UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2013
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-53815
ALTEGRIS QIM FUTURES FUND, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE (State or other jurisdiction of incorporation or organization) | | 27-0473854 (I.R.S. Employer Identification No.) |
c/o ALTEGRIS PORTFOLIO MANAGEMENT, INC.
1200 Prospect Street, Suite 400
La Jolla, CA 92037
(Address of principal executive offices) (zip code)
(858) 459-7040
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer and large accelerated filer,” “accelerated filed” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
| Non-accelerated filer | [ ] | Smaller reporting company | [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
Not Applicable.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
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”). Under the Partnership’s Agreement of Limited Partnership (the “Limited Partnership Agreement”), Altegris Portfolio Management, Inc. (d/b/a Altegris Funds), an Arkansas corporation (“Altegris Funds” or the “General Partner”), serves as general partner of the Partnership and 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.
Altegris Funds is registered with the Commodity Futures Trading Commission (“CFTC”) as a Commodity Pool Operator (“CPO”), 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.
On August 30, 2013, Genworth Financial, Inc. (“Genworth”) completed the sale of its wealth management business, including its 100% indirect ownership of the General Partner (the "Transaction"). As a result of the Transaction, the General Partner is now 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.
On August 30, 2013, the General Partner closed its office at 1202 Bergen Parkway Suite 212 Evergreen, Colorado.
Altegris Investments, Inc. (“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 replaced Altegris as the Partnership’s introducing broker (“Introducing Broker”). Altegris Futures is registered with the CFTC as an 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, 2014, the aggregate net asset value of the Interests in the Partnership before redemptions was $77,778,805. 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 over 50 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, J.P. Morgan Securities LLC (“J.P. Morgan Securities”), a futures commission merchant (“FCM”), and available for trading by QIM in Commodity Interests on behalf of the Partnership. Interest on Partnership assets held at J.P. Morgan Securities in cash or Treasury securities will be credited to the Partnership as described under “Charges.” Depending on market factors, the amount of margin or option premiums held at J.P. Morgan Securities 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.
With respect to Partnership assets not held at J.P. Morgan Securities 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 J.P. Morgan Securities, or other clearing brokers, as segregated funds is not commingling for these purposes.
The Partnership pays all of its ongoing liabilities, expenses and costs. Altegris Funds 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 2013 to Altegris Futures 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. However, during the first twelve months after the Partnership commenced trading, the General Partner agreed to limit the operating expenses paid by the Partnership to 1/12th of 0.5% of the month-end capital account balances of all Interests for such month. A fixed administrative fee is charged to Class A and Class B Interests and paid to Altegris Funds 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 Altegris Funds, commodity trading advisors such as the Advisor and commodity brokers or FCMs such as J.P. Morgan Securities and introducing brokers such as Altegris Futures 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 U.S., 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. Position limits in spot months are proposed to be 25% of the official estimated deliverable supply of the underlying commodity and in a non-spot month a percentage of the average aggregate 12-month rolling open interest in all months (swaps and futures) for each contract. 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. The Reform Act includes provisions that comprehensively regulate the over-the-counter derivatives markets for the first time. 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. 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: RISK FACTORS
Not required.
ITEM 1B: UNRESOLVED STAFF COMMENTS
Not applicable.
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: 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 Altegris Funds 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: MINE SAFETY DISCLOSURES
Not applicable.
PART II
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, 2014 the Partnership had 1,192 holders of Interests.
(c) Dividends
Altegris Funds 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 Altegris Funds 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 2013:
| Month Ended | | | Amount Redeemed | |
| | | | | |
| October 31, 2013 | | | $ | 4,169,824 | |
| November 30, 2013 | | | | 7,276,790 | |
| December 31, 2013 | | | | 2,908,371 | |
| | Total | | $ | 14,354,985 | |
ITEM 6: SELECTED FINANCIAL DATA
Not required.
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, 2013 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 J.P. Morgan Securities and/or other clearing brokers or counterparties with which the Partnership trades.
(c) Results of Operations
Performance Summary
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.
2013
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 accrued 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.
2012
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 accrued 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.
2011
During 2011, the Partnership achieved net realized and unrealized gains of $4,717,099 from all trading: losses of $4,619,789 from trading of derivatives including brokerage commissions paid of $1,941,056. The Partnership accrued total expenses of $4,578,825, including $969,544 in incentive fees, $1,462,413 in management fees paid to the General Partner, and $1,482,904 in service and professional fees. The Partnership earned $266,259 in interest income during 2011. An analysis of the profits and losses generated from the Partnership’s commodity futures trading activities for each quarter during 2011 is set forth below.
Fourth Quarter 2011. The Partnership achieved a gain in October 2011 as the program continued to benefit from turbulence in stock index and interest rate futures. Equity markets rebounded strongly from their five-month free fall; however, markets began to sell off again at month-end. The Partnership profitably traded Euro-Bund futures contracts and took advantage of rising interest rates on the long end of the US yield curve. Trading in Euro futures continued to be strong as the currency gained in conjunction with renewed investor confidence. Crude oil futures also played a positive role in the month’s final tally. The Partnership achieved a gain in November 2011 booking large gains on the first and last day of the month, and was profitable on five of the last six trading days of November. On the first of the month, when the program was largely short stock index futures and long interest rates, the Greek government called for a referendum on the latest bailout package causing the markets to fall and interest rate futures to rally sharply, producing large gains. Euro-Bund and Dax futures were the most profitable contracts during the month, as the Partnership took advantage of continued volatility in Europe. The Partnership experienced a loss in October 2011. Trading in futures contracts on US Treasury notes and bonds proved challenging as news continued to fuel uncertainty regarding the European monetary union. The Partnership also lost money in futures contracts on the Nasdaq and S&P 500. Euro currency and Euro-Bund trading were among the Partnership’s most lucrative contracts. The program held short positions in gold futures for all but the last day of the month, during which time the price of gold contracts dropped significantly.
Third Quarter 2011. Performance in July was positive as trading in interest rate futures showed solid gains. Performance was boosted by gold and silver trading as the gold markets reached an all-time high. The end of the month saw global markets falter and the Partnership’s short stock index positions and long interest rate positions, generated gains for the month. August saw mixed performance for the Partnership as world equity markets, which had fallen significantly in the last week of July, fell even more rapidly in the first week of August. The Partnership began the month with gains primarily from its positions in US and European stock index futures, but concerns regarding the European debt crisis and the downgrade of US Government debt drove markets significantly lower. Performance was driven by positions in equity markets - both short and long. The Partnership achieved gains in trading gold futures amid a choppy market for the commodity. The partnership achieved a gain in September 2011 as markets continued to be driven by speculation regarding the sovereign debt crises throughout the euro zone. The Partnership was well-positioned to take advantage of high volatility by holding short positions in global equity markets and long positions in global interest rate futures to start the month. The Partnership profited by reversing its positions as the markets rallied during the second week of the month.
