ITEM 1: BUSINESS
(a) General Development of Business
Altegris QIM Futures Fund, L.P. (the “Partnership”) was organized as a Delaware limited partnership in June 2009 and commenced operations following an initial closing on October 1, 2009. The Partnership is a commodity pool engaged in speculative trading across a broad range of futures contracts and currencies. The Partnership may in the future trade options on futures contracts and forward contracts (together with futures contracts and currencies, “Commodity Interests”).
On December 31, 2014, pursuant to that certain General Partner Admission Agreement dated as of December 30, 2014 among Altegris Advisors, L.L.C. (“Advisors” or the “General Partner”), Altegris Portfolio Management, Inc. (“APM”) and the Partnership, Advisors, a Delaware limited liability company and an affiliate of APM, was admitted as a general partner of the Partnership effective immediately prior to the Transaction (defined below). Pursuant to an internal reorganization of APM, then a general partner of Partnership, and certain affiliated entities, APM merged with and into Advisors on December 31, 2014 (the “Transaction”). By operation of law and pursuant to Paragraph 17 of Partnership’s First Amended and Restated Agreement of Limited Partnership, effective as of July 26, 2010, Advisors then assumed the general partner interest of Partnership previously held by APM. The officers of Advisors are the same persons with the same titles as the officers of APM prior to the Transaction, and the managers of Advisors were also the directors of APM prior to the Transaction.
The General Partner has sole responsibility for management and administration of all aspects of the Partnership’s business. Investors purchasing limited partnership interests (the “Interests”) in the Partnership (“Limited Partners” and together with the General Partner, “Partners”) have no rights to participate in the management of the Partnership.
The General Partner is registered with the Commodity Futures Trading Commission (“CFTC”) as a Commodity Pool Operator (“CPO”) and Commodity Trading Advisor (“CTA”), and is a member of National Futures Association (“NFA”). Quantitative Investment Management LLC, a Virginia limited liability company formed in May 2003, acts as the Partnership’s trading advisor (“QIM” or the “Advisor”). QIM became registered as a Commodity Trading Advisor (“CTA”) in 2004 and a CPO in 2005 and is a member of NFA.
Altegris Investments, LLC (“Altegris”), an affiliate of the General Partner, serves as a selling agent of the Interests and acted as the Partnership’s introducing broker until January 1, 2011, when Altegris Futures LLC (“Altegris Futures”) replaced Altegris as the Partnership’s introducing broker. On December 31, 2014, Altegris Futures merged with and into its affiliate, Altegris Clearing Solutions, LLC. Altegris Clearing Solutions, LLC is registered with the CFTC as an Introducing Broker (“Clearing Solutions” or the “Introducing Broker”).
The Partnership’s term will end upon the first to occur of the following: receipt by the General Partner of an election to dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the Interests then outstanding, notice of which is sent by registered mail to the General Partner not less than ninety (90) days prior to the effective date of such dissolution; withdrawal, admitted or court decreed insolvency or dissolution of the General Partner unless at such time there is at least one remaining General Partner in the Partnership; or any event that makes it unlawful for the existence of the Partnership to be continued or requiring termination of the Partnership.
The Partnership is not required to be, and is not, registered under the Investment Company Act of 1940, as amended.
As of February 28, 2015, the aggregate net asset value of the Interests in the Partnership before redemptions was $38,915,474. The Partnership operates on a calendar fiscal year and has no subsidiaries.
The Partnership offers three “classes” of Interests: Class A, Class B and Institutional Interests (each, a “Class of Interest”). The Classes of Interests differ from each other only in the fees that they pay and the applicable investment minimums.
(b) Financial Information About Segments
The Partnership’s business constitutes only one segment for financial reporting purposes - i.e., a speculative “commodity pool.” The Partnership does not engage in sales of goods or services. Financial information regarding the Partnership’s business is set forth in the Partnership’s financial statements, included herewith.
(c) Narrative Description of Business
The Partnership’s objective is to produce long-term capital appreciation through growth, and not current income.
Predictive Modeling. QIM believes that financial markets are not entirely efficient and that numerous small inefficiencies exist and can be exploited through the prudent use of robust analysis and predictive technologies.
QIM currently employs several thousand quantitative trading models that utilize pattern recognition to predict short-term price movements in global futures markets. All models are tested across large data sets that expose them to a wide range of market, economic, and political environments, as well as a wide range of time frames and interactions. Only those models that prove to be the most robust, statistically significant, and conceptually diverse are used in actual trading. The resultant system of models offers what QIM believes to be reliable signals that guide market timing and trade allocation.
QIM’s trading strategies and models may be revised from time to time as a result of ongoing research and development seeking to devise new strategies and systems as well as to improve current methods. The strategies and systems used by QIM in the future may differ significantly from those currently in use due to changes resulting from this research, and Limited Partners will not be informed of these changes as they may occur.
Risk Management. QIM applies risk management procedures that take into account the price, size, volatility, liquidity, and inter-relationships of the contracts traded. The Partnership’s positions are generally balanced in a manner that allocates approximately equal amounts of measured risk to as many distinct markets as possible and during significant drawdowns in equity, QIM will reduce market exposure by scaling back the Partnership’s overall leverage.
Trading. QIM’s trading is generally approximately 95% systematic and 5% discretionary. All facets of the predictive models, risk management, and trade allocation are fully automated or proceduralized. In this sense, the trading is systematic. Discretion of QIM, however, plays a significant role in the pursuit of improvements to the Program.
QIM has different time horizons for the execution of certain trades. For example, QIM may have certain trades executed at the beginning of the trading day while giving the executing broker limited discretion with respect to other trades.
Markets Traded. QIM currently trades or monitors a broad range of tradable markets in currencies, stock indices, interest rates, energy, grains, softs and metals. QIM may add or delete markets from this universe of tradable markets in its discretion if QIM’s research demonstrates that such an addition or deletion would enhance the program’s performance. All markets are futures markets or interbank currency markets.
QIM seeks to profitably trade each of these markets while taking advantage of the diversification available from such a varied universe of futures contracts. QIM’s trading program often takes opposing long and short positions within the same or related classes of correlated futures, which, taken in conjunction with the effect of diversification across a broad range of contracts, generally results in reduced market exposure than trading a single market with similar leverage.
A substantial portion of the equity in the Partnership’s account is invested in United States (“U.S.”) government and agency securities and other liquid, high-quality instruments at the direction of the Custodian (as defined below). QIM will generally maintain an average margin to equity level of between 0% and 20%. The actual percentage of assets committed to margin at any time may be higher or lower than the target level.
It is expected that between 5% and 20% of the Partnership’s assets generally will be held as initial margin or option premiums (in cash or U.S. Treasury Department (“Treasury”) securities) in the Partnership’s brokerage accounts at its clearing broker, SG Americas Securities, LLC (“SGAS”), a futures commission merchant (“FCM”), and available for trading by QIM in Commodity Interests on behalf of the Partnership. On January 2, 2015, Newedge USA, LLC ("Newedge USA") merged with and into SGAS, with the latter the surviving entity. Interest on Partnership assets held at SGAS in cash or Treasury securities will be credited to the Partnership. Depending on market factors, the amount of margin or option premiums held at SGAS could change significantly, and all of the Partnership’s assets are available for use as margin. The Partnership may also retain other brokers and/or dealers from time to time to clear or execute a portion of Partnership trades made by QIM. In December 2014, the Partnership made SGAS its primary clearing broker. J.P. Morgan Securities, LLC ("JPMS") has been retained to serve as a reserve clearing broker for the Partnership.
With respect to Partnership assets not held at SGAS as described above, but deposited with JPMorgan Chase Bank, N.A. (the “Custodian”), the portion not held in checking, money market or other bank accounts (and used to pay Partnership operating expenses) will be invested in liquid, high-quality short-term securities at the direction of the Custodian or its affiliate J.P. Morgan Investment Management Inc. (“JPMIM”). The Partnership’s custody and investment management agreement with the Custodian permits the Custodian to invest in U.S. government and agency securities, other securities or instruments guaranteed by the U.S. government or its agencies, CDs, time deposits, banker’s acceptances and commercial paper - subject in each case to specific diversification, credit quality and maturity limitations. The Custodian may use sub-advisers to attempt to increase yield enhancement. The General Partner may direct that a portion of Partnership assets be deposited with other custodians and retain other sub-advisers for the purpose of attempting to increase yield enhancement via other cash management arrangements.
The percentage of the Partnership’s assets deposited with these firms is also subject to change in the General Partner’s sole discretion. The Partnership’s assets will not be commingled with the assets of any other person. Depositing the Partnership’s assets with banks or SGAS, or other clearing brokers, as segregated funds is not commingling for these purposes.
The Partnership pays all of its ongoing liabilities, expenses and costs. The General Partner receives a management fee of 0.104% of the month-end net asset value, before deduction for any accrued incentive fees related to the current quarter (the “management fee net asset value”), of all Class A Interests (1.25% per annum), 0.104% of the month-end management fee net asset value of all Class B Interests (1.25% per annum) and 0.0625% of the month-end management fee net asset value of all Institutional Interests (0.75% per annum). QIM receives a 30% of quarterly trading profits applicable to each Class of Interest.
