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, 2017 |
or
| o | 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 ADVISORS, L.L.C.
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.
Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
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).
Yes x No o
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.
x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o | Accelerated filer o |
| Non-accelerated filer o | Smaller reporting company x |
| Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
Not Applicable.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
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(a) General Development of Business
Altegris QIM Futures Fund, L.P. (the “Partnership”) was organized as a Delaware limited partnership in June 2009 and commenced operations following an initial closing on October 1, 2009. The Partnership is a commodity pool engaged in speculative trading across a broad range of futures contracts and currencies. The Partnership may in the future trade options on futures contracts and forward contracts (together with futures contracts and currencies, “Commodity Interests”).
On December 31, 2014, pursuant to that certain General Partner Admission Agreement dated as of December 30, 2014 among Altegris Advisors, L.L.C. (“Advisors” or the “General Partner”), Altegris Portfolio Management, Inc. (“APM”) and the Partnership, Advisors, a Delaware limited liability company and an affiliate of APM, was admitted as a general partner of the Partnership effective immediately prior to the Transaction (defined below). Pursuant to an internal reorganization of APM, then a general partner of Partnership, and certain affiliated entities, APM merged with and into Advisors on December 31, 2014 (the “Transaction”). By operation of law and pursuant to Paragraph 17 of Partnership’s First Amended and Restated Agreement of Limited Partnership, effective as of July 26, 2010, Advisors then assumed the general partner interest of Partnership previously held by APM.
The General Partner has sole responsibility for management and administration of all aspects of the Partnership’s business. Investors purchasing limited partnership interests (the “Interests”) in the Partnership (“Limited Partners” and together with the General Partner, “Partners”) have no rights to participate in the management of the Partnership.
The General Partner is registered with the Commodity Futures Trading Commission (“CFTC”) as a Commodity Pool Operator (“CPO”) and Commodity Trading Advisor (“CTA”), and is a member of National Futures Association (“NFA”). Quantitative Investment Management LLC, a Virginia limited liability company formed in May 2003, acts as the Partnership’s trading advisor (“QIM” or the “Advisor”). QIM became registered as a Commodity Trading Advisor (“CTA”) in 2004 and a CPO in 2005 and is a member of NFA.
Altegris Investments, L.L.C. (“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 L.L.C. (“Altegris Futures”) replaced Altegris as the Partnership’s introducing broker. On December 31, 2014, Altegris Futures merged with and into its affiliate, Altegris Clearing Solutions, L.L.C. Altegris Clearing Solutions, L.L.C. is registered with the CFTC as an Introducing Broker (“Clearing Solutions” or the “Introducing Broker”).
The Partnership’s term will end upon the first to occur of the following: receipt by the General Partner of an election to dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the Interests then outstanding, notice of which is sent by registered mail to the General Partner not less than ninety (90) days prior to the effective date of such dissolution; withdrawal, admitted or court decreed insolvency or dissolution of the General Partner unless at such time there is at least one remaining General Partner in the Partnership; or any event that makes it unlawful for the existence of the Partnership to be continued or requiring termination of the Partnership.
The Partnership is not required to be, and is not, registered under the Investment Company Act of 1940, as amended.
As of February 28, 2018, the aggregate net asset value of the Interests in the Partnership before redemptions was $28,570,344. 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.
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(c) Narrative Description of Business
The Partnership’s objective is to produce long-term capital appreciation through growth, and not current income.
Predictive Modeling. QIM believes that financial markets are not entirely efficient and that numerous small inefficiencies exist and can be exploited through the prudent use of robust analysis and predictive technologies.
QIM currently employs several thousand quantitative trading models that utilize pattern recognition to predict short-term price movements in global futures markets. All models are tested across large data sets that expose them to a wide range of market, economic, and political environments, as well as a wide range of time frames and interactions. Only those models that prove to be the most robust, statistically significant, and conceptually diverse are used in actual trading. The resultant system of models offers what QIM believes to be reliable signals that guide market timing and trade allocation.
QIM’s trading strategies and models may be revised from time to time as a result of ongoing research and development seeking to devise new strategies and systems as well as to improve current methods. The strategies and systems used by QIM in the future may differ significantly from those currently in use due to changes resulting from this research, and Limited Partners will not be informed of these changes as they may occur.
Risk Management. QIM applies risk management procedures that take into account the price, size, volatility, liquidity, and inter-relationships of the contracts traded. The Partnership’s positions are generally balanced in a manner that allocates approximately equal amounts of measured risk to as many distinct markets as possible and during significant drawdowns in equity, QIM will reduce market exposure by scaling back the Partnership’s overall leverage.
Trading. QIM’s trading is generally approximately 95% systematic and 5% discretionary. All facets of the predictive models, risk management, and trade allocation are fully automated or proceduralized. In this sense, the trading is systematic. Discretion of QIM, however, plays a significant role in the pursuit of improvements to the Program.
QIM has different time horizons for the execution of certain trades. For example, QIM may have certain trades executed at the beginning of the trading day while giving the executing broker limited discretion with respect to other trades.
Markets Traded. QIM currently trades or monitors a broad range of tradable markets in currencies, stock indices, interest rates, energy, grains, softs and metals. QIM may add or delete markets from this universe of tradable markets in its discretion if QIM’s research demonstrates that such an addition or deletion would enhance the program’s performance. All markets are futures markets or interbank currency markets.
QIM seeks to profitably trade each of these markets while taking advantage of the diversification available from such a varied universe of futures contracts. QIM’s trading program often takes opposing long and short positions within the same or related classes of correlated futures, which, taken in conjunction with the effect of diversification across a broad range of contracts, generally results in reduced market exposure than trading a single market with similar leverage.
A substantial portion of the equity in the Partnership’s account is invested in United States (“U.S.”) government and agency securities and other liquid, high-quality instruments at the direction of the Custodian (as defined below). QIM will generally maintain an average margin to equity level of between 0% and 20%. The actual percentage of assets committed to margin at any time may be higher or lower than the target level.
It is expected that between 5% and 20% of the Partnership’s assets generally will be held as initial margin or option premiums (in cash or U.S. Treasury Department (“Treasury”) securities) in the Partnership’s brokerage accounts at its clearing broker, SG Americas Securities LLC (“SGAS”), a futures commission merchant (“FCM”), and available for trading by QIM in Commodity Interests on behalf of the Partnership. Interest on Partnership assets held at SGAS in cash or Treasury securities will be credited to the Partnership. Depending on market factors, the amount of margin or option premiums held at SGAS could change significantly, and all of the Partnership’s assets are available for use as margin. The Partnership may also retain other brokers and/or dealers from time to time to clear or execute a portion of Partnership trades made by QIM.
With respect to Partnership assets not held at SGAS as described above, but deposited with JPMorgan Chase Bank, N.A. (the “Custodian”), the portion not held in checking, money market or other bank accounts (and used to pay Partnership operating expenses) will be invested in liquid, high-quality short-term securities at the direction of the Custodian or its affiliate J.P. Morgan Investment Management Inc. (“JPMIM”). The Partnership’s custody and investment management agreement with the Custodian permits the Custodian to invest in U.S. government and agency securities, other securities or instruments guaranteed by the U.S. government or its agencies, CDs, time deposits, banker’s acceptances and commercial paper — subject in each case to specific diversification, credit quality and maturity limitations. The Custodian may use sub-advisers to attempt to increase yield enhancement. The General Partner may direct that a portion of Partnership assets be deposited with other custodians and retain other sub-advisers for the purpose of attempting to increase yield enhancement via other cash management arrangements.
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The percentage of the Partnership’s assets deposited with these firms is also subject to change in the General Partner’s sole discretion. The Partnership’s assets will not be commingled with the assets of any other person. Depositing the Partnership’s assets with banks or SGAS, or other clearing brokers, as segregated funds is not commingling for these purposes.
The Partnership pays all of its ongoing liabilities, expenses and costs. The General Partner receives a management fee of 0.104% of the month-end net asset value, before deduction for any accrued incentive fees related to the current quarter (the “management fee net asset value”), of all Class A Interests (1.25% per annum), 0.104% of the month-end management fee net asset value of all Class B Interests (1.25% per annum) and 0.0625% of the month-end management fee net asset value of all Institutional Interests (0.75% per annum). QIM receives 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 agent (0.50% per annum).
SGAS paid, during 2017, to the Introducing Broker a portion of the brokerage commissions and transaction fees received from the Partnership as well as a portion of the interest income received on the Partnership’s assets. Monthly brokerage charges equal to the greater of (A) actual commissions of $9.75 per round-turn (higher for certain exchanges or commodities) multiplied by number of round-turn trades, which amount includes other transaction costs; or (B) an amount equal to 0.125% of the management fee net asset value of all Interest holders’ month-end capital account balances (1.50% annually). A round-turn is both the purchase, or sale, of a commodity interest contract and the subsequent offsetting sale, or purchase, of the contract. If actual monthly commissions and transaction costs in (A) above are less than the amount in (B) above, the Partnership will pay the difference to the Introducing Broker as payment for brokerage-related services. In any month when the amount in (A) is greater than the amount in (B) above, the Partnership pays only the amount described in (A) above.
The Partnership generally pays its operating expenses as they are incurred. A fixed administrative fee is charged to Class A and Class B Interests and paid to the General Partner equal to 0.0275% of the management fee net asset value of the month-end capital account balance of all such Class A and Class B Interests (0.333% per annum).
(d) Regulation
The CFTC has delegated to NFA responsibility for the registration of “commodity trading advisors,” “commodity pool operators,” “futures commission merchants,” “introducing brokers,” “swap dealers,” “major swap participants” and, in most cases, their respective associated persons, as well as “floor brokers” and “floor traders.” The Commodity Exchange Act requires commodity pool operators such as the General Partner, commodity trading advisors such as the Advisor and commodity brokers or FCMs such as SGAS and introducing brokers such as the Introducing Broker to be registered and to comply with various reporting and record keeping requirements. CFTC regulations also require FCMs and certain introducing brokers to maintain a minimum level of net capital. In addition, the CFTC and certain commodities exchanges have established limits referred to as “speculative position limits” on the maximum net long or net short speculative positions that any person may hold or control in any particular futures or options contracts traded on U.S. commodities exchanges. Similar position limits may in the future be put in place with respect to swaps that are exchange-traded or are economically equivalent to exchange-traded swaps or futures contracts. All accounts owned or managed by the Advisor will be combined for position limit purposes. The Advisor could be required to liquidate positions held for the Partnership in order to comply with such limits. Any such liquidation could result in substantial costs to the Partnership. In addition, many futures exchanges impose limits beyond which the price of a futures contract may not trade during the course of a trading day, and there is a potential for a futures contract to hit its daily price limit for several days in a row, making it impossible for the Advisor to liquidate a position and thereby experiencing a dramatic loss. Certain deliverable currency forward contracts are subject to limited regulation in the United States, including reporting and recordkeeping requirements.
In addition to the registration requirements described above, the CFTC and certain commodity exchanges have established limits on the maximum net long or net short position which any person may hold or control in particular commodities. Most exchanges also limit the changes in futures contract prices that may occur during a single trading day. The CFTC may in the future also implement position limits for certain exempt commodity contracts, including metals and energy contracts, with respect to futures, options on futures, and economically equivalent swaps. If such position limits are adopted, they could materially affect the Partnership’s trading strategy.
Deliverable currency forward contracts are currently subject to only limited regulation in the United States. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) was enacted in July 2010, and gave the CFTC jurisdiction over non-deliverable currency forward contracts. The Reform Act mandates that a substantial portion of over-the-counter derivatives must be executed in regulated markets and submitted for clearing to regulated clearinghouses, and the CFTC may impose such a requirement on non-deliverable currency forward contracts. The mandates imposed by the Reform Act may result in the Partnership bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees with respect to any swaps entered into by the Partnership.