Second Quarter 2011. The Partnership experienced a loss in April 2011, as news of the severity of the Japanese nuclear crisis hurt long positions the Partnership held in futures contracts on global equities, the U.S. dollar and crude oil. The Partnership also held short positions in futures contracts in silver, as the price of silver posted its largest monthly gain in nearly 30 years, making silver the worst performing market this month. Gains in trading futures contracts in gold, the Australian dollar and European interest rates were not enough to offset losses elsewhere in the portfolio. The Partnership experienced a loss in May 2011. Long positions in futures on the U.S. dollar and short crude positions exploited weaknesses in those markets and led to modest gains. Despite these early gains, the Partnership closed the month with six consecutive down days on trading in futures contracts on foreign currencies, silver, and U.S. equities. The Partnership experienced a loss in June 2011. The Partnership suffered from its long positions in futures contracts on the S&P 500 on the worst day of the year for that index. Losses in currency trading occurred primarily in the euro and Canadian dollar. Silver trading was the program’s best performing market, with the Partnership holding short positions as the price of silver fell during the month. The Partnership traded well in futures contracts on U.S. and European bonds boosting returns in interest rates, however performance overall was negative at month end.
First Quarter 2011. The Partnership experienced a loss in January 2011, as markets reacted strongly to political unrest in Egypt. The Partnership was well positioned to take advantage of movements in the price of futures contracts on the Euro, which secured some gains. An extended short position in futures contracts on Silver also added positively to performance. The Partnership ended the month down on difficult trading of crude oil futures at the end of the month. The Partnership achieved a gain in February 2011. Strong trading in stock index futures and U.S. interest rates drove February performance as unrest in the Middle East increased volatility in world markets. The Partnership participated on both sides of the market as volatility in the medium and long-term U.S. treasury futures helped to generate profits. Trading on currency futures was flat for the month, despite significant gains in trading futures contracts on the Euro. The Partnership experienced a loss in March 2011. The Partnership suffered losses on long positions in Japanese equities and crude oil as news of the earthquake in Japan broke. The Partnership increased its long positions in futures contracts on Japanese equities as the markets fell, and the subsequent rebound made up for the initial losses. Gains in trading futures contracts on the Euro were offset by losses in futures contracts on the U.S. Treasury markets, as the Partnership ended the month down.
(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
Altegris Funds 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. Foreign currency contracts are stated at fair value using spot currency rates provided by J.P. Morgan Securities and adjusted for interest rates and other typical adjustment factors. U.S. government agency securities are generally valued based on quoted prices in active markets. Corporate notes and repurchase agreements are generally valued at fair value, which usually approximates cost, given their short duration from the time of purchase. Security transactions are recorded on the trade date. Realized gains and losses from security transactions are determined using the identified 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, 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, Altegris Funds 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. Altegris Funds 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: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
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: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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 Funds, the general partner of the Partnership is responsible for the management of the Partnership. Management of Altegris Funds (“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, 2013. 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, 2013, 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 ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
ITEM 9B: OTHER INFORMATION
None.
PART III
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 Altegris Funds (although it has delegated trading and investment authority to the Advisor and administrative duties to Altegris). Altegris Funds is indirectly owned by AqGen, an entity owned and controlled by (i) private equity funds managed by Aquiline, and by 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. Altegris Funds directors 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 Altegris Funds in January 2014. Mr. Rivkin has served as a manager and Executive Vice President and Chief Investment Officer of Altegris Advisors (December 2013 to present). Mr. Rivkin has served as a manager and Executive Vice President of Altegris Services and Altegris Futures (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 Altegris Funds 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 Altegris Funds: (a) Clearing Solutions as principal (January 2014 to present), (b) Altegris Futures as principal (January 2014 to present); and (c) 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 director of Altegris Funds. 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 Altegris Funds, and formerly an IB and CTA; (2) a manager and the President and CEO of Altegris Advisors, L.L.C. (Advisors), an affiliate of Altegris Funds and an SEC-registered investment adviser (February 2010 to present); (3) a manager and the President and CEO of Altegris Futures, L.L.C. (Altegris Futures), an IB and an affiliate of Altegris Funds (September 2010 to present); (4) 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 Altegris Funds (December 2008 to present); (5) a manager and the President and CEO of Altegris Services, L.L.C. (Services), an administrative and operations affiliate of Altegris Funds (May 2010 to present); and (6) the President and CEO of Altegris Holdings, a holding company which directly owns Altegris Funds, Altegris, Advisors, Altegris Futures, Clearing Solutions and Services (October 2012 to present). Mr. Sundt became a principal of Altegris Funds in July 2002. Mr. Sundt attended the University of California, San Diego.
Matthew C. Osborne (born 1964) has served as a director of Altegris Funds since July 2002. He has also served as a Vice President of Altegris Funds (July 2002 to January 2011), and currently serves as Executive Vice President (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 Advisors (February 2010 to present); (3) a manager and Executive Vice President of Clearing Solutions (December 2008 to present); (4) a manager and Executive Vice President of Services (February 2010 to present); (5) a manager and Executive Vice President of Altegris Futures (September 2010 to present); and (6) Executive Vice President of Altegris Holdings (October 2012 to present).
Kenneth I. McGuire (born 1958) is the Chief Operating Officer and a director of Altegris Funds. 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 Altegris Funds. Altegris Funds 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 Funds, 1200 Prospect Street, Suite 400, La Jolla, CA 92037.
(d) Corporate Governance
Not applicable.
ITEM 11: EXECUTIVE COMPENSATION
The Partnership has no officers, directors, or employees. None of the principals, officers, or employees of Altegris Funds or Altegris receives compensation from the Partnership. All persons serving in the capacity of officers or executives of Altegris Funds, the General Partner of the Partnership, are compensated by Altegris and/or an affiliate in respect of their respective positions with such entities. Altegris Funds 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. Altegris Funds 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.
Altegris Futures, 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. As of August 30, 2013, Altegris Funds is indirectly owned by AqGen, an entity owned and controlled by (i) private equity funds managed by Aquiline and by Genstar, and (ii) certain senior management of the General Partner and its affiliates.
