Amendment to Registration of Securities (General Form) — Form 10 Filing Table of Contents
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‘10-12G/A’ — Amendment to Registration of Securities (General Form)
Securities
to be registered pursuant to Section 12(b) of the
Act: None
Securities
to be registered pursuant to Section 12(g) of the
Act: Limited Partnership
Interests
(Title of Class)
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer o
Accelerated
filer
o
Non-accelerated
filer o (Do
not check if a smaller reporting
company)
Smaller
reporting company x
Table
of Contents
Item
1:
Business
1
Item
2:
Financial
Information
13
Item
9:
Market
Price of and Dividends on the Registrant’s Common Equity and Related
Stockholder Matters
22
Item
11:
Description
of Registrant’s Securities to be Registered
23
Item
13:
Financial
Statements and Supplementary Data
25
Item
15:
Financial
Statements and Exhibits
25
i
WINTON
FUTURES FUND, L.P. (US)
Item
1: BUSINESS
WINTON
FUTURES FUND, L.P. (US)
ORGANIZATIONAL
CHART
The
organizational chart below illustrates the relationships among the various
service providers to Winton Futures Fund, L.P. (US) (the “Partnership”), to
which Altegris Portfolio Management, Inc. (d/b/a APM Funds), an Arkansas
corporation, acts as general partner (“APM Funds “ or the “General
Partner”).
General
Development of Business
The
Partnership is a limited partnership organized under the Colorado Uniform
Limited Partnership Act (the “CULPA”) in March 1999. The
Partnership’s business is the speculative trading and investment in
international futures, options and forward markets. The Partnership
commenced its trading and investment operations in November
1999. Under the Partnership’s First Amended Agreement of Limited
Partnership (the “Partnership Agreement”), 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”) have no
rights to participate in the management of the Partnership. APM Funds
is currently registered as a commodity pool operator (“CPO”) with the Commodity
Futures Trading Commission (“CFTC”) and is a member of the National Futures
Association (“NFA”). The Partnership has retained Winton Capital
Management Limited (the “Advisor”), a United Kingdom company, to act as trading
advisor to the Partnership and to manage the Partnership’s trading and
investment operations. Interests are sold through Altegris
Investments, Inc. (“Altegris Investments”), an affiliate of APM Funds, and
through other non-affiliated broker-dealers. Altegris Investments is
registered with the Securities and Exchange Commission (“SEC”) as a
broker-dealer and is a member of the Financial Industry Regulatory Authority
(“FINRA”) and is also registered with the CFTC as an introducing broker (“IB”)
and commodity trading advisor (“CTA”), and is a member of the NFA. Altegris
Investments also provides administrative services to the
Partnership.
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;
1
·
withdrawal
(including withdrawal after suspension of trading), admitted or court
decreed insolvency or dissolution of the General
Partner;
·
termination
of the Partnership pursuant to the terms of the Partnership Agreement;
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.
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.
As of
June 30, 2008, the aggregate net asset value of the Interests in the Partnership
was $200,263,221. The Partnership operates on a calendar fiscal year
and has no subsidiaries.
Narrative
Description of Business
(i) General
Capital
contributions by a single subscriber for any class of Interest, upon acceptance
of the subscriber as a Limited Partner, represent a single interest in the
Partnership for that subscriber’s respective class of Interest. An
Interest in each class reflects a Partner’s percentage of the Partnership’s net
assets with respect to the class of Interest owned by the
Partner. Although separate classes of Interests are offered, all
capital contributions to the Partnerships are pooled by the Partnership and
traded as a single account. The principal differences among the
separate classes of Interests are based on minimum investment amounts,
corresponding fees and/or distribution channels through which subscribers
purchase Interests. Otherwise, holders of Interests, regardless of
which class, participate pro rata in the profits and losses of the
Partnership and have identical rights, as Limited Partners, under the
Partnership Agreement.
The
Partnership currently offers three classes of Interests – Class A, Class B and
Institutional Interests.
Class A
Interests are generally intended for Limited Partners who purchase Interests
through a broker in an amount of up to $1,499,999.
Class B
Interests are generally intended for Limited Partners who purchase Interests
through a fee-based advisory program in an amount of up to
$1,499,999.
2
Institutional
Interests are generally intended for Limited Partners that (i) initially
purchase at least $1.5 million in Interests regardless of whether they
purchase their Interests through a broker or a fee based advisory program or
that are (ii) entities or individuals (including their affiliates) that in the
aggregate have assets of at least $25 million, or (iii) hedge and commodity
funds. The General Partner, its affiliates and their employees are
eligible to purchase Institutional Interests.
