ITEM 1: BUSINESS
(a)
General Development of Business
Altegris QIM Futures Fund, L.P. (the “Partnership”) was organized as a Delaware limited partnership in June 2009 and commenced operations following an initial closing on October 1, 2009. The Partnership is a commodity pool engaged in speculative trading across a broad range of futures contracts and currencies. The Partnership may in the future trade options on futures contracts and forward contracts (together with futures contracts and currencies, “Commodity Interests”).
On December 31, 2014, pursuant to that certain General Partner Admission Agreement dated as of December 30, 2014 among Altegris Advisors, L.L.C. (“Advisors” or the “General Partner”), Altegris Portfolio Management, Inc. (“APM”) and the Partnership, Advisors, a Delaware limited liability company and an affiliate of APM, was admitted as a general partner of the Partnership effective immediately prior to the Transaction (defined below). Pursuant to an internal reorganization of APM, then a general partner of Partnership, and certain affiliated entities, APM merged with and into Advisors on December 31, 2014 (the “Transaction”). By operation of law and pursuant to Paragraph 17 of Partnership’s First Amended and Restated Agreement of Limited Partnership, effective as of July 26, 2010, Advisors then assumed the general partner interest of Partnership previously held by APM.
The 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, 2017, the aggregate net asset value of the Interests in the Partnership before redemptions was $31,382,372. The Partnership operates on a calendar fiscal year and has no subsidiaries.
The Partnership offers three “classes” of Interests: Class A, Class B and Institutional Interests (each, a “Class of Interest”). The Classes of Interests differ from each other only in the fees that they pay and the applicable investment minimums.
(b)
Financial Information About Segments
The Partnership’s business constitutes only one segment for financial reporting purposes - i.e., a speculative “commodity pool.” The Partnership does not engage in sales of goods or services. Financial information regarding the Partnership’s business is set forth in the Partnership’s financial statements, included herewith.
(c)
Narrative Description of Business
The Partnership’s objective is to produce long-term capital appreciation through growth, and not current income.
Predictive Modeling. QIM believes that financial markets are not entirely efficient and that numerous small inefficiencies exist and can be exploited through the prudent use of robust analysis and predictive technologies.
QIM currently employs several thousand quantitative trading models that utilize pattern recognition to predict short-term price movements in global futures markets. All models are tested across large data sets that expose them to a wide range of market, economic, and political environments, as well as a wide range of time frames and interactions. Only those models that prove to be the most robust, statistically significant, and conceptually diverse are used in actual trading. The resultant system of models offers what QIM believes to be reliable signals that guide market timing and trade allocation.
QIM’s trading strategies and models may be revised from time to time as a result of ongoing research and development seeking to devise new strategies and systems as well as to improve current methods. The strategies and systems used by QIM in the future may differ significantly from those currently in use due to changes resulting from this research, and Limited Partners will not be informed of these changes as they may occur.
Risk Management. QIM applies risk management procedures that take into account the price, size, volatility, liquidity, and inter-relationships of the contracts traded. The Partnership’s positions are generally balanced in a manner that allocates approximately equal amounts of measured risk to as many distinct markets as possible and during significant drawdowns in equity, QIM will reduce market exposure by scaling back the Partnership’s overall leverage.
Trading. QIM’s trading is generally approximately 95% systematic and 5% discretionary. All facets of the predictive models, risk management, and trade allocation are fully automated or proceduralized. In this sense, the trading is systematic. Discretion of QIM, however, plays a significant role in the pursuit of improvements to the Program.
QIM has different time horizons for the execution of certain trades. For example, QIM may have certain trades executed at the beginning of the trading day while giving the executing broker limited discretion with respect to other trades.
Markets Traded. QIM currently trades or monitors a broad range of tradable markets in currencies, stock indices, interest rates, energy, grains, softs and metals. QIM may add or delete markets from this universe of tradable markets in its discretion if QIM’s research demonstrates that such an addition or deletion would enhance the program’s performance. All markets are futures markets or interbank currency markets.
QIM seeks to profitably trade each of these markets while taking advantage of the diversification available from such a varied universe of futures contracts. QIM’s trading program often takes opposing long and short positions within the same or related classes of correlated futures, which, taken in conjunction with the effect of diversification across a broad range of contracts, generally results in reduced market exposure than trading a single market with similar leverage.
A substantial portion of the equity in the Partnership’s account is invested in United States (“U.S.”) government and agency securities and other liquid, high-quality instruments at the direction of the Custodian (as defined below). QIM will generally maintain an average margin to equity level of between 0% and 20%. The actual percentage of assets committed to margin at any time may be higher or lower than the target level.