The Partnership has no employees.
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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.
Not required.
ITEM 1B: UNRESOLVED STAFF COMMENTS
Not applicable.
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.
The Partnership is not aware of any pending legal proceedings to which either the Partnership is a party or to which any of its assets are subject. The Partnership is not aware of any material legal proceedings involving the General Partner or its principals in an adverse position to the Partnership or in which the Partnership has adverse interests. The Partnership has no subsidiaries.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
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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, 2018 the Partnership had 402 holders of Interests.
(c) Dividends
The General Partner has sole discretion in determining what distributions, if any, the Partnership will make to its investors. To date no distributions or dividends have been paid on the Interests, and the General Partner has no present intention to make any.
(d) Securities Authorized for Issuance under Equity Compensation Plans
None.
(e) Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
The Partnership did not sell any unregistered securities within the past three years which have not previously been included in the Partnership’s Quarterly Reports on Form 10-Q or in a Current Report on Form 8-K.
(f) Issuer Purchases of Equity Securities
Pursuant to the Limited Partnership Agreement, Limited Partners may redeem their Interests in the Partnership as of the end of any calendar month upon fifteen (15) days’ written notice to the General Partner. The redemption of capital from capital accounts by Limited Partners has no impact on the value of the capital accounts of other Limited Partners.
The following table summarizes Limited Partner redemptions during the fourth calendar quarter of 2017:
| Month Ended | Amount Redeemed | |||
| October 31, 2017 | $ | 1,118,927 | ||
| November 30, 2017 | 243,602 | |||
| December 31, 2017 | 203,427 | |||
| Total | $ | 1,565,956 | ||
ITEM 6: SELECTED FINANCIAL DATA
Not required.
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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, 2017 the Partnership experienced no meaningful periods of illiquidity in any of the markets traded by the Advisor on behalf of the Partnership.
(b) Capital Resources
The Partnership raises additional capital only through the sale of Interests and capital is increased through trading profits (if any) and interest income. The Partnership does not engage in borrowing.
The amount of capital raised for the Partnership should not have a significant impact on its operations, as the Partnership has no significant capital expenditure or working capital requirements other than for capital to pay trading losses, brokerage commissions and expenses. Within broad ranges of capitalization, the Partnership’s trading positions should increase or decrease in approximate proportion to the size of the Partnership.
The Partnership participates in the speculative trading of commodity futures contracts and may trade options on futures contracts and forward contracts, substantially all of which are subject to margin requirements. The minimum amount of margin required for each contract is set from time to time in response to various market factors by the respective exchanges. Further, the Partnership’s FCMs and brokers may require margin in excess of minimum exchange requirements.
All of the futures contracts currently traded by the Advisor on behalf of the Partnership are exchange-traded. The risks associated with exchange-traded contracts are generally perceived to be less than those associated with over-the-counter transactions because, in over-the-counter transactions, the Partnership must rely solely on the credit of its trading counterparties, whereas exchange-traded contracts are generally, but not universally, backed by the collective credit of the members of the exchange. In the future, the Partnership anticipates that it will enter into non-exchange-traded foreign currency contracts and be subject to the credit risk associated with counterparty non-performance.
The Partnership bears the risk of financial failure by SGAS and/or other clearing brokers or counterparties with which the Partnership trades.
(c) Results of Operations
The Partnership’s success depends primarily upon QIM’s ability to recognize and capitalize on market trends in the sectors of the global commodity futures markets in which it trades. The Partnership seeks to produce long-term capital appreciation through growth, and not current income. The past performance of the Partnership is not necessarily indicative of future results.
Performance Summary
2017
During 2017, the Partnership achieved net realized and unrealized gains of $2,832,125 from all trading; gains of $2,850,217 from trading of derivatives including brokerage commissions of $481,792. The Partnership incurred total expenses of $1,934,263, including $704,344 in incentive fees, $389,011 in management fees paid to the General Partner, and $645,449 in service and professional fees. The Partnership earned $218,658 in interest income during 2017. An analysis of the profits and losses generated from the Partnership’s commodity futures trading activities for each quarter during 2017 is set forth below.
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Fourth Quarter 2017. The Partnership enjoyed net positive performance for the month of October 2017, driven primarily by stock indices. Currencies were the worst performing sector, followed by interest rates, metals and energies. The Partnership benefited from long positions across numerous global stock indices as the S&P 500 trended higher. The Partnership reversed its U.S. stock index positions towards the end of the month and generated profits on a short Nasdaq position. While the Partnership’s, long positions in the Euro and Pound, as well as short positions across U.S. and German interest rate contracts hindered performance. The majority of losses in the currency and interest rate sectors occurred in late October after comments from the European Central Bank together with Catalonia’s push for independence. In November 2017, the Partnership was slightly negative. The worst performing sector was stock indices followed by interest rates and energies. The sectors with positive performance included currencies and metals. The Partnership’s positions in the S&P 500, DJ Euro Stoxx 50 and Dax led to the majority of November’s losses in the stock index sector. Partnership gains from a long Nikkei position were offset by losses from a short Hang Seng position. Although the Partnership realized profits on the Euro and Gold, it suffered from positions across European and U.S. interest rate contracts, as well as long and short positions in Natural Gas. In December 2017, the Partnership had another net positive performance. The best performing sector for the month was stock indices, followed by metals and energies. Currencies and interest rates were the worst performing sectors. During the first half of the month, the Partnership earned profits in the S&P 500, Dax, DJ Euro Stoxx 50, Hang Seng and Nikkei contracts. Losses in the Euro and Pound offset Partnership gains from interest rate and energy positions. During the final two weeks of December 2017, the Partnership benefited from long positions in Gold, Silver, Copper and the Euro. The Partnership’s returns during this time suffered from trades on both the long and short sides of the Hang Seng, Dax, U.S. 30-Year and Ultra Bond contracts.
Third Quarter 2017. The Partnership enjoyed net positive performance for the month of July 2017, driven primarily by stock indices. Interest rates were the worst performing sector, followed by currencies, metals, and energies. The Partnership maintained net long stock index positions and net short interest rate positions throughout the month of July. Despite the ongoing tensions with North Korea and the inability of the U.S. Congress to pass significant legislation on health care reform, the equity markets moved higher throughout the month. Interest rates also moved higher which partially offset the Partnership’s gains in stock indices. The Partnership’s short positions in the Euro, Pound and Yen hindered profits as these specific currencies moved higher throughout July. The Partnership initially benefited from short crude oil positions until the market rose due to a drawdown in inventories and bullish production forecast from the Energy Information Administration. In August 2017, the Partnership was slightly negative. The worst performing was stock indices, followed by interest rates. The most profitable sector was metals, followed by currencies and energies. Although the first week for trading in August was relatively calm, the ongoing tension between the United States and North Korea sent the equity markets lower. The S&P regained its losses the following week but had to sell off to new monthly lows on rumors that Gary Cohn, a key architect of U.S. tax reform, planned to resign from the White House Economic Council. Despite the swings in stock indices, interest rate futures moved higher with losses in the sector throughout the month. The currency sector experienced gains attributed to the Euro with profits split evenly on the long and short side of the trade. Long positions in all of the metals contracts benefited during August. In September 2017, the Partnership had another net positive performance. The most profitable sector was stock indices, followed by currencies. Interest rates were the worst performing sector, followed by metals and energies. The Partnership maintained net long stock index positions for the duration of the September. The news of another North Korean nuclear test rattled the equity markets but they were able to rebound and trend higher throughout the month with the S&P 500 trading to all-time highs. Although the Partnership benefited from long interest rate positions earlier in the month, the sector was adversely impacted by the equity market recovery. Short positions in U.S. interest rate contracts limited overall losses in the sector, but long positions in metals were adversely impacted as money flowed to riskier assets.
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Second Quarter 2017. The Partnership was slightly negative for the month of April 2017. The worst performing sector was interest rates, followed by energies. The most profitable sector was stock indices with currencies and metals contributing positively. The Partnership sustained losses in early April from long positions in U.S. stock indices. Tensions with North Korea and Syria and the looming French presidential election were among the geopolitical risks overshadowing financial markets and fueling a move out of riskier assets. Despite these early losses in equity indices, the Partnership continued to add to those long positions until the last week of the month. The results of the French election on April 23rd were seen as favorable to stability in the European Union. Global stock markets surged higher, pushing the equity sector into the black for the month. Negative performance in the interest rate sector persisted throughout the month. Initially, short German interest rate positions suffered as equity markets came under pressure. The Partnership reversed interest rate positions midmonth, which resulted in further losses as equity markets rallied into month end. Losses in the energy sector occurred late in the month as crude prices broke lower on bearish inventory data. The Partnership was also slightly negative for the month of May 2017. The worst performing sectors were interest rates and energies. The most profitable sectors were currencies and stock indices as well as metals making a positive contribution. The Partnership earned gains in early May with long stock index and short interest rate positions. As the month wore on, simmering political turmoil in the United States began to erode confidence in the ability of the current administration to focus on a meaningful legislative agenda. On May 17th, markets were jolted when a leaked FBI memo suggested that the President may have interfered with an investigation. The S&P suffered its worst day in eight months, while bonds surged higher on the news. Despite any resolution of the issue, the S&P bounced back, returning the stock index sector into the black by month end. As a result of the uncertainty throughout the month, the U.S. Dollar traded lower and the Global Program benefited from long foreign currency positions. Short crude oil positions were profitable early in the month on the lack of any meaningful cuts from OPEC; however, bullish inventory data reversed this trend, pushing the sector negative for the month. The Partnership was nearly flat for the month of June 2017. The best performing sector was currencies, followed by stock indices and metals. The worst performing sector were interest rates and energies. The Partnership produced positive returns through early June, driven by stock index positions and strategic positioning in gold on both the long and short sides. These early gains reversed midmonth when volatility in equity markets dramatically increased following a sharp sell-off in tech stocks. The turbulence in equity markets was then coupled with the FOMC’s decision on June 14th to kike the Fed Funds rate. These conditions, along with steadily declining energy markets, let to profits from short energy positions and losses from short U.S. and German interest rate positions through June 23rd. The final week of the month, the Partnership experience losses in stock index and energy positions, partially offset by gains in short U.S. interest rate positions and long Euro and Pound positions.
First Quarter 2017. The Partnership enjoyed net positive performance for the month of January 2017, driven primarily by stock indices, with interest rates and metals contributing modestly. Energies were the worst performing sector and currencies also experienced negative return. As equity prices rebounded from a late December slump, the Partnership’s long equity positions generated strong performance early in January. The Partnership remained net long throughout most of the month as equity markets reached new highs and the Dow broke through the 20,000 level for the first time. The Partnership reversed to short and earned additional gains when markets sold off into month end. After initially sustaining losses on long interest rate positions, the Partnership went short midmonth. A hawkish speech by Federal Reserve Chair Janet Yellen on January 18th led to a selloff in interest rate futures, turning the sector positive for the month. The bulk of the energy sector’s underperformance occurred early in January when short crude oil positions took a hit on record export numbers out of Iraq, which raised concerns about the stability of OPEC’s production agreement. In February 2017, the Partnership experienced a slightly positive net performance gain, driven by gains in interest rates and currencies. The worst performing sector was stock indices, followed by metals and energies. February began with uncertainty, as short U.S. and European stock index positions suffered as markets ground higher on relatively low volatility and little news. The Partnership reversed to long midmonth, which tempered losses as stock indices continued to rise. The Partnership fared much better in the interest rate sector. Initially long U.S. Treasuries, the Partnership reversed in time to benefit from declining rates through the middle of February. These gains were partially offset by a growing long position in European interest rates. Bonds reached their monthly low on the 15th but traded higher into month end, which resulted in profits as European interest rates had become the Partnership’s largest positon. End-of-month gains in the sector were driven by the Euro-Bund. For March 2017, the Partnership again ended the month with slightly positive performance, driven by stock indices, metals and currencies, and with interests rates and energies detracting from overall performance. The Partnership initially experienced strong performance as U.S. stock indices surged to all-time highs on the first day of the month. Equity markets then edged lower on concerns of the upcoming presidential election in France and the debate over health care reform in the United States. The Partnership reduced its long positions throughout the month, going net short for a brief period before going long again ahead of a vote in Congress regarding U.S. health care. Initially trading lower on disappointment from Congress’ failure to pass health care legislation, stock indices shrugged off the news and traded higher into month end. Profits in long U.S. and European stock indices were offset in part by losses in long European interest rates. The Partnership reversed interest rate positions midmonth, racking up losses on short European positions as markets traded higher in the second half of March. To its benefit, the Partnership shifted its U.S. interest rate positions from short to long during the month, which limited losses for the sector overall.
