305 $19,945,419 ============ =========== LIABILITIES Management fees payable $23,342 $26,278 Incentive fees payable 0 885,100 Brokerage commissions & fees payable 73,529 87,955 Accounts payable & accrued expenses 70,229 99,809 Redemptions payable 144,670 132,882 ------------ ----------- Total Liabilities $311,770 $1,232,024 PARTNERS' CAPITAL Limited partners, Class A shares: 4,730.89 and 4,940.65 units outstanding 14,084,535 18,713,395 ------------ ----------- Total Liabilities & Partners' Capital $14,396,305 $19,945,419 ============ =========== The accompanying notes are an integral part of these financial statements. The Everest Fund, L.P. (an Iowa Limited Partnership) Statements of Operations For the Years Ended December 31, 2009 and 2008 2009 2008 Trading gains (losses): ------- ------ Net realized trading gains (losses) ($2,069,031) $8,926,247 Change in unrealized gains (losses) (507,342) 377,274 Foreign currency translation 0 (65,372) Brokerage commissions & fees (42,097) (46,283) ------------ ------------ Net gain (loss) from trading ($2,618,470) $9,191,866 Net investment income: Income: Interest income 138,455 448,528 Dividend income 21 876 Other income (loss) (36) 3,845 ----------- ------------- Total income $138,440 $453,249 Expenses: Management fees- general partner $935,444 $820,394 Management fees- advisors 260,245 231,992 Advisor incentive fees 0 1,651,810 Professional fees 127,908 111,284 Administrative expenses 9,183 33,315 ----------- ------------ Total administrative expenses 1,332,780 2,848,795 ----------- ------------ Net investment income (loss) (1,194,340) (2,395,546) ----------- ------------ Net income (loss) ($3,812,810) $6,796,320 ============ ============ Net income (loss) per unit of partner interest ($810.85) $1,348.35 The accompanying notes are an integral part of these financial statements. The Everest Fund, L.P. (an Iowa Limited Partnership) Statement of Changes in Partners' Capital For the Years Ended December 31, 2009 and December 31, 2008 Partners' Units Net Asset Equity Outstanding Value Per Unit -------- ------------ ------------- Partners' equity at December 31, 2007 $11,693,007 4,793.61 Addition 3,356,910 1,173.08 Redemptions (3,099,704) (1,026.04) Offering costs (33,138) Net income 6,796,320 ------------ ---------- Partners' equity at December 31, 2008 $18,713,395 4,940.65 $3,787.64 Additions 864,000 273.41 Redemptions (1,671,496) (483.17) Offering costs (8,554) Net loss (3,812,810) ------------ ---------- Partners' equity at December 31, 2009 $14,084,535 4,730.89 $2,977.14 ============ ========== The accompanying notes are an integral part of these financial statements. The Everest Fund, L.P. (an Iowa Limited Partnership) Statements of Cash Flows For the Years Ended December 31, 2009 and 2008 2009 2008 Cash flows from (for) operating activities ------- ------- Net income (loss) ($3,812,810) $6,796,320 Net changes to reconcile net income (loss) to net cash provided (used) by operating activities: Unrealized gain (loss) on open contracts 508,912 (377,274) Interest receivable (27,967) 25,421 Incentive fees payable (885,100) 885,100 Brokerage commissions & fees payable (14,426) 37,115 Management fees payable (2,936) 12,423 Accounts payable & accrued expenses (29,580) 7,080 Net cash provided (used) by ------------ ----------- operating activities ($4,263,907) $7,386,185 Cash flows from (for) financing activities: Partner additions, net of offering costs $855,446 $3,323,772 Redemptions paid (1,659,708) (3,092,432) ------------ ----------- Net cash provided (used) by financing activities (804,262) 231,340 ------------ ----------- Net change in cash & cash equivalent position ($5,068,169) $7,617,525 Cash & cash equivalent balance at January 1st 19,265,788 11,648,263 ------------ ------------ Cash & cash equivalent balance at December 31st $14,197,619 $19,265,788 ============= ============ Supplemental disclosures of cash flow information: Redemptions payable $144,670 $132,882 Cash & cash equivalents consist of: Cash in broker trading accounts $13,113,057 $19,223,344 Cash & cash equivalents 1,084,562 42,444 ------------- ------------ Total cash & cash equivalents $14,197,619 $19,265,788 ============= ============ The accompanying notes are an integral part of these financial statements. The Everest Fund, L.P. (an Iowa Limited Partnership) Condensed Schedule of Investments As of December 31, 2009 Number Percent of Gain (Loss) Expiration of Partners' on Open Date Contracts Capital Contracts ---------- ---------- ---------- ------------ Long U.S. Futures Contracts Interest