(ii) The
General Partner
The General Partner of the Partnership,
Altegris Portfolio Management, Inc. is an Arkansas corporation formed in 1985 as
Rockwell Futures Management, Inc (“Rockwell”). It has been registered
with the CFTC as a CPO since November 1985, and has been a member of the NFA in
that capacity, since December 1985. In July 2002, all of the
outstanding shares of Rockwell were sold to Altegris Capital, L.L.C. (“Altegris
Capital”) and its name was changed to Altegris Portfolio Management
Inc. In 2007, the General Partner began doing business as “APM
Funds.” APM Funds’ principal office is located at 1202 Bergen
Parkway, Suite 212, Evergreen, Colorado80439 and its telephone numbers there
are 858-875-8725 or 888-351-8485 and its facsimile number is
303-674-0437. APM Funds also maintains an office at 1200 Prospect
Street, Suite 400, La Jolla, California92037 and its telephone number there is
858-459-7040 and its facsimile number is 858-456-9209.
(iii) The
Advisor
Winton Capital Management Limited, a
United Kingdom company, became registered with the CFTC as a CTA in January 1998
and as a CPO in December 1998. It is a member of the
NFA. The Advisor is also authorized and regulated by the United
Kingdom’s Financial Services Authority (FSA). The Advisor was
established in 1997 and specializes in systematic trading using advanced
scientific methods. The Advisor since inception has traded, and
continues to trade, on over 120 futures, options and forwards markets worldwide
pursuant to various proprietary models based on statistical properties of market
behavior.
(iv) The
Trading Program
The
Partnership is designed to produce long-term capital appreciation through
growth, and not current income. APM Funds has selected the Advisor to
trade one of the Advisor’s proprietary trading models, the Winton Diversified
Program (the “Program”), on behalf of the Partnership. Since October
1997, the Advisor has managed 147 client accounts pursuant to the Program, of
which 46 remained open as of January 2008. The Advisor currently has
the authority to trade the Program in all the easily accessible and liquid
commodity interests (comprising international futures, options and forward
markets) that it practically can, which currently consists mainly of commodity
interests that are futures, options and forward contracts and certain
over-the-counter (OTC) products, such as swaps in the following areas: stock
indices, bonds, short term interest rates, currencies, precious and base metals,
grains, livestock, energy and agricultural products.
3
The Advisor’s investment technique in
trading the Program consists of trading a portfolio of more than 100 commodity
interests (subject to regulatory and client constraints) on major commodity
exchanges and forward markets worldwide, employing a computerized, technical,
principally trend-following trading system. This system tracks the
daily price movements and other data from these markets around the world, and
carries out certain computations to determine each day how long or short the
portfolio should be to maximize profit within a certain range of
risk. If rising prices are anticipated, a long position will be
established; a short position will be established if prices are expected to
fall.
The trading methods applied by the
Advisor to trade the Program on behalf of the Partnership are proprietary,
complex and confidential. As a result, the following explanation is
of necessity general in nature and not intended to be exhaustive. The
Advisor plans to continue the research and development of its trading
methodology and, therefore, retains the right to revise any methods or strategy,
including the technical trading factors used, the commodity interests traded
and/or the money management principles applied.
The Program traded by the Advisor
pursues a technical trend-following system. Technical analysis refers
to analysis based on data intrinsic to a market, such as price and
volume. This is to be contrasted with fundamental analysis which
relies on factors external to a market, such as supply and
demand. The Program uses no fundamental factors.
A trend-following system is one that
attempts to take advantage of the observable tendency of the markets to trend
(that is, to move from one price point to another, either higher or lower over a
period of time), and to tend to make exaggerated movements in both upward and
downward directions as a result of such trends. These exaggerated
movements are largely explained as a result of the influence of crowd psychology
or the herd instinct, amongst market participants.
The Advisor developed the Program by
relating the probability of the size and direction of future price movements
with certain indicators derived from past price movements which characterize the
degree of trending of each market at any time.
The Program is
non-discretionary. Trade selection is not subject to intervention by
the Advisor and therefore is not subject to the influences of individual
judgment. As a mechanical trading system, the Program itself embodies
the tools required to analyze market data and direct trades, thus eliminating
the risk of basing a trading program on one indispensable person, and the
Program’s output is rigorously adhered to in trading the portfolio and no
importance is given to any external or fundamental factors.