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2016
During 2016, the Partnership achieved net realized and unrealized gains of $5,596,747 from all trading; gains of $5,583,800 from trading of derivatives including brokerage commissions of $409,189. The Partnership incurred total expenses of $2,217,157, including $1,106,228 in incentive fees, $333,163 in management fees paid to the General Partner, and $581,718 in service and professional fees. The Partnership earned $46,173 in interest income during 2015. An analysis of the profits and losses generated from the Partnership’s commodity futures trading activities for each quarter during 2016 is set forth below.
Fourth Quarter 2016. The Partnership was down for the month of October 2016. Underperformance was driven by stock indices, while the most profitable sector was currencies, followed by metals. Early in the month, long stock index and interest rate positions suffered as markets digested hawkish commentary from the Federal Reserve, a rising dollar and continued uncertainty surrounding the U.S. presidential election. The Partnership remained net long as stock indices recovered, only to sell off again in the last week of trading when the focus on the election intensified. Short positions in interest rate futures acquired mid-month did offset some of those losses as bonds traded to their lowest level in four months. The U.S. Dollar strengthened throughout the month, benefiting the Partnership’s short currency positions. The bulk of profits in the metals sector were attributed to a short position in gold, for which prices collapsed early in the month. The Partnership had overall positive returns for the month of November, 2016, with performance driven by stock indices, while metals were the worst performing sector, followed by energies. The Partnership began the month with significant long U.S. stock index positions. Initially, markets traded lower ahead of uncertainty about the U.S. presidential election, and post-election, stock markets sold off dramatically only to rebound and close higher by the end of the following trading day. The Partnership remained long while indices climbed higher through the end of the month. A long gold position acquired midmonth was the primary driver for losses in the metals sector with that market trading to nine-month lows on continued strength in the equity markets. In the energies sector, the Partnership sustained losses on short crude oil positions as markets moved higher on speculation that OPEC was nearing an agreement for production cuts. The Partnership was up for the month of December 2016. The most profitable sectors were stock indices, followed by interest rates. The only sector with negative performance was metals. Early in the month, long stock index positions suffered as equity prices traded lower on concerns that the postelection rally was overdone and questions about the trade policy of the incoming administration. However, the Partnership increased its long exposure to the sector and profited as markets reversed later in the month. Long interest rate positions were a steady drag on performance until mid-month, but after an interest rate announcement on December 15, 2016, interest rate futures crept higher for the remainder of the month, pushing the sector into profitable territory in the second half of the month. Strength in equity markets and trade policy concerns led to general weakness in prices for the metals sector. The Partnership held long positions in all metals contracts for the entire month, resulting in underperformance for the month
Third Quarter 2016. The Partnership was mixed for the month of July 2016, ending the month flat to slightly negative. The only profitable sector was stock indices. Interest rates were the worst performing sector, followed by energies. Returns initially had a strong start with long U.S. and short European stock index positions but lingering concerns over the impact of Brexit weighed on European indices, while U.S. indices outperformed on the back of a surprisingly strong nonfarm payroll number on July 8th. Performance in stock indices remained strong throughout the month; however, losses in long interest rate positions offset much of these gains as bonds moved higher on the increased probability of rate hikes. The Partnership remained net long stock indices but reversed into short interest rate futures in anticipation of an upcoming Federal Reserve meeting. As expected, rates were left unchanged and, despite a hawkish tone from the Federal Reserve, stocks and bonds both traded higher with losses in interest rate futures offsetting gains in stock indices. Thereafter, focus shifted to the Bank of Japan meeting, which disappointed markets with a less accommodative monetary and fiscal policy than had been expected. The Yen surged higher and the Partnership’s short Yen position eroded much of the overall gains going into month end. In August 2016, the Partnership experienced positive overall performance with the most profitable sector being interest rates, followed closely by stock indices. Metals were slightly positive, while the currency and energy sectors were both negative. The Partnership initially profited as with net long stock index and short interest rate positions, as the S&P and Nasdaq soared to record highs, and then reversed into short stock indices in the middle of the month as equity markets became increasingly choppy. Despite a decidedly hawkish tone by the Federal Reserve at an August 2016 meeting, equity markets traded higher into month end, paring gains in the stock index sector. Losses in the currency sector early in the month were attributed to a short Yen position that declined when the Bank of Japan announced stimulus measures that did not include further monetary easing. By month end, the Partnership had reversed into long currency positions and suffered additional losses as the U.S. Dollar surged. In September 2016, the Partnership experienced solid profits as the main driver of performance was stock indices, whereas the worst performing sector was currencies. The Partnership came into the month short global equity indices and achieved mixed results through the first week of trading. Between September 9th & 10th, signals in equity indices reversed as global stock markets sold off dramatically on the 9th and rallied back on the 10th. The Partnership earned significant profits on both sides of the trade, and returns remained long going into the September Federal Reserve, which spurred a two-day rally in U.S. equity markets. The Partnership then gave back a portion of gains as markets became increasingly choppy going into month end. Currency losses accrued early in the month and were primarily attributable to short Euro positions as a hawkish European Central Bank meeting sent the currency sharply higher. The bulk of the losses in energies came in the last week of trading when short crude positions suffered on the news that OPEC had reached a preliminary agreement on the first production cuts in eight years.
9 |
Second Quarter 2016. The Partnership was flat to slightly negative for the month of April 2016. Currencies were the most profitable sector, followed by stock indices and metals. Interest rates were the worst performing sector, followed by energies. The Partnership came into the month short all stock index contracts, making substantial profits in the first week of trading as equity markets traded lower. As the month wore on, equity markets recovered on the back of a marginally positive earnings season domestically and the lack of any significant negative headlines internationally. The Partnership maintained a net short position as markets trended higher, erasing earlier profits and going negative in the sector until equity markets began to falter late in the month on disappointing news from the Bank of Japan as to its leaving rates unchanged and failing to increase stimulus. This sent equity markets sharply lower and the Yen skyrocketed to new multi-year highs – resulting in gains for the Partnership. While bonds moved lower on equity strength, the possibility of a June rate hike from the FOMC limited the upside as equities sold off. The Partnership experienced profits in May 2016, with the most profitable sector being stock indices, followed by interest rates and currencies. Following a late April FOMC statement that lowered the likelihood for a June 2016 rate hike, concerns regarding the global economy were further heightened in the first week of May by weak Caixin PMI data in China and disappointing nonfarm payroll numbers in the United States. These events caused a flight to quality during early in the month. During this period, the Partnership traded the Euro-Bund, U.S. 30-Year Bond, Long Gilt, S&P and Hang Seng futures contracts to secure gains in the interest rates and stock indices sectors. As the month progressed, a shift in the Federal Reserve’s tone indicated a likely rate hike due to an improving economy, and coupled with substantial short covering and reports of a surge in U.S. new home sales, a strong rally in equity indices and commodities ensued (offset by a decline in global interest rate futures). The second half of May saw the Partnership benefitting from long positions in U.S. equity indices, while it suffered from short positions in European equity indices and long positions across U.S. Treasuries. The Partnership was up slightly for the month of June 2016, with the most profitable sector being stock indices, followed by interest rates. The only negative sector was currencies. Volatility across global financial markets was largely driven by expectations and reactions around the FOMC decision to hold on an interest rate hike and the U.K. referendum vote. With the uncertainty of an interest rate hike removed, attention became squarely focused on the outcome of Brexit vote. As resultant volatility ensued, the Partnership benefitted from positions in the DJ Euro Stoxx 50, Dax, U.S. 30-Year Bond and Gold, and risk exposure leading up to the Brexit vote was reduced. The Partnership suffered losses during the days preceding the Brexit vote but recouped most of those losses as markets reacted sharply to the surprising decision by the U.K. to leave the European Union. Over the last three days of June 2016, the Partnership gave back profits in the stock indices sector as global equity markets rallied.
First Quarter 2016. The Partnership experienced net gains for the month of January 2016, with interest rates contributing most of the profits, followed by stock indices; whereas on the negative side, energies were the worst performing sector, followed by currency positions that also suffered declines in the period. The Partnership maintained short positions in U.S. & European stock indices and long positions in interest rates throughout January resulting in strong returns early in the month. The Partnership initially posted modest gains from short crude oil positions before reversing into substantial long positions thereafter. After a temporary rally, the price of crude oil resumed its downward trend, causing the long positions to sustain losses by month-end. The Bank of Japan announced a negative interest rate policy near month-end, with equity markets trading higher while the Yen dropped sharply – costing the Partnership a significant portion of the gains it had made earlier in the month. The Partnership enjoyed solid net positive performance for the month of February 2016, led by gains in stock indices, followed by positive returns in the interest rates, energies and currencies sectors. The only negative sector for the month was metals. Short positions in crude oil and stock indices benefitted from global growth early in the period. Upon reversing the shorts into longs mid-month, the Partnership’s positions in stock indices and crude oil profited due to positive economic data and rallying markets, followed by the Partnership reversing again to shorts allowing it to eke out marginal additional gains as equity markets remained choppy through month-end. A long position in Yen held throughout the month of February was responsible for most of the profits that month in the currencies sector. The Partnership’s losses in the metals sector for the period were attributed to a short Gold position as that market trended higher. The Partnership sustained a net loss for the month of March 2016, with stock indices being the worst-performing sector, and currencies, interest rates and energies each experiencing slightly negative returns. The only positive sector was metals for the period. Losses were sustained in short stock index positions and long interest rate positions were due to strong economic data coupled with dovish statements from the Federal Reserve leading to the perception that, despite improving economic conditions, a rate hike was unlikely in March. Short positions in currencies and energies added to losses as the U.S. Dollar surged and commodity prices moved higher throughout the period. The metals sector was the only bright spot in March, as the Partnership began the month short metals, then reversed mid-month into long positions, making back earlier losses and posting moderate gains as Gold rose on continued bullish sentiment.
(d) Off-Balance Sheet Arrangements
The Partnership does not engage in off-balance sheet arrangements with other entities.
(e) Contractual Obligations
Not required.
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(f) Critical Accounting Estimates
The General Partner believes that the Partnership’s most critical accounting estimates relate to the valuation of the Partnership’s assets. Futures and options on futures contracts are valued using the primary exchange’s closing price. U.S. government agency securities are generally valued based on quoted prices in active markets. Corporate notes are generally valued at fair value. Security transactions are recorded on the trade date. Realized gains and losses from security transactions are determined using the specific identification cost method. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the date of the statement of financial condition. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S. dollars are reported in income currently.