Each selling agent selling Class A Interests receives 0.166% of the month-end net asset value of the Partnership apportioned to each Class A Interest sold by such selling agent (2% per annum) and may elect to receive 0.0417% of the month-end net asset value apportioned to any Institutional Interest sold by such selling (0.50% per annum).
J.P. Morgan Securities paid during 2014 to Altegris Futures (which in December 2014 merged with and into the Introducing Broker) a portion of the brokerage commissions and transaction fees received from the Partnership as well as a portion of the interest income received on the Partnership’s assets. Monthly brokerage charges equal to the greater of (A) actual commissions of $9.75 per round-turn (higher for certain exchanges or commodities) multiplied by number of round-turn trades, which amount includes other transaction costs; or (B) an amount equal to 0.125% of the management fee net asset value of all Interest holders’ month-end capital account balances (1.50% annually). If actual monthly commissions and transaction costs in (A) above are less than the amount in (B) above, the Partnership will pay the difference to the Introducing Broker as payment for brokerage-related services. In any month when the amount in (A) is greater than the amount in (B) above, the Partnership pays only the amount described in (A) above.
The Partnership generally pays its operating expenses as they are incurred. A fixed administrative fee is charged to Class A and Class B Interests and paid to the General Partner equal to 0.0275% of the management fee net asset value of the month-end capital account balance of all such Class A and Class B Interests (0.333% per annum).
(d) Regulation
The CFTC has delegated to NFA responsibility for the registration of “commodity trading advisors,” “commodity pool operators,” “futures commission merchants,” “introducing brokers,” “swap dealers”, “major swap participants” and, in most cases, their respective associated persons, as well as “floor brokers” and “floor traders.” The Commodity Exchange Act requires commodity pool operators such as the General Partner, commodity trading advisors such as the Advisor and commodity brokers or FCMs such as SGAS and introducing brokers such as the Introducing Broker to be registered and to comply with various reporting and record keeping requirements. CFTC regulations also require FCMs and certain introducing brokers to maintain a minimum level of net capital. In addition, the CFTC and certain commodities exchanges have established limits referred to as “speculative position limits” on the maximum net long or net short speculative positions that any person may hold or control in any particular futures or options contracts traded on U.S. commodities exchanges. Similar position limits may in the future be put in place with respect to swaps that are exchange-traded or are economically equivalent to exchange-traded swaps or futures contracts. All accounts owned or managed by the Advisor will be combined for position limit purposes. The Advisor could be required to liquidate positions held for the Partnership in order to comply with such limits. Any such liquidation could result in substantial costs to the Partnership. In addition, many futures exchanges impose limits beyond which the price of a futures contract may not trade during the course of a trading day, and there is a potential for a futures contract to hit its daily price limit for several days in a row, making it impossible for the Advisor to liquidate a position and thereby experiencing a dramatic loss. Certain deliverable currency forward contracts are subject to limited regulation in the United States, including reporting and recordkeeping requirements.
In addition to the registration requirements described above, the CFTC and certain commodity exchanges have established limits on the maximum net long or net short position which any person may hold or control in particular commodities. Most exchanges also limit the changes in futures contract prices that may occur during a single trading day. The CFTC may in the future also implement position limits for certain exempt commodity contracts, including metals and energy contracts, with respect to futures, options on futures, and economically equivalent swaps. If such position limits are adopted, they could materially affect the Partnership’s trading strategy.
Deliverable currency forward contracts are currently subject to only limited regulation in the United States. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) was enacted in July 2010, and gave the CFTC jurisdiction over non-deliverable currency forward contracts. The Reform Act mandates that a substantial portion of over-the-counter derivatives must be executed in regulated markets and submitted for clearing to regulated clearinghouses, and the CFTC may impose such a requirement on non-deliverable currency forward contracts. The mandates imposed by the Reform Act may result in the Partnership bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees with respect to any swaps entered into by the Partnership.
The Partnership has no employees.
Financial Information About Geographic Areas
The Partnership has no operations in foreign countries although it trades on foreign exchanges and other non-U.S. markets. The Partnership does not engage in sales of goods or services.
ITEM 1A:
ITEM 1A: RISK FACTORS
Not required.
ITEM 1B:
ITEM 1B: UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2:
ITEM 2: PROPERTIES
The Partnership does not own or use any physical properties in the conduct of its business. Employees of the General Partner and its affiliates, perform all administrative services for the Partnership from offices located at 1200 Prospect Street, Suite 400, La Jolla, CA 92037.
ITEM 3:
ITEM 3: LEGAL PROCEEDINGS
The Partnership is not aware of any pending legal proceedings to which either the Partnership is a party or to which any of its assets are subject. The Partnership is not aware of any material legal proceedings involving the General Partner or its principals in an adverse position to the Partnership or in which the Partnership has adverse interests. The Partnership has no subsidiaries.
ITEM 4:
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5:
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) Market information
There is no trading market for the Interests, and none is likely to develop. Interests may be redeemed or transferred subject to the conditions imposed by the Limited Partnership Agreement.
(b) Holders
As of February 28, 2015 the Partnership had 709 holders of Interests.
(c) Dividends
The General Partner has sole discretion in determining what distributions, if any, the Partnership will make to its investors. To date no distributions or dividends have been paid on the Interests, and the General Partner has no present intention to make any.
(d) Securities Authorized for Issuance under Equity Compensation Plans
None.
(e) Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
The Partnership did not sell any unregistered securities within the past three years which have not previously been included in the Partnership’s Quarterly Reports on Form 10-Q or in a Current Report on Form 8-K.
(f) Issuer Purchases of Equity Securities
Pursuant to the Limited Partnership Agreement, Limited Partners may redeem their Interests in the Partnership as of the end of any calendar month upon fifteen (15) days’ written notice to the General Partner. The redemption of capital from capital accounts by Limited Partners has no impact on the value of the capital accounts of other Limited Partners.
The following table summarizes Limited Partner redemptions during the fourth calendar quarter of 2014:
ITEM 6:
ITEM 6: SELECTED FINANCIAL DATA
Not required.
ITEM 7:
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to “Item 8. Financial Statements and Supplementary Data.” The information contained therein is essential to, and should be read in conjunction with, the following analysis.
(a) Liquidity
The Partnership’s assets are generally held as cash or cash equivalents, which are used to margin the Partnership’s futures positions and are sold to pay redemptions and expenses as needed. Other than any potential market-imposed limitations on liquidity, the Partnership’s assets are highly liquid and are expected to remain so. Market-imposed limitations, when they occur, can be due to limited open interest in certain futures markets or to daily price fluctuation limits, which are inherent in the Partnership’s futures trading. A portion of the Partnership’s assets not used for margin and held with the Custodian are invested in liquid, high quality securities. Through December 31, 2014 the Partnership experienced no meaningful periods of illiquidity in any of the markets traded by the Advisor on behalf of the Partnership.
(b) Capital Resources
The Partnership raises additional capital only through the sale of Interests and capital is increased through trading profits (if any) and interest income. The Partnership does not engage in borrowing.
The amount of capital raised for the Partnership should not have a significant impact on its operations, as the Partnership has no significant capital expenditure or working capital requirements other than for capital to pay trading losses, brokerage commissions and expenses. Within broad ranges of capitalization, the Partnership’s trading positions should increase or decrease in approximate proportion to the size of the Partnership.
The Partnership participates in the speculative trading of commodity futures contracts and may trade options on futures contracts and forward contracts, substantially all of which are subject to margin requirements. The minimum amount of margin required for each contract is set from time to time in response to various market factors by the respective exchanges. Further, the Partnership’s FCMs and brokers may require margin in excess of minimum exchange requirements.
All of the futures contracts currently traded by the Advisor on behalf of the Partnership are exchange-traded. The risks associated with exchange-traded contracts are generally perceived to be less than those associated with over-the-counter transactions because, in over-the-counter transactions, the Partnership must rely solely on the credit of its trading counterparties, whereas exchange-traded contracts are generally, but not universally, backed by the collective credit of the members of the exchange. In the future, the Partnership anticipates that it will enter into non-exchange-traded foreign currency contracts and be subject to the credit risk associated with counterparty non-performance.
The Partnership bears the risk of financial failure by SGAS and/or other clearing brokers or counterparties with which the Partnership trades.
(c) Results of Operations
The Partnership’s success depends primarily upon QIM’s ability to recognize and capitalize on market trends in the sectors of the global commodity futures markets in which it trades. The Partnership seeks to produce long-term capital appreciation through growth, and not current income. The past performance of the Partnership is not necessarily indicative of future results.
Performance Summary
During 2014, the Partnership achieved net realized and unrealized losses of $8,510,727 from all trading; losses of $8,523,461 from trading of commodity futures contracts including brokerage commissions of $949,065. The Partnership incurred total expenses of $2,032,676, including $5,124 in incentive fees, $747,326 in management fees paid to the General Partner, and $956,163 in service and professional fees. The Partnership earned $56,273 in interest income during 2014. An analysis of the profits and losses generated from the Partnership’s commodity futures trading activities for each quarter during 2014 is set forth below.