The Advisor will select the type of
order to be used in executing each trade on behalf of the Partnership and may
use any type of order permitted by the exchange on which the order is
placed. The Advisor may place individual orders for each account it
trades, or a block order for all accounts it trades, in which the same commodity
interest is being cleared through the same clearing broker. In the
latter instance, the Advisor will
4
allocate
trades to individual accounts using a proprietary algorithm. The aim
of this algorithm is to achieve an average price for transactions as close as
mathematically possible for each account. This takes the form of an
optimization process where the objective is to minimize the variation in the
average traded price for each account. On occasion, it may direct the
clearing broker for the accounts to employ a neutral order allocation system to
assign trades. Partial fills will be allocated in proportion to
account size.
The trading strategy and account
management principles of the Program described above are factors upon which the
Advisor will base its trading decisions. Such principles may be
revised from time to time by the Advisor as it deems advisable or
necessary. Accordingly, no assurance is given that all of these
factors will be considered with respect to every trade or recommendation made on
behalf of the Partnership or that consideration of any of these factors in a
particular situation will lessen the risk of loss or increase the potential for
profits.
(v) Use
of Proceeds
In general, the Advisor uses between
10% and 30% of the Partnership’s assets as initial margin or as option premiums,
but depending on market factors, that amount could change
significantly. For example, exchanges will impose, and may increase
margin requirements on, particularly volatile futures contracts, or may reduce
margin requirements on those contracts the trading of which is thought to
require market stimulation. Similarly, exchanges impose margin
requirements on writers of options in amounts based on the margin required for
the futures contract(s) underlying the options, plus an amount substantially
equal to the current premium for the options – which in each case will fluctuate
as exchanges change margin requirements in response to trading in the
markets. All of the Partnership’s assets are available for
margin.
Due to the high degree of leverage
available in the futures markets (the margin deposits required to initiate
individual futures positions typically range from as little as 2% up to no more
than approximately 25% of contract value, and maintenance margins tend to be
significantly lower), the Partnership ordinarily holds futures positions with a
gross value ranging between two times and four times its net asset value, but
may hold positions with a gross value outside this range from time to
time.
The Partnership’s portfolio, as traded
by the Advisor pursuant to the Program, consists primarily of commodity
interests that are futures, options and forward contracts and certain
over-the-counter (OTC) products, such as swaps in the following areas: stock
indices, bonds, short term interest rates, currencies, precious and base metals,
grains, livestock, energy and agricultural products. The percentage
of the Partnership’s assets allocated to any specific type of commodity interest
or contract traded by the Program will vary from time to time.
Between 10% and 30% of the
Partnership’s assets generally is deposited in the Partnership’s brokerage
accounts, currently at Newedge USA, LLC (“Newedge”), the Partnership’s clearing
broker, and/or Newedge Alternative Strategies, Inc. (“NAST”)
5
(which
may from time to time execute spot and other over-the-counter foreign exchange
transactions as a counterparty to the Partnership), and is available for trading
by the Advisor. 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 the Advisor pursuant to the Program. Newedge maintains the
Partnership’s assets in cash or Treasury securities and credits the Partnership
with interest on those assets.
A portion of the Partnership’s assets
is deposited in an account in the custodial department of The Northern Trust
Company, and invested in U.S. government securities, commercial paper and/or
other types of high quality interest-bearing obligations at the direction of
Horizon Cash Management, L.L.C. (“Horizon”). Horizon is registered
with the SEC as an investment adviser. Horizon may use sub-advisors
to attempt to increase yield. Horizon receives fees for its
services.
The balance of the Partnership’s assets
is deposited in bank accounts at Wilmington Trust Corporation and is used to pay
Partnership operating expenses. The percentage of the Partnership’s
assets deposited with various firms is subject to change in the General
Partner’s sole discretion.
Charges
The Partnership pays all of its ongoing
liabilities, expenses and costs, including the charges described in the table
below. Additional explanation of certain terms used in the chart
below immediately follows it.
Fees
Paid by the Partnership to Certain Entities
Entity
Form
of Compensation
Amount
of Compensation
APM
Funds
Management
fee
Class A
Interests: 0.104% of the management fee net asset value
of the capital account balances of all Class A Interests (1.25% per
annum).
Class B
Interests: 0.104% of the management fee net asset value
of the capital account balances of all Class B Interests (1.25% per
annum).
Institutional Interests:
0.0625% of the management fee net asset value of the capital
account balances of all Institutional Interests (0.75% per
annum).