The Partnership’s financial statements are presented in accordance with U.S. generally accepted accounting principles (U.S. GAAP), which require the use of certain estimates made by the Partnership’s management. Actual results could differ from those estimates. Based on the nature of the business and operations of the Partnership, the General Partner believes that the estimates utilized in preparing the Partnership’s financial statements are appropriate and reasonable, however actual results could differ from these estimates. The estimates used do not provide a range of possible results that would require the exercise of subjective judgment. The General Partner further believes that, based on the nature of the business and operations of the Partnership, no other reasonable assumptions relating to the application of the Partnership’s critical accounting estimates other than those currently used would likely result in materially different amounts from those reported.
ITEM 7A: 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 Advisors, L.L.C., the general partner of the Partnership, is responsible for the management of the Partnership. Management of the General Partner (“Management”) is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
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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, 2017. In making this assessment, Management used the criteria set forth in Internal Control — Integrated Framework issued in 2013 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, 2017, the Partnership’s internal control over financial reporting was effective.
(c) Changes in Internal Control over Financial Reporting
There were no changes in the Partnership’s internal control over financial reporting during the quarter and year ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
None.
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ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(a) Identification of Directors and Executive Officers
(i) The Partnership has no officers, directors, or employees. The Partnership’s affairs are managed by the General Partner (although it has delegated trading and investment authority to the Advisor and administrative duties to Altegris). The General Partner is indirectly owned by AqGen Liberty Holdings LLC (“AqGen”), an entity owned and controlled by (i) private equity funds managed by Aquiline Capital Partners LLC and its affiliates (“Aquiline”), and by Genstar Capital Management, LLC and its affiliates (“Genstar”), and (ii) certain senior management of the General Partner and its affiliates. Aquiline is a private equity firm located in New York, New York, and Genstar is a private equity firm located in San Francisco, California. The General Partner’s managers and executive officers are Martin Beaulieu and Matthew C. Osborne.
Martin Beaulieu (born 1958) joined Altegris Advisors as its Executive Chairman in July 2016 and is responsible for firm strategy and the day-to-day management of the company. In March 2016, Mr. Beaulieu joined the Board of Directors of Altegris Advisors’ parent company. During the past five years, Mr. Beaulieu was a Managing Director, Co-Head of iShares U.S. ETFs, Head of iShares Wealth Management, and Head of the Leveraged Distribution Group, at BlackRock Investments (August 2012 through October 2015). Mr. Beaulieu served in several senior management roles for MFS Investment Management, a large mutual fund complex (September 1990 through July 2012). These roles included acting, at various times, as MFS’ Vice Chairman, its Head of Global Distribution, its President, and as a National Sales Manager. During his tenure at MFS, he also served as CEO of MFS/McLean Budden. He earned a BA degree from Santa Clara University in 1980.
Matthew C. Osborne (born 1964) was appointed Chief Investment Officer of the General Partner in January 2016. Mr. Osborne has served as a manager of the General Partner (or a director of the General Partner’s predecessor entity, APM) since July 2002. He has also served as a Vice President of APM (July 2002 to January 2011), an Executive Vice President of the General Partner (January 2011 to June 2015) and as Co-President of the General Partner (June 2015 to January 2016). 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 (December 2008 to present), Executive Vice President (December 2008 to June 2015), Co-President (June 2015 to January 2016), and Chief Investment Officer of Clearing Solutions (January 2016 to present); (3) a manager (February 2010 to present), Executive Vice President (February 2010 to June 2015), Co-President (June 2015 to January 2016), and Chief Investment Officer (January 2016 to present) of Services; and (4) a manager and Executive Vice President of Altegris Holdings (October 2012 to present).
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
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(c) Code of Ethics
The Partnership has no employees, officers or directors and is managed by the General Partner. The General Partner has adopted a Code of Ethics that applies to its principal executive officers and certain other persons associated with the General Partner. A copy of this Code of Ethics may be obtained at no charge by written request to Altegris Advisors, L.L.C., 1200 Prospect Street, Suite 400, La Jolla, CA 92037.
(d) Corporate Governance
Not applicable.
ITEM 11: EXECUTIVE COMPENSATION
The Partnership has no officers, directors, or employees. None of the principals, officers, or employees of the General Partner or Altegris receives compensation from the Partnership. All persons serving in the capacity of officers or executives of the General Partner, the general partner of the Partnership, are compensated by Altegris and/or an affiliate in respect of their respective positions with such entities. The General Partner receives a monthly management fee equal to 1/12 of 1.25% of the management fee net asset value of the month-end capital account balances attributable to Class A and Class B Interests and equal to 1/12 of 0.75% of the management fee net asset value of the month-end capital account balances attributable to Institutional Interests. The General Partner also receives a monthly administrative fee equal to 1/12 of 0.333% of the management fee net asset value of the month-end capital account balances attributable to Class A and Class B Interests.
Altegris receives continuing monthly compensation from the Partnership equal to 1/12 of 2% of the month-end net asset value of Class A Interests sold by Altegris.
Clearing Solutions, in its capacity as Introducing Broker to the Partnership, receives compensation for brokerage-related services. The Partnership will pay monthly brokerage charges equal to the greater of (A) actual commissions of $9.75 per round-turn (higher for certain exchanges or commodities) multiplied by number of round-turn trades, which amount includes other transaction costs; or (B) an amount equal to 0.125% of the management fee net asset value of all Interest holders’ month-end capital account balances (1.50% annually). If actual monthly commissions and transaction costs in (A) above are less than the amount in (B) above, the Partnership will pay the difference to the Introducing Broker as payment for brokerage-related services. In any month when the amount in (A) is greater than the amount in (B) above, the Partnership will pay only the amount described in (A) above.
The Partnership has no other compensation arrangements. There are no compensation plans or arrangements relating to a change in control of the Partnership.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
| (a) | Security ownership of certain beneficial owners |
Not applicable.
| (b) | Security Ownership of Management |
The Partnership has no officers or directors. Under the terms of the Limited Partnership Agreement, the Partnership’s affairs are managed by the General Partner, which has delegated discretionary authority over the Partnership’s trading to QIM. As of February 28, 2018, the General Partner’s general partner interest in the Partnership was valued at $858, which constituted approximately 0% of the Partnership’s total assets. The General Partner and the principals of the General Partner may purchase Interests. As of February 28, 2018, the following managers and executive officers of the General Partner owned Interests in the Partnership: None. The direct and indirect holding of Interests of each manager and executive officer and the total aggregate ownership of Interests is 0% of the Partnership’s total assets.
| (c) | Changes in Control |
None.
14 |
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The Partnership does not engage in any transactions with the General Partner or its affiliates other than in respect of the services and payment of fees therefor described above in Item 1.
The Partnership paid to the General Partner monthly management fees totaling $389,011 for the year ended December 31, 2017. The Partnership paid to the General Partner administrative fees totaling $97,756 for the year ended December 31, 2017.
The Partnership paid to Altegris monthly continuing compensation of $65,990 for the year ended December 31, 2017. Clearing Solutions, in its capacity as the Introducing Broker for the Partnership, received from the Partnership’s clearing broker the following compensation: a portion of the brokerage commissions paid by the Partnership to SGAS, and of the interest income earned on Partnership’s assets held at SGAS, equal to $198,033 for the year ended December 31, 2017. In addition, Clearing Solutions, in its capacity as Introducing Broker, receives from the Partnership, monthly brokerage charges as described in Item 11. For the year ended December 31, 2017 the Partnership paid monthly brokerage charges of $206,296.
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, 2017 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, 2017.
| FEE CATEGORY | 2017 | 2016 | ||||||
| Audit Fees | $ | 24,600 | $ | 24,600 | ||||
| Audit-Related Fees | $ | 31,800 | $ | 31,800 | ||||
| Tax Fees | $ | 58,028 | $ | 67,900 | ||||
| All Other Fees | – | – | ||||||
| TOTAL FEES | $ | 114,428 | $ | 124,300 | ||||
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, quarterly reviews of financial statements included in the reports on the Partnership’s Form 10-Q, and reviews of current reports filed by the Partnership on Form 8-K; and (ii) services that are normally provided by the Independent Registered Public Accountants in connection with statutory and regulatory filings of registration statements.
Tax Fees consist of fees paid to Ernst & Young LLP for professional services rendered in connection with tax compliance and Partnership income tax return filings.
The managers of the General Partner pre-approve the engagement of the Partnership’s auditor for all services to be provided by the auditor.
15 |
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| Financial Statements |
The financial statements and balance sheets required by this Item are included herewith, beginning after the signature page hereof, and are incorporated into this Item 15.
| Exhibits |
The following documents (unless otherwise indicated) are filed herewith and made part of this registration statement.
| Exhibit Designation | Description | |
| * 3.1 | ||
| ** 4.1 |
Second Amended and Restated Agreement of Limited Partnership of Altegris QIM Futures Fund, L.P. | |
| * 10.1 | ||
| * 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 of Principal Executive Officer | |
| 31.02 | Rule 13a-14(a)/15d-14(a) Certification of Financial Executive Officer | |
| 32.01 | Section 1350 Certification of Principal Executive Officer | |
| 32.02 | Section 1350 Certification of Principal Financial Officer | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Schema Document | |
| 101.CAL | XBRL Calculation Linkbase Document | |
| 101.DEF | XBRL Definition Linkbase Document | |
| 101.LAB | XBRL Label Linkbase Document | |
| 101.PRE | XBRL Presentation Linkbase Document |
* These exhibits are incorporated by reference to the exhibits of the same numbers and descriptions 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.
** This exhibit is incorporated by reference to the exhibit of the same number and description filed with the registrant’s Annual Report on Form 10-K (File No. 000-53815) filed on March 31, 2015.
16 |
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: April 2, 2018 |
Altegris QIM FUTURES FUND, L.P.
By: ALTEGRIS ADVISORS, L.L.C. |
|
By: /s/ Matthew C. Osborne Name: Matthew C. Osborne Title: Chief Investment Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the General Partner of the Registrant and in the capacities and on the date indicated.
| Title with | ||||
| Signature | General Partner | Date | ||
| /s/ Martin Beaulieu | Executive Chairman, Manager | April 2, 2018 | ||
| Martin Beaulieu | (Principal Executive Officer) | |||
| /s/ Matthew C. Osborne | Chief Investment Officer, Manager | April 2, 2018 | ||
| Matthew C. Osborne | ||||
(Being the principal executive officer, the principal financial officer and principal accounting officer, and a majority of the managers of Altegris Advisors, L.L.C.)
17 |
ALTEGRIS QIM Futures Fund, L.P.
FINANCIAL STATEMENTS
____________
TABLE OF CONTENTS
_____________
| PAGES | |
| Affirmation of the Commodity Pool Operator | F-2 |
| Report of Independent Registered Public Accounting Firm | F-3 |
| Financial Statements | |
| Statements of Financial Condition | F-4 |
| Condensed Schedules of Investments | F-5 – F-8 |
| Statements of Income (Loss) | F-9 |
| Statements of Changes in Partners’ Capital (Net Asset Value) | F-10 |
| Notes to Financial Statements | F-11 – F-24 |
| F-1 |
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, 2017, 2016 and 2015 is accurate and complete.
|
By: /s/ Martin Beaulieu Altegris Advisors LLC Commodity Pool Operator for Altegris QIM Futures Fund, L.P. By: Martin Beaulieu, Chief Executive Officer |
| F-2 |
 |
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 Limited Partners of Altegris QIM Futures Fund, L.P.
Opinion on the Financial Statements
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, 2017 and 2016, and the related statements of income (loss) and changes in partners’ capital (net asset value) for each of the three years in the period ended December 31, 2017 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 2017 and 2016, and the results of its operations and the changes in its partners’ capital for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Partnership is not required to have, nor were we engaged to perform, an audit of the Partnership’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and broker. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Partnership’s auditor since 2011.