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 Altegris Funds, which has delegated discretionary authority over the Partnership’s trading to QIM. As of February 28, 2014, Altegris Funds’ general partner interest in the Partnership was valued at $846.51, which constituted approximately 0% of the Partnership’s total assets. Altegris Funds and the principals of Altegris Funds may purchase Interests. As of February 28, 2014, the following directors and executive officers of Altegris Funds owned Interests in the Partnership: Jon C. Sundt and Richard Pfister. The direct and indirect holding of Interests of each director and executive officer and the total aggregate ownership of Interests is less than 1% of the Partnership’s total assets.
None.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The Partnership does not engage in any transactions with Altegris Funds or its affiliates other than in respect of the services and payment of fees therefore described above in Item 1.
The Partnership paid to Altegris Funds monthly management fees totaling $1,263,038 for the year ended December 31, 2013. The Partnership paid to Altegris Funds administrative fees totaling $288,987 for the year ended December 31, 2013.
The Partnership paid to Altegris monthly continuing compensation of $221,488 for the year ended December 31, 2013. Altegris Futures, 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 $542,070 for the year ended December 31, 2013. In addition, Altegris Futures, in its capacity as Introducing Broker, receives from the Partnership, monthly brokerage charges as described in Item 11. For the year ended December 31, 2013 the Partnership paid monthly brokerage charges of $870,421.
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: 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, 2012 and (b) the fees expected to be 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, 2013.
| FEE CATEGORY | | 2013 | | | 2012 | |
| | | | | | | |
| Audit Fees | $ | 28,000 | | | $ | 25,000 | |
| Audit-Related Fees | $ | | 32,000 | | | | 27,000 | |
| Tax Fees | $ | | 61,425 | | | $ | 53,500 | |
| All Other Fees | | | - | | | | - | |
| | | | | | | | | |
| TOTAL FEES | $ | 121,425 | | | $ | 105,500 | |
Audit Fees consist of fees paid to Ernst & 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, Audit-related fees consist of fees paid to Ernst & Young, LLP for review of financial statements included in the quarterly reports on Form 10-Q.
Tax Fees consist of fees paid to Ernst & Young LLP for professional services rendered in connection with tax compliance and Partnership income tax return filings.
The board of directors of Altegris Funds pre-approves the engagement of the Partnership’s auditor for all services to be provided by the auditor.
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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.
The following documents (unless otherwise indicated) are filed herewith and made part of this registration statement.
| Exhibit Designation | Description |
| * 3.1 | Certificate of Formation of APM – QIM Futures Fund L.P. |
| * 4.1 | Limited Partnership Agreement of APM – QIM Futures Fund L.P. |
| * 10.1 | Agreement with Quantitative Investment Management LLC |
| * 10.2 | Selling Agency Agreement between APM – QIM Futures Fund L.P. and Altegris Investments Inc. |
| 31.01 | Rule 13a-14(a)/15d-14(a) Certification |
| 32.01 | Section 1350 Certification |
| * | 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.
| Dated: March 31, 2014 | Altegris QIM FUTURES FUND, L.P. | |
| | | | |
| | By: | ALTEGRIS PORTFOLIO MANAGEMENT, INC. | |
| | | | |
| | By: | /s/ Matthew C. Osborne | |
| | Name: | Matthew C. Osborne | |
| | Title: | Executive Vice President | |
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.
| Signature | | General Partner | | Date |
| | | | | |
| /s/ Jon C. Sundt | | President, Chief Executive Officer, Director | | March 31, 2014 |
| Jon C. Sundt | | (principal executive officer) | | |
| | | (principal financial officer) | | |
| | | | | |
| | | | | |
| /s/ Jack L. Rivkin | | Executive Vice President, Chief Investment | | March 31, 2014 |
| Jack L. Rivkin | | Officer, Director | | |
| | | | | |
| | | | | |
| /s/ Matthew C. Osborne | | Executive Vice President, Director | | March 31, 2014 |
| Matthew C. Osborne | | | | |
| | | | | |
| | | | | |
| /s/ Kenneth I. McGuire | | Executive Vice President , Chief Operating | | March 31, 2014 |
| Kenneth I. McGuire | | Officer, Director | | |
| | | (principal accounting officer) | | |
(Being the principal executive officer, the principal financial officer and principal accounting officer, and a majority of the directors of Altegris Portfolio Management, Inc.)
ALTEGRIS QIM FUTURES FUND, L.P.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011
ALTEGRIS QIM FUTURES FUND, L.P.
| | PAGES |
| Affirmation of the Commodity Pool Operator | 1 |
| Report of Independent Registered Public Accounting Firm | 2 |
| Financial Statements | |
| Statements of Financial Condition | 3 |
| Condensed Schedules of Investments | 4 - 7 |
| Statements of Income (Loss) | 8 |
| Statements of Changes in Partners’ Capital (Net Asset Value) | 9 |
| Notes to Financial Statements | 10 - 26 |
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, 2013, 2012 and 2011 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 |
 | Ernst & Young LLP One Commerce Square Suite 700 2005 Market Street Philadelphia, PA 19103 | Tel: +1 215 448 5000 Fax: +1 215 448 5500 ey.com |
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, 2013 and 2012, 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, 2013, 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, including the condensed schedules of investments, of Altegris QIM Futures Fund, L.P. at December 31, 2013 and 2012, and the results of its operations, the changes in its partners’ capital and the financial highlights for each of the three years then ended, in conformity with U.S. generally accepted accounting principles.