Altegris
Investments, other selling agents and other appropriately registered
persons
Selling
commissions and continuing compensation
Class
A Interests: 0.166% of the month-end net asset value apportioned to each
Class A Interest sold by selling agents (2% per annum). Net asset value as
used in this computation is prior to any adjustment for subscriptions or
redemptions effective for the end of the
month.
6
Class
A, B & Institutional Interests: Unless waived by a selling agent in
whole or in part, a selling agent may charge a commission which will be
paid by the subscriber to the selling agent in an amount up to 3% of the
value of the Interests purchased. Any commission, if charged, will not be
included as part of a subscriber’s capital contribution to the
Partnership.
The
Advisor
Management
Fee
Incentive
fee
0.083%
of the management fee net asset value (described below) of the capital
account balances of all Interests (1.0% per annum).
20%
of quarterly trading profits applicable to each Class of Interests is paid
to the Advisor.
Newedge
and NAST
Brokerage
commissions, fees and interest income
Brokerage
commission charges of $9.75 per round-turn for trades on both U.S.
exchanges and most foreign exchanges. Brokerage commissions for
certain contracts on some foreign exchanges may be substantially
higher. Transaction fees for spot and forward currency trades
are at the rate of $25.00 per USD $1 million or foreign currency
equivalent traded. Certain additional charges may also
apply. Commission rates per round-turn charged by clearing
brokers other than Newedge, if utilized by the Partnership, may differ and
could be higher. Newedge and/or NAST retain a portion of the
interest income earned on the Partnership’s assets.
Altegris
Investments (as Introducing Broker)
Brokerage
commissions, transaction fees and interest income
Newedge
and/or NAST will pay Altegris a portion of the brokerage commissions and
transaction fees received from the Partnership (approximately 0.30% of the
Partnership’s net asset value per annum). They will also pay
Altegris Investments a portion of the interest income received on the
Partnership’s assets (approximately 0.20% of the Partnership’s net asset
value per annum).
APM
Funds and various service providers
Periodic
operating expenses, fixed administrative fee and other
expenses
Actual
operation expenses incurred by the Partnership. A fixed
administrative fee is charged to Class A and Class B Interests equal to
0.0275% of the management fee net asset value of the capital account
balance of all Class A and Class B Interests from June 2008 forward, which
fee is payable to APM Funds to help defray the ongoing expenses of
operating the Partnership (0.333% per annum).
7
Extraordinary
expenses
Not
subject to estimate, none to date.
“Management fee net asset value” means
the net asset value apportioned to each Partner’s capital account at the
beginning of the month, before deduction for any accrued incentive fees related
to the current quarter.
“Net asset value” means the
Partnership’s total assets less total liabilities, determined according to the
following principles, and where no such principle is governing, then on the
basis of generally accepted accounting principles, consistently
applied. Net asset value includes any unrealized profit or loss on
open commodity interest positions. All open commodity interest
positions are valued at their market value which means the settlement price
determined by the exchange on which the trade is made or the most recent
appropriate quotation supplied by the Partnership’s broker or banks through
which the trade is made. If there are no trades on the date of the
calculation, the contract will be valued at the nominal settlement price as
determined by the exchange. U.S. Treasury bills (not futures
contracts thereon) are carried at cost plus accrued interest.
“Trading profits” (for purposes of
calculating incentive fees paid by the Partnership to the Advisor only) during a
calendar quarter means: cumulative realized and change in unrealized profits and
losses during the quarter which result from the Advisor’s trading (over and
above the aggregate of previous period profits, if any, as of the end of any
prior quarter); less brokerage commissions and fees.
“Incentive
fees” paid to the Advisor on trading profits are accrued for purposes of
calculating net asset value only. Incentive fees are calculated
separately for each Partner’s Interest. If trading profits for a
quarter as to an Interest are negative, such losses shall constitute a
“Carryforward Loss” for the beginning of the next quarter. No
incentive fees are payable as to any Interest until future trading profits as to
that Interest for the following quarters exceed any Carryforward
Loss. Therefore, the Advisor will not receive an incentive fee unless
it generates new trading profits for an Interest. An incentive fee
will not be refunded by virtue of subsequent losses. If a Partner makes a
partial redemption from the Partnership when there is a Carryforward Loss with
respect to its Capital Account, the amount of the Carryforward Loss for such
Partner will be reduced for future periods by the ratio obtained by dividing the
amount of the redemption by such Partner’s Capital Account prior to such
redemption. If all or some of a Partner’s Interest is redeemed at any
time other than on a calendar quarter month-end, the effective date of such
redemption will be treated as a calendar quarter month-end for purposes of
determining the amount of such incentive fee and the definition of trading
profits, and the applicable incentive fee at such time, will be charged to the
redeeming Partner in the proportion that the redeemed Interest bears to such
Partner’s total Interest immediately before the redemption.