rates Mar 10- Sept 10 55 -0.16% ($22,705) Energy Apr-10 10 -0.15% (21,390) Agriculture Mar-10 116 1.06% 149,918 Indices Mar-10 14 0.21% 29,410 --------- ---------- Total Long Futures Contracts 0.96% $135,233 --------- ---------- Short U.S. Futures Contracts Metals Mar-10 26 -0.05% (7,078) Agriculture Mar 10- Apr 10 8 -0.21% (29,800) Currencies Mar-10 88 0.16% 23,110 Indices Mar-10 43 0.21% 29,269 --------- ---------- Total Short Futures Contracts 0.11% $15,501 --------- ---------- Total Futures Contracts 1.07% $150,734 ========== ========== The accompanying notes are an integral part of these financial statements. The Everest Fund, L.P. (an Iowa Limited Partnership) Condensed Schedule of Investments As of December 31, 2008 Unrealized Number Percent of Gain (Loss) Expiration of Partners' on Open Date Contracts Capital Contracts ---------- ---------- ---------- ------------ Long U.S. Futures Contracts Interest rates Mar 09 - Sept 09 135 2.73 % $513,553 Metals Feb 09 6 0.13 % 23,440 Agriculture Mar 09 6 0.00 % (475) Currencies Mar 09 - Dec 09 79 0.20 % 36,638 --------- ----------- Total Long Futures Contracts 3.06 % $573,156 --------- ----------- Short U.S. Futures Contracts Interest rates Mar 09 4 (0.01)% $(1,563) Energy Mar 09 - April 09 48 0.26 % 48,923 Agriculture Mar 09 56 0.15 % 28,206 Currencies Mar 09 16 0.06 % 10,800 Indices Mar 09 1 0.00 % 124 --------- ----------- Total Short Futures Contracts 0.46 % $86,490 --------- ----------- Total Futures Contracts 3.52 % $659,646 ========= =========== The accompanying notes are an integral part of these financial statements. The Everest Fund, L.P. (an Iowa Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS For the Years Ended December 31, 2009 and December 31, 2008 1. Organization and Business The Everest Fund, L.P., formerly Everest Futures Fund, L.P. (an Iowa Limited Partnership), (the "Partnership") is a limited partnership organized in June 1988, under the Iowa Uniform Limited Partnership Act (the "Act") for the purpose of engaging in the speculative trading of commodity futures and options thereon and forward contracts (collectively referred to as "Commodity Interests"). The sole General Partner of the Partnership is Everest Asset Management, Inc. (the "General Partner"). On July 1, 1995, the Partnership recommenced its offering under a Regulation D, Rule 506 private placement. The private placement offering is continuing at a gross subscription price per unit equal to net asset value (NAV) per unit, plus an organization and offering cost reimbursement fee payable to the General Partner, and an ongoing compensation fee equal to 3% of the net asset value of Class A Units sold. The Class A Units (retail shares) continue to be charged an initial 1% offering and organization fee as a reduction to capital. 2. Summary of Significant Accounting Policies Revenue Recognition Commodity futures contracts, forward contracts, physical commodities, and related options are recorded on the trade-date basis and realized gains or losses are recognized when contracts are liquidated. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized gains or losses on open contracts (the difference between contract trade price and market price) are reported in the statement of financial condition as a net unrealized gain or toss, as there exists a right of offset of unrealized gains or losses in accordance with the Financial Accounting Standards Board Interpretation No. 39 - "Offsetting of Amounts Related to Certain Contracts." Any change in net unrealized gain or loss from the preceding period is reported in the statement of operations. Fair value of exchange-traded contracts is based upon exchange settlement prices. Fair value of non-exchange-traded contracts is based on third party quoted dealer values on the Inter-bank market. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash equivalents represent short-term highly liquid investments with maturities of 90 days or less at the date of acquisition. Summary of Significant Accounting Policies, continued Redemptions Payable Pursuant to the provisions of FASB ASC 480, Distinguishing Liabilities from Equity, redemptions approved by the General Partner prior to month end with a fixed effective date and fixed amount are recorded as redemptions payable as of month end. Fair Value of Financial Instruments The financial instruments held by the Company are reported in the statements of financial condition at fair value, or at carrying amounts that approximate fair value, due to their highly liquid nature and short-term maturity. Foreign