Fourth Quarter 2014. The Partnership experienced a loss in October 2014 with the bulk of the poor performance driven by short positions in futures contracts on the S&P, Dax and DJ Euro Stoxx 50 stock indices. Performance was further degraded by short positions in futures contracts on the Euro-Bund. The Partnership experienced gains during the month from its short positions in futures contracts on Crude Oil. The Partnership also experienced gains from its long positions in the interest rate futures. The Partnership experienced a loss in November 2014 with losses for short positions in futures contracts on the Dax index and European interest rates driving the poor performance. Performance was also hurt by short positions in futures contracts on the DJ Euro Stoxx 50 and long positions in Japanese Yen. The Partnership benefitted from long positions in futures contracts on the S&P and Nikkei indices. Short positions in futures contracts on Crude Oil also contributed positively to performance. The Partnership experience a loss in December 2014 driven by losses in long futures contracts on Crude Oil and Brent Crude Oil. Performance also was adversely impacted by long futures positions in the DJ Euro Stoxx 50 index and short positions in the Euro-Bund. The Partnership benefited from its positions in futures contracts on the Japanese Yen.
Third Quarter 2014. The Partnership experienced a loss in July 2014 with the bulk of the poor performance driven by long positions in futures contracts on U.S. Treasuries. Performance was further degraded by short positions in futures contracts on the Euro-Bund and long positions in futures contracts on Brent Crude Oil. The Partnership experienced gains from its short positions in the Euro, S&P and DJ Euro Stoxx 50 indices. The Partnership also benefited from timely long/short signal pivots in futures contracts on Gold. The Partnership experienced a loss in August 2014 with losses primarily coming from short positions in European interest rates and stock indices. Short positions in futures contracts on the Euro-Bund accounted for over half of the month’s losses. Other short positions in futures contracts on European interest rates contributed to the losses, although the losses were partially offset by gains from long positions in U.S. Treasury contracts. Short positions in the Dax (German stock index) and other European stock indices also hurt performance as the European markets rallied during the month. Short positions in Euro partially offset the month’s poor returns in Europe, as did profitable positions in the S&P index due to long positions in future contracts for the second half of the month. The Partnership achieved a gain in September 2014 driven by profitable positioning in European stock indices, currencies, energies and interest rates. Long positions in futures contracts on the DJ Euro Stoxx 50 and Dax indices and short positions in futures contracts on the Japanese Yen drove performance for the month. Short positions in futures contracts on the Euro-Bund, Australian Dollar, Brent Crude Oil and Gold contributed to performance. Short positions in the U.S. 10-year Treasury Note was responsible for the month’s only significant losses.
Second Quarter 2014. The Partnership experienced a loss in April largely driven by positions in futures contracts on U.S. and European stock indices, US Treasuries, the Euro and the Japanese Yen. At the beginning of the month, long positions in futures contracts on US and European stock indices and US Treasuries added to performance, but early in the month US equities dropped resulting in a loss in the Partnership’s long positions. Later in the month, the Partnership entered into short positions on the indices, but the markets rallied resulting in a loss in the short positions. Mixed long and short positions in US Treasuries further detracted from the Partnership’s performance. A long position in futures contracts on the Dax index adversely impacted the Partnership’s performance. The Partnership experienced a loss in May as losses in single sector, stock indices, eclipsed gains in interest rates, currencies, metals and energies. The Partnership’s long position in futures contracts on US Treasuries added to performance, while positions in futures contracts on the S&P and the DJ Euro Stoxx 50 indices adversely impacted performance. The long position in Gilt further detracted from performance. The Partnership’s futures contracts on currencies, metals and energies contributed positively to performance. The Partnership experienced a loss in June driven by losses in interest rate contracts. The US 10-Year Note accounted for the most significant portion of the losses in June. Long positions in futures on the S&P index and crude oil contributed to performance, while short positions in gold futures and the Euro-Bund adversely impacted performance.
First Quarter 2014. The Partnership experienced a gain in January largely driven by positions in futures contracts on the Eurobund, U.S. and European stock indices and natural gas. Long positions in futures contracts on the Eurobund and natural gas contributed to performance. Performance also benefited from holding short positions in futures contracts on the S&P index early in the month and then switching to long positions later in the month. Early in the month, long positions in futures contracts on the Dax and DJ Euro Stoxx 50 indices added to performance while later in the month short positions benefited performance. The Partnership’s performance was hurt by short positions in futures contracts on the U.S. 10-Year Note, but the positions’ losses were offset by gains in long futures positions in the U.S. Ultra Bond and 30-Year Bond. Performance was adversely impacted by long positions in futures contracts on Japanese stock indices and positions in the Euro. The Partnership experienced a slight gain in February largely driven by long positions in futures contracts on natural gas and on interest rates. Long positions on futures in Eurobund, Euro-Bobl and U.S. Treasuries and on the S&P index contributed positively to performance. Performance also benefited from short positions in futures contracts on natural gas late in the month. Short positions in futures contracts on the S&P and Dax indices were the largest detractors to performance during the month. The Partnership experienced a loss in March driven by losses across all sectors. Losses were primarily due to long positions in futures contracts on the U.S. 10-Year Note and other U.S. Treasuries early in the month and short positions in the same later in the month. Positions in futures contracts on the Dax and DJ Euro Stoxx 50 indices and on the Yen contributed to losses as the markets fluctuated generally inverse to the Partnership’s positions. Contributors to performance included long positions in futures contracts on the S&P index and positions in futures contracts Eurobund and Euro-Bobl.
During 2013, the Partnership achieved net realized and unrealized losses of $4,630,395 from its trading of commodity futures contracts including brokerage commissions paid of $1,650,361. The Partnership incurred total expenses of $3,218,902, including $95,825 in incentive fees, $1,263,038 in management fees paid to the General Partner, and $1,354,170 in service and professional fees. The Partnership earned $122,398 in interest income during 2013. An analysis of the profits and losses generated from the Partnership’s commodity futures trading activities for each quarter during 2013 is set forth below.
Fourth Quarter 2013. The Partnership was down slightly in October 2013. Gains made throughout the month in trading of futures contracts on U.S. and European stock indices were offset by losses in every other sector. Short positioning in futures contracts on U.S. and European interest rates provided additional profit during the beginning of the month, but began generating losses as those markets surged later in the month. A long position in futures contracts on the S&P profited as U.S. equities continued a nearly month-long rally, which reversed in the last few days of the month, eliminating most of the previous gains. The Partnership had significant losses in futures contracts on Japanese stock indices resulting from generally long positions. Other losses came from short positions in brent crude and gas oil, especially during the month’s last four trading days. The Partnership achieved gains in November 2013, with long positions in futures contracts on U.S. and Japanese stock indices combining with long and short positions in futures contracts on interest rates to provide particularly robust returns. Positions in futures contracts on crude oil, currencies, and metals added to profits. Steady long positions in futures contracts on the Nikkei and Euro- Bund continued to add profit during the month. Other winners for the month included short Yen positions, both sides of the Australian Dollar, and short positions in gold, silver, and crude oil. The Partnership achieved gains in December 2013 as profitable positions in futures contracts on stock indices and currencies combined with short positions in futures contracts on interest rates and metals to boost performance. Futures contracts on stock indices were the most significant driver of performance, exploiting a sustained rally in U.S. and European stock indices that began in the middle of the month. Spanning the entire month, steady short signals in the U.S. 10-Year Note and Euro-Bund added further gains. Short positions in futures contracts in the Japanese Yen, gold, and silver and long positions in futures contracts on the Euro also contributed to performance.
Third Quarter 2013. The Partnership was nearly flat in July 2013 as the strength of short positions in U.S. Treasuries and long positions in energies, gold, and U.S. and European stock indices was offset by losses from short European interest rates, as well as poor positioning in futures contracts on Japanese stock indices and all currencies. The primary driver of July performance was short futures contracts on U.S. Treasuries that delivered impressive month-long returns. Long positions in futures contracts on U.S. and European stock indices and energies contributed further to profits as those markets rallied through month-end. Positive performance was tempered by short positions in futures contracts on European interest rates, and a long Nikkei position. The Partnership achieved a gain in August 2013 driven by profitable positioning in futures contracts on interest rates and stock indices. Long positions in futures contracts on U.S. stock indices exploited a surge in U.S. equities. A long crude oil position delivered steady profits, which continued for practically the entire month as tensions in the Middle East bolstered prices. A short position on futures contracts on U.S. equities provided a welcome offset to otherwise poor performance during the last few days of the month. The Partnership experienced a loss in September 2013 with the bulk of the poor performance driven by futures contracts on U.S. stock indices. Gains from Nikkei, interest rates, and currencies provided only partial offset, while energies and metals contributed additional losses. The Partnership took a strong short position in futures contracts on the S&P for the first half of the month, hampering performance as all U.S. stock indices trended higher. Losses were compounded when the Partnership switched to a long position in futures contracts on U.S. stock indices just as the markets began to fall in the last week of the month. Long positions in crude oil and gold delivered further setbacks as both markets receded. Long positions in futures contracts on the Nikkei and the Euro compensated for some of the losses during the month.