8
The terms of the Partnership Agreement
allow the General Partner, in its sole discretion, to charge fees to certain
Limited Partners that differ from the fees generally applicable to holders of
Class A, Class B and Institutional Class Interests. The specific
circumstances under which the General Partner may exercise such discretion are
varied, and could include, but are not limited to, consideration as to the type
of investor, size of investment and/or commitment for future additional
investments. Any determination to charge a different fee to certain
Limited Partners does not affect fees charged to other Limited
Partners.
Conflicts
of Interest
APM Funds has not established any
formal procedures to resolve conflicts of interest. APM Funds
attempts to monitor these conflicts but does not assure that these conflicts
will not, in fact, result in adverse consequences to the
Partnership.
Relationship between APM
Funds and Altegris Investments
APM Funds and Altegris Investments are
subsidiaries of the same holding company, Altegris Capital. As
general partner, APM Funds is responsible for, among other things, selecting the
Partnership’s commodity broker and selling agents. Altegris
Investments is one of the selling agents for the Partnership. As a
selling agent for the Partnership, Altegris Investments receives continuing
compensation from the Partnership in the form of a monthly fee allocable to the
outstanding Class A Interests it sells, and may also receive selling
commissions. Altegris Investments may also receive from APM Funds a
portion of its management fees. Altegris Investments may remit all or
a portion of the selling commissions, continuous compensation and/or management
fees that it receives from the Partnership or APM Funds to its principals who
are also principals of APM Funds. As a result, APM Funds and its
principals have a conflict of interest between their fiduciary duty to the
Partnership to select selling agents that may act in the Partnership’s best
interest and their interest, financial and otherwise, in having Altegris
Investments act in such capacity for the Partnership. In addition,
APM Funds is responsible for selecting the Partnership’s trading
advisor. Because Altegris Investments, an affiliate of APM Funds,
acts as an IB to Newedge and receives a portion of the brokerage commissions
paid to Newedge and foreign exchange transaction fees paid to NAST by the
Partnership, APM Funds has a conflict of interest between its interest in
selecting the best trading advisor for the Partnership and its interest in
selecting a trading advisor that may trade more frequently through Newedge (or
another clearing broker for which Altegris Investments may act as IB for in the
future) or NAST and in turn generate higher commission income for APM Funds’
affiliate, Altegris Investments. In addition, Altegris Investments
receives a portion of the interest income earned on the Partnership’s
assets. The terms upon which Altegris Investments renders services to
the Partnership and receives commissions, interest and continuing compensation
were not negotiated at arm’s length.
9
Altegris
Investments Acts as the Partnership’s Introducing Broker
Altegris Investments is an IB to
Newedge and has introduced the Partnership’s account to Newedge, which clears
the Partnership’s futures trades. Its affiliate, NAST, executes
foreign exchange, spot and other over-the-counter transactions with the
Partnership, as principal. As such, Newedge pays Altegris Investments
a portion of the brokerage commissions that are paid to it by the Partnership
and NAST pays a portion of the transaction fees it receives (approximately 0.30%
of the Partnership’s net asset value per annum) and a portion of the interest
income that Newedge earns on the Partnership’s assets (approximately 0.20% of
the Partnership’s net asset value per annum). Although the portion of
the brokerage commissions paid by Newedge, and transaction fees by NAST, to
Altegris Investments on the Partnership’s trading was negotiated by APM Funds,
the brokerage commission and transaction fee rate paid by the Partnership to
Newedge and NAST was determined by APM Funds without
negotiation. Similarly the percentage of the interest income paid by
Newedge to Altegris Investments was negotiated by APM Funds. There is
no guarantee that the commission rates the Partnership pays are the lowest rates
available or that the Partnership might not receive more interest income from
another futures commission merchant (“FCM”). In fact, certain other
accounts of the Advisor, Newedge (and its affiliates), NAST and Altegris
Investments pay lower brokerage commission and transaction rates than those paid
by the Partnership. Future arrangements with clearing brokers other
than Newedge, if entered into by the Partnership, could raise similar or
different conflicts of interests, depending on the particular nature of any such
arrangements.
Selling Agents and
Continuing Compensation
Selling agents, including Altegris
Investments, are engaged by the Partnership. Selling agents receive
continuing compensation based on the Interests sold by them that remain invested
in the Partnership as of the end of each month. Consequently, when
advising clients whether to redeem their Interests, selling agents have a
conflict of interest between maximizing the compensation they receive from the
Partnership and giving financial advice to their clients that the selling agents
believe to be in such clients’ best interests.