It is expected that between 5% and 20% of the Partnership’s assets generally will be held as initial margin or option premiums (in cash or U.S. Treasury Department (“Treasury”) securities) in the Partnership’s brokerage accounts at its clearing broker, SG Americas Securities LLC (“SGAS”), a futures commission merchant (“FCM”), and available for trading by QIM in Commodity Interests on behalf of the Partnership. 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.
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 2016, 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.
Financial Information About Geographic Areas
The Partnership has no operations in foreign countries although it trades on foreign exchanges and other non-U.S. markets. The Partnership does not engage in sales of goods or services.
ITEM 1A:
ITEM 1A: RISK FACTORS
Not required.
ITEM 1B:
ITEM 1B: UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2:
ITEM 2: PROPERTIES
The Partnership does not own or use any physical properties in the conduct of its business. Employees of the General Partner and its affiliates perform all administrative services for the Partnership from offices located at 1200 Prospect Street, Suite 400, La Jolla, CA 92037.
ITEM 3:
ITEM 3: LEGAL PROCEEDINGS
The Partnership is not aware of any pending legal proceedings to which either the Partnership is a party or to which any of its assets are subject. The Partnership is not aware of any material legal proceedings involving the General Partner or its principals in an adverse position to the Partnership or in which the Partnership has adverse interests. The Partnership has no subsidiaries.
ITEM 4:
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5:
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a)
Market information
There is no trading market for the Interests, and none is likely to develop. Interests may be redeemed or transferred subject to the conditions imposed by the Limited Partnership Agreement.
(b)
Holders
As of February 28, 2017 the Partnership had 426 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 2016:
ITEM 6:
ITEM 6: SELECTED FINANCIAL DATA
Not required.
ITEM 7:
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to “Item 8. Financial Statements and Supplementary Data.” The information contained therein is essential to, and should be read in conjunction with, the following analysis.
(a)
Liquidity
The Partnership’s assets are generally held as cash or cash equivalents, which are used to margin the Partnership’s futures positions and are sold to pay redemptions and expenses as needed. Other than any potential market-imposed limitations on liquidity, the Partnership’s assets are highly liquid and are expected to remain so. Market-imposed limitations, when they occur, can be due to limited open interest in certain futures markets or to daily price fluctuation limits, which are inherent in the Partnership’s futures trading. A portion of the Partnership’s assets not used for margin and held with the Custodian are invested in liquid, high quality securities. Through December 31, 2016 the Partnership experienced no meaningful periods of illiquidity in any of the markets traded by the Advisor on behalf of the Partnership.
(b)
Capital Resources
The Partnership raises additional capital only through the sale of Interests and capital is increased through trading profits (if any) and interest income. The Partnership does not engage in borrowing.
The amount of capital raised for the Partnership should not have a significant impact on its operations, as the Partnership has no significant capital expenditure or working capital requirements other than for capital to pay trading losses, brokerage commissions and expenses. Within broad ranges of capitalization, the Partnership’s trading positions should increase or decrease in approximate proportion to the size of the Partnership.
The Partnership participates in the speculative trading of commodity futures contracts and may trade options on futures contracts and forward contracts, substantially all of which are subject to margin requirements. The minimum amount of margin required for each contract is set from time to time in response to various market factors by the respective exchanges. Further, the Partnership’s FCMs and brokers may require margin in excess of minimum exchange requirements.
All of the futures contracts currently traded by the Advisor on behalf of the Partnership are exchange-traded. The risks associated with exchange-traded contracts are generally perceived to be less than those associated with over-the-counter transactions because, in over-the-counter transactions, the Partnership must rely solely on the credit of its trading counterparties, whereas exchange-traded contracts are generally, but not universally, backed by the collective credit of the members of the exchange. In the future, the Partnership anticipates that it will enter into non-exchange-traded foreign currency contracts and be subject to the credit risk associated with counterparty non-performance.
The Partnership bears the risk of financial failure by SGAS and/or other clearing brokers or counterparties with which the Partnership trades.
(c)
Results of Operations
The Partnership’s success depends primarily upon QIM’s ability to recognize and capitalize on market trends in the sectors of the global commodity futures markets in which it trades. The Partnership seeks to produce long-term capital appreciation through growth, and not current income. The past performance of the Partnership is not necessarily indicative of future results.
Performance Summary
During 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 accrued 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 2016. 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.
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.
During 2015, the Partnership achieved net realized and unrealized gains of $5,304,330 from all trading; gains of $5,305,807 from trading of derivatives including brokerage commissions of $437,363. The Partnership accrued total expenses of $1,284,305, including $68,417 in incentive fees, $358,619 in management fees paid to the General Partner, and $595,555 in service and professional fees. The Partnership earned $27,968 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 2015 is set forth below.