Second Quarter 2013. The Partnership experienced a loss in April 2013 as futures positions in equity indices, energies, and gold suffered disappointing reversals and dragged into negative territory. When the Bank of Japan announced a desire to double the monetary base within two years, a steady, month-long rally moved against short positions. A short S&P signal proved profitable through the middle of the month, until a sustained rally delivered heavy losses. Additional losses were averted by moving to long positions. Also in April, Gold plunged on its biggest single day selloff, in percentage terms, since 1983. Further losses were delivered by long positions in energies as those markets receded. The Partnership experienced a loss in May 2013 as strong returns in non-Japanese stock indices, non-Yen currencies, and energies were flattened by negative results in futures contracts on Japanese stock indices, Yen, U.S. Treasuries, and Gold. The Partnership had temporary relief and saw gains towards the end of May, but losses increased on long positions in futures contracts on stock indices against a lockstep global retreat. Further losses were added by short positions in futures contracts on U.S. Treasuries and long signals in Gold. The Partnership experienced a loss in June 2013 when losing positions in futures contracts on currencies, energies, non-U.S. stock indices, and Gold eclipsed winning positions in interest rates and U.S. stock indices. The Partnership suffered losses from short positions in Japanese and European stock indices, and unprofitable short positions in most currencies. After these losses, the Partnership realized temporary gains from short Japanese equities and a short position on futures contracts on the S&P as U.S. equities dropped. However, the end of the quarter delivered frustrating setbacks as short Japanese and U.S. equities, long Gold, and short currencies dragged performance into negative territory.
First Quarter 2013. The Partnership experienced a loss in January 2013 as an equity rally that began in December continued into January causing losses in the Partnership’s short positions in futures contracts on stock indices. A corresponding long position in futures contracts on the Eurobund added to losses as that market fell. The markets that contributed positively to performance were a long position on the Euro, and long positions in futures contracts on energies as those markets rose steadily. The Partnership experienced a loss in February 2013 as short positions in futures contracts on interest rates and long positions on futures contracts on energies furnished losses that marginally exceeded gains from varied positions in contracts on stock indices and steady short signals in Gold and Silver. Early in the month, long positions in Yen, German interest rates, and U.S. Treasuries teamed with short positions across the Japanese stock indices to produce heavy losses. Later in the month, the Partnership suffered from the combined effects of long positions in the S&P and short positions in Japanese stock indices, as both markets moved sharply opposite these signals. The Partnership experienced a loss in March 2013. Trading in futures contracts on interest rates and Japanese stock indices accounted for the bulk of the month’s losses. U.S. and European stock indices delivered positive returns that slightly offset other losses. Trading futures contracts on the U.S. 10-Year Note generated the bulk of the losses in the portfolio for the month. For the entire month, the Partnership maintained a short position in futures contracts on all Japanese stock indices that added to losses as the Nikkei surged upward.
During 2012, the Partnership achieved net realized and unrealized gains of $9,028,017 from all trading; gains of $8,754,416 from trading of futures contracts including brokerage commissions paid of $1,916,974. The Partnership incurred total expenses of $7,804,749, including $4,320,095 in incentive fees, $1,454,056 in management fees paid to the General Partner, and $1,503,361 in service and professional fees. The Partnership earned $146,654 in interest income during 2012. An analysis of the profits and losses generated from the Partnership’s commodity futures trading activities for each quarter during 2012 is set forth below.
Fourth Quarter 2012. The Partnership experienced a loss in October 2012 as losses in interest rates eclipsed modest gains in European equities, currencies, and energies. The month started strong, with long equities and encouraging U.S. economic data delivering positive returns. Performance eventually sagged, however, as long U.S. Treasury and European bond positions contravened market trends. The Partnership experienced a loss in November 2012 as performance was dominated by positions in futures contracts on the S&P 500. Long equity signals failed to anticipate heavy losses after the U.S. presidential election. These losses worsened when equity signals switched to short the following week just prior to an unexpected surge in these same markets. The Partnership achieved modest gains throughout the month in its trading of futures contracts on European bonds and the Japanese Yen, but not enough to offset losses elsewhere in the portfolio. The Partnership achieved gains in December 2012 primarily through profitable positioning in futures contracts on interest rates and stock indices on high volatility during the month. Long positions in futures contracts on U.S. and European equities, and short positions on U.S. Treasuries capitalized on a generally upward trend in stock markets during the first half of the month. The second half of the month saw stock markets turn downward; however, by this time the Partnership’s futures contracts on U.S equities positions had switched to short through the remainder of the month. Performance during the month was also driven by gains on a long position in futures contracts on the Eurobund, as well as profits in currency futures trading.
Third Quarter 2012. The Partnership experienced a loss in July 2012 as poor employment numbers in the U.S. and continued concern about the fiscal health of Spain and Italy caused the equity markets to slide and treasury prices to rise, both working against the Partnership’s positions. The Eurobund accounted for over half of the losses for the month. The Partnership also struggled in the stock index sector, with futures contracts on the S&P being the worst performer. Short positions in Crude Oil also hurt performance as prices spiked during the month. Short positions in most of the foreign currencies contributed positively with a short Euro position being the best performer. The Partnership finished August 2012 with a slight gain. Long stock index futures positions drove performance during the month. The month began negatively for stocks and treasuries, but the outlook changed with an unexpectedly positive U.S. employment report. Interest rates generated significant losses for the month, with a short Eurobund position in the second half of the month being the biggest loser. Crude oil prices rose steadily, contravening our mostly month-long short position. Currencies additionally dragged down returns as long positions in the Australian Dollar and Euro yielded losses. The Partnership ended September relatively flat with equity positions having delivered the bulk of the gains, offset by losses in interest rate positions. Other notable contributors were profitable positions in futures contracts on energies, particularly Crude Oil, as well as lucrative positions in Gold and Copper. Interest rate futures and currency futures hurt performance considerably.
Second Quarter 2012. The Partnership achieved a gain in April 2012. The Partnership held long positions for the entire month in interest rate futures contracts, as poor March U.S. employment data and Spain’s downgrade by S&P drove interest rate futures higher. The Partnership started the month short futures contracts on stock indices and reversed to a long position after the S&P declined five consecutive days. The Partnership stayed with that long position for the rest of the month as the S&P was able to recover most of its losses from earlier in the month. Trading in currency, metal, energy and agricultural sectors all produced losses, but the Partnership’s exposure in these sectors was less significant. The Partnership achieved a gain in May 2012, as poor U.S. employment data in the beginning of the month started equities on a downward slide. The Partnership’s short positions in futures contracts on stock indices were well positioned to profit during the decline. The Partnership also benefitted from its long positions in the 10-year note and 30-year bond throughout the month. The most significant contributions to performance during the month came from trading in futures contracts on stock indices, interest rates and currencies. The Partnership achieved a gain in June 2012 based largely on long futures contracts on stock indices. Equity markets rallied on the release of strong U.S. economic data. Futures contracts on crude oil led the Partnership’s energy sector trading. Trading in futures contracts on currencies was the worst performing sector during the month as the dollar struggled during the first three weeks of the month, while the Partnership held short positions.
First Quarter 2012. The Partnership experienced a loss in January 2012, with losses highly concentrated in the interest rate sector. Positions in futures contracts on US Treasuries were the worst performing during the month, however, the Partnership also struggled with positions in futures contracts on the Euro currency, Euro-Bund and Dax. The Partnership earned gains in its trading of futures contracts on US equity indices, but it was not enough to offset losses elsewhere in the portfolio. The Partnership experienced a loss in February 2012 on poor trading in interest rate futures for the second consecutive month. Energy trading buoyed the month’s performance with futures contracts on crude oil and brent crude representing the month’s two best performing contracts as the Partnership took advantage of the long rally in oil prices. The Partnership achieved a gain in March 2012. During the first half of March, the positive economic data in the US drove interest rate futures down at a time when the Partnership was heavily short that sector. Subdued data from China, Europe and the US housing market also contributed to the rally in interest rate futures for the remainder of the month. While the Partnership lightened its exposure to US interest rates, positions in the European rates lead to losses in those markets. The Partnership profited from its trading of futures contracts on the short side of the Yen and on the long side of E-mini S&P contracts during the month.
(d) Off-Balance Sheet Arrangements
The Partnership does not engage in off-balance sheet arrangements with other entities.
(e) Contractual Obligations
Not required.
(f) Critical Accounting Estimates
The General Partner believes that the Partnership’s most critical accounting estimates relate to the valuation of the Partnership’s assets. Futures and options on futures contracts are valued using the primary exchange’s closing price. U.S. government agency securities are generally valued based on quoted prices in active markets. Corporate notes are generally valued at fair value. Security transactions are recorded on the trade date. Realized gains and losses from security transactions are determined using the specific identification cost method. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the date of the statement of financial condition. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S. dollars are reported in income currently.
The Partnership’s financial statements are presented in accordance with U.S. generally accepted accounting principles (U.S. GAAP) which require the use of certain estimates made by the Partnership’s management. Actual results could differ from those estimates. Based on the nature of the business and operations of the Partnership, the General Partner believes that the estimates utilized in preparing the Partnership’s financial statements are appropriate and reasonable, however actual results could differ from these estimates. The estimates used do not provide a range of possible results that would require the exercise of subjective judgment. The General Partner further believes that, based on the nature of the business and operations of the Partnership, no other reasonable assumptions relating to the application of the Partnership’s critical accounting estimates other than those currently used would likely result in materially different amounts from those reported.
ITEM 7A:
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 8:
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements required by this item are included herewith following the Index to Financial Statements and are incorporated by reference into this Item 8.
Because the Partnership is a Smaller Reporting Company, as defined by Rule 229.10(f)(1), the supplementary financial information required by Item 302 of Regulation S-K is not required.