Other Investment Products
and Customers/Compensation
Because APM Funds (an affiliate of
Altegris Investments) acts as the Partnership’s general partner, and receives
fees for its services in addition to those received by Altegris Investments for
sales, the overall fees received by APM Funds and Altegris Investments could be
higher than fees received by Altegris Investments for the sales of products for
which it acts only as a selling agent. Accordingly, Altegris
Investments may have an incentive to offer and sell Interests in the Partnership
instead of other products. Altegris Investments may pay its
registered representatives a higher level of compensation to sell Interests in
the Partnership than it pays such representatives to sell other products, which
would provide an incentive to sell Interests in the Partnership rather than
other investment products.
10
Other
Commodity Pools
APM Funds
acts as the general partner for other pools. It may have a financial
incentive to favor those pools (or others it may form in the future) over the
Partnership, for example if those other pools pay higher fees to APM Funds
than the Partnership.
Possible
Effects of Competition
Because other traders may use trading
strategies similar to those of Winton, there may be competition for the same
commodity interests. Accounts currently managed by the Advisor seek
execution of trading orders similar to those of the Partnership. In
addition, the Advisor, APM Funds, Altegris Investments, Newedge, NAST and their
affiliates may trade for their own accounts or the accounts of their
principals. Accounts managed by the Advisor and its principals are
aggregated for purposes of applying speculative position limits. If
those limits apply, the Partnership’s trading patterns could
change. It is possible that those persons may take positions either
similar or opposite to or ahead of positions taken by the Partnership and may
compete with the Partnership for commodity positions. It is also
possible that Newedge or NAST may have orders for certain trades from the
Partnership and other accounts, including other pools operated by APM Funds, the
Advisor or their affiliates, and the Partnership’s trades may be executed at
more or less favorable prices. CFTC regulations require that Newedge
transmit all orders to the floor in the order in which they are received
regardless of the source. In addition, CFTC regulations prohibit
commodity brokers from using knowledge of the Partnership’s trades for their or
their other customers’ benefit.
Other Activities of Newedge and its
Affiliates
As
part of their commodity brokerage services, certain account executives of
Newedge, NAST and/or their affiliates offer and service discretionary and
non-discretionary commodity account programs for customers. The
selection of commodity trades for such accounts is made by the particular
account executive handling the accounts or by a CTA engaged for such
purpose. Neither Newedge nor NAST, and their respective employees and
affiliates, will perform any advisory services for the
Partnership.
Certain officers, directors, employees
and principals of APM Funds, Altegris Investments, Newedge, NAST and the Advisor
serve, and may serve, on various committees and boards of U.S. commodity
exchanges and the NFA. In that capacity, they may assist in
establishing rules and policies, and have a fiduciary duty to the exchanges and
NFA, and are required to act in their best interests, even if the action may be
adverse to that of the Partnership.
Allocation of Profit and
Loss
Each Limited
Partner and the General Partner has a capital account, the initial balance of
which consists of such Partner’s original capital contribution to the
Partnership. The Partnership has established procedures in its
Partnership Agreement for allocating net profit and net loss to each Partner’s
capital account. Net profit and net loss
11
for a
period, and other adjustments to a capital account, are allocated to each
Partner’s capital account in proportion to the capital account balances of all
Partners holding the same Class of Interest as such Partner, as of the beginning
of each month. Adjustments to Partners’ capital accounts will be made
in respect of additions or withdrawals of capital, distributions, allocations of
net profit or net loss, allocations of profits or losses for federal income tax
purposes, and deductions for applicable management fees, incentive fees,
continuing compensation, administrative fees (in varying amounts depending on
the class of Interest acquired), and all other items chargeable against Partner
capital accounts pursuant to the terms of the Partnership
Agreement.
Reporting
Pursuant to current CFTC Regulations,
the Partnership delivers a statement of account describing the Partnership’s
monthly performance. In addition, the Partnership delivers an annual
audited financial statement containing certified financial statements prepared
by an independent accounting firm as well as year-end tax information about the
Partnership as necessary for Limited Partners to prepare their annual federal
income tax returns within ninety (90) days of the Partnership’s fiscal year
end.
Items 101(h)(4)(i) through (xiii) and
(x) and (xi) are not applicable.
Regulation
APM Funds is registered with the CFTC
as a CPO and the Advisor is registered with the CFTC as a CPO and
CTA. Both APM Funds and the Advisor are also members of the
NFA.