Philadelphia, PA
March 28, 2018
A member firm of Ernst & Young Global Limited
| F-3 |
ALTEGRIS QIM FUTURES FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2017 and DECEMBER 31, 2016
_______________
| 2017 | 2016 | |||||||
| ASSETS | ||||||||
| Equity in commodity broker account: | ||||||||
| Cash | $ | 921,512 | $ | 2,375,064 | ||||
| Restricted cash | 859,249 | 3,040,054 | ||||||
| Restricted foreign currency (cost - $693,564 and $0) | 688,780 | – | ||||||
| Net unrealized gain on open futures contracts | 309,752 | 279,170 | ||||||
| Settled variation margin | 106,499 | – | ||||||
| 2,885,792 | 5,694,288 | |||||||
| Cash | 6,312,140 | 5,584,068 | ||||||
| Investment securities at fair value (cost - $23,396,557 and $19,477,698) | 23,396,654 | 19,477,549 | ||||||
| Interest receivable | 1,157 | 500 | ||||||
| Total assets | $ | 32,595,743 | $ | 30,756,405 | ||||
| LIABILITIES | ||||||||
| Equity in commodity broker account: | ||||||||
| Foreign currency due to broker (proceeds - $691,361 and $59,757) | $ | 686,592 | $ | 60,524 | ||||
| Settled variation margin | 0 | 126,900 | ||||||
| 686,592 | 187,424 | |||||||
| Redemptions payable | 203,427 | 242,614 | ||||||
| Incentive fees payable | 68,985 | 518,507 | ||||||
| Subscriptions received in advance | 57,000 | 117,000 | ||||||
| Service fees payable | 42,515 | 40,518 | ||||||
| Management fee payable | 31,503 | 29,369 | ||||||
| Brokerage commissions payable | 17,374 | 14,859 | ||||||
| Administrative fee payable | 7,902 | 7,485 | ||||||
| Other liabilities | 130,243 | 154,165 | ||||||
| Total liabilities | 1,245,541 | 1,311,941 | ||||||
| PARTNERS' CAPITAL (NET ASSET VALUE) | ||||||||
| General Partner | 942 | 914 | ||||||
| Limited Partners | 31,349,260 | 29,443,550 | ||||||
| Total partners' capital (Net Asset Value) | 31,350,202 | 29,444,464 | ||||||
| Total liabilities and partners' capital | $ | 32,595,743 | $ | 30,756,405 | ||||
See accompanying notes.
| F-4 |
ALTEGRIS QIM FUTURES FUND, L.P.
CONDENSED SCHEDULES OF INVESTMENTS
DECEMBER 31, 2017
_______________
| INVESTMENT SECURITIES | ||||||||||||||
| Face Value | Maturity Date | Description | Fair Value | % of Partners' Capital | ||||||||||
| Fixed Income Investments | ||||||||||||||
| U.S. Government Agency Bonds and Notes | ||||||||||||||
| $ | 12,932,000 | 1/2/2018 | Federal Farm Credit Bank Disc Note, 0.00% | $ | 12,931,623 | 41.25% | ||||||||
| 1,500,000 | 1/2/2018 | Federal Home Loan Bank Disc Note, 0.00% | 1,500,000 | 4.78% | ||||||||||
| 1,000,000 | 1/8/2018 | Federal Home Loan Bank Disc Note, 0.99%* | 999,785 | 3.19% | ||||||||||
| Total U.S. Government Agency Bonds and Notes (cost - $15,431,376) | 15,431,408 | 49.22% | ||||||||||||
| Corporate Notes | ||||||||||||||
| $ | 700,000 | 1/11/2018 | American Honda Finance Corporation, 1.43% | 699,637 | 2.23% | |||||||||
| 701,000 | 1/26/2018 | Banco del Estado de Chile, 1.55% | 701,000 | 2.24% | ||||||||||
| 700,000 | 1/26/2018 | Bank of Montreal, 1.50%* | 699,271 | 2.23% | ||||||||||
| 701,000 | 1/26/2018 | Canadian Imperial Holdings, Inc., 1.48% | 700,279 | 2.23% | ||||||||||
| 700,000 | 1/12/2018 | The Coca-Cola Company, 1.32% | 699,608 | 2.23% | ||||||||||
| 235,000 | 10/1/2018 | DCAT, LLC, 1.68%* | 234,868 | 0.75% | ||||||||||
| 700,000 | 1/12/2018 | MetLife Short Term Funding LLC, 1.41% | 699,601 | 2.23% | ||||||||||
| 465,000 | 1/22/2018 | National Rural Utilities Cooperation, 1.62% | 464,574 | 1.48% | ||||||||||
| 700,000 | 9/1/2018 | PACCAR Financial Corporation, 1.48%* | 699,682 | 2.23% | ||||||||||
| 700,000 | 1/5/2018 | Sumitomo Mitsui Banking Corporation, 1.37% | 699,984 | 2.23% | ||||||||||
| 467,000 | 1/5/2018 | Sumitomo Mitsui Trust Bank Ltd., 1.37% | 466,989 | 1.50% | ||||||||||
| 250,000 | 1/8/2018 | 3M Company, 1.49% | 249,902 | 0.80% | ||||||||||
| 950,000 | 1/2/2018 | Wal-Mart Stores, Inc., 1.24% | 949,851 | 3.03% | ||||||||||
| Total Corporate Notes (cost - $7,965,181) | 7,965,246 | 25.41% | ||||||||||||
| Total Investment Securities (cost - $23,396,557) | $ | 23,396,654 | 74.63% | |||||||||||
* The rate reported is the effective yield at time of purchase.
See accompanying notes.
| F-5 |
ALTEGRIS QIM FUTURES FUND, L.P.
CONDENSED SCHEDULES OF INVESTMENTS (continued)
DECEMBER 31, 2017
_______________
| Range of Expiration Dates | Number of Contracts | Fair Value* | % of Partners' Capital | ||||||||||
| Long Futures Contracts: | |||||||||||||
| Currencies | Mar 18 | 81 | $ | 96,610 | 0.31% | ||||||||
| Interest Rates | Mar 18 | 36 | (55,415 | ) | (0.18)% | ||||||||
| Metals | Feb 18 - Mar 18 | 83 | 316,177 | 1.01% | |||||||||
| Stock Indices | Jan 18 - Mar 18 | 96 | (5,279 | ) | (0.02)% | ||||||||
| Treasury Rates | Mar 18 | 309 | 68,158 | 0.22% | |||||||||
| Total Long Futures Contracts | 605 | 420,251 | 1.34% | ||||||||||
| Short Futures Contracts: | |||||||||||||
| Currencies | Mar 18 | 27 | (13,379 | ) | (0.04)% | ||||||||
| Energy | Jan 18 | 33 | (44,184 | ) | (0.14)% | ||||||||
| Interest Rates | Mar 18 | 182 | 22,773 | 0.07% | |||||||||
| Stock Indices | Mar 18 | 45 | 30,790 | 0.10% | |||||||||
| Total Short Futures Contracts | 287 | (4,000 | ) | (0.01)% | |||||||||
| Total Futures Contracts | $ | 416,251 | 1.33% | ||||||||||
*Futures include settled variation margin.
See accompanying notes.
| F-6 |
ALTEGRIS QIM FUTURES FUND, L.P.
CONDENSED SCHEDULES OF INVESTMENTS
DECEMBER 31, 2016
_______________
| INVESTMENT SECURITIES | ||||||||||||||
| Face Value | Maturity Date | Description | Fair Value | % of Partners' Capital | ||||||||||
| Fixed Income Investments | ||||||||||||||
| U.S. Government Agency Bonds and Notes | ||||||||||||||
| $ | 1,000,000 | 1/25/2017 | Federal Home Loan Bank Disc Note, 0.33%* | $ | 999,768 | 3.39% | ||||||||
| 1,000,000 | 2/1/2017 | Federal Home Loan Bank Disc Note, 0.45%* | 999,597 | 3.39% | ||||||||||
| 500,000 | 2/14/2017 | Federal Home Loan Bank Disc Note, 0.47%* | 499,708 | 1.70% | ||||||||||
| 250,000 | 2/15/2017 | Federal Home Loan Bank Disc Note, 0.47%* | 249,851 | 0.85% | ||||||||||
| 500,000 | 3/10/2017 | Federal Home Loan Bank Disc Note, 0.50%* | 499,524 | 1.70% | ||||||||||
| 300,000 | 3/24/2017 | Federal Home Loan Bank Disc Note, 0.50%* | 299,653 | 1.02% | ||||||||||
| 500,000 | 5/3/2017 | Federal Home Loan Bank Disc Note, 0.54%* | 499,084 | 1.69% | ||||||||||
| 6,733,000 | 1/3/2017 | Federal Home Loan Mortgage Corp Disc Note, 0.00%* | 6,732,832 | 22.87% | ||||||||||
| 450,000 | 2/7/2017 | Federal Home Loan Mortgage Corp Disc Note, 0.46%* | 449,781 | 1.53% | ||||||||||
| Total U.S. Government Agency Bonds and Notes (cost - $11,229,947) | 11,229,798 | 38.14% | ||||||||||||
| Corporate Notes | ||||||||||||||
| $ | 580,000 | 1/3/2017 | Apple Inc., 0.55% | 579,800 | 1.97% | |||||||||
| 550,000 | 1/6/2017 | Banco del Estado de Chile, NY, 0.67% | 550,000 | 1.87% | ||||||||||
| 385,000 | 1/11/2017 | DCAT LLC, 0.90% | 384,772 | 1.30% | ||||||||||
| 580,000 | 1/6/2017 | Exxon Mobile Corp Disc Note, 0.48% | 579,780 | 1.97% | ||||||||||
| 800,000 | 1/3/2017 | GE Capital Treasury Services (U.S.) LLC, 0.61% | 799,947 | 2.71% | ||||||||||
| 580,000 | 1/13/2017 | MetLife Short Term Funding LLC, 0.59% | 579,696 | 1.97% | ||||||||||
| 385,000 | 1/13/2017 | National Rural Utilities Cooperative Finance Corp, 0.50% | 384,795 | 1.31% | ||||||||||
| 580,000 | 1/4/2017 | PACCAR Financial Corp Disc Note, 0.61% | 579,743 | 1.97% | ||||||||||
| 580,000 | 1/11/2017 | Sumitomo Mutsui Trust Bank Ltd., 0.67% | 580,000 | 1.97% | ||||||||||
| 385,000 | 1/5/2017 | The Chiba Bank Ltd., 0.71% | 385,000 | 1.31% | ||||||||||
| 500,000 | 1/3/2017 | Thunder Bay Funding LLC, 0.00% | 499,972 | 1.70% | ||||||||||
| 800,000 | 1/3/2017 | The Toronto-Dominion Bank Corp Disc Note, 0.57% | 800,000 | 2.72% | ||||||||||
| 580,000 | 1/19/2017 | Victory Receivables Corp Disc Note, 0.74% | 579,613 | 1.97% | ||||||||||
| 580,000 | 1/11/2017 | Wal-Mart Stores Inc., 0.57% | 579,887 | 1.97% | ||||||||||
| 385,000 | 1/17/2017 | Working Capital Management Co LP Disc Note, 0.85% | 384,746 | 1.30% | ||||||||||
| Total Corporate Notes (cost - $8,247,751) | 8,247,751 | 28.01% | ||||||||||||
| Total Investment Securities (cost - $19,477,698) | $ | 19,477,549 | 66.15% | |||||||||||
| * The rate reported is the effective yield at time of purchase. | ||||||||||||||
See accompanying notes.
| F-7 |
ALTEGRIS QIM FUTURES FUND, L.P.