March 24, 2014
A member firm of Ernst & Young Global Limited
ALTEGRIS QIM FUTURES FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2013 and DECEMBER 31, 2012
| | | 2013 | | | 2012 | |
| ASSETS | | | | | | |
| Equity in commodity broker account: | | | | | | |
| Cash | | $ | 1,543,224 | | | $ | 4,817,430 | |
| Restricted cash | | | 1,498,559 | | | | 7,932,508 | |
| Restricted foreign currency (cost - $964,576 and $3,454,913) | | | 961,570 | | | | 4,687,677 | |
| Unrealized gain on open commodity futures contracts | | | 895,271 | | | | - | |
| | | | | | | | | |
| | | | 4,898,624 | | | | 17,437,615 | |
| | | | | | | | | |
| Cash | | | 6,976,791 | | | | 9,824,680 | |
| Investment securities at value | | | | | | | | |
| (cost - $75,554,580 and $114,773,911) | | | 75,558,419 | | | | 114,785,129 | |
| Interest receivable | | | 34,011 | | | | 104,514 | |
| | | | | | | | | |
| Total assets | | $ | 87,467,845 | | | $ | 142,151,938 | |
| | | | | | | | | |
| LIABILITIES | | | | | | | | |
| Equity in commodity broker account: | | | | | | | | |
| Foreign currency (proceeds - $905,251 and $3,013,100) | | $ | 902,430 | | | $ | 4,088,218 | |
| Unrealized loss on open commodity futures contracts | | | - | | | | 965,168 | |
| | | | | | | | | |
| | | | 902,430 | | | | 5,053,386 | |
| | | | | | | | | |
| Redemptions payable | | | 3,074,013 | | | | 2,487,346 | |
| Subscriptions received in advance | | | 170,375 | | | | 2,489,976 | |
| Incentive fees payable | | | 95,825 | | | | 17,244 | |
| Management fee payable | | | 80,319 | | | | 125,815 | |
| Service fees payable | | | 67,536 | | | | 95,415 | |
| Brokerage commissions payable | | | 67,143 | | | | 63,679 | |
| Administrative fee payable | | | 18,956 | | | | 28,617 | |
| Payable to General Partner | | | 1,067 | | | | 1,067 | |
| Other liabilities | | | 135,068 | | | | 198,178 | |
| | | | | | | | | |
| Total liabilities | | | 4,612,732 | | | | 10,560,723 | |
| | | | | | | | | |
| PARTNERS' CAPITAL (NET ASSET VALUE) | | | | | | | | |
General Partner | | | 842 | | | | 889 | |
| Limited Partners | | | 82,854,271 | | | | 131,590,326 | |
| | | | | | | | | |
| Total partners' capital (Net Asset Value) | | | 82,855,113 | | | | 131,591,215 | |
| | | | | | | | | |
| Total liabilities and partners' capital | | $ | 87,467,845 | | | $ | 142,151,938 | |
See accompanying notes.
ALTEGRIS QIM FUTURES FUND, L.P.
CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2013
| INVESTMENT SECURITIES | | | | | | | |
| Face Value | | Maturity Date | Description | | Value | | | % of Partners' Capital | |
| | | | | | | | | | |
| Fixed Income Investments | | | | | | | |
| | | | | | | | | | |
| U.S. Government Agency Bonds and Notes | | | | | | |
| $ | 5,874,000 | | 1/2/2014 | Federal Farm Credit Bank Disc Note, 0.01%* | | $ | 5,873,998 | | | | 7.09 | % |
| | 750,000 | | 1/9/2014 | Federal Farm Credit Bank Disc Note, 0.02%* | | | 749,997 | | | | 0.91 | % |
| | 5,750,000 | | 1/17/2014 | Federal Farm Credit Bank, 0.14% | | | 5,750,069 | | | | 6.94 | % |
| | 1,000,000 | | 1/2/2014 | Federal Home Loan Bank Disc Note, 0.06%* | | | 1,000,000 | | | | 1.21 | % |
| | 2,000,000 | | 2/20/2014 | Federal Home Loan Bank, 0.13% | | | 2,000,000 | | | | 2.41 | % |
| | 3,000,000 | | 3/28/2014 | Federal Home Loan Bank, 0.13% | | | 3,000,285 | | | | 3.62 | % |
| | 2,000,000 | | 4/1/2014 | Federal Home Loan Bank, 0.13% | | | 2,000,246 | | | | 2.41 | % |
| | 2,200,000 | | 4/2/2014 | Federal Home Loan Bank, 0.17% | | | 2,199,670 | | | | 2.65 | % |
| | 3,000,000 | | 6/2/2014 | Federal Home Loan Bank, 0.13% | | | 2,999,865 | | | | 3.62 | % |
| | 2,000,000 | | 7/24/2014 | Federal Home Loan Bank, 0.18% | | | 2,000,448 | | | | 2.41 | % |
| | 500,000 | | 9/12/2014 | Federal Home Loan Bank, 0.16% | | | 500,161 | | | | 0.60 | % |
| | 2,500,000 | | 9/18/2014 | Federal Home Loan Bank, 0.17% | | | 2,500,075 | | | | 3.02 | % |
| | 1,000,000 | | 11/12/2014 | Federal Home Loan Bank, 0.18% | | | 999,527 | | | | 1.21 | % |
| | 2,500,000 | | 11/20/2014 | Federal Home Loan Bank, 0.14% | | | 2,499,670 | | | | 3.02 | % |
| | 2,500,000 | | 8/14/2014 | Federal Home Loan Mortgage Corp, 0.15% | | | 2,501,475 | | | | 3.02 | % |
| | 2,000,000 | | 8/27/2014 | Federal Home Loan Mortgage Corp, 0.11% | | | 2,011,630 | | | | 2.43 | % |
| | | | | | | | | | | | | |
| Total U.S. Government Agency Bonds and Notes (cost - $38,583,925) | | | 38,587,116 | | | | 46.57 | % |
| | | | | | | | | | | | | |
| Corporate Notes | | | | | | | | | | |
| $ | 2,500,000 | | 1/10/2014 | Albion Capital LLC, 0.10% | | | 2,499,752 | | | | 3.02 | % |
| | 2,150,000 | | 1/3/2014 | Banco del Estado de Chile, NY, 0.16% | | | 2,150,000 | | | | 2.60 | % |
| | 1,600,000 | | 1/17/2014 | Coca Cola Co Disc Note, 0.05%* | | | 1,599,920 | | | | 1.93 | % |
| | 1,450,000 | | 1/16/2014 | International Business Machines Co Disc Note, 0.02%* | | | 1,449,940 | | | | 1.75 | % |
| | 2,150,000 | | 1/16/2014 | Liberty Street Funding LLC, 0.132% | | | 2,149,749 | | | | 2.59 | % |
| | 3,000,000 | | 1/2/2014 | National Australian Bank Disc Note, 0.01%* | | | 2,999,998 | | | | 3.62 | % |
| | 1,450,000 | | 1/15/2014 | NetJets Corp Disc Note, 0.08%* | | | 1,449,952 | | | | 1.75 | % |
| | 1,790,000 | | 1/8/2014 | Norinchukin Bank Disc Note, 0.16%* | | | 1,790,000 | | | | 2.16 | % |
| | 2,150,000 | | 1/2/2014 | Sumitomo Mutsui Banking Co Disc Note, 0.18%* | | | 2,149,998 | | | | 2.59 | % |
| | 2,150,000 | | 1/15/2014 | Sumitomo Trust & Banking Co Disc Note, 0.18%* | | | 2,150,000 | | | | 2.59 | % |
| | 2,520,000 | | 1/6/2014 | Wal-Mart Stores Inc, 0.02% | | | 2,519,937 | | | | 3.05 | % |
| | 1,850,000 | | 1/17/2014 | Working Capital Management Co Disc Note, 0.113%* | | | 1,849,753 | | | | 2.23 | % |
| | | | | | | | | | | | | |
| Total Corporate Notes (cost - $24,759,001) | | | 24,758,999 | | | | 29.88 | % |
| | | | | | | | | | | | | |
| U.S. Treasury Obligations | | | | | | | | | |
| $ | 8,000,000 | | 1/2/2014 | United States Treasury Bill, 0.001% | | | 8,000,000 | | | | 9.65 | % |
| | 700,000 | | 2/15/2014 | United States Treasury Note, 0.18% | | | 700,957 | | | | 0.85 | % |
| | 3,500,000 | | 4/15/2014 | United States Treasury Note, 0.14% | | | 3,511,347 | | | | 4.24 | % |
| | | | | | | | | | | | | |
| Total United States Treasury Obligations (cost - $12,211,654) | | | 12,212,304 | | | | 14.74 | % |
| | | | | | | | | | | | | |
| Total Investment Securities (cost - $75,554,580) | | $ | 75,558,419 | | | | 91.19 | % |
| * | The rate reported is the effective yield at time of purchase. |
ALTEGRIS QIM FUTURES FUND, L.P.