Fourth Quarter 2015. The Partnership experienced a slight gain in October 2015 primarily driven by its long and short futures positions in stock indices. The Partnership also achieved gains in its trading of crude oil contracts. The Partnership’s position in interest rate futures detracted from performance. The majority of the losses in interest rate futures occurred in the last three days of the month, nearly erasing all of the Partnership’s profits for the month. The losses were partially offset by a short position in the Euro. The Partnership experienced a gain in November 2015 driven by gains across all sectors- stock indices, interest rates, currencies, metals, and energy. At the beginning of the month, the Partnership benefitted from short positions in interest rate and foreign currencies since a better than expected October nonfarm payroll number accompanied by hawkish comments from the U.S. Federal Reserve caused a significant selloff in interest rate futures and a rally in the U.S. Dollar. As a result, at the beginning of the month the Partnership experienced gains from trading in interest rate futures contracts and foreign currency contracts, other than the Italian Government Bond. Almost a week later, the Partnership suffered losses from all of its long futures positions in U.S. and European stock indices. The equity market rally near the middle of the month allowed the Partnership to benefit from long positions in stock indices. The Partnership also benefited during the month from short futures positions in metal and energy sectors as global economic weakness pushed commodity prices lower throughout the month. The Partnership experienced a loss in December 2015. The month got off to a rough start when the European Central Bank announced on December 3rd a rate cut and an extension of its asset purchase program, which did not meet market expectations. The Partnership’s long futures positions in European interest rates and short futures positions in currencies performed poorly as those markets corrected. A weaker U.S. Dollar and multi-year lows in the crude oil market put pressure on U.S. and European equity markets, which culminated in a sharp selloff in global equity markets on December 11th. In connection with the selloff, the Partnership sustained substantial losses due to net long positions in stock indices and energies.
Third Quarter 2015. The Partnership experienced a loss in July 2015 primarily from its long and short futures positions in U.S. and European stock indices. The Partnership experienced gains from its short positions in futures contracts on Crude Oil, Brent Oil and Gold as commodity weakness drove these markets lower during the month. The Partnership also benefited from its positions in interest rate futures. At the end of the month as a result of its ongoing market analysis, the Advisor discontinued trading in TOPIX, Gas Oil, Heating Oil, RBOB Gasoline, S&P 400 E-mini, Australian Dollar, Canadian Dollar, Mexican Peso and CBOE Vix contracts. The Partnership achieved a gain in August 2015 driven by profitable positioning in futures contracts on U.S. and European stock indices. On August 11th the PBOC unexpectedly began to devalue the Yuan in a series of moves that would send shockwaves through global financial markets. Fears of an economic slowdown led to a flight to quality, and the Partnership benefitted from both short positions in stock indices and long positions in interest rate futures. Short positions in energy futures contracts detracted from the performance of the Partnership. The Partnership experienced a gain in September 2015 with the bulk of the positive performance coming from short positions in futures on stock indices. At the beginning of the month, the PBOC announced more stringent capital controls resulting in a 10% drop in the price of crude oil. The Partnership was well positioned in advance of the PBOC announcement by having short positions in crude oil contracts. Currencies were the only sector with negative performance during the month, and the Partnership’s positions in currencies detracted from performance.
Second Quarter 2015. The Partnership experienced a gain in April 2015 primarily driven by long positions in futures contracts in the currency sector. The Partnership achieved gains in its trading of futures contracts on the Euro and the British Pound. Performance was also benefited by short positions at the end of the month in the Euro-Bund. The Partnership’s long futures positions in the Hang Seng China Enterprises and Hang Seng and long and short positions in the U.S. treasury futures contributed positively to performance. The Partnership’s short positions in the FTSE China A50 and futures positions on European and U.S. stock indices detracted from performance. The Partnership experienced a slight gain in May 2015. After U.S. Federal Reserve Chairman Yellen’s comments on May 6th that equity market valuations appeared high, the S&P closed at its lowest level in over a month, and the Partnership experienced a loss in the first full week of trading since taking long positions. The Partnership experienced gains from trading during the month in long and short futures positions in the Euro and in short positions in the FTSE China A50. The Partnership experienced mid-month losses in equity market futures, which were more than offset by strong sell signals in European interest rate futures. The Partnership’s gain in June 2015 was almost entirely attributed to trading in fixed income markets with minor gains in stock indices. The Partnership’s long and short positions in interest rate futures, most notably the Euro-Bund, contributed positively to performance. Performance also benefited from short positions in FTSE China A50 futures and in positions in the DJ Euro Stoxx 50. The energy sector was the worst performing sector followed by a small loss in the currency sector. The Partnership’s futures position in crude oil contracts generated the largest losses in the Partnership’s energy sector positions.