The CFTC may suspend a CPO’s or CTA’s
registration if it finds that its trading practices tend to disrupt orderly
market conditions or in certain other situations. In the event that
the registrations of APM Funds or the Advisor were terminated or suspended, APM
Funds or the Advisor, as applicable, would be unable to continue to manage the
business of the Partnership. Should APM Funds’ or the Advisor’s
registration be suspended, termination of the Partnership might
result. In addition to such registration requirements, the CFTC and
certain commodity exchanges have established limits on the maximum net long or
net short positions that 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 Advisor is regulated by the
Financial Service Authority of the United Kingdom.
All persons who provide services
directly to the Partnership (as opposed to those persons who provide services
through a third-party service provider) are employed by Altegris Investments.
The Partnership has no employees of its own.
12
Item
2: FINANCIAL
INFORMATION
(a) Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Reference is made to “Item 13:
Financial Statements and Supplementary Data.” The information
contained therein is essential to, and should be read in conjunction with, the
following analysis.
(i) Performance
Summary
The tables that follow represent the
actual performance of the Partnership for the previous five years and through
the first eight months of 2008, net of fees and expenses as described
below. The performance in the tables is calculated on an accrual
basis in accordance with the rules of the CFTC. Past performance is
not necessarily indicative of future performance.
In June 2008, the Partnership announced
several changes to its fee and class structure effective as of July 1, 2008,
including re-classifying former “Class B” Interests to be “Institutional”
Interests, increasing fees applicable to “Class A” Interests, and
offering new “Class B” Interests with a fee structure different from
that of “Class A” and “Institutional” Interests.
The Partnership began trading in
November 1999 with a single class of interests (the “Original
Interests”). On June 17, 2005, the Partnership divided the Original
Interests into two classes - Class A Interests and Class B Interests (now
re-classified as “Institutional Interests”). These Interests differed
from the Original Interests, and each other, only in the fees that they
paid. Prior to June 2005, Original Interests were subject to a 1%
annual management fee, 2% annual continuing compensation, 20% incentive fee
based on quarterly Trading Profits (if any) and commissions of $14 per round
turn trade on US and most non-US exchanges. From June 2005 through
June 2008, Class A Interests were subject to a 0.75% annual management fee, 2%
annual continuing compensation, a 20% incentive fee based on quarterly Trading
Profits (if any) and commissions of $9.75 per round turn trade on US and most
non-US exchanges. From June 2005 through June 2008, Class B Interests
(now re-classified as “Institutional Interests”) were subject to a 1.75% annual
management fee, a 20% incentive fee based on quarterly Trading Profits (if any)
and commissions of $9.75 per round turn trade on US and most non-US
exchanges.
Effective July 1, 2008, Class A
Interests are subject to a 2.25% annual management fee, 2% annual continuing
compensation, a 20% incentive fee based on quarterly Trading Profits (if any),
an annual fixed administrative fee of 0.33% and commissions of $9.75 per round
turn trade on US and most non-US exchanges. The increased fees
currently applicable to Class A Interests do not apply to Class A Interests
issued prior to July 1, 2008. Newly-designated Class B Interests, as
of July 1, 2008, are subject to a 2.25% annual management fee, a 20% incentive
fee based on quarterly Trading Profits (if any), an annual fixed administrative
fee of 0.33% and
13
commissions
of $9.75 per round turn trade on US and most non-US
exchanges. Institutional Interests, as of July 1, 2008, are subject
to a 1.75% annual management fee, 20% incentive fee based on quarterly Trading
Profits (if any) and commissions of $9.75 per round turn trade on US and most
non-US exchanges.