CONDENSED SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 2013
| | Range of Expiration Dates | | Number of Contracts | | | Value | | | % of Partners' Capital | |
| | | | | | | | | | | |
| Long Futures Contracts: | | | | | | | | | | |
| Currencies | Mar 14 | | | 40 | | | $ | 55,429 | | | | 0.07 | % |
| Energy | Jan 14 - Feb 14 | | | 63 | | | | (84,884 | ) | | | (0.10 | )% |
| Metals | Mar 14 | | | 6 | | | | 10,270 | | | | 0.01 | % |
| Stock Indices | Jan 14 - Mar 14 | | | 333 | | | | 487,154 | | | | 0.58 | % |
| | | | | | | | | | | | | | |
| Total Long Futures Contracts | | | | 442 | | | | 467,969 | | | | 0.56 | % |
| | | | | | | | | | | | | | |
| Short Futures Contracts: | | | | | | | | | | | | | |
| Currencies | Mar 14 | | | 42 | | | | 63,662 | | | | 0.08 | % |
| Energy | Jan 14 | | | 24 | | | | (586 | ) | | | 0.00 | % |
| Interest Rates | Mar 14 | | | 202 | | | | 164,980 | | | | 0.20 | % |
| Metals | Feb 14 - Mar 14 | | | 8 | | | | 2,578 | | | | 0.00 | % |
| Stock Indices | Jan 14 | | | 19 | | | | 2,600 | | | | 0.00 | % |
| Treasury Rates | Mar 14 | | | 415 | | | | 194,068 | | | | 0.24 | % |
| | | | | | | | | | | | | | |
| Total Short Futures Contracts | | | | 710 | | | | 427,302 | | | | 0.52 | % |
| | | | | | | | | | | | | | |
| Total Futures Contracts | | | | 1,152 | | | $ | 895,271 | | | | 1.08 | % |
ALTEGRIS QIM FUTURES FUND, L.P.
CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
| INVESTMENT SECURITIES | | | | | | | |
| Face Value | | Maturity Date | Description | | Value | | | % of Partners' Capital | |
| | | | | | | | | | |
| Fixed Income Investments | | | | | | | |
| | | | | | | | | | |
| U.S. Government Agency Bonds and Notes | | | | | | |
| $ | 2,302,000 | | 1/2/2013 | Federal Farm Credit Bank Disc Note, 0.01%* | | $ | 2,301,999 | | | | 1.75 | % |
| | 1,000,000 | | 5/2/2013 | Federal Farm Credit Bank, 0.75% | | | 1,002,032 | | | | 0.76 | % |
| | 2,000,000 | | 11/20/2013 | Federal Farm Credit Bank, 0.20% | | | 2,000,352 | | | | 1.52 | % |
| | 4,000,000 | | 1/16/2013 | Federal Home Loan Bank Disc Note, 0.018%* | | | 3,999,968 | | | | 3.04 | % |
| | 2,500,000 | | 1/10/2013 | Federal Home Loan Bank, 0.18% | | | 2,500,027 | | | | 1.90 | % |
| | 2,100,000 | | 1/29/2013 | Federal Home Loan Bank, 0.375% | | | 2,100,386 | | | | 1.59 | % |
| | 4,250,000 | | 2/8/2013 | Federal Home Loan Bank, 0.16% | | | 4,250,128 | | | | 3.23 | % |
| | 5,000,000 | | 10/18/2013 | Federal Home Loan Bank, 0.19% | | | 5,000,395 | | | | 3.80 | % |
| | 2,000,000 | | 11/15/2013 | Federal Home Loan Bank, 0.29% | | | 2,001,910 | | | | 1.52 | % |
| | 6,000,000 | | 1/4/2013 | Federal National Mort Assoc Disc Note, 0.009%* | | | 5,999,994 | | | | 4.56 | % |
| | 3,200,000 | | 2/22/2013 | Federal National Mortgage Association, 1.75% | | | 3,207,194 | | | | 2.44 | % |
| | 500,000 | | 2/26/2013 | Federal National Mortgage Association, 0.75% | | | 500,465 | | | | 0.38 | % |
| | 3,500,000 | | 5/7/2013 | Federal National Mortgage Association, 1.75% | | | 3,519,061 | | | | 2.67 | % |
| | 4,100,000 | | 8/20/2013 | Federal National Mortgage Association, 1.25% | | | 4,126,970 | | | | 3.14 | % |
| | 5,000,000 | | 9/23/2013 | Federal National Mortgage Association, 1.00% | | | 5,028,960 | | | | 3.82 | % |
| | 2,900,000 | | 12/18/2013 | Federal National Mortgage Association, 0.75% | | | 2,916,704 | | | | 2.22 | % |
| | | | | | | | | | | | | |
| Total U.S. Government Agency Bonds and Notes (cost - $50,448,493) | | | 50,456,545 | | | | 38.34 | % |
| | | | | | | | | | | | | |
| Corporate Notes | | | | | | | | | | |
| | 3,450,000 | | 1/17/2013 | Alpine Securitization Corp Disc Note, 0.17%* | | | 3,449,454 | | | | 2.62 | % |
| | 3,300,000 | | 1/14/2013 | American Honda Finance Corp Disc Note, 0.18%* | | | 3,299,679 | | | | 2.51 | % |
| | 5,000,000 | | 1/2/2013 | Bank of Nova Scotia Disc Note, 0.03%* | | | 4,999,992 | | | | 3.80 | % |
| | 2,400,000 | | 1/22/2013 | Banco del Estado de Chile, NY, 0.20% | | | 2,400,000 | | | | 1.82 | % |