CONDENSED SCHEDULES OF INVESTMENTS (continued)
DECEMBER 31, 2016
_______________
| Range of Expiration Dates | Number of Contracts | Fair Value* | % of Partners' Capital | ||||||||||
| Long Futures Contracts: | |||||||||||||
| Energy | Jan 17 | 47 | $ | 54,724 | 0.19% | ||||||||
| Interest Rates | Mar 17 | 222 | 241,292 | 0.82% | |||||||||
| Metals | Feb 17 - Mar 17 | 25 | (522 | ) | 0.00% | ||||||||
| Stock Indices | Jan 17 - Mar 17 | 524 | (19,664 | ) | (0.07)% | ||||||||
| Total Long Futures Contracts | 818 | 275,830 | 0.94% | ||||||||||
| Short Futures Contracts: | |||||||||||||
| Currencies | Mar 17 | 34 | (21,892 | ) | (0.08)% | ||||||||
| Interest Rates | Mar 17 | 51 | (47,917 | ) | (0.16)% | ||||||||
| Stock Indices | Jan 17 - Mar 17 | 9 | (15,872 | ) | (0.05)% | ||||||||
| Treasury Rates | Mar 17 | 114 | (37,879 | ) | (0.13)% | ||||||||
| Total Short Futures Contracts | 208 | (123,560 | ) | (0.42)% | |||||||||
| Total Futures Contracts | $ | 152,270 | 0.52% | ||||||||||
*Futures include settled variation margin.
See accompanying notes.
| F-8 |
ALTEGRIS QIM FUTURES FUND, L.P.
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
_______________
| 2017 | 2016 | 2015 | ||||||||||
| TRADING GAIN (LOSS) | ||||||||||||
| Gain (loss) on trading of futures | ||||||||||||
| Net realized | $ | 3,068,028 | $ | 5,870,954 | $ | 5,681,349 | ||||||
| Net change in unrealized | 263,981 | 122,035 | 61,821 | |||||||||
| Brokerage Commissions | (481,792 | ) | (409,189 | ) | (437,363 | ) | ||||||
| Net gain (loss) from trading futures | 2,850,217 | 5,583,800 | 5,305,807 | |||||||||
| Gain (loss) on trading of securities | ||||||||||||
| Net realized | 26,042 | 16,058 | 6,600 | |||||||||
| Net change in unrealized | 246 | 207 | 5,281 | |||||||||
| Net gain (loss) from trading securities | 26,288 | 16,265 | 11,881 | |||||||||
| Gain (loss) on trading of foreign currency | ||||||||||||
| Net realized | (45,132 | ) | (2,455 | ) | (13,351 | ) | ||||||
| Net change in unrealized | 752 | (863 | ) | (7 | ) | |||||||
| Net gain (loss) from trading foreign currency | (44,380 | ) | (3,318 | ) | (13,358 | ) | ||||||
| Total trading gain (loss) | 2,832,125 | 5,596,747 | 5,304,330 | |||||||||
| NET INVESTMENT INCOME (LOSS) | ||||||||||||
| Income | ||||||||||||
| Interest income | 218,658 | 46,173 | 27,968 | |||||||||
| Expenses | ||||||||||||
| Incentive fees | 704,344 | 1,106,228 | 68,417 | |||||||||
| Service fees | 433,956 | 369,560 | 352,938 | |||||||||
| Management fee | 389,011 | 333,163 | 358,619 | |||||||||
| Professional fees | 211,493 | 212,158 | 242,617 | |||||||||
| Administrative fee | 97,756 | 84,855 | 90,388 | |||||||||
| Interest expense | 24,194 | 40,328 | 21,042 | |||||||||
| Out of pocket fees | 21,200 | 15,102 | 70,500 | |||||||||
| Other expenses | 52,309 | 55,763 | 79,784 | |||||||||
| Total expenses | 1,934,263 | 2,217,157 | 1,284,305 | |||||||||
| Net investment income (loss) | (1,715,605 | ) | (2,170,984 | ) | (1,256,337 | ) | ||||||
| NET INCOME (LOSS) | $ | 1,116,520 | $ | 3,425,763 | $ | 4,047,993 | ||||||
See accompanying notes.
| F-9 |
ALTEGRIS QIM FUTURES FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
_______________
| Limited Partners | ||||||||||||||||||||
| Institutional | General | |||||||||||||||||||
| Total | Class A | Class B | Interests | Partner | ||||||||||||||||
| Balances at December 31, 2014 | $ | 40,347,727 | $ | 22,069,532 | $ | 13,349,109 | $ | 4,928,388 | $ | 698 | ||||||||||
| Transfers | – | – | – | – | – | |||||||||||||||
| Capital additions | 628,076 | 393,567 | 234,509 | – | – | |||||||||||||||
| Capital withdrawals | (21,353,511 | ) | (9,466,080 | ) | (8,169,736 | ) | (3,717,695 | ) | – | |||||||||||
| From operations: | ||||||||||||||||||||
| Net investment gain (loss) | (1,256,337 | ) | (898,700 | ) | (310,310 | ) | (47,290 | ) | (37 | ) | ||||||||||
| Net realized gain (loss) from investments (net of brokerage commissions) | 5,237,235 | 3,173,196 | 1,788,619 | 275,278 | 142 | |||||||||||||||
| Net change in unrealized gain (loss) from investments | 67,095 | 23,197 | 32,019 | 11,880 | (1 | ) | ||||||||||||||
| Net income (loss) | 4,047,993 | 2,297,693 | 1,510,328 | 239,868 | 104 | |||||||||||||||
| Balances at December 31, 2015 | $ | 23,670,285 | $ | 15,294,712 | $ | 6,924,210 | $ | 1,450,561 | $ | 802 | ||||||||||
| Balances at December 31, 2015 | $ | 23,670,285 | $ | 15,294,712 | $ | 6,924,210 | $ | 1,450,561 | $ | 802 | ||||||||||
| Transfers | – | – | – | – | – | |||||||||||||||
| Capital additions | 4,082,682 | 3,916,689 | 165,993 | – | – | |||||||||||||||
| Capital withdrawals | (1,734,266 | ) | (1,259,807 | ) | (474,459 | ) | – | – | ||||||||||||
| From operations: | ||||||||||||||||||||
| Net investment gain (loss) | (2,170,984 | ) | (1,579,463 | ) | (490,710 | ) | (100,744 | ) | (67 | ) | ||||||||||
| Net realized gain (loss) from investments (net of brokerage commissions) | 5,475,368 | 3,666,412 | 1,491,321 | 317,460 | 175 | |||||||||||||||
| Net change in unrealized gain (loss) from investments | 121,379 | 82,946 | 31,732 | 6,697 | 4 | |||||||||||||||
| Net income (loss) | 3,425,763 | 2,169,895 | 1,032,343 | 223,413 | 112 | |||||||||||||||
| Balances at December 31, 2016 | $ | 29,444,464 | $ | 20,121,489 | $ | 7,648,087 | $ | 1,673,974 | $ | 914 | ||||||||||
| Balances at December 31, 2016 | $ | 29,444,464 | $ | 20,121,489 | $ | 7,648,087 | $ | 1,673,974 | $ | 914 | ||||||||||
| Transfers | – | – | – | – | – | |||||||||||||||
| Capital additions | 4,760,748 | 3,096,648 | 739,100 | # | 925,000 | – | ||||||||||||||
| Capital withdrawals | (3,971,530 | ) | (2,746,440 | ) | (1,052,817 | )# | (172,273 | ) | – | |||||||||||
| From operations: | ||||||||||||||||||||
| Net investment gain (loss) | (1,715,605 | ) | (1,311,939 | ) | (327,796 | ) | (75,813 | ) | (57 | ) | ||||||||||
| Net realized gain (loss) from investments (net of brokerage commissions) | 2,567,146 | 1,740,295 | 652,948 | 173,825 | 78 | |||||||||||||||
| Net change in unrealized gain (loss) from investments | 264,979 | 186,165 | 66,801 | 12,006 | 7 | |||||||||||||||
| Net income (loss) | 1,116,520 | 614,521 | 391,953 | 110,018 | 28 | |||||||||||||||
| Balances at December 31, 2017 | $ | 31,350,202 | $ | 21,086,218 | $ | 7,726,323 | $ | 2,536,719 | $ | 942 | ||||||||||
See accompanying notes.
| F-10 |
ALTEGRIS QIM FUTURES FUND, L.P.
_______________
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 Advisors, L.L.C. (the "General Partner"). The General Partner has overall responsibility for the management, operation and administration of the Partnership, including the selection of its commodity trading adviser. The Partnership’s trading activities are conducted pursuant to an advisory contract with Quantitative Investment Management LLC (the “Advisor”). The Partnership speculatively trades commodity futures contracts, and may trade options on futures contracts, forward currency 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.
B. Method of Reporting
The Partnership’s financial statements are presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Therefore, the Partnership follows the accounting and reporting guidelines for investment companies. The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported fair value of assets and liabilities, disclosures of contingent assets and liabilities as of December 31 2017 and 2016, and reported amounts of income and expenses for the years ended December 31, 2017, 2016 and 2015, respectively. Management believes that the estimates utilized in preparing the Partnership’s financial statements are reasonable; however, actual results could differ from these estimates and it is reasonably possible that the differences could be material.
C. Fair Value
In accordance with the authoritative guidance under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants at the measurement date.
In determining fair value, the Partnership uses various valuation approaches. The authoritative guidance under U.S. GAAP establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Partnership.
Unobservable inputs reflect the Partnership’s assumption about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1 – Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that the Partnership has the ability to access at the measurement date;
Level 2 – Quoted prices which are not active, or inputs that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and
Level 3 – Prices, inputs or exotic modeling techniques which are both significant to the fair value measurement and unobservable (supported by little or no market activity).
| F-11 |
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. Fair Value (continued)
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.
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 that 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 generally categorized in Level I or Level 2 of the fair value hierarchy. As of December 31, 2017 and 2016, 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. U.S. treasury obligations are categorized in Level 2 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, bond, 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, 2017 and 2016, 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, 2017 and 2016.
| F-12 |
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, 2017 and December 31, 2016:
| December 31, 2017 | Level 1 | Level 2 | Level 3 | Balance as of December 31, 2017 | |||||||||||||
| Assets | |||||||||||||||||
| Futures contracts (1) | $ | 555,830 | $ | – | $ | – | $ | 555,830 | |||||||||
| U.S. Government agency bonds and notes | – | 15,431,408 | – | 15,431,408 | |||||||||||||
| Corporate notes | – | 7,965,246 | – | 7,965,246 | |||||||||||||
| Total Assets | $ | 555,830 | $ | 23,396,654 | $ | – | $ | 23,952,484 | |||||||||
| Liabilities | |||||||||||||||||
| Futures contracts (1) | $ | (139,579 | ) | $ | – | $ | – | $ | (139,579 | ) | |||||||
| December 31, 2016 | Level 1 | Level 2 | Level 3 | Balance as of December 31, 2016 | |||||||||||||
| Assets | |||||||||||||||||
| Futures contracts (1) | $ | 390,796 | $ | – | $ | – | $ | 390,796 | |||||||||
| U.S. Government agency bonds and notes | – | 11,229,798 | – | 11,229,798 | |||||||||||||
| Corporate notes | – | 8,247,751 | – | 8,247,751 | |||||||||||||
| Total Assets | $ | 390,796 | $ | 19,477,549 | $ | – | $ | 19,868,345 | |||||||||
| Liabilities | |||||||||||||||||
| Futures contracts (1) | $ | (238,526 | ) | $ | – | $ | – | $ | (238,526 | ) | |||||||
(1) See Note 7. "Financial Derivative Instruments" for the fair value in each type of contracts within this category.
