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v2.4.0.6
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Jun. 30, 2012
Accounting Policies [Abstract]  
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

 

A. General Description of the Partnership

 

Altegris QIM Futures Fund, L.P. (“Partnership”) was organized as a Delaware limited partnership in June 2009. The Partnership's general partner is Altegris Portfolio Management, Inc. (d/b/a Altegris Funds) ("General Partner"). The Partnership speculatively trades commodity futures contracts, and may trade options on futures contracts, forward contracts and other commodity interests. The objective of the Partnership’s business is appreciation of its assets. It is subject to the regulations of the Commodity Futures Trading Commission (the “CFTC”), an agency of the United States (“U.S.”) government that regulates most aspects of the commodity futures industry; rules of the National Futures Association, an industry self-regulatory organization; and the requirements of commodity exchanges and Futures Commission Merchants (brokers) through which the Partnership trades.

 

B. Methods of Reporting

 

The Partnership’s financial statements are presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported fair value of assets and liabilities, disclosures of contingent assets and liabilities as of June 30, 2012 and December 31, 2011, and reported amounts of income and expenses for the three and six months ended June 30, 2012 and 2011, respectively. Management believes that the estimates utilized in preparing the Partnership’s financial statements are reasonable; however, actual results could differ from these estimates and it is reasonably possible that differences could be material.

 

The accompanying unaudited condensed financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X, promulgated by the U.S. Securities and Exchange Commission (the “SEC”) and, therefore, do not include all information and footnote disclosure required under U.S. GAAP. The financial information included herein is unaudited; however, such financial information reflects all adjustments which are, in the opinion of the General Partner, necessary for the fair presentation of the condensed financial statements for the interim period.

 

C. Fair Value

 

In accordance with the authoritative guidance under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants at the measurement date.

 

In determining fair value, the Partnership uses various valuation approaches. The authoritative guidance under U.S. GAAP establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Partnership.

 

Unobservable inputs reflect the Partnership’s assumption about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:

 

Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Partnership has the ability to access.

 

Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

Level 3 - Valuations based on inputs that are unobservable.

 

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 during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many assets and liabilities. This condition could cause an asset or liability to be reclassified to a lower level within the fair value hierarchy.

 

The Partnership values futures and options on futures contracts at the closing price of the contract’s primary exchange. The Partnership includes futures and options on futures contracts in Level 1 of the fair value hierarchy.

 

The fair value of U.S. government agency bonds and notes is generally based on quoted prices in active markets. When quoted prices are not available, fair value is determined based on a valuation model that uses inputs which include interest-rate yield curves, cross-currency-basis index spreads, and country credit spreads similar to the bond in terms of issue, maturity and seniority. U.S. government agency bonds and notes are generally categorized in Levels 1 or 2 of the fair value hierarchy. There were no fair valued U.S. government agency bonds and notes as of June 30, 2012 and December 31, 2011.

 

The fair value of U.S. Treasury Obligations is generally based on quoted prices in active markets. U.S. Treasury Obligations are generally categorized in Levels 1 of the fair value hierarchy.

 

The fair value of corporate notes is determined using recently executed transactions, market price quotations (where observable), notes spreads or credit default swap spreads. The spread data used are for the same maturity as of the notes. If the spread data does not reference the issuer, then 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 generally 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. There were no fair valued corporate notes as of June 30, 2012 and December 31, 2011.

 

The industry classifications included in the condensed schedule of investments represent the General Partner’s belief as to the most meaningful presentation of the classification of the Partnership’s investments.

 

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 six month period ended June 30, 2012 and the year-ended December 31, 2011.