ITEM 9:
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A:
ITEM 9A: CONTROLS AND PROCEDURES
(a) The General Partner, with the participation of the General Partner’s principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Partnership as of the end of the period covered by this annual report, and, based on their evaluation, has concluded that these disclosure controls and procedures are effective.
(b) Management’s Annual Report on Internal Control over Financial Reporting
Altegris Advisors, L.L.C., the general partner of the Partnership, is responsible for the management of the Partnership. Management of the General Partner (“Management”) is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Partnership’s internal control over financial reporting includes those policies and procedures that:
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership;
•
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Partnership’s transactions are being made only in accordance with authorizations of Management; and
•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnership’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Partnership’s internal control over financial reporting as of December 31, 2014. In making this assessment, Management used the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). As a result of this assessment and based on the criteria in the COSO framework, management has concluded that, as of December 31, 2014, the Partnership’s internal control over financial reporting was effective.
(c) Changes in Internal Control over Financial Reporting
There were no changes in the Partnership’s internal control over financial reporting during the quarter and year ended ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
ITEM 9B:
ITEM 9B: OTHER INFORMATION
None.
PART III
ITEM 10:
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(a) Identification of Directors and Executive Officers
(i) The Partnership has no officers, directors, or employees. The Partnership’s affairs are managed by the General Partner (although it has delegated trading and investment authority to the Advisor and administrative duties to Altegris). The General Partner is indirectly owned by AqGen Liberty Holdings LLC (“AqGen”), an entity owned and controlled by (i) private equity funds managed by Aquiline Capital Partners LLC and its affiliates (“Aquiline”), and by Genstar Capital Management, LLC and its affiliates (“Genstar”), and (ii) certain senior management of the General Partner and its affiliates. Aquiline is a private equity firm located in New York, New York, and Genstar is a private equity firm located in San Francisco, California. The General Partner’s managers and executive officers are Jack L. Rivkin, Jon C. Sundt, Matthew C. Osborne, and Kenneth I. McGuire.
Jack L. Rivkin (born 1940) became the Chief Investment Officer, an Executive Vice President and a director of the General Partner’s predecessor entity, APM, in January 2014. Mr. Rivkin has served as a manager and Executive Vice President and Chief Investment Officer of the General Partner (December 2013 to present). Mr. Rivkin has served as a manager and Executive Vice President of Altegris Services, LLC and Altegris Clearing Solutions, LLC (January 2014 to present). Mr. Rivkin has served as a manager and Executive Vice President and Chief Investment Officer of Altegris Clearing Solutions (January 2014 to present). Mr. Rivkin has served as an Executive Vice President of Altegris Holdings (January 2014 to present). Mr. Rivkin is responsible for general management and oversight of each of the Altegris companies for which he serves as Executive Vice President. For each company for which he serves as Chief Investment Officer, Mr. Rivkin provides leadership, vision and oversight over the investment management and research process. Mr. Rivkin became a principal of APM in January 2014 and is also registered with the CFTC and is a member of the NFA as a principal for the following affiliates of the General Partner: (a) Altegris Clearing Solutions LLC as principal (January 2014 to present) and (b) Advisors as a principal (January 2014 to present). During the past five years, prior to joining Altegris, Mr. Rivkin was CEO of JL Rivkin & Associates, Inc. a firm engaged in the management of existing private and public equity portfolios (January 2002 to December 2013). Mr. Rivkin earned his Professional Engineering degree from the Colorado School of Mines and his MBA from the Harvard Graduate School of Business Administration.
Jon C. Sundt (born 1961) is the President, CEO and a manager of the General Partner. Mr. Sundt has also been (1) the President, CEO and a director of Altegris Investments, Inc. (Altegris) (July 2002 to present), a current broker-dealer affiliate of the General Partner, and formerly an IB and CTA; (2) a manager and the President and CEO of Altegris Clearing Solutions, L.L.C. (formerly known as Altegris Partners, L.L.C.) (Clearing Solutions), an IB and CTA and an affiliate of the General Partner (December 2008 to present); (3) a manager and the President and CEO of Altegris Services, L.L.C. (Services), an administrative and operations affiliate of the General Partner (May 2010 to present); and (4) the President and CEO of Altegris Holdings, a holding company which directly owns the General Partner, Altegris, Clearing Solutions and Services (October 2012 to present). Mr. Sundt became a principal of the General Partner’s predecessor entity, APM, in July 2002. Mr. Sundt attended the University of California, San Diego.
Matthew C. Osborne (born 1964) has served as a manager of the General Partner (or a director of the General Partner’s predecessor entity, APM) since July 2002. He has also served as a Vice President of APM (July 2002 to January 2011), and currently serves as Executive Vice President of the General Partner (January 2011 to present). Mr. Osborne has also been (1) an Executive Vice President, Chief Investment Officer and a director of Altegris (July 2002 to May 2010); (2) a manager and Executive Vice President of Clearing Solutions (December 2008 to present); (3) a manager and Executive Vice President of Services (February 2010 to present); and (4) Executive Vice President of Altegris Holdings (October 2012 to present).
Kenneth I. McGuire (born 1958) is the Chief Operating Officer and a manager of the General Partner. Mr. McGuire also serves as Chief Operating Officer for Advisors (February 2010 to August 2013), and Services (May 2010 to present). Mr. McGuire also serves as Chief Operating Officer of Altegris Holdings. His duties within the Altegris Companies include supervision of personnel in the software development, information technology, fund operations and futures operations businesses of the Altegris Companies. During the past five years, Mr. McGuire was employed by The Bank of New York Mellon, an asset management and securities services company, as a Managing Director (April 2006 to October 2009). Mr. McGuire was employed within BNY Mellon Alternative Investment Services, serving as Product Manager for that unit’s Single Manager Hedge Fund services. Mr. McGuire was a Strategic Advisor with Harvest Technology, a boutique investment technology consultancy (May 2005 to April 2006). Mr. McGuire graduated Magna Cum Laude from Hofstra University with a degree in Computer Science/Mathematics and received his MBA with a concentration in Management from Adelphi University.
None of the individuals listed above currently serves as a director of a public company.
(ii) Identification of Certain Significant Employees
None.
(iii) Family Relationships
None.
(iv) Business Experience
See above.
(v) Involvement in Certain Legal Proceedings.
None.
(vi) Promoters and Control Persons
Not Applicable.
(b) Section 16(a) Beneficial Ownership Reporting Compliance
Not Applicable
(c) Code of Ethics
The Partnership has no employees, officers or directors and is managed by the General Partner. The General Partner has adopted a Code of Ethics that applies to its principal executive officers and certain other persons associated with Altegris Funds. A copy of this Code of Ethics may be obtained at no charge by written request to Altegris Advisors, L.L.C., 1200 Prospect Street, Suite 400, La Jolla, CA 92037.
(d) Corporate Governance
Not applicable.
ITEM 11:
ITEM 11: EXECUTIVE COMPENSATION
The Partnership has no officers, directors, or employees. None of the principals, officers, or employees of the General Partner or Altegris receives compensation from the Partnership. All persons serving in the capacity of officers or executives of the General Partner, the general partner of the Partnership, are compensated by Altegris and/or an affiliate in respect of their respective positions with such entities. The General Partner receives a monthly management fee equal to 1/12 of 1.25% of the management fee net asset value of the month-end capital account balances attributable to Class A and Class B Interests and equal to 1/12 of 0.75% of the management fee net asset value of the month-end capital account balances attributable to Institutional Interests. The General Partner also receives a monthly administrative fee equal to 1/12 of 0.333% of the management fee net asset value of the month-end capital account balances attributable to Class A and Class B Interests.
Altegris receives continuing monthly compensation from the Partnership equal to 1/12 of 2% of the month-end net asset value of Class A Interests sold by Altegris.
Clearing Solutions, in its capacity as Introducing Broker to the Partnership, received compensation for brokerage-related services. The Partnership will pay monthly brokerage charges equal to the greater of (A) actual commissions of $9.75 per round-turn (higher for certain exchanges or commodities) multiplied by number of round-turn trades, which amount includes other transaction costs; or (B) an amount equal to 0.125% of the management fee net asset value of all Interest holders’ month-end capital account balances (1.50% annually). If actual monthly commissions and transaction costs in (A) above are less than the amount in (B) above, the Partnership will pay the difference to the Introducing Broker as payment for brokerage-related services. In any month when the amount in (A) is greater than the amount in (B) above, the Partnership will pay only the amount described in (A) above.
The Partnership has no other compensation arrangements. There are no compensation plans or arrangements relating to a change in control of the Partnership.
ITEM 12:
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
(a) Security ownership of certain beneficial owners
Not applicable.
(b) Security Ownership of Management
The Partnership has no officers or directors. Under the terms of the Limited Partnership Agreement, the Partnership’s affairs are managed by the General Partner, which has delegated discretionary authority over the Partnership’s trading to QIM. As of February 28, 2015, the General Partner’s general partner interest in the Partnership was valued at $706, which constituted approximately 0% of the Partnership’s total assets. The General Partner and the principals of the General Partner may purchase Interests. As of February 28, 2015, the following managers and executive officers of the General Partner owned Interests in the Partnership: Jon C. Sundt. The direct and indirect holding of Interests of each manager and executive officer and the total aggregate ownership of Interests is less than 1% of the Partnership’s total assets.
(c) Changes in Control
None.
ITEM 13:
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The Partnership does not engage in any transactions with the General Partner or its affiliates other than in respect of the services and payment of fees therefor described above in Item 1.