| | 2,500,000 | | 1/3/2013 | Northern Pines Funding LLC, 0.173% | | | 2,499,985 | | | | 1.90 | % |
| | 2,360,000 | | 1/4/2013 | General Electric Capital Corp Disc Note, 0.07%* | | | 2,359,931 | | | | 1.79 | % |
| | 2,000,000 | | 1/11/2013 | International Business Machines Corp Disc Note, 0.15%* | | | 1,999,782 | | | | 1.52 | % |
| | 3,450,000 | | 1/7/2013 | National Rural Utilities Cooperative Finance, 0.175% | | | 3,449,828 | | | | 2.62 | % |
| | 2,850,000 | | 1/2/2013 | NetJets Corp Disc Note, 0.14%* | | | 2,850,000 | | | | 2.17 | % |
| | 3,450,000 | | 1/9/2013 | Norinchukin Bank, 0.17% | | | 3,449,396 | | | | 2.62 | % |
| | 4,000,000 | | 1/15/2013 | Regency Markets No. 1 LLC, 0.19% | | | 3,999,323 | | | | 3.04 | % |
| | 3,450,000 | | 1/18/2013 | Royal Bank of Canada, 0.16% | | | 3,450,000 | | | | 2.62 | % |
| | 3,350,000 | | 1/4/2013 | Sumitomo Trust & Banking Co Disc Note, 0.17%* | | | 3,350,000 | | | | 2.55 | % |
| | 4,000,000 | | 1/4/2013 | Toronto-Dominion Holdings, 0.11% | | | 3,999,440 | | | | 3.04 | % |
| | | | | | | | | | | | | |
| Total Corporate Notes (cost - $45,556,810) | | | 45,556,810 | | | | 34.62 | % |
| | | | | | | | | | | | | |
| U.S. Treasury Obligations | | | | | | | | | |
| $ | 7,000,000 | | 1/10/2013 | United States Treasury Bill, 0.001% | | | 6,999,951 | | | | 5.32 | % |
| | 2,500,000 | | 3/15/2013 | United States Treasury Note, 1.375% | | | 2,506,348 | | | | 1.90 | % |
| | 2,000,000 | | 4/15/2013 | United States Treasury Note, 1.75% | | | 2,009,376 | | | | 1.53 | % |
| | 2,000,000 | | 5/15/2013 | United States Treasury Note, 1.375% | | | 2,009,296 | | | | 1.53 | % |
| | 200,000 | | 5/31/2013 | United States Treasury Note, 0.50% | | | 200,320 | | | | 0.15 | % |
| | 3,000,000 | | 6/15/2013 | United States Treasury Note, 1.125% | | | 3,013,593 | | | | 2.29 | % |
| | 2,000,000 | | 11/30/2013 | United States Treasury Note, 2.00% | | | 2,032,890 | | | | 1.55 | % |
| | | | | | | | | | | | | |
| Total United States Treasury Obligations (cost - $18,768,608) | | | 18,771,774 | | | | 14.27 | % |
| | | | | | | | | | | | | |
| Total Investment Securities (cost - $114,773,911) | | $ | 114,785,129 | | | | 87.23 | % |
| * | The rate reported is the effective yield at time of purchase. |
ALTEGRIS QIM FUTURES FUND, L.P.
CONDENSED SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 2012
| | Range of Expiration Dates | | Number of Contracts | | | Value | | | % of Partners' Capital | |
| | | | | | | | | | | |
| Long Futures Contracts: | | | | | | | | | | |
| Agriculture | Feb 13 - Mar 13 | | | 66 | | | $ | (16,989 | ) | | | (0.01 | )% |
| Currencies | Mar 13 | | | 466 | | | | (226,255 | ) | | | (0.17 | )% |
| Energy | Feb 13 | | | 23 | | | | 14,803 | | | | 0.01 | % |
| Interest Rates | Mar 13 | | | 823 | | | | 1,282,253 | | | | 0.97 | % |
| Metals | Feb 13 - Mar 13 | | | 45 | | | | 72,630 | | | | 0.06 | % |
| Stock Indices | Jan 13 | | | 140 | | | | (113,687 | ) | | | (0.09 | )% |
| | | | | | | | | | | | | | |
| Total Long Futures Contracts | | | | 1,563 | | | | 1,012,755 | | | | 0.77 | % |
| | | | | | | | | | | | | | |
| Short Futures Contracts: | | | | | | | | | | | | | |
| Agriculture | Mar 13 | | | 31 | | | | 6,336 | | | | 0.00 | % |
| Currencies | Mar 13 | | | 179 | | | | (6,124 | ) | | | (0.00 | )% |
| Energy | Feb 13 | | | 33 | | | | 41,631 | | | | 0.03 | % |
| Interest Rates | Mar 13 | | | 120 | | | | 116,306 | | | | 0.09 | % |
| Metals | Apr 13 | | | 7 | | | | (595 | ) | | | (0.00 | )% |
| Stock Indices | Jan 13 - Mar 13 | | | 2,449 | | | | (1,478,141 | ) | | | (1.12 | )% |
| Treasury Rates | Mar 13 | | | 1,748 | | | | (657,336 | ) | | | (0.50 | )% |
| | | | | | | | | | | | | | |
| Total Short Futures Contracts | | | | 4,567 | | | | (1,977,923 | ) | | | (1.50 | )% |
| | | | | | | | | | | | | | |
| Total Futures Contracts | | | | 6,130 | | | $ | (965,168 | ) | | | (0.73 | )% |
ALTEGRIS QIM FUTURES FUND, L.P.