Currency Translation The Partnership's functional currency is the U.S. dollar, however, it transacts business in currencies other than the U.S. dollar. Assets and liabilities denominated in foreign currencies are translated at the prevailing exchange rates as of the date of the statement of financial conditions. Gains and losses on investment activity are translated at the prevailing exchange rate on the date of each respective transaction while year-end balances are translated at the year-end currency rates. Realized and unrealized foreign exchange gains or losses are included in trading income in the statements of operations. Income Taxes No provision for income taxes has been made in the accompanying financial statements as each partner is responsible for reporting income (loss) based upon the pro rata share of the profits or losses of the Partnership. The Partnership files U.S. federal and state tax returns. Recent Accounting Pronouncements: Financial Accounting Standards Board ("FASB") Accounting Standard Codification ("ASC") 820, Fair Value Measurements and Disclosures ("ASC 820" and formerly referred to as FAS-157), establishes a framework for measuring fair value in GAAP, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. ASC 820 is effective for fiscal years beginning after November 15, 2007. ASC 820-10-65, Transition and Open Effective Date Information, deferred the effective date of ASC 820, for non-financial assets and liabilities that are not on a recurring basis recognized or disclosed at fair value in the financial statements, to fiscal years, and interim periods, beginning after November 15, 2008. The Partnership has adopted the guidance within ASC 820 for non-financial assets and liabilities measured at fair value on a nonrecurring basis at January 1, 2009 and will continue to apply its provisions prospectively from January 1, 2009. The application of ASC 820 for non-financial assets and liabilities did not have a significant impact on earnings nor the financial position of the Partnership. Summary of Significant Accounting Policies, continued FASB ASC 815, Derivatives and Hedging ("ASC 815"), ASC 815-10-65, Transition and Open Effective Date Information ("ASC 815-10-65" and formerly referred to as FAS-161) includes a requirement for enhanced disclosures about an entity's derivative and hedging activities and thereby improves the transparency of financial reporting. ASC 815 is effective prospectively for fiscal years beginning after November 15, 2008. The application of ASC 815 did not have a significant impact on earnings nor the financial position of the Partnership. FASB ASC 855, Subsequent Events ("ASC 855" and formerly referred to as FAS-165), modified the subsequent event guidance. The three modifications to the subsequent events guidance are: 1) To name the two types of subsequent events either as recognized or non-recognized subsequent events, 2) To modify the definition of subsequent events to refer to events or transactions that occur after the balance sheet date, but before the financial statement are issued or available to be issued and 3) To require entities to disclose the date through which an entity has evaluated subsequent events and the basis for that date, i.e. whether that date represents the date the financial statements were issued or were available to be issued. The adoption of FASB ASC 855, did not have a material affect on the Partnership's financial position. 3. Fair Value of Financial Instruments Effective January 1, 2008, the Partnership adopted FASB ASC 820 ( formerly Statement of Financial Accounting Standard No. 157, Fair Value Measurement), issued by the FASB. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and sets out a fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Inputs are broadly defined under ASC 820 as assumptions market participants would use in pricing an asset or liability. The three levels of the fair value hierarchy under ASC 820 are described below: Level 1. Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.Level 2. Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly; and fair value is determined through the use of models or other valuation methodologies. A significant adjustment to a Level 2 input could result in the Level 2 measurement becoming a Level 3 measurement. Level 3. Inputs are unobservable for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. The inputs into the determination of fair value are based upon the best information in the circumstances and may require significant management judgment or estimation. Fair Value of Financial Instruments continued The following section describes the valuation techniques used by the Partnership to measure different financial instruments at fair value and includes the level within the fair value hierarchy in which the financial instrument is categorized. Fair value of exchange-traded contracts is based upon exchange settlement prices. Fair value of non-exchange-traded contracts is based on 3rd party-quoted dealer values on the Inter-bank market. These financial instruments are classified in Level 1 of the fair value hierarchy. The table below demonstrates the Partnership's fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2009: Fair Value Measurements Using ----------------------------- Quoted Prices in Significant Significant Active Markets for Other Unobservable Identical Assets Observable Inputs Inputs Total (Level I) (Level II) (Level III) --------- ---------------- ---------------- ---------- Assets Cash and equivalents $12,841,563 $ 12,841,563 $ - $ - ------------ -------------- Investments Long Futures Contracts 135,233 135,233 Short Futures Contracts 15,501 15,501 ------------ -------------- 150,734 150,734 - - ------------ -------------- ------------- ----------- Total assets at fair value $12,992,298 $12,992,298 $ - $ - ============ ============== ============= ============ The table below demonstrates the Partnership's fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2008: Fair Value Measurements Using ----------------------------- Quoted Prices in Significant Significant Active Markets for Other Unobservable Identical Assets Observable Inputs Inputs Total (Level I) (Level II) (Level III) --------- ---------------- ---------------- ---------- Assets Cash and equivalents $18,547,687 $ 18,547,687 $ - $ - ------------ -------------- Investments Long Futures Contracts 573,156 573,156 Short Futures Contracts 86,490 86,490 ------------ -------------- 659,646 659,646 - - ------------ -------------- ------------- ----------- Total assets at fair value $ 19,207,333 $19,207,333 $ - $ - ============ ============== ============= ============ Fair Value of Financial Instruments continued In the normal course of business, the Partnership engages in trading derivatives by purchasing and selling futures contracts and options on future contracts for its own account. All such trading is effectuated as speculative as opposed to hedging. Effective January 1, 2009, the Partnership adopted the provisions of Accounting Standards Codification 815, Derivatives & Hedging, which requires enhanced disclosures about the objectives and strategies for using derivatives and quantitative disclosures about the fair value amounts, and gains and losses on derivatives. See below for such disclosures. Fair Value of Derivative Instruments 2009 -------- Speculative Instruments Location - Statement of Financial Condition Fair Value Futures Contracts Net unrealized gain (loss) on open contracts $150,734 2009 -------- Speculative Instruments Location- Statement of Operations Fair Value Futures Contracts Net realized trading gains (losses) ($2,069,031) Futures Contracts Change in unrealized gains (losses) ($507,342) 4. Limited Partner Agreement The Limited Partners and General Partner share in the profits and losses of the Partnership in proportion to the number of units or unit equivalents held by each.However, no Limited Partner is liable for obligations of the Partnership in excess of their capital contribution and profits, if any, and such other amounts as they may be liable for pursuant to the Act. Distributions of profits are made solely at the discretion of the General Partner. Responsibility for managing the Partnership is vested solely in the General Partner.The General Partner has delegated complete trading authority to an unrelated party (see Note 5). Limited Partners may cause any or all of their Class A units to be redeemed as of the end of any month at the month end net asset value on fifteen days' prior written notice to the Partnership, (for Class I Units, as of the end of any quarter on forty-five days' notice), or such lesser period as is acceptable to the Partnership. Although the Agreement does not permit Limited Partner Agreement continued redemptions for the first six months following a Limited Partner's admission to the Partnership, the Agreement does permit the Partnership to declare additional regular redemption dates. The Partnership will be dissolved on December 31, 2020,or upon the occurrence of certain events, as specified in the Limited Partnership agreement. 