The Partnership’s policy is to recognize any transfers between Level 1 and Level 2 assets as of the Partnership’s fiscal year-end.
For the years ended December 31, 2017 and 2016, there were no transfers between Level 1 and Level 2 assets and liabilities. For the years ended December 31, 2017 and 2016, there were no Level 3 securities.
| F-13 |
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 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, 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 gain (loss) on other assets and other liabilities denominated in foreign currency 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.
J.P. Morgan Chase Bank, N.A. (the “Custodian”) is the Partnership’s custodian. SG Americas Securities, LLC (the “Clearing Broker”) is the Partnership’s commodity broker. A portion of the Partnership’s assets are held as initial margin or option premiums (in cash or Treasury securities) in the Partnership’s brokerage accounts at the Clearing Broker. The Clearing Broker may convert the Partnership’s cash in U.S. dollar to foreign currency to facilitate the Partnership’s commodity trading activities. At times, the Partnership may carry foreign cash on loan with the Clearing Broker. Any net foreign currency on loan will be recognized in Foreign Currency Due to Broker on the Statements of Financial Condition. The Partnership’s Clearing Broker holds margin balances in a single currency, in which all margin requirements can be satisfied in U.S. dollars. Foreign currency balances can also be used to satisfy margin requirements. As of December 31, 2017 and 2016, the Partnership’s restricted cash balance on the Statements of Financial Condition of $859,249 and $3,040,054, respectively, represents the collateral pledged by the Partnership to satisfy the Clearing Broker’s margin requirements in US Dollars. As of December 31, 2017 and December 31, 2016, the Partnership’s restricted foreign currency balance on the Statements of Financial Condition of $688,780 and $0, respectively, represents the collateral pledged by the Partnership to satisfy the Clearing Broker’s margin requirements in foreign currency. The Partnership’s assets not deposited at the Clearing Broker are deposited with either the Custodian or held in bank cash accounts at Northern Trust Company (and used to pay Partnership operating expenses). For the Partnership’s cash deposited at the Custodian, the Partnership receives cash management services from J.P. Morgan Investment Management Inc. (“JPMIM”).
E. Futures Contracts
The Partnership engages in futures contracts as part of its investment strategy. Upon entering into a futures contract, the Partnership is required to deposit with the broker an amount of cash or cash equivalents equal to a certain percentage of the contract amount. This is known as the “initial margin.” Subsequent payments (“variation margin”) are made or received by the Partnership each day, depending on the daily fluctuations in the value of the contract, and are included in unrealized gain (loss) on futures contracts. Due to broker amounts on the Statements of Financial Condition represent the amount of any short fall in the Partnership’s required cash margin. The Partnership recognizes a realized gain or loss when the contract is closed.
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, 2017 and 2016 are reflected within the Condensed Schedules of Investments.
| F-14 |
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 year. Gains and losses resulting from the translation to U.S. dollars are reported in the Statements of Income (Loss).
G. Cash
The Partnership maintains a custody account with JPMorgan Chase Bank, N.A. 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.
Both restricted cash and restricted foreign currency are held as margin collateral deposits for futures transactions.
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. Offering costs are included in other expenses on the Statements of Income (Loss).
I. Income Taxes
The Partnership is treated as a partnership for U.S. federal income tax purposes. As such, the partners are individually liable for their own distributable share of taxable income or loss. No provision has been made in the accompanying financial statements for U.S., federal, state, or local income taxes.
The Partnership is required to determine whether its tax positions are more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. De-recognition of a tax benefit previously recognized results in the Partnership recording a tax liability that reduces ending partners’ capital. Based on its analysis, the Partnership has determined that it has not incurred any liability for unrecognized tax benefits as of December 31, 2017, 2016 and 2015. 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 2014.
The Partnership recognizes interest and penalties related to unrecognized tax benefits in interest expense and other expenses, respectively. No interest expense or penalties have been recognized as of and the years ended December 31, 2017, 2016 and 2015.
J. Reclassifications
Certain amounts in the 2016 financial statements were reclassified to conform to the 2017 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 Limited Partners (each, a “Limited Partner” and collectively the “Limited 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 (the “Agreement”), as may be amended and restated from time to time. 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.
| F-15 |
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE 2 - PARTNERS’ CAPITAL (CONTINUED)
B. Subscriptions, Distributions and Redemptions
No Limited Partner of the Partnership 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.
Investments in the Partnership are made by subscription agreement, subject to acceptance by the General Partner.
The Partnership is not required to make distributions, but may do so at the sole discretion of the General Partner. A Limited Partner may request and receive redemption of capital, subject to restrictions set forth in the Agreement. The General Partner may request and receive redemption of capital, subject to the same terms as any Limited Partner. The partners may withdraw their interests on a monthly basis upon at least 15 days’ prior written notice, subject to the discretion of the General Partner. No distributions were made for the years ended December 31, 2017, 2016 and 2015.
NOTE 3 - RELATED PARTY TRANSACTIONS
A. General Partner Management Fee
The General Partner receives a monthly management fee from the Partnership equal to 0.104% (1.25% annually) for Class A and Class B, and 0.0625% (0.75% annually) for Institutional Interests of the Partnership's net asset value apportioned to each Partner’s capital account at the beginning of the month, before deduction of any accrued incentive fees related to the current quarter (the “management fee net asset value”). The General Partner may declare any Limited Partner a “Special Limited Partner” and the management fees or incentive fees charged to any such partner may be different than those charged to other Limited Partners. For the years ended December 31, 2017, 2016 and 2015, there were no Special Limited Partners.
Total management fees earned by the General Partner for the years ended December 31, 2017, 2016 and 2015 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, 2017, 2016 and 2015, administrative fees for Class A Interests were $71,570, $60,546 and $57,822, respectively, and administrative fees for Class B Interests were $26,186, $24,309 and $32,566, respectively.
C. Altegris Investments, L.L.C. and Altegris Clearing Solutions, L.L.C.
Altegris Investments, L.L.C. (“Altegris Investments”), an affiliate of the General Partner, is registered as a broker-dealer with the SEC and a Delaware limited liability company. Altegris Clearing Solutions, L.L.C. (Altegris Clearing Solutions), an affiliate of the General Partner and an introducing broker registered with the CFTC, is the Partnership’s introducing broker.
Altegris Investments has entered into a selling agreement with the Partnership whereby it receives 2% per annum as continuing compensation for Class A Interests sold by Altegris Investments that are outstanding at month end. 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 its introducing broker, at a minimum, brokerage charges at a 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.
| F-16 |
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE 3 - RELATED PARTY TRANSACTIONS (CONTINUED)
C. Altegris Investments, L.L.C. and Altegris Clearing Solutions, L.L.C. continued
At December 31, 2017, 2016 and 2015, respectively, the Partnership had charges for brokerage-related services payable to Altegris Clearing Solutions of $12,021, $8,703 and $2,993, respectively, and service fees payable to Altegris Investments of $5,217, $5,432 and $5,155, respectively. The following tables show the fees paid to Altegris Investments and Altegris Clearing Solutions for the years ended December 31, 2017, 2016 and 2015, respectively:
Year ended December 31, 2017 |
Year ended December 31, 2016 |
Year ended December 31, 2015 |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Altegris Clearing Solutions - Brokerage Commission fees | $ | 206,296 | $ | 195,287 | $ | 148,774 | ||||||
| Altegris Investments - Service fees | 65,990 | 62,873 | 70,965 | |||||||||
| Total | $ | 272,286 | $ | 258,160 | $ | 219,739 |
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 pays the Advisor a quarterly incentive fee of 30% of the trading profits. However, the quarterly incentive fee is payable only on cumulative profits achieved from commodity trading (as defined in the Agreement), calculated separately for each partner’s interest. The incentive fee is accrued on a monthly basis and paid quarterly. Incentive fees are reflected in the Statements of Income (Loss).
NOTE 5 - SERVICE FEES
As compensation for the continuing services of the selling agents to the Class A Limited Partners, Class A Interests pay the selling agents an ongoing monthly payment of 0.166% (2% annually) of the net asset value of interests sold by the agents that are outstanding at month-end. As compensation for the continuing services of the selling agents to the Limited Partners holding Institutional Interests, the selling agents may elect the Institutional Interests to pay the selling agents an ongoing monthly payment of 0.0417% (0.50% annually) of the net asset value of Institutional Interests sold by the agents that are outstanding at month-end. For the years ended December 31, 2017, 2016 and 2015, service fees for Class A Interests were $433,670, $369,560 and $352,938, respectively and service fees for Institutional Interests were $286, $0 and $0, respectively.
NOTE 6 - BROKERAGE COMMISSIONS AND CHARGES
The Partnership is subject to monthly brokerage charges equal to the greater of: (A) actual commissions and expenses paid to the Clearing Broker by the Partnership; or (B) an amount equal to 0.125% of the management fee net asset value of all Limited Partners’ month-end capital account balances (1.50% annually) (the “Minimum Amount”).
If actual commissions and expenses paid to the Clearing Broker in a month (in (A) above) are less than the Minimum Amount, the Partnership will pay to the Introducing Broker the difference as payment for brokerage-related services, including, but not limited to, monitoring trade, execution, clearing, custodial and distribution services provided to the Partnership. If actual commissions and expenses paid to the Clearing Broker in a month (in (A) above) are greater than the Minimum Amount, the Partnership pays only the amounts described in (A) above. The Partnership’s payments of brokerage commissions to the Clearing Broker for clearing trades on its behalf, and payments to the Introducing Broker for brokerage-related services, if any, are reflected in the Statements of Income (Loss) as Brokerage Commissions.
| F-17 |
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
_______________
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, as defined in the Derivatives and Hedging Topic of the Accounting Standards Codification (“ASC”), 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.
The following presents the fair value of derivative contracts as of December 31, 2017 and 2016. 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.
| December 31, 2017 | ||||||||||||
Type of Futured Contracts | Asset Derivatives Fair Value | Liability Derivatives Fair Value | Net Fair Value | |||||||||
| Futures Contracts | ||||||||||||
| Currencies | $ | 96,610 | $ | (13,379 | ) | $ | 83,231 | |||||
| Energy | – | (44,184 | ) | (44,184 | ) | |||||||
| Interest Rates | 24,531 | (57,173 | ) | (32,642 | ) | |||||||
| Metals | 316,177 | – | 316,177 | |||||||||
| Stock Indices | 50,354 | (24,843 | ) | 25,511 | ||||||||
| Treasury Rates | 68,158 | – | 68,158 | |||||||||
| $ | 555,830 | $ | (139,579 | ) | $ | 416,251 | ||||||
December 31, 2016
Type of Futured Contracts | Asset Derivatives Fair Value | Liability Derivatives Fair Value | Net Fair Value | |||||||||
| Futures Contracts | ||||||||||||
| Currencies | $ | 1,929 | $ | (23,821 | ) | $ | (21,892 | ) | ||||
| Energy | 54,724 | – | 54,724 | |||||||||
| Interest Rates | 241,292 | (47,917 | ) | 193,375 | ||||||||
| Metals | 12,679 | (13,201 | ) | (522 | ) | |||||||
| Stock Indices | 80,172 | (115,708 | ) | (35,536 | ) | |||||||
| Treasury Rates | – | (37,879 | ) | (37,879 | ) | |||||||
| $ | 390,796 | $ | (238,526 | ) | $ | 152,270 | ||||||
The following presents the trading results of the Partnership’s derivative trading and information related to the volume of the Partnership’s derivative activity for the years ended December 31, 2017, 2016 and 2015.
| F-18 |
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE 7 - FINANCIAL DERIVATIVE INSTRUMENTS (CONTINUED)
The below captions of “Realized” and “Change in Unrealized” correspond to the captions in the Statements of Income (Loss) for gain (loss) on trading derivatives contracts.
| Year Ended December 31, 2017 | ||||||||
| Type of | Change in | |||||||
| Futured Contracts | Realized | Unrealized | ||||||
| Futures Contracts | ||||||||
| Currencies | $ | 326,170 | $ | 105,123 | ||||
| Energy | (611,908 | ) | (98,908 | ) | ||||
| Interest Rates | (2,743,714 | ) | (226,017 | ) | ||||
| Metals | 167,794 | 316,699 | ||||||
| Stock Indices | 5,200,885 | 61,047 | ||||||
| Treasury Rates | 728,801 | 106,037 | ||||||
| $ | 3,068,028 | $ | 263,981 | |||||
For the year ended December 31, 2017, the number of futures contracts closed was 29,414. These closed contract amounts are representative of the Partnership’s volume of derivative activity during the year.