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011
| | | 2013 | | | 2012 | | | 2011 | |
| TRADING GAIN (LOSS) | | | | | | | | | |
| Gain (loss) on trading of commodity futures | | | | | | | | | |
| Realized | | $ | (4,840,473 | ) | | $ | 10,235,765 | | | $ | 8,596,155 | |
| Change in unrealized | | | 1,860,439 | | | | 435,625 | | | | (2,035,310 | ) |
| Brokerage Commissions | | | (1,650,361 | ) | | | (1,916,974 | ) | | | (1,941,056 | ) |
| | | | | | | | | | | | | |
| Gain (loss) from trading futures | | | (4,630,395 | ) | | | 8,754,416 | | | | 4,619,789 | |
| | | | | | | | | | | | | |
| Gain (loss) on trading of securities | | | | | | | | | | | | |
| Realized | | | 32,785 | | | | 53,478 | | | | 84,882 | |
| Change in unrealized | | | (7,379 | ) | | | 9,513 | | | | 33,063 | |
| | | | | | | | | | | | | |
| Gain from trading securities | | | 25,406 | | | | 62,991 | | | | 117,945 | |
| | | | | | | | | | | | | |
| Gain (loss) on trading of foreign currency | | | | | | | | | | | | |
| Realized | | | 426,278 | | | | 52,966 | | | | (20,651 | ) |
| Change in unrealized | | | (157,831 | ) | | | 157,644 | | | | 16 | |
| | | | | | | | | | | | | |
| Gain (loss) from trading foreign currency | | | 268,447 | | | | 210,610 | | | | (20,635 | ) |
| | | | | | | | | | | | | |
| Total trading gain (loss) | | | (4,336,542 | ) | | | 9,028,017 | | | | 4,717,099 | |
| | | | | | | | | | | | | |
| NET INVESTMENT INCOME (LOSS) | | | | | | | | | | | | |
| Income | | | | | | | | | | | | |
| Interest income | | | 122,398 | | | | 146,654 | | | | 266,259 | |
| | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | |
| Management fee | | | 1,263,038 | | | | 1,454,056 | | | | 1,462,413 | |
| Service fees | | | 934,718 | | | | 1,050,901 | | | | 1,040,721 | |
| Professional fees | | | 419,452 | | | | 452,460 | | | | 442,183 | |
| Administrative fee | | | 288,987 | | | | 329,013 | | | | 338,185 | |
| Offering costs | | | 9,153 | | | | 33,970 | | | | 79,863 | |
| Incentive fees | | | 95,825 | | | | 4,320,095 | | | | 969,544 | |
| Interest expense | | | 30,950 | | | | 11,679 | | | | 1,053 | |
| Other expenses | | | 176,779 | | | | 152,575 | | | | 244,863 | |
| | | | | | | | | | | | | |
| Total expenses | | | 3,218,902 | | | | 7,804,749 | | | | 4,578,825 | |
| | | | | | | | | | | | | |
| Net investment loss | | | (3,096,504 | ) | | | (7,658,095 | ) | | | (4,312,566 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| NET INCOME (LOSS) | | $ | (7,433,046 | ) | | $ | 1,369,922 | | | $ | 404,533 | |
ALTEGRIS QIM FUTURES FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011
| | | | | | Limited Partners | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | Total | | | Class A | | | Class B | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Balances at December 31, 2010 | | $ | 120,863,896 | | | $ | 50,915,319 | | | $ | 48,418,588 | | | $ | 20,629,168 | | | $ | 899,957 | | | $ | 864 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Transfers | | | - | | | | (220,990 | ) | | | (262,792 | ) | | | 483,782 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Capital additions | | | 35,359,185 | | | | 15,033,796 | | | | 10,364,722 | | | | 9,960,667 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Capital withdrawals | | | (34,214,579 | ) | | | (14,863,403 | ) | | | (11,831,149 | ) | | | (6,626,199 | ) | | | (893,828 | ) | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| From operations: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment loss | | | (4,312,566 | ) | | | (2,448,856 | ) | | | (1,322,778 | ) | | | (537,300 | ) | | | (3,599 | ) | | | (33 | ) |
| Net realized gain from investments | | | 6,719,330 | | | | 2,762,299 | | | | 2,537,650 | | | | 1,412,863 | | | | 6,471 | | | | 47 | |
| Net change in unrealized loss from investments | | | (2,002,231 | ) | | | (813,715 | ) | | | (778,880 | ) | | | (400,621 | ) | | | (9,001 | ) | | | (14 | ) |
| Net income (loss) | | | 404,533 | | | | (500,272 | ) | | | 435,992 | | | | 474,942 | | | | (6,129 | ) | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances at December 31, 2011 | | $ | 122,413,035 | | | $ | 50,364,450 | | | $ | 47,125,361 | | | $ | 24,922,360 | | | $ | - | | | $ | 864 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances at December 31, 2011 | | $ | 122,413,035 | | | $ | 50,364,450 | | | $ | 47,125,361 | | | $ | 24,922,360 | | | $ | - | | | $ | 864 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Transfers | | | - | | | | (1,576,592 | ) | | | 1,556,577 | | | | 20,015 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Capital additions | | | 36,128,183 | | | | 18,718,341 | | | | 11,057,609 | | | | 6,352,233 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Capital withdrawals | | | (28,319,925 | ) | | | (12,490,625 | ) | | | (11,965,356 | ) | | | (3,863,944 | ) | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| From operations: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment loss | | | (7,658,095 | ) | | | (3,856,106 | ) | | | (2,494,854 | ) | | | (1,307,098 | ) | | | - | | | | (37 | ) |
| Net realized gain from investments | | | 8,425,235 | | | | 3,612,706 | | | | 2,826,944 | | | | 1,985,524 | | | | - | | | | 61 | |
| Net change in unrealized loss from investments | | | 602,782 | | | | 244,068 | | | | 261,528 | | | | 97,185 | | | | - | | | | 1 | |
| Net income | | | 1,369,922 | | | | 668 | | | | 593,618 | | | | 775,611 | | | | - | | | | 25 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances at December 31, 2012 | | $ | 131,591,215 | | | $ | 55,016,242 | | | $ | 48,367,809 | | | $ | 28,206,275 | | | $ | - | | | $ | 889 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances at December 31, 2012 | | $ | 131,591,215 | | | $ | 55,016,242 | | | $ | 48,367,809 | | | $ | 28,206,275 | | | $ | - | | | $ | 889 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Transfers | | | - | | | | (797,935 | ) | | | 797,935 | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Capital additions | | | 14,475,028 | | | | 5,814,279 | | | | 6,370,443 | | | | 2,290,306 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Capital withdrawals | | | (55,778,084 | ) | | | (17,380,851 | ) | | | (23,271,306 | ) | | | (15,125,927 | ) | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| From operations: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment loss | | | (3,096,504 | ) | | | (1,931,115 | ) | | | (877,539 | ) | | | (287,817 | ) | | | - | | | | (33 | ) |
| Net realized loss from investments | | | (6,031,771 | ) | | | (2,299,892 | ) | | | (2,253,094 | ) | | | (1,478,757 | ) | | | - | | | | (28 | ) |
| Net change in unrealized gain from investments | | | 1,695,229 | | | | 729,093 | | | | 624,138 | | | | 341,984 | | | | - | | | | 14 | |
| Net loss | | | (7,433,046 | ) | | | (3,501,914 | ) | | | (2,506,495 | ) | | | (1,424,590 | ) | | | - | | | | (47 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances at December 31, 2013 | | $ | 82,855,113 | | | $ | 39,149,821 | | | $ | 29,758,386 | | | $ | 13,946,064 | | | $ | - | | | $ | 842 | |
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.