The Partnership paid to the General Partner monthly management fees totaling $747,326 for the year ended December 31, 2014. The Partnership paid to the General Partner administrative fees totaling $180,043 for the year ended December 31, 2014.
The Partnership paid to Altegris monthly continuing compensation of $126,047 for the year ended December 31, 2014. Clearing Solutions, in its capacity as the Introducing Broker for the Partnership, received from the Partnership’s clearing broker the following compensation: a portion of the brokerage commissions paid by the Partnership to J.P. Morgan Securities, and of the interest income earned on Partnership’s assets held at J.P. Morgan Securities, equal to $313,473 for the year ended December 31, 2014. In addition, Clearing Solutions, in its capacity as Introducing Broker, receives from the Partnership, monthly brokerage charges as described in Item 11. For the year ended December 31, 2014 the Partnership paid monthly brokerage charges of $423,711.
The Partnership has not and does not make any loans to the General Partner, its affiliates, their respective officers, directors or employees or the immediate family members of any of the foregoing, or to any entity, trust or other estate in which any of the foregoing has any interest, or to any other person.
None of the General Partner, its affiliates, their respective officers, directors and employees or the immediate family members of any of the foregoing, or any entity trust or other estate in which any of the foregoing has any interest has, to date, sold any asset, directly or indirectly, to the Partnership.
The Partnership has no directors, officers or employees and is managed by the General Partner. The General Partner is managed by certain of its principals, none of whom is independent of the General Partner.
ITEM 14:
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth (a) the fees billed to the Partnership for professional audit services provided by Ernst & Young LLP, the Partnership’s independent registered public accountant, for the audit of the Partnership’s annual financial statements for the year ended December 31, 2013 and (b) the fees billed to the Partnership for professional audit services provided by Ernst & Young LLP for the audit of the Partnership’s annual financial statements for the year ended December 31, 2014.
Audit Fees consist of fees paid to Ernst and Young LLP for (i) the audit of Altegris QIM Futures Fund, L.P.’s annual financial statements included in the annual report on Form 10-K, and review of financial statements included in the quarterly reports on Form 10-Q and filed on Altegris QIM Futures Fund, L.P.’s current reports on Form 8-K; and (ii) services that are normally provided by the Independent Registered Public Accountants in connection with statutory and regulatory filings of registration statements.
Tax Fees consist of fees paid to Ernst and Young LLP for professional services rendered in connection with tax compliance and Partnership income tax return filings.
The managers of the General Partner pre-approve the engagement of the Partnership’s auditor for all services to be provided by the auditor.
PART IV
ITEM 15:
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements
The financial statements and balance sheets required by this Item are included herewith, beginning after the signature page hereof, and are incorporated into this Item 15.
Exhibits
The following documents (unless otherwise indicated) are filed herewith and made part of this registration statement.
* This exhibit is incorporated by reference to the exhibit of the same number and description filed with the Partnership’s Registration Statement (File No. 000-53815) filed on November 2, 2009 on Form 10-12G under the Securities Exchange Act of 1934.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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 General Partner of the Registrant and in the capacities and on the date indicated.
Title with
Signature
General Partner
Date
/s/ Jon C. Sundt
President, Chief Executive Officer, Manager
March 31, 2015
Jon C. Sundt
(Principal Executive Officer)
(Principal Financial Officer)
/s/ Jack L. Rivkin
Manager
March 31, 2015
Jack L. Rivkin
/s/ Matthew C. Osborne
Executive Vice President, Manager
March 31, 2015
Matthew C. Osborne
/s/ Kenneth I. McGuire
Chief Operating Officer, Manager
March 31, 2015
Kenneth I. McGuire
(Being the principal executive officer, the principal financial officer and principal accounting officer, and a majority of the managers of Altegris Advisors, L.L.C.)
ALTEGRIS QIM FUTURES FUND, L.P.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
ALTEGRIS QIM FUTURES FUND, L.P.
ALTEGRIS QIM FUTURES FUND, L.P.
AFFIRMATION OF THE COMMODITY POOL OPERATOR
To the Partners of
Altegris QIM Futures Fund, L.P.
To the best of the knowledge and belief of the undersigned, the information contained in this Annual Report for the years ended December 31, 2014, 2013 and 2012 is accurate and complete.
By: /s/ Kenneth I. McGuire
Altegris Portfolio Management, Inc.
Commodity Pool Operator for
Altegris QIM Futures Fund, L.P.
By: Kenneth I. McGuire, Chief Operating Officer
Report of Independent Registered Public Accounting Firm
The General Partner and Partners of Altegris QIM Futures Fund, L.P.
We have audited the accompanying statements of financial condition of Altegris QIM Futures Fund, L.P. (the “Partnership”), including the condensed schedules of investments, as of December 31, 2014 and 2013, and the related statements of income (loss), statements of changes in partners’ capital and financial highlights for each of the three years then ended. These financial statements and financial highlights are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Partnership’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Altegris QIM Futures Fund, L.P. at December 31, 2014 and 2013, and the results of its operations, the changes in its partners’ capital and the financial highlights for each of the three years in the period then ended, in conformity with U.S. generally accepted accounting principles.
March 24, 2015
ALTEGRIS QIM FUTURES FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2014 and DECEMBER 31, 2013
See accompanying notes.
ALTEGRIS QIM FUTURES FUND, L.P.
CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2014
* The rate reported is the effective yield at time of purchase.
See accompanying notes.
ALTEGRIS QIM FUTURES FUND, L.P.
CONDENSED SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 2014
See accompanying notes.
ALTEGRIS QIM FUTURES FUND, L.P.
CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2013
* The rate reported is the effective yield at time of purchase.
See accompanying notes.
ALTEGRIS QIM FUTURES FUND, L.P.
CONDENSED SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 2013
See accompanying notes.
ALTEGRIS QIM FUTURES FUND, L.P.
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
See accompanying notes.
ALTEGRIS QIM FUTURES FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
See accompanying notes.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
A. General Description of the Partnership
Altegris QIM Futures Fund, L.P. (“Partnership”) was organized as a Delaware limited partnership in June 2009. The Partnership's general partner is Altegris Portfolio Management, Inc. (d/b/a Altegris Funds) ("General Partner"). The Partnership speculatively trades commodity futures contracts, and may trade options on futures contracts, forward contracts and other commodity interests. The objective of the Partnership’s business is appreciation of its assets. It is subject to the regulations of the Commodity Futures Trading Commission (the “CFTC”), an agency of the United States (“U.S.”) government that regulates most aspects of the commodity futures industry; rules of the National Futures Association, an industry self-regulatory organization; and the requirements of commodity exchanges and futures commission merchants (brokers) through which the Partnership trades.
On December 31, 2014, pursuant to that certain General Partner Admission Agreement dated as of December 30, 2014 among Altegris Advisors, L.L.C. (“Advisors” or the “General Partner”), Altegris Portfolio Management, Inc. (“APM”) and the Partnership, Advisors, a Delaware limited liability company and an affiliate of APM, was admitted as a general partner of the Partnership effective immediately prior to the Transaction (defined below). Pursuant to an internal reorganization of APM, then a general partner of Partnership, and certain affiliated entities, APM merged with and into Advisors on December 31, 2014 (the “Transaction”). By operation of law Advisors then assumed the general partner interest of Partnership previously held by APM. The officers of Advisors are the same persons with the same titles as the officers of APM prior to the Transaction, and the managers of Advisors were also the directors of APM prior to the Transaction.
B. Method of Reporting
The Partnership’s financial statements are presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Therefore, the Partnership follows the accounting and reporting guidelines for investment companies. The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported fair value of assets and liabilities, disclosures of contingent assets and liabilities as of December 31, 2014 and 2013, and reported amounts of income and expenses for the years ended December 31, 2014, 2013 and 2012, respectively. Management believes that the estimates utilized in preparing the Partnership’s financial statements are reasonable; however, actual results could differ from these estimates and it is reasonably possible that the differences could be material.
C. Fair Value
In accordance with the authoritative guidance under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants at the measurement date.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. Fair Value (continued)
In determining fair value, the Partnership uses various valuation approaches. The authoritative guidance under U.S. GAAP establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Partnership.
Unobservable inputs reflect the Partnership’s assumption about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1 - Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that the Partnership has the ability to access at the measurement date;
Level 2 - Quoted prices which are not active, or inputs that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and
Level 3 - Prices, inputs or exotic modeling techniques which are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The availability of valuation techniques and observable inputs can vary among assets and liabilities and is affected by a wide variety of factors, including the type of asset or liability, whether the asset or liability is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the asset or liability existed. Accordingly, the degree of judgment exercised by the Partnership in determining fair value is greatest for assets and liabilities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined by the lowest level input that is significant to the fair value measurement.
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Partnership’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Partnership uses prices and inputs that are current as of the measurement date, including prices and inputs during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many assets and liabilities. This condition could cause an asset or liability to be reclassified to a lower level within the fair value hierarchy.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. Fair Value (continued)
The Partnership values futures contracts at the closing price of the contract’s primary exchange. The Partnership includes futures contracts in Level 1 of the fair value hierarchy, as they are exchange traded derivatives.