 

The following table presents information about the Partnership’s assets and liabilities measured at fair value as of June 30, 2012 and December 31, 2011:

 

                      Balance as of  
June 30, 2012   Level 1     Level 2     Level 3     June 30, 2012  
                         
Assets                        
                         
Futures contracts (1)   $ 3,391,150     $ -     $ -     $ 3,391,150  
U.S. Government agency bonds and notes     55,498,392       -       -       55,498,392  
Corporate notes     -       48,107,989       -       48,107,989  
U.S. Treasury obligations     6,764,738       -       -       6,764,738  
                                 
Total Assets   $ 65,654,280     $ 48,107,989     $ -     $ 113,762,269  
                                 
Liabilities                                
                                 
Futures contracts (1)   $ (1,034,122 )   $ -     $ -     $ (1,034,122 )

 

                      Balance as of  
December 31, 2011   Level 1     Level 2     Level 3     December 31, 2011  
                         
Assets                        
                         
Futures contracts (1)   $ 406,872     $ -     $ -     $ 406,872  
U.S. Government agency bonds and notes     57,918,432       -       -       57,918,432  
Corporate notes     -       54,695,241       -       54,695,241  
                                 
Total Assets   $ 58,325,304     $ 54,695,241     $ -     $ 113,020,545  
                                 
Liabilities                                
                                 
Futures contracts (1)   $ (1,807,665 )   $ -     $ -     $ (1,807,665 )

 

(1) See Note 7. "Financial Derivative Instruments" for the fair value in each type of contracts within this category.

 

For the six month period ended June 30, 2012 and the year-ended December 31, 2011, there were no transfers between Level 1 and Level 2 assets and liabilities.

 

D. Investment Transactions and Investment Income

 

Security transactions are recorded on the trade date. Realized gains and losses from security transactions are determined using the identified cost method. Change in net unrealized gain or loss from the preceding period is reported in the Statements of Operations. Brokerage commissions and other trading fees are reflected as an adjustment to cost or proceeds at the time of the transaction. Interest income is recorded on the accrual basis.

 

Gains or losses on futures contracts and options 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 Operations. Brokerage commissions on futures and options on futures contracts include other trading fees and are charged to expense when contracts are opened.

 

E. Futures Contracts

 

The Partnership may engage in futures contracts as part of its investment strategy to hedge against changes in the value of its portfolio securities and in the value of securities it intends to purchase. Upon entering into a futures contract, the Partnership is required to deposit with the broker an amount of cash or cash equivalents equal to a certain percentage of the contract amount. This is known as the “initial margin.” Subsequent payments (“variation margin”) are made or received by the Partnership each day, depending on the daily fluctuations in the value of the contract, and are included in unrealized gain (loss) on futures contracts. The Partnership recognizes a realized gain or loss when the contract is closed.

 

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, which may not correlate with the change in value of the investments that are intended to hedge against. 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 June 30, 2012 and December 31, 2011 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 income.

 

G. Cash

 

A portion of the cash designated as equity in Newedge USA, LLC is restricted and held as margin collateral for futures transactions.

 

The Partnership maintains a custody account with a major financial institution. At times, the Partnership’s cash balance could exceed the insured amount under the Federal Deposit Insurance Corporation (“FDIC”). The FDIC temporarily increased its limit to $250,000 until December 31, 2013. The Partnership has not experienced any losses in such accounts and believes it is not subject to any significant counterparty risk related to its cash account.

 

H. Organization Costs

 

The General Partner has incurred all expenses in connection with the initial organization of the Partnership, totaling approximately $64,000. The General Partner bills the Partnership in monthly installments for such expenses over a sixty-month period beginning in the thirteenth month after the Partnership commenced operations. If the Partnership were to cease operations prior to the end of the sixty month period, the Partnership would not be obligated to pay the General Partner for the unbilled costs.

 

I. 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.

 

J. Income Taxes

 

As an entity taxable as a partnership for U.S. Federal income tax purposes; the Partnership is not itself subject to federal income tax. The Partnership prepares and files calendar year U.S. and applicable state information tax returns and reports to the partners their allocable shares of the Partnership’s income and expenses.

 

The Partnership is required to determine whether its tax positions are more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. De-recognition of a tax benefit previously recognized results in the Partnership recording a tax liability that reduces ending partners’ capital. Based on its analysis, the Partnership has determined that it has not incurred any liability for unrecognized tax benefits as of June 30, 2012 and December 31, 2011. 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 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 June 30, 2012 and December 31, 2011 and for the three and six months ended June 30, 2012 and 2011.

 

The Partnership is subject to income tax examinations by major taxing authorities for all tax years since its inception.