First Quarter 2015. The Partnership experience a slight loss in January largely driven by positions in futures contracts on the Euro, energy and European interest rates. Long positions in futures contracts on U.S. Treasuries and short positions in futures contracts in the FTSE China A50 index and the S&P index contributed to performance. Long positions in the Euro abruptly turned negative against a market downturn the week following the Swiss National Bank’s decision to abandon its peg to the Euro. The Partnership’s performance was adversely impacted by long positions in futures contracts in Crude Oil and Brent Oil. Short positions in European interest rates were the largest detractors to performance during the month. Steady long positions in futures contracts on U.S. Treasuries contributed positively to performance throughout the month. The Partnership also benefited from holding short positions in futures contracts on the FTSE China A50 and S&P indices. The Partnership experienced a gain in February driven by gains in all sectors except metals. Global stock markets generally climbed throughout the month, a trend that was profitably exploited by the Partnership’s long positions across most markets. Long positions in the DJ Stoxx 50 and the Dax indices were the largest contributors to performance during the month. The Partnership’s performance also benefited from short positions in the Euro-Bund and long positions in the UK Gilt bond. The Partnership experienced gains on short and long positions in Crude Oil as that market ebbed and flowed several times over the month. Long positions in Gold adversely impacted the Partnership’s performance. Short positions in futures contracts on U.S. Treasuries detracted from performance. The Partnership experienced a loss in March largely driven by losses in currencies, U.S. stock indices and energies. Long positions in futures contracts on the Euro were chiefly responsible for the month’s overall performance, as the Euro declined significantly through mid-month against the Partnership’s long position. Performance was also adversely impacted by long positions in futures contracts on the S&P index early in the month with a mid-month pivot to short positions in the S&P index further degrading performance. Short positions in the Euro-Bund also hurt performance. Performance benefited from both long and short positions in futures contracts on U.S. Treasuries, the FTSE China A50, Dax and DJ Euro Stoxx 50 indices and the energy sector.
(d)
Off-Balance Sheet Arrangements
The Partnership does not engage in off-balance sheet arrangements with other entities.
(e)
Contractual Obligations
Not required.
(f)
Critical Accounting Estimates
The General Partner believes that the Partnership’s most critical accounting estimates relate to the valuation of the Partnership’s assets. Futures and options on futures contracts are valued using the primary exchange’s closing price. U.S. government agency securities are generally valued based on quoted prices. Corporate notes are generally valued at fair value. Security transactions are recorded on the trade date. Realized gains and losses from security transactions are determined using the specific identification cost method. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the date of the statement of financial condition. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S. dollars are reported in income currently.
The Partnership’s financial statements are presented in accordance with U.S. generally accepted accounting principles (U.S. GAAP), which require the use of certain estimates made by the Partnership’s management. Actual results could differ from those estimates. Based on the nature of the business and operations of the Partnership, the General Partner believes that the estimates utilized in preparing the Partnership’s financial statements are appropriate and reasonable, however actual results could differ from these estimates. The estimates used do not provide a range of possible results that would require the exercise of subjective judgment. The General Partner further believes that, based on the nature of the business and operations of the Partnership, no other reasonable assumptions relating to the application of the Partnership’s critical accounting estimates other than those currently used would likely result in materially different amounts from those reported.
ITEM 7A:
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 8:
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements required by this item are included herewith following the Index to Financial Statements and are incorporated by reference into this Item 8.
Because the Partnership is a Smaller Reporting Company, as defined by Rule 229.10(f)(1), the supplementary financial information required by Item 302 of Regulation S-K is not required.
ITEM 9:
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A:
ITEM 9A: CONTROLS AND PROCEDURES
(a) The General Partner, with the participation of the General Partner’s principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Partnership as of the end of the period covered by this annual report, and, based on their evaluation, has concluded that these disclosure controls and procedures are effective.
(b)
Management’s Annual Report on Internal Control over Financial Reporting
Altegris Advisors, L.L.C., the general partner of the Partnership, is responsible for the management of the Partnership. Management of the General Partner (“Management”) is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Partnership’s internal control over financial reporting includes those policies and procedures that:
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership;
•
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Partnership’s transactions are being made only in accordance with authorizations of Management; and
•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnership’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Partnership’s internal control over financial reporting as of December 31, 2016. 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, 2016, 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, 2016 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
ITEM 9B:
ITEM 9B: OTHER INFORMATION
None.