The Partnership’s financial statements are presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). 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, 2013 and 2012, and reported amounts of income and expenses for the years ended December 31, 2013, 2012 and 2011, 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.
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.
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.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. Fair Value (continued)
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, 2013 and 2012 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, 2013 and 2012 none of the Partnership’s holdings in corporate notes were fair valued using valuation models.
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, 2013 and 2012.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. Fair Value (continued)
The following table presents information about the Partnership’s assets and liabilities measured at fair value as of December 31, 2013 and December 31, 2012:
| December 31, 2013 | | Level 1 | | | Level 2 | | | Level 3 | | | Balance as of December 31, 2013 | |
| | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Futures contracts (1) | | $ | 984,657 | | | $ | - | | | $ | - | | | $ | 984,657 | |
| U.S. Government agency bonds and notes | | | 38,587,116 | | | | - | | | | - | | | | 38,587,116 | |
| Corporate notes | | | - | | | | 24,758,999 | | | | - | | | | 24,758,999 | |
| U.S. Treasury obligations | | | 12,212,304 | | | | - | | | | - | | | | 12,212,304 | |
| | | | | | | | | | | | | | | | | |
| Total Assets | | $ | 51,784,077 | | | $ | 24,758,999 | | | $ | - | | | $ | 76,543,076 | |
| | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Futures contracts (1) | | $ | (89,386 | ) | | $ | - | | | $ | - | | | $ | (89,386 | ) |
| December 31, 2012 | | Level 1 | | | Level 2 | | | Level 3 | | | Balance as of December 31, 2012 | |
| | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Futures contracts (1) | | $ | 1,740,253 | | | $ | - | | | $ | - | | | $ | 1,740,253 | |
| U.S. Government agency bonds and notes | | | 50,456,545 | | | | - | | | | - | | | | 50,456,545 | |
| Corporate notes | | | - | | | | 45,556,810 | | | | - | | | | 45,556,810 | |
| U.S. Treasury obligations | | | 18,771,774 | | | | - | | | | - | | | | 18,771,774 | |
| | | | | | | | | | | | | | | | | |
| Total Assets | | $ | 70,968,572 | | | $ | 45,556,810 | | | $ | - | | | $ | 116,525,382 | |
| | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Futures contracts (1) | | $ | (2,705,421 | ) | | $ | - | | | $ | - | | | $ | (2,705,421 | ) |
(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, 2013 and 2012, there were no transfers between Level 1 and Level 2 assets and liabilities. For the years ended December 31, 2013 and 2012, 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 foreign currency forward contracts, 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. For cash not held with J.P. Morgan Securities, LLC, the Partnership’s commodity broker (the “Clearing Broker”), the Partnership receives cash management services from an affiliate of the Custodian, J.P. Morgan Investment Management Inc. (“JPMIM”).
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. 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, 2013 and 2012 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.
The Partnership maintains a custody account with a major financial institution. 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. 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.
I. 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
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
I. Income Taxes (continued)
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, 2013 and 2012. However, the Partnership’s conclusions 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 2011.
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 for the years ended December 31, 2013, 2012 and 2011.
J. Reclassifications
Certain amounts in the 2012 and 2011 financial statements were reclassified to conform to the 2013 presentation.
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”). Special Interests, 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. The General Partner may request and receive redemption of capital, subject to the same terms as any Limited Partner. No distributions were made for the years ended December 31, 2013, 2012 and 2011.
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.
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, 0.0625% (0.75% annually) for Institutional Interests, and 0.0208% (0.25% annually) for Special 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.
Total management fees earned by the General Partner for the years ended December 31, 2013, 2012 and 2011 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, 2013, 2012 and 2011, administrative fees for Class A Interests were $155,133, $172,714 and $172,944, respectively, and administrative fees for Class B Interests were $133,854, $156,299 and $165,241, 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. Beginning January 1, 2011, Altegris Futures, L.L.C. (“Altegris Futures”), an affiliate of the General Partner and an introducing broker registered with the CFTC, became the Partnership’s introducing broker. Prior to January 1, 2011, Altegris Investments served as 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.
At December 31, 2013 and 2012, respectively, the Partnership had commissions and brokerage fees payable to Altegris Futures of $88,962 and $101,419 and service fees payable to Altegris Investments of $13,850 and $25,089, respectively. The following tables show the fees paid to Altegris Investments and Altegris Futures for the years ended December 31, 2013, 2012 and 2011, respectively:
| | | Year ended | | | Year ended | | | Year ended | |
| | | | | | | | | December 31, 2011 | |
| Altegris Futures - Brokerage Commission fees | | $ | 1,412,491 | | | $ | 1,389,610 | | | $ | 1,467,076 | |
| Altegris Investments- Service fees | | | 221,488 | | | | 286,599 | | | | 352,331 | |
| Total | | $ | 1,633,979 | | | $ | 1,676,209 | | | $ | 1,819,407 | |
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. For the years ended December 31, 2013, 2012 and 2011, service fees for Class A Interests were $933,931, $1,049,656 and $1,039,679, respectively, and service fees for Institutional Interests were $787, $1,245 and $1,042, 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, 2013 and 2012. 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.
| | | Asset | | | Liability | | | | |
| Type of | | Derivatives | | | Derivatives | | | Net | |
| Futures Contracts | | Fair Value | | | Fair Value | | | Fair Value | |
| | | | | | | | | | |
| Currencies | | $ | 119,092 | | | $ | - | | | $ | 119,092 | |
| | | | | | | | | | | | | |
| Energy | | | 19 | | | | (85,488 | ) | | | (85,469 | ) |
| | | | | | | | | | | | | |
| Interest Rates | | | 165,915 | | | | (935 | ) | | | 164,980 | |
| | | | | | | | | | | | | |
| Metals | | | 14,690 | | | | (1,843 | ) | | | 12,847 | |
| | | | | | | | | | | | | |
| Stock Indices | | | 490,873 | | | | (1,120 | ) | | | 489,753 | |
| | | | | | | | | | | | | |
| Treasury Rates | | | 194,068 | | | | - | | | | 194,068 | |
| | | | | | | | | | | | | |
| | | $ | 984,657 | | | $ | (89,386 | ) | | $ | 895,271 | |