The fair value of U.S. government agency bonds and notes is generally based on quoted prices in active markets. When quoted prices are not available, fair value is determined based on a valuation model that uses inputs which include interest-rate yield curves, cross-currency-basis index spreads, and country credit spreads similar to the bond in terms of issue, maturity and seniority. U.S. government agency bonds and notes are categorized in Level I or Level 2 of the fair value hierarchy. As of December 31, 2014 and 2013, none of the Partnership’s holdings in U.S. government agency bonds and notes were fair valued using valuation models.
The fair value of U.S. treasury obligations is generally based on quoted prices in active markets. U.S. treasury obligations are categorized in Level 1 of the fair value hierarchy.
The fair value of corporate notes is determined using recently executed transactions, market price quotations (where observable), notes spreads or credit default swap spreads. The spread data used are for the same maturity as that of the notes. If the spread data does not reference the issuer, data that references a comparable issuer is used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, notes, or single-name credit default swap spreads and recovery rates based on collateral values as key inputs. These valuation methods represent both a market and income approach to fair value measurement. Corporate notes are categorized in Level 2 of the fair value hierarchy; however, in instances where significant inputs are unobservable, they are categorized in Level 3 of the hierarchy. As of December 31, 2014 and 2013, none of the Partnership’s holdings in corporate notes were fair valued using valuation models.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. Fair Value (continued)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
There were no changes in the Partnership’s valuation methodology during the years ended December 31, 2014 and 2013.
The following table presents information about the Partnership’s assets and liabilities measured at fair value as of December 31, 2014 and December 31, 2013:
(1) See Note 7. "Financial Derivative Instruments" for the fair value in each type of contracts within this category.
For the years ended December 31, 2014 and 2013, there were no transfers between Level 1 and Level 2 assets and liabilities. For the years ended December 31, 2014 and 2013, there were no Level 3 securities.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. Investment Transactions and Investment Income
Security transactions are recorded on the trade date for financial reporting purposes. Realized gains and losses from security transactions are determined using the specific identification cost method. Change in net unrealized gain or loss from the preceding period is reported in the Statements of Income (Loss). Brokerage commissions on securities and other trading fees are reflected as an adjustment to cost or proceeds at the time of the transaction. Interest income is recorded on an accrual basis.
Gains or losses on futures contracts are realized when contracts are closed. Net unrealized gains or losses on open contracts (the difference between contract trade price and quoted market price) are reflected in the Statements of Financial Condition. Any change in net unrealized gain or loss from the preceding period is reported in the Statements of Income (Loss). Brokerage commissions on futures contracts include other trading fees and are incurred as an expense when contracts are opened, and are recognized as trading gains and losses.
Net realized gains and losses from foreign currency related transactions represent gains and losses from sales of foreign currencies, sales and maturities of futures contracts in foreign markets, currency gains and losses realized between trade and settlement dates on securities transactions, and the difference between the amounts of interest and foreign withholding taxes recorded on the Partnership’s books and the U.S. Dollar equivalent of the amounts actually received or paid. Net unrealized appreciation (depreciation) on foreign currency denominated other assets and liabilities arise from changes in the value of assets, other than investments in securities, and liabilities at fiscal year end, resulting from changes in the exchange rates.
JPMorgan Chase Bank, N.A. (the “Custodian”) is the Partnership’s custodian. The Partnership has cash deposited with the Custodian. Newedge USA, LLC (the “Clearing Broker”) is the Partnership’s commodity broker. Prior to December 2014, JPMorgan Chase Bank, N.A. was the Partnership’s commodity broker. For cash not held with the Clearing Broker the Partnership receives cash management services from an affiliate of the Custodian, J.P. Morgan Investment Management Inc. (“JPMIM”).
E. Futures Contracts
The Partnership may engage in futures contracts as part of its investment strategy. Upon entering into a futures contract, the Partnership is required to deposit with the broker an amount of cash or cash equivalents equal to a certain percentage of the contract amount. This is known as the “initial margin.” Subsequent payments (“variation margin”) are made or received by the Partnership each day, depending on the daily fluctuations in the value of the contract, and are included in unrealized gain (loss) on futures contracts. Due to broker amounts on the Statement of Financial Condition represent the amount of any short fall in the Fund's required cash margin. The Partnership recognizes a realized gain or loss when the contract is closed.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. Futures Contracts (continued)
There are several risks in connection with the use of futures contracts as an investment option. The change in value of futures contracts primarily corresponds with the value of their underlying instruments. In addition, there is the risk that the Partnership may not be able to enter into a closing transaction because of an illiquid secondary market. Open positions in futures contracts at December 31, 2014 and 2013 are reflected within the Condensed Schedules of Investments.
F. Foreign Currency Transactions
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 currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the date of the Statements of Financial Condition. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S. dollars are reported in the Statements of Income (Loss).
G. Cash
Restricted cash is held as maintenance margin deposits for futures transactions.
At times, the Partnership’s cash balance could exceed the insured amount under the Federal Deposit Insurance Corporation (“FDIC”). The Partnership has not experienced any losses in such accounts and believes it is not subject to any significant counterparty risk related to its cash account.
H.
Income Taxes
As an entity taxable as a partnership for U.S. Federal income tax purposes; the Partnership itself is not subject to Federal Income tax. The Partnership prepares and files calendar year U.S. and applicable state information tax returns and reports to the partners their allocable shares of the Partnership’s income and expenses.
The Partnership is required to determine whether its tax positions are more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. De-recognition of a tax benefit previously recognized results in the Partnership recording a tax liability that reduces ending partners’ capital. Based on its analysis, the Partnership has determined that it has not incurred any liability for unrecognized tax benefits as of December 31, 2014 and 2013. However, the Partnership’s conclusions
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. Income Taxes (continued)
may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof. The Partnership is subject to income tax examinations by major taxing authorities for all tax years since 2012.
The Partnership recognizes interest and penalties related to unrecognized tax benefits in interest expense and other expenses, respectively. No interest expense or penalties have been recognized as of and for the years ended December 31, 2014, 2013 and 2012.
I. Reclassifications
Certain amounts in the 2013 and 2012 financial statements were reclassified to conform to the 2014 presentation.
J. Offering Costs
Offering costs incurred in connection with the ongoing offering of the Partnership’s interests are borne by the Partnership. These costs include, but are not limited to, legal fees pertaining to updating the Partnership’s offering documents and materials, accounting and printing costs. These costs are charged as an expense when incurred.
NOTE 2 - PARTNERS’ CAPITAL
A. Capital Accounts and Allocation of Income and Loss
The Partnership accounts for subscriptions and redemptions on a per partner capital account basis.
The Partnership consists of the General Partner’s Interest, Class A Interests, Class B Interests and Institutional Interests (collectively referred to as “Interests”). Income or loss (prior to management fees, administrative fees, service fees and incentive fees) is allocated pro rata among the partners based on their respective capital accounts as of the end of each month in which the items accrue, pursuant to the terms of the Partnership’s agreement of limited partnership, as may be amended and restated from time to time (the “Agreement”). Class A Interests, Class B Interests and Institutional Interests are then charged with their applicable management fee, administrative fee, service fee and incentive fee in accordance with the Agreement.
No limited partner of the Partnership (each, a “Limited Partner” and collectively the “Limited Partners”) shall be liable for any debts or liabilities of the Partnership or any losses thereof in excess of such Limited Partner's capital contributions, except as may be required by law.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - PARTNERS’ CAPITAL (CONTINUED)
B. Subscriptions, Distributions and Redemptions
Investments in the Partnership are made by subscription agreement, subject to acceptance by the General Partner.
The Partnership is not required to make distributions, but may do so at the sole discretion of the General Partner. A Limited Partner may request and receive redemption of capital, subject to restrictions set forth in the Agreement. The General Partner may request and receive redemption of capital, subject to the same terms as any Limited Partner. The partners may withdraw their interests on a monthly basis upon at least 15 days’ prior written notice, subject to the discretion of the General Partner. No distributions were made for the years ended December 31, 2014, 2013 and 2012.
NOTE 3 -RELATED PARTY TRANSACTIONS
A. General Partner Management Fee
The General Partner receives a monthly management fee from the Partnership equal to 0.104% (1.25% annually) for Class A and Class B, and 0.0625% (0.75% annually) for Institutional Interests of the Partnership's management fee net asset value. The General Partner may declare any Limited Partner a “Special Limited Partner” and the management fees or incentive fees charged to any such partner may be different than those charged to other Limited Partners. For the years ended December 31, 2014, 2013 and 2012 there were no Special Limited Partners.
Total management fees earned by the General Partner for the years ended December 31, 2014, 2013 and 2012 are shown on the Statements of Income (Loss) as Management Fee.