PART III
ITEM 10:
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(a)
Identification of Directors and Executive Officers
(i) The Partnership has no officers, directors, or employees. The Partnership’s affairs are managed by the General Partner (although it has delegated trading and investment authority to the Advisor and administrative duties to Altegris). The General Partner is indirectly owned by AqGen Liberty Holdings LLC (“AqGen”), an entity owned and controlled by (i) private equity funds managed by Aquiline Capital Partners LLC and its affiliates (“Aquiline”), and by Genstar Capital Management, LLC and its affiliates (“Genstar”), and (ii) certain senior management of the General Partner and its affiliates. Aquiline is a private equity firm located in New York, New York, and Genstar is a private equity firm located in San Francisco, California. The General Partner’s managers and executive officers are Martin Beaulieu, Matthew C. Osborne, and Kenneth I. McGuire.
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).
Kenneth I. McGuire (born 1958) is the Chief Operating Officer and a Manager (February 2010 to present), and President of the General Partner. Mr. McGuire also serves as Chief Operating Officer for Services (May 2010 to present). Mr. McGuire also serves as Chief Operating Officer of Altegris Holdings. His duties within the Altegris Companies include supervision of personnel in the software development, information technology, fund operations and futures operations businesses of the Altegris Companies. Mr. McGuire graduated Magna Cum Laude from Hofstra University with a degree in Computer Science/Mathematics and received his MBA with a concentration in Management from Adelphi University.
None of the individuals listed above currently serves as a director of a public company.
(ii)
Identification of Certain Significant Employees
None.
(iii)
Family Relationships
None.
(iv)
Business Experience
See above.
(v)
Involvement in Certain Legal Proceedings.
None.
(vi)
Promoters and Control Persons
Not Applicable.
(b)
Section 16(a) Beneficial Ownership Reporting Compliance
Not Applicable
(c)
Code of Ethics
The Partnership has no employees, officers or directors and is managed by the General Partner. The General Partner has adopted a Code of Ethics that applies to its principal executive officers and certain other persons associated with 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:
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:
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, 2017, the General Partner’s general partner interest in the Partnership was valued at $948, 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, 2017, 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.
ITEM 13:
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The Partnership does not engage in any transactions with the General Partner or its affiliates other than in respect of the services and payment of fees therefor described above in Item 1.
The Partnership paid to the General Partner monthly management fees totaling $333,163 for the year ended December 31, 2016. The Partnership paid to the General Partner administrative fees totaling $7,485 for the year ended December 31, 2016.
The Partnership paid to Altegris monthly continuing compensation of $62,873 for the year ended December 31, 2016. 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 $161,227 for the year ended December 31, 2016. 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, 2016 the Partnership paid monthly brokerage charges of $195,287.
The Partnership has not and does not make any loans to the General Partner, its affiliates, their respective officers, directors or employees or the immediate family members of any of the foregoing, or to any entity, trust or other estate in which any of the foregoing has any interest, or to any other person.
None of the General Partner, its affiliates, their respective officers, directors and employees or the immediate family members of any of the foregoing, or any entity trust or other estate in which any of the foregoing has any interest has, to date, sold any asset, directly or indirectly, to the Partnership.
The Partnership has no directors, officers or employees and is managed by the General Partner. The General Partner is managed by certain of its principals, none of whom is independent of the General Partner.
ITEM 14:
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth (a) the fees billed to the Partnership for professional audit services provided by Ernst & Young LLP, the Partnership’s independent registered public accountant, for the audit of the Partnership’s annual financial statements for the year ended December 31, 2015 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, 2016.
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.
PART IV
ITEM 15:
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements
The financial statements and balance sheets required by this Item are included herewith, beginning after the signature page hereof, and are incorporated into this Item 15.
Exhibits
The following documents (unless otherwise indicated) are filed herewith and made part of this registration statement.
Exhibit Designation
Description
* 3.1
Certificate of Formation of APM - QIM Futures Fund L.P.
** 4.1
Second Amended and Restated Agreement of Limited Partnership of Altegris QIM Futures Fund, L.P.
* 10.1
Agreement with Quantitative Investment Management, LLC
* 10.2
Selling Agency Agreement between APM - QIM Futures Fund L.P. and Altegris Investments Inc.
31.01
Rule 13a-14(a)/15d-14(a) Certifications
32.01
Section 1350 Certifications
*
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.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 30, 2017
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
March 30, 2017
Martin Beaulieu
(Principal Executive Officer)
/s/ Matthew C. Osborne
Chief Investment Officer, Manager
March 30, 2017
Matthew C. Osborne
/s/ Kenneth I. McGuire
President, Chief Operating Officer, Manager
March 30, 2017
Kenneth I. McGuire
(Principal Financial Officer)
(Being the principal executive officer, the principal financial officer and principal accounting officer, and a majority of the managers of Altegris Advisors, L.L.C.)
ALTEGRIS QIM FUTURES FUND, L.P.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
ALTEGRIS QIM FUTURES FUND, L.P.