Year Ended December 31, 2016
| Type of | Change in | |||||||
| Futured Contracts | Realized | Unrealized | ||||||
| Futures Contracts | ||||||||
| Currencies | $ | 23,606 | $ | (32,199 | ) | |||
| Energy | (544,703 | ) | 106,068 | |||||
| Interest Rates | 799,159 | 178,356 | ||||||
| Metals | 56,472 | (28,163 | ) | |||||
| Stock Indices | 5,426,982 | (66,432 | ) | |||||
| Treasury Rates | 109,438 | (35,595 | ) | |||||
| $ | 5,870,954 | $ | 122,035 |
For the year ended December 31, 2016, the number of futures contracts closed was 22,156. These closed contract amounts are representative of the Partnership’s volume of derivative activity during the year.
| Year Ended December 31, 2015 | ||||||||
| Type of | Change in | |||||||
| Futured Contracts | Realized | Unrealized | ||||||
| Futures Contracts | ||||||||
| Currencies | $ | 748,092 | $ | 7,759 | ||||
| Energy | 625,869 | (48,024 | ) | |||||
| Interest Rates | 1,091,198 | 28,707 | ||||||
| Metals | 4,887 | 27,641 | ||||||
| Stock Indices | 2,292,699 | 46,033 | ||||||
| Treasury Rates | 918,604 | (295 | ) | |||||
| $ | 5,681,349 | $ | 61,821 | |||||
For the year ended December 31, 2015, the number of futures contracts closed was 31,490. These closed contract amounts are representative of the Partnership’s volume of derivative activity during the year.
| F-19 |
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE 7 - FINANCIAL DERIVATIVE INSTRUMENTS (CONTINUED)
With respect to futures contracts and options on futures contracts, the Partnership has entered into an agreement with the Clearing Broker which grants the Clearing Broker the right to offset recognized derivative assets and derivative liabilities if certain conditions exist, which would require the Clearing Broker to liquidate the Partnership’s positions. These events include the following: (i) the Clearing Broker is directed or required by a regulatory or self-regulatory organization, (ii) the Clearing Broker determines, at its discretion, that the risk in the Partnership’s account must be reduced for protection of the Clearing Broker, (iii) upon the Partnership’s breach or failure to perform on its contractual agreements with the Clearing Broker, (iv) upon the commencement of bankruptcy, insolvency or similar proceeding for the protection of creditors against the Partnership, or (v) upon the dissolution, winding-up, liquidation or merger of the Partnership.
The following table summarizes the disclosure requirements for offsetting assets and liabilities:
| Offsetting the Financial Assets and Derivative Assets | |||||||||||||||||||||
| Gross Amounts Not Offset in the Statements of Financial Condition | |||||||||||||||||||||
| As of December 31, 2017 | |||||||||||||||||||||
| Description | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Statements of Financial Condition |
Net Amounts of Assets Presented in the Statements of Financial Condition | Financial Instruments | Cash Collateral Received (1) | Net Amount | |||||||||||||||
| Futures Contracts | 380,608 | 70,856 | 451,464 | – | – | 451,464 | |||||||||||||||
| Offsetting the Financial Liabilities and Derivative Liabilities | |||||||||||||||||||||
| Gross Amounts Not Offset in the Statements of Financial Condition | |||||||||||||||||||||
| As of December 31, 2017 | |||||||||||||||||||||
| Description | Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Statements of Financial Condition |
Net Amounts of Liabilities Presented in the Statements of Financial Condition | Financial Instruments | Cash Collateral Pledged (1) | Net Amount | |||||||||||||||
| Futures Contracts | (70,856 | ) | 70,856 | – | – | – | – | ||||||||||||||
| F-20 |
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE 7 - FINANCIAL DERIVATIVE INSTRUMENTS (CONTINUED)
| Offsetting the Financial Assets and Derivative Assets | |||||||||||||||||||||
| Gross Amounts Not Offset in the Statements of Financial Condition | |||||||||||||||||||||
| As of December 31, 2016 | |||||||||||||||||||||
| Description | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Statements of Financial Condition |
Net Amounts of Assets Presented in the Statements of Financial Condition | Financial Instruments | Cash Collateral Received (1) | Net Amount | |||||||||||||||
| Futures Contracts | 357,852 | (78,682 | ) | 279,170 | – | – | 279,170 | ||||||||||||||
| Offsetting the Financial Liabilities and Derivative Liabilities | |||||||||||||||||||||
| Gross Amounts Not Offset in the Statements of Financial Condition | |||||||||||||||||||||
| As of December 31, 2016 | |||||||||||||||||||||
| Description | Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Statements of Financial Condition |
Net Amounts of Liabilities Presented in the Statements of Financial Condition | Financial Instruments | Cash Collateral Pledged (1) | Net Amount | |||||||||||||||
| Futures Contracts | (78,682 | ) | 78,682 | – | – | – | – | ||||||||||||||
(1) The Partnership posted additional collateral of $1,548,029 for 2017 and $3,040,054 for 2016 with the Clearing Broker. The Partnership may post collateral due to a variety of factors that may include, without limitation, initial margin or other requirements that are based on notional amounts which may exceed the fair value of the derivative contract.
| F-21 |
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE 8 - FINANCIAL INSTRUMENTS, OFF-BALANCE SHEET RISKS AND UNCERTAINTIES
The Partnership participates in the speculative trading of commodity futures contracts, substantially all of which are subject to margin requirements. The minimum amount of margin required for each contract is set from time to time in response to various market factors by the respective exchanges and interbank market makers. Further, the Clearing Broker has the right to require margin in excess of the minimum exchange requirement. Risk arises from changes in the value of these contracts (market risk) and the potential inability of brokers or interbank market makers to perform under the terms of their contracts (credit risk).
All of the contracts currently traded by the Partnership are exchange traded. The risks associated with exchange-traded contracts are generally perceived to be less than those associated with over-the-counter transactions because, in over-the-counter transactions, the Partnership must rely solely on the credit of its respective individual counterparties. However, in the future, if the Partnership were to enter into non-exchange traded contracts, it would be subject to the credit risk associated with counterparty non-performance. The credit risk from counterparty non-performance associated with such instruments is the net unrealized gain, if any.
The Partnership also has credit risk because the sole counterparty to all domestic futures contracts is the exchange clearing corporation. In addition, the Partnership bears the risk of financial failure by the Clearing Broker. The Partnership's policy is to continuously monitor its exposure to market and counterparty risk through the use of a variety of financial position and credit exposure reporting and control procedures. In addition, the Partnership has a policy of reviewing the credit standing of each clearing broker or counterparty with which it conducts business.
The Partnership has a substantial portion of its assets on deposit with the Custodian in U.S. government agency bonds and notes and corporate notes. Risks arise from investments in bonds and notes due to possible illiquidity and the potential for default by the issuer or counterparty. Such instruments are also sensitive to changes in interest rates and economic conditions.
NOTE 9 - INDEMNIFICATIONS
In the normal course of business, the Partnership enters into contracts and agreements that contain a variety of representations and warranties and which provide general indemnifications. The Partnership’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Partnership that have not yet occurred. The Partnership expects the risk of any future obligation under these indemnifications to be remote.
| F-22 |
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE 10 - FINANCIAL HIGHLIGHTS
The following information presents the financial highlights of the Partnership for the years ended December 31, 2017, 2016 and 2015. This information has been derived from information presented in the financial statements.
| Year ended December 31, 2017 | ||||||||||||
| Class A | Class B | Institutional Interest | ||||||||||
| Total return for Limited Partners | ||||||||||||
| Total return prior to incentive fees | 5.36% | 7.44% | 8.31% | |||||||||
| Incentive fees | (2.31% | ) | (2.32% | ) | (2.57% | ) | ||||||
| Total return after incentive fees | 3.05% | 5.12% | 5.74% | |||||||||
| Ratio to average net asset value | ||||||||||||
| Expenses prior to incentive fees | 4.58% | 2.54% | 1.75% | |||||||||
| Incentive fees | 2.20% | 2.27% | 2.05% | |||||||||
| Total expenses | 6.78% | 4.81% | 3.80% | |||||||||
| Net investment loss (1) | (3.88% | ) | (1.87% | ) | (1.07% | ) | ||||||
| Year ended December 31, 2016 | ||||||||||||
| Class A | Class B | Institutional Interest | ||||||||||
| Total return for Limited Partners | ||||||||||||
| Total return prior to incentive fees | 17.21% | 19.52% | 20.44% | |||||||||
| Incentive fees | (4.25% | ) | (4.40% | ) | (5.04% | ) | ||||||
| Total return after incentive fees | 12.96% | 15.12% | 15.40% | |||||||||
| Ratio to average net asset value | ||||||||||||
| Expenses prior to incentive fees | 4.81% | 2.76% | 1.93% | |||||||||
| Incentive fees | 4.02% | 4.05% | 4.66% | |||||||||
| Total expenses | 8.83% | 6.81% | 6.59% | |||||||||
| Net investment loss (1) | (4.64% | ) | (2.59% | ) | (1.76% | ) | ||||||
| F-23 |
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE 10 - FINANCIAL HIGHLIGHTS (CONTINUED)
| Year ended December 31, 2015 | ||||||||||||
| Institutional | ||||||||||||
| Class A | Class B | Interest | ||||||||||
| Total return for Limited Partners | ||||||||||||
| Total return prior to incentive fees | 14.94% | 17.24% | 18.20% | |||||||||
| Incentive fees | (0.26% | ) | (0.33% | ) | (0.40% | ) | ||||||
| Total return after incentive fees | 14.68% | 16.91% | 17.80% | |||||||||
| Ratio to average net asset value | ||||||||||||
| Expenses prior to incentive fees | 4.87% | 2.86% | 1.85% | |||||||||
| Incentive fees | 0.20% | 0.26% | 0.21% | |||||||||
| Total expenses | 5.07% | 3.12% | 2.06% | |||||||||
| Net investment loss (1) | (4.78% | ) | (2.76% | ) | (1.77% | ) | ||||||
Total return and the ratios to average net asset value are calculated for each class of Limited Partners’ capital taken as a whole. An individual Limited Partner’s total return and ratios may vary from the above returns and ratios due to the timing of their contributions and withdrawals and differing fee structures.
Total return is calculated on a monthly compounded basis.
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| (1) | Excludes incentive fee. |
NOTE 11 - SUBSEQUENT EVENTS
Management of the Partnership evaluated subsequent events through the date these financial statements were available to be issued, and concluded that no events subsequent to December 31, 2017 have occurred that would require recognition or disclosure, except as noted below.
From January 1, 2018 through March 28, 2018, the Partnership had subscriptions of $315,679 and redemptions of $816,947. Management has determined there are no additional matters requiring disclosure.
| F-24 |