5. Agreements and Related Party Transactions John W. Henry & Company, Inc. (JWH) serves as the Partnership's commodity trading advisor. JWH receives a monthly management fee equal to 0.167% (2% annually) of the Partnership's month-end net asset value, (as defined), and a quarterly incentive fee of 20% of the Partnership's new net trading profits, (as defined).The incentive fee is retained by JWH even though trading losses may occur in subsequent quarters; however, no further incentive fees are payable until any such trading losses (other than losses attributable to redeemed units and losses attributable to assets reallocated to another advisor) are recouped by the Partnership. Effective November 2003, the General Partner charges the Partnership a monthly management fee equal to 0.50% of the Partnership's Class A beginning-of-month net asset value. Effective June 2004, the General Partner charges the Partnership a monthly management fee equal to 0.229% of the Partnership's Class I beginning-of-month net asset value. From the monthly management fee the General Partner deducts the round turn trading costs and related exchange fees (between $5.80 to $10.70 per round turn trade on domestic exchanges, and higher for foreign exchanges) and pays the selling agents and certain other parties, if any, up to 50% of the fee retained by the General Partner. The General Partner may replace or add trading advisors at any time. Beginning in mid-October 2005, the Partnership engaged Calyon Financial, Inc. ("CFI") as the Partnership's futures and options on futures broker, and engaged, Calyon Financial, SNC ("CFS") as the Partnership's foreign currency or forwards currency broker, (collectively referred to as the "Clearing Brokers"). On January 2, 2008 Calyon Financial, Inc. and SNC changed their company title to Newedge Financial, Inc. Newedge Financial, Inc. further changed their name to Newedge USA, LLC, as a result of a merger on September 1, 2008 between Newedge Financial, Inc. and Newedge USA, LLC. The agreements provide that the Clearing Brokers charge the Partnership brokerage commissions at the rate of between $5.80 to $10.70 per round-turn trade, plus applicable exchange, give up fees and NFA fees for futures contracts and options on futures contracts executed on domestic exchanges and over the counter markets. For trades on certain foreign exchanges, the rates may be higher. The Partnership also reimburses the Clearing Brokers for all delivery, insurance, storage or other charges incidental to trading and paid to third parties. Agreements and Related Party Transactions continued The Partnership earns interest on 95% of the Partnership's average monthly cash balance on deposit with its Brokers at a rate equal to the average 91-day Treasury Bill rate for US Treasury Bills issued during that month. The Partnership has also entered into an investment advisory agreement with Horizon Cash Management L.L.C. ("HCM"). At December 31, 2009 and 2008 approximately 93.3% and 93%, respectively of the partnership's capital were funds deposited with a commercial bank and invested under the direction of HCM. HCM receives a monthly cash management fee equal to 1/12 of .25% (.25% annually) of the average daily assets under management if the accrued monthly interest income earned on the Partnership's assets managed by HCM exceeds the 91-day U.S. Treasury bill rate. 6. Financial Instruments, Off-Balance Sheet Risks and Contingencies The Partnership engages in the speculative trading of U.S. and foreign futures contracts, options on U.S. and foreign futures contracts, and forward contracts ("collectively derivatives"). These derivatives include both financial and non-financial contracts held as part of a diversified trading strategy. The Partnership is exposed to both market risk, the risk arising from changes in the market value of the contracts; and credit risk, the risk of failure by another party to perform according to the terms of a contract. The purchase and sale of futures and options on futures contracts requires margin deposits with a futures commission merchant ("FCM"). Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act requires an FCM to segregate all customer transactions and assets from the FCM's proprietary activities. A customer's cash and other property such as U.S. Treasury Bills, deposited with an FCM are considered commingled with all other customer funds subject to the FCM's segregation requirements. In the event of an FCM's insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than the total of cash and other property deposited. For derivatives, risks arise from changes in the market value of the contracts. Theoretically, the Partnership is exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short. As both a buyer and seller of options, the Partnership pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option. In the case of forward contracts, over-the-counter options contracts or swap contracts, which are traded on the interbank or other institutional market rather than on exchanges, the counterparty is generally a single bank or other financial institution, rather than a clearinghouse backed by a group of financial institutions; thus, there likely will be greater counterparty credit risk. The Partnership trades only with those counterparties that it believes to be creditworthy. All positions of the Partnership are valued each day on a mark-to-market basis. There can be no assurance that any clearing member, clearinghouse or other counterparty will be able to meet its obligations to the Partnership. Financial Instruments, Off-Balance Sheet Risks and Contingencies, continued The unrealized gain (loss) on open futures and forward contracts is comprised of the following: 2009 ---------------------------------- Futures Forwards Total --------- ---------- ---------- Gross unrealized gains $179,328 $52,379 $231,707 Gross unrealized losses (44,095) (36,878) (80,973) --------- ---------- ---------- Net unrealized gains (losses) $135,233 $15,501 $150,734 ========= ========== ========== 2008 ---------------------------------- Futures Forwards Total --------- ---------- ---------- Gross unrealized gains $573,631 $88,053 $661,684 Gross unrealized losses (475) (1,563) (2,038) --------- ---------- ---------- Net unrealized gains (losses) $573,156 $86,490 $659,646 ========= ========== ========== The Partnership's policy is to continuously monitor its exposure to market and counterparty risk through the use of a variety of financial, position and credit exposure reporting and control procedures. In addition, the Partnership has a policy of reviewing the credit standing of each clearing broker or counter party with which it conducts business. The limited partners bear the risk of loss only to the extent of the net asset value of their Partnership units. 7. Financial Highlights The following financial highlights show the Partnership's financial performance for the years ended December 31, 2009 and December 31, 2008. 2009 -------- Class A -------- Total return before distributions* (21.40) % ========= Ratio to average net assets: Net investment loss: (7.51) % ========= Management fees 5.88 % Incentive fees 0.00 % Other expenses 2.50 % --------- Total expenses 8.38% ========= 2008 -------- Class A -------- Total return before distributions* 55.28 % ========= Ratio to average net assets: Net investment loss: (17.72) % ========= Management fees 5.75 % Incentive fees 11.58 % Other expenses 2.64 % --------- Total expenses 19.97 % ========== (*) Total return is calculated for all shareholders throughout the year. An individual shareholder's return may vary from these returns based on the timing of share transactions. Financial Highlights, continued Per Unit Performance: (for units outstanding through the entire period) Class A ----------- Net asset value - December 31, 2007 $2,439.29 ----------- Total income 1,911.61 Total expenses (563.26) ----------- Increase in net assets 1,348.35 ----------- Net asset value - December 31, 2008 (before final redemptions)** $3,787.64 =========== Total income (529.92) Total expenses (280.58) ----------- Increase in net assets (810.50) ----------- Net asset value - December 31, 2009 (before final redemptions)** $2,977.14 =========== (**) Total return is calculated for all shareholders throughout the year. An individual shareholder's return may vary from these returns based on the timing of share transactions. 8. Concentrations of Credit The Partnership has a significant amount of its assets on deposit with the clearing futures FCM, which are not insured, at December 31, 2009 and December 31, 2008. In the event of the insolvency of the clearing FCM, recovery of the Partnership's assets may be limited to a pro rata share of available funds not covered by insurance. The Partnership may, from time to time, have cash deposits at banks that are in excess of insured amounts. 9. Subsequent Events The Company has made a review of material subsequent events from December 31, 2009 through the date of this report and found no material subsequent events reportable during this period.