ALTEGRIS QIM FUTURES FUND, L.P.
AFFIRMATION OF THE COMMODITY POOL OPERATOR
To the Partners of
Altegris QIM Futures Fund, L.P.
To the best of the knowledge and belief of the undersigned, the information contained in this Annual Report for the years ended December 31, 2016, 2015 and 2014 is accurate and complete.
By:
/s/ Kenneth I. McGuire
Altegris Advisors, L.L.C.
Commodity Pool Operator for
Altegris QIM Futures Fund, L.P.
By: Kenneth I. McGuire, Chief Operating Officer
Ernst & Young LLP
One Commerce Square Suite 700
2005 Market Street
Philadelphia, PA 19103
Tel: +1 215 448 5000
Fax: +1 215 448 5500
ey.com
Report of Independent Registered Public Accounting Firm
The General Partner and Limited Partners of Altegris QIM Futures Fund, L.P.
We have audited the accompanying statements of financial condition of Altegris QIM Futures Fund, L.P. (the “Partnership”), including the condensed schedules of investments, as of December 31, 2016 and 2015, and the related statements of income (loss), the statements of changes in partners’ capital (net asset value) and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Partnership’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2016, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Altegris QIM Futures Fund, L.P. at December 31, 2016 and 2015, and the results of its operations, the changes in its partners’ capital and the financial highlights for each of the three years in the period then ended in conformity with U.S. generally accepted accounting principles.
March 30, 2017
ALTEGRIS QIM FUTURES FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2016 and DECEMBER 31, 2015
See accompanying notes.
ALTEGRIS QIM FUTURES FUND, L.P.
CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2016
*
The rate reported is the effective yield at time of purchase.
See accompanying notes.
ALTEGRIS QIM FUTURES FUND, L.P.
CONDENSED SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 2016
See accompanying notes.
ALTEGRIS QIM FUTURES FUND, L.P.
CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2015
*
The rate reported is the effective yield at time of purchase.
See accompanying notes.
See accompanying notes.
ALTEGRIS QIM FUTURES FUND, L.P.
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
See accompanying notes.
ALTEGRIS QIM FUTURES FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
See accompanying notes.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
A.
General Description of the Partnership
Altegris QIM Futures Fund, L.P. (“Partnership”) was organized as a Delaware limited partnership in June 2009. The Partnership's general partner is Altegris Advisors, L.L.C. (the "General Partner"). 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, 2016 and 2015, and reported amounts of income and expenses for the years ended December 31, 2016, 2015 and 2014, 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.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C.
Fair Value (continued)
Unobservable inputs reflect the Partnership’s assumption about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1 - Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that the Partnership has the ability to access at the measurement date;
Level 2 - Quoted prices which are not active, or inputs that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and
Level 3 - Prices, inputs or exotic modeling techniques which are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The availability of valuation techniques and observable inputs can vary among assets and liabilities and is affected by a wide variety of factors, including the type of asset or liability, whether the asset or liability is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the asset or liability existed. Accordingly, the degree of judgment exercised by the Partnership in determining fair value is greatest for assets and liabilities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined by the lowest level input that is significant to the fair value measurement.
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Partnership’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Partnership uses prices and inputs that are current as of the measurement date, including prices and inputs during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many assets and liabilities. This condition could cause an asset or liability to be reclassified to a lower level within the fair value hierarchy.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C.
Fair Value (continued)
The Partnership values futures contracts at the closing price of the contract’s primary exchange. The Partnership includes futures contracts in Level 1 of the fair value hierarchy, as they are exchange traded derivatives.
The fair value of U.S. government agency bonds and notes is generally based on quoted prices in active markets. When quoted prices are not available, fair value is determined based on a valuation model that uses inputs 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 bonds are categorized in Levels 1 or 2 of the fair value hierarchy. As of December 31, 2016 and 2015, 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, notes, or single-name credit default swap spreads and recovery rates based on collateral values as key inputs. These valuation methods represent both a market and income approach to fair value measurement. Corporate notes are categorized in Level 2 of the fair value hierarchy; however, in instances where significant inputs are unobservable, they are categorized in Level 3 of the hierarchy. As of December 31, 2016 and 2015, 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, 2016 and 2015.
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, 2016 and December 31, 2015:
(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, 2016 and 2015, there were no transfers between Level 1 and Level 2 assets and liabilities. For the years ended December 31, 2016 and 2015, there were no Level 3 securities.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D.
Investment Transactions and Investment Income
Security transactions are recorded on the trade date for financial reporting purposes. Realized gains and losses from security transactions are determined using the specific identification cost method. Change in net unrealized gain or loss from the preceding period is reported in the Statements of Income (Loss). Brokerage commissions on securities and other trading fees are reflected as an adjustment to cost or proceeds at the time of the transaction. Interest income is recorded on an accrual basis.