B. Administrative Fee
The General Partner receives a monthly administrative fee from the Partnership equal to 0.0275% (0.33% annually) of the Partnership's management fee net asset value attributable to Class A and Class B Interests. For the years ended December 31, 2014, 2013 and 2012, administrative fees for Class A Interests were $106,535, $155,133 and $172,714, respectively, and administrative fees for Class B Interests were $73,508, $133,854 and $156,299, respectively.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - RELATED PARTY TRANSACTIONS (CONTINUED)
C. Altegris Investments, Inc. and Altegris Futures, L.L.C.
Altegris Investments, Inc. (“Altegris Investments”), an affiliate of the General Partner, is registered as a broker-dealer with the Securities Exchange Commission. Altegris Futures, L.L.C. (“Altegris Futures”), an affiliate of the General Partner and an introducing broker registered with the CFTC, is the Partnership’s introducing broker. Altegris Investments has entered into a selling agreement with the Partnership whereby it receives 2% per annum as continuing compensation for Class A Interests sold by Altegris Investments that are outstanding at month end. Altegris Futures, as the Partnership’s introducing broker, receives a portion of the commodity brokerage commissions paid by the Partnership to the Clearing Broker and interest income retained by the Clearing Broker. Additionally, the Partnership pays to its clearing brokers and Altegris Futures, at a minimum, brokerage charges at a monthly flat rate of 0.125% (1.5% annually) of the Partnership’s management fee net asset value. Brokerage charges may exceed the flat rate described above, depending on commission and trading volume levels, which may vary.
On December 31, 2014, Altegris Futures merged with and into its affiliate, Altegris Clearing Solutions, LLC. Altegris Clearing Solutions, LLC is registered with the CFTC as an Introducing Broker.
At December 31, 2014 and 2013, respectively, the Partnership had commissions and brokerage fees payable to Altegris Futures of $29,423 and $60,231 and service fees payable to Altegris Investments of $7,777 and $13,850, respectively. The following tables show the fees paid to Altegris Investments and Altegris Futures for the years ended December 31, 2014, 2013 and 2012, respectively:
The amounts above are included in Brokerage Commissions and Service Fees on the Statements of Income (Loss), respectively. The amounts shown on the Statements of Income (Loss) include fees paid to non-related parties.
NOTE 4 - ADVISORY CONTRACT
The Partnership’s trading activities are conducted pursuant to an advisory contract with Quantitative Investment Management LLC (QIM) (“Advisor”). The Partnership pays the Advisor a quarterly incentive fee of 30% of the trading profits. However, the quarterly incentive fee is payable only on cumulative profits, calculated separately for each partner’s interest, achieved from commodity trading. The incentive fee is accrued on a monthly basis and paid quarterly. Incentive fees are reflected in the Statements of Income (Loss).
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - SERVICE FEES
Class A Interests pay selling agents an ongoing monthly payment of 0.166% of the month-end net asset value (2% annually) of the value of Interests sold by them which are outstanding at month-end as compensation for their continuing services to such Class A Limited Partners. Institutional Interests may pay selling agents, if the selling agent so elects, an ongoing monthly payment of 0.0417% (0.50% annually) of the value of Institutional Interests sold by them which are outstanding at month-end as compensation for their continuing services to such Limited Partners holding Institutional Interests, however, there were none for the years ended December 31, 2014, 2013 and 2012. For the years ended December 31, 2014, 2013 and 2012, service fees for Class A Interests were $635,258, $933,931 and $1,049,656, respectively, and service fees for Institutional Interests were $278, $787 and $1,245, respectively.
NOTE 6 - BROKERAGE COMMISSIONS
The Partnership pays brokerage commissions to the Clearing Broker for clearing trades on its behalf, which are reflected in the Statements of Income (Loss) as Brokerage Commissions. The Partnership pays to its Clearing Broker a monthly brokerage commission equal to the greater of: (1) actual brokerage commissions, which are based upon trading volume, or (2) a flat rate of 0.125% (1.5% annually) (the “Minimum Amount”) of the Partnership’s management fee net asset value.
If actual brokerage commissions paid to the Clearing Broker are less than the Minimum Amount, the Partnership will pay to the introducing broker, the difference. However, if actual brokerage commissions are greater than the Minimum Amount, the Partnership only pays the actual brokerage commissions.
NOTE 7 - FINANCIAL DERIVATIVE INSTRUMENTS
The Partnership engages in the speculative trading of futures contracts for the purpose of achieving capital appreciation. None of the Partnership’s derivative instruments are designated as hedging instruments, nor are they used for other risk management purposes. The Advisor and General Partner actively assess, manage and monitor risk exposure on derivatives on a contract basis, a sector basis (e.g., interest rate derivatives, agricultural derivatives, etc.), and on an overall basis in accordance with established risk parameters. Due to the speculative nature of the Partnership’s derivative trading activity, the Partnership is subject to the risk of substantial losses from derivatives trading.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - FINANCIAL DERIVATIVE INSTRUMENTS (CONTINUED)
The following presents the fair value of derivative contracts as of December 31, 2014 and 2013. The fair value of derivative contracts is presented as an asset if in a gain position and a liability if in a loss position. Fair value is presented on a gross basis in the table below even though the derivative contracts qualify for net presentation in the Statements of Financial Condition.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - FINANCIAL DERIVATIVE INSTRUMENTS (CONTINUED)
The following presents the trading results of the Partnership’s derivative trading and information related to the volume of the Partnership’s derivative activity for the years ended December 31, 2014, 2013 and 2012.
The below captions of “Realized” and “Change in Unrealized” correspond to the captions in the Statements of Income (Loss) for gain (loss) on trading derivatives contracts.
For the year ended December 31, 2014, the number of futures contracts closed was 58,163.
For the year ended December 31, 2013, the number of futures contracts closed was 92,471.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - FINANCIAL DERIVATIVE INSTRUMENTS (CONTINUED)
For the year ended December 31, 2012, the number of futures contracts closed was 150,019.
With respect to futures contracts and options on futures contracts, the Partnership has entered into an agreement with the Clearing Broker which grants the Clearing Broker the right to offset recognized derivative assets and derivative liabilities if certain conditions exist, which would require the Clearing Broker to liquidate the Partnership’s positions. These events include the following: (i) upon the dissolution, winding-up, liquidation or merger of the Partnership, (ii) failure to maintain initial margin or failure to make timely payment of additional variation margin, (iii) failure to pay the premium on any option purchased, (iv) upon the commencement of bankruptcy, insolvency or similar proceeding for the protection of creditors against the Partnership, (v) the Clearing Broker determines, at its discretion, that the risk in the Partnership’s account must be reduced for protection of the Clearing Broker, or (vi) if the Partnership’s registration status is suspended or is pending suspension.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - FINANCIAL DERIVATIVE INSTRUMENTS (CONTINUED)
The following table summarizes the disclosure requirements for offsetting assets and liabilities:
Offsetting the Financial Liabilities and Derivative Liabilities
Offsetting the Financial Liabilities and Derivative Liabilities
Offsetting the Financial Assets and Derivative Assets
Offsetting the Financial Liabilities and Derivative Liabilities
(1) Does not include maintenance margin deposits held at the Clearing Broker of $1,966,135 for 2014 & $2,460,129 for 2013, respectively.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - FINANCIAL INSTRUMENTS, OFF-BALANCE SHEET RISKS AND UNCERTAINTIES
The Partnership participates in the speculative trading of commodity futures contracts, substantially all of which are subject to margin requirements. The minimum amount of margin required for each contract is set from time to time in response to various market factors by the respective exchanges. Further, the Clearing Broker has the right to require margin in excess of the minimum exchange requirement. Risk arises from changes in the value of these contracts (market risk) and the potential inability of brokers to perform under the terms of their contracts (credit risk).
All of the contracts currently traded by the Partnership are exchange traded. The risks associated with exchange-traded contracts are generally perceived to be less than those associated with over-the-counter transactions because, in over-the-counter transactions, the Partnership must rely solely on the credit of its respective individual counterparties. However, in the future, if the Partnership were to enter into non-exchange traded contracts, it would be subject to the credit risk associated with counterparty non-performance. The credit risk from counterparty non-performance associated with such instruments is the net unrealized gain, if any.
The Partnership also has credit risk because the sole counterparty to all domestic futures contracts is the exchange clearing corporation. In addition, the Partnership bears the risk of financial failure by the Clearing Broker. 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 counterparty with which it conducts business.
The Partnership has a substantial portion of its assets on deposit with the Custodian in U.S. government agency bonds and notes and corporate notes. Risks arise from investments in bonds and notes due to possible illiquidity and the potential for default by the issuer or counterparty. Such instruments are also sensitive to changes in interest rates and economic conditions.
NOTE 9 - INDEMNIFICATIONS
In the normal course of business, the Partnership enters into contracts and agreements that contain a variety of representations and warranties and which provide general indemnifications. The Partnership’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Partnership that have not yet occurred. The Partnership expects the risk of any future obligation under these indemnifications to be remote.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - FINANCIAL HIGHLIGHTS
The following information presents the financial highlights of the Partnership for the years ended December 31, 2014, 2013 and 2012. This information has been derived from information presented in the financial statements.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - FINANCIAL HIGHLIGHTS (CONTINUED)
Total return and the ratios to average net asset value are calculated for each class of Limited Partners’ capital taken as a whole. An individual Limited Partner’s total return and ratios may vary from the above returns and ratios due to the timing of their contributions and withdrawals and differing fee structures.
Total return is calculated on a monthly compounded basis.
(1) Excludes incentive fee.
NOTE 11 - SUBSEQUENT EVENTS
Management of the Partnership evaluated subsequent events through the date these financial statements were available to be issued.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - SUBSEQUENT EVENTS (CONTINUED)
Effective January 1, 2015, Altegris Advisors, L.L.C. became the sole General Partner of the Partnership.
From January 1, 2015 through March 24, 2015, the Partnership had subscriptions of $249,508 and redemptions of $5,459,010. Management has determined there are no additional matters requiring disclosure.