Gains or losses on futures contracts are realized when contracts are closed. Net unrealized gains or losses on open contracts (the difference between contract trade price and quoted market price) are reflected in the Statements of Financial Condition. Any change in net unrealized gain or loss from the preceding period is reported in the Statements of Income (Loss). Brokerage commissions on futures contracts include other trading fees and are incurred as an expense when contracts are opened, and are recognized as trading gains and losses.
Net realized gains and losses from foreign currency related transactions represent gains and losses from sales of foreign currencies, sales and maturities of futures contracts in foreign markets, currency gains and losses realized between trade and settlement dates on securities transactions, and the difference between the amounts of interest and foreign withholding taxes recorded on the Partnership’s books and the U.S. Dollar equivalent of the amounts actually received or paid. Net unrealized gain (loss) on foreign currency denominated other assets and liabilities arise from changes in the value of assets, other than investments in securities, and liabilities at fiscal year end, resulting from changes in the exchange rates.
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, 2016 and December 31, 2015, the Partnership’s restricted cash balance on the Statements of Financial Condition of $3,040,054 and $4,225,374, respectively, represents the collateral pledged by the Partnership to satisfy the Clearing Broker’s margin requirements in US Dollars. 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”).
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 2016 and 2015 are reflected within the Condensed Schedules of Investments.
F.
Foreign Currency Transactions
The Partnership’s functional currency is the U.S. dollar; however, it transacts business in currencies other than the U.S. dollar. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the date of the Statements of Financial Condition. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S. dollars are reported in the Statements of Income (Loss).
G.
Cash
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.
Restricted cash is 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.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 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 2013.
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, 2016, 2015 and 2014.
J.
Reclassifications
Certain amounts in the 2015 were reclassified to conform to the 2016 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.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - PARTNERS’ CAPITAL (CONTINUED)
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.
B.
Subscriptions, Distributions and Redemptions
Investments in the Partnership are made by subscription agreement, subject to acceptance by the General Partner.
The Partnership is not required to make distributions, but may do so at the sole discretion of the General Partner. A Limited Partner may request and receive redemption of capital, subject to restrictions set forth in the Agreement. The General Partner may request and receive redemption of capital, subject to the same terms as any Limited Partner. The partners may withdraw their interests on a monthly basis upon at least 15 days’ prior written notice, subject to the discretion of the General Partner. No distributions were made for the years ended December 31, 2016, 2015 and 2014.
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, 2016, 2015 and 2014, there were no Special Limited Partners.
Total Management Fees earned by the General Partner for the years ended December 31, 2016, 2015 and 2014 are shown on the Statements of Income (Loss).
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, 2016, 2015 and 2014, administrative fees for Class A Interests were $60,546, $57,822 and $106,535, respectively, and administrative fees for Class B Interests were $24,309, $32,566 and $73,508, respectively.
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.
Altegris Investments, L.L.C. (“Altegris Investments”), an affiliate of the General Partner, is registered as a broker-dealer with the SEC and effective as of December 31, 2014, was converted from an Arkansas corporation (Altegris Investments, Inc.) to a Delaware limited liability company. For the year ended December 31, 2014, Altegris Futures, L.L.C. (“Altegris Futures”), an affiliate of the General Partner and an introducing broker registered with the CFTC, was the Partnership’s introducing broker. For the years ended December 31, 2016 and 2015, Altegris Clearing Solutions, L.L.C. (Altegris Clearing Solutions), an affiliate of the General Partner and an introducing broker registered with the CFTC, was the Partnership’s introducing broker. On December 31, 2014, Altegris Futures was merged with and into Altegris Clearing Solutions and thereafter dissolved. Altegris Clearing Solutions was the surviving entity (Altegris Futures and Altegris Clearing Solutions are referred to collectively as the “introducing broker” of the Partnership).
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.
At December 31, 2016, 2015 and 2014, respectively, the Partnership had charges for brokerage-related services payable to Altegris Clearing Solutions of $8,703, $2,993 and $29,423 and service fees payable to Altegris Investments of $5,432, $5,155 and $7,777, respectively. The following tables show the fees paid to Altegris Investments and Altegris Clearing Solutions for the years ended December 31, 2016, 2015 and 2014, respectively:
The amounts above are included in Brokerage Commissions and Service Fees on the Statements of Income (Loss), respectively. The amounts shown on the Statements of Income (Loss) include fees paid to non-related parties.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - ADVISORY CONTRACT
The Partnership’s trading activities are conducted pursuant to an advisory contract with Quantitative Investment Management, LLC (QIM) (“Advisor”). The Partnership pays the Advisor a quarterly incentive fee of 30% of the trading profits. However, the quarterly incentive fee is payable only on cumulative profits, calculated separately for each partner’s interest, achieved from commodity trading. The incentive fee is accrued on a monthly basis and paid quarterly. Incentive fees are reflected in the Statements of Income (Loss).
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. However, there were none for the years ended December 31, 2016, 2015 and 2014. For the years ended December 31, 2016, 2015 and 2014, service fees for Class A Interests were $369,560, $352,938 and $635,258, respectively, and service fees for Institutional Interests were $0, $0 and $278, 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.
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, 2016 and 2015. The fair value of derivative contracts is presented as an asset if in a gain position and a liability if in a loss position. Fair value is presented on a gross basis in the table below even though the derivative contracts qualify for net presentation in the Statements of Financial Condition.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - FINANCIAL DERIVATIVE INSTRUMENTS (CONTINUED)
The following presents the trading results of the Partnership’s derivative trading and information related to the volume of the Partnership’s derivative activity for the years ended December 31, 2016, 2015 and 2014.
The below captions of “Realized” and “Change in Unrealized” correspond to the captions in the Statements of Income (Loss) for gain (loss) on trading derivatives contracts.
For the year ended December 31, 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.
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.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - FINANCIAL DERIVATIVE INSTRUMENTS (CONTINUED)
For the year ended December 31, 2014, the number of futures contracts closed was 58,163.
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.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - FINANCIAL DERIVATIVE INSTRUMENTS (CONTINUED)
The following table summarizes the disclosure requirements for offsetting assets and liabilities:
(1)
The Partnership posted additional collateral of $3,040,054 and $4,225,374 for 2016 and 2015, respectively, 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.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - FINANCIAL INSTRUMENTS, OFF-BALANCE SHEET RISKS AND UNCERTAINTIES
The Partnership participates in the speculative trading of commodity futures contracts, substantially all of which are subject to margin requirements. The minimum amount of margin required for each contract is set from time to time in response to various market factors by the respective exchanges. Further, the Clearing Broker has the right to require margin in excess of the minimum exchange requirement. Risk arises from changes in the value of these contracts (market risk) and the potential inability of brokers to perform under the terms of their contracts (credit risk).
All of the contracts currently traded by the Partnership are exchange traded. The risks associated with exchange-traded contracts are generally perceived to be less than those associated with over-the-counter transactions because, in over-the-counter transactions, the Partnership must rely solely on the credit of its respective individual counterparties. However, in the future, if the Partnership were to enter into non-exchange traded contracts, it would be subject to the credit risk associated with counterparty non-performance. The credit risk from counterparty non-performance associated with such instruments is the net unrealized gain, if any.
The Partnership also has credit risk because the sole counterparty to all domestic futures contracts is the exchange clearing corporation. In addition, the Partnership bears the risk of financial failure by the Clearing Broker. The Partnership's policy is to continuously monitor its exposure to market and counterparty risk through the use of a variety of financial position and credit exposure reporting and control procedures. In addition, the Partnership has a policy of reviewing the credit standing of each clearing broker or counterparty with which it conducts business.
The Partnership has a substantial portion of its assets on deposit with the Custodian in U.S. government agency bonds and notes and corporate notes. Risks arise from investments in bonds and notes due to possible illiquidity and the potential for default by the issuer or counterparty. Such instruments are also sensitive to changes in interest rates and economic conditions.
NOTE 9 - INDEMNIFICATIONS
In the normal course of business, the Partnership enters into contracts and agreements that contain a variety of representations and warranties and which provide general indemnifications. The Partnership’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Partnership that have not yet occurred. The Partnership expects the risk of any future obligation under these indemnifications to be remote.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - FINANCIAL HIGHLIGHTS
The following information presents the financial highlights of the Partnership for the years ended December 31, 2016, 2015 and 2014. This information has been derived from information presented in the financial statements.
ALTEGRIS QIM FUTURES FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - FINANCIAL HIGHLIGHTS (CONTINUED)
Total return and the ratios to average net asset value are calculated for each class of Limited Partners’ capital taken as a whole. An individual Limited Partner’s total return and ratios may vary from the above returns and ratios due to the timing of their contributions and withdrawals and differing fee structures.
Total return is calculated on a monthly compounded basis.
(1)
Excludes incentive fee.
NOTE 11 - SUBSEQUENT EVENTS
Management of the Partnership evaluated subsequent events through the date these financial statements were available to be issued, and concluded that no events subsequent to December 31, 2016 have occurred that would require recognition or disclosure, except as noted below.
From January 1, 2017 through March 30, 2017, the Partnership had subscriptions of $1,734,032 and redemptions of $233,018. Management has determined there are no additional matters requiring disclosure.