Performance
Tables: January 2003 through August 2008
Class
A
2008
2007
2006
2005
2004
2003
January
3.72%
3.56%
3.76%
-5.49%
2.35%
6.26%
February
7.82%
-6.12%
-3.18%
5.32%
12.09%
12.15%
March
-1.04%
-4.08%
4.18%
4.08%
0.16%
-11.51%
April
-0.93%
5.88%
5.15%
-4.15%
-9.81%
2.04%
May
1.75%
4.58%
-2.86%
5.77%
-0.03%
9.01%
June
4.54%
1.64%
-1.30%
2.04%
-2.99%
-5.34%
July
-5.31%
-1.57%
-0.62%
-2.89%
0.70%
-4.67%
August
-3.33%
-1.05%
4.12%
7.48%
2.47%
0.71%
September
—
6.73%
-1.55%
-6.38%
5.30%
2.89%
October
—
2.18%
1.23%
-3.09%
3.85%
5.74%
November
—
2.30%
2.62%
6.50%
6.70%
-1.78%
December
—
-0.02%
1.61%
-4.66%
-0.56%
8.32%
Compounded
Annual Rate
Of
Return
6.75%
(8 mos)
14.02%
13.46%
3.05%
20.33%
23.39%
Class
B
2008
2007
2006
2005
2004
2003
January
3.80%
3.65%
3.85%
-5.49%
2.35%
6.26%
February
7.91%
-6.05%
-3.10%
5.32%
12.09%
12.15%
March
-0.96%
-4.00%
4.27%
4.08%
0.16%
-11.51%
April
-0.85%
5.97%
5.24%
-4.15%
-9.81%
2.04%
May
1.84%
4.67%
-2.79%
5.77%
-0.03%
9.01%
June
4.62%
1.73%
-1.22%
2.04%
-2.99%
-5.34%
July
-5.15%
-1.49%
-0.54%
-2.81%
0.70%
-4.67%
August
-3.17%
-0.97%
4.21%
7.58%
2.47%
0.71%
September
—
6.83%
-1.47%
-6.31%
5.30%
2.89%
October
—
2.26%
1.31%
-3.01%
3.85%
5.74%
November
—
2.39%
2.71%
6.59%
6.70%
-1.78%
December
—
0.06%
1.69%
-4.58%
-0.56%
8.32%
Compounded
Annual Rate
Of
Return
7.64%
(8 mos)
15.17%
14.58%
3.56%
20.33%
23.39%
14
Institutional
2008
2007
2006
2005
2004
2003
January
3.80%
3.65%
3.85%
-5.49%
2.35%
6.26%
February
7.91%
-6.05%
-3.10%
5.32%
12.09%
12.15%
March
-0.96%
-4.00%
4.27%
4.08%
0.16%
-11.51%
April
-0.85%
5.97%
5.24%
-4.15%
-9.81%
2.04%
May
1.84%
4.67%
-2.79%
5.77%
-0.03%
9.01%
June
4.62%
1.73%
-1.22%
2.04%
-2.99%
-5.34%
July
-5.08%
-1.49%
-0.54%
-2.81%
0.70%
-4.67%
August
-3.10%
-0.97%
4.21%
7.58%
2.47%
0.71%
September
—
6.83%
-1.47%
-6.31%
5.30%
2.89%
October
—
2.26%
1.31%
-3.01%
3.85%
5.74%
November
—
2.39%
2.71%
6.59%
6.70%
-1.78%
December
—
0.06%
1.69%
-4.58%
-0.56%
8.32%
Compounded
Annual Rate
Of
Return
7.79%
(8 mos)
15.17%
14.58%
3.56%
20.33%
23.39%
15
(ii) Capital
Resources
Interests may be offered for sale as of
the beginning, and may be redeemed as of the end, of each month.
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 monies 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 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
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 Partnership’s FCMs and brokers may require
margin in excess of minimum exchange requirements.
All
of the contracts currently traded by the Advisor on behalf of the Partnership
are exchange-traded, although the Advisor is authorized to, and may in the
future, trade over-the-counter contracts. The risks associated with
exchange-traded contracts are generally perceived to be less than those
associated with over-the-counter transactions since, in over-the-counter
transactions, the Partnership must rely solely on the credit of its respective
trading counterparties, whereas exchange-traded contracts are generally, but no
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 nonperformance.
The Partnership bears the risk of
financial failure by Newedge, NAST or other clearing brokers or counterparties
with which it trades.
(iii) 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 withdrawn 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
16
certain
futures markets or to daily price fluctuation limits, which are inherent in the
Partnership’s futures trading. Through June 30, 2008 the Partnership
experienced no meaningful periods of illiquidity in any of the markets traded by
the Advisor on behalf of the Partnership.
(iv) Critical
Accounting Policies
Open
commodity futures contracts are valued at the closing market quotations on the
last business day of the month. Brokerage commissions are accrued on
a full-turn basis. Income and losses from the Partnership are
allocated pro rata among the Partners based on their respective capital accounts
as of the end of each month in which the items accrue pursuant to the terms of
the Partnership Agreement.
The Partnership itself is not subject
to federal income taxes; each Partner reports its allocable share of income,
gain, loss, deductions or credits on its own income tax return. The
Partnership accounts for subscriptions, allocations and redemptions on a per
Partner capital account basis.
Cash
equivalents (with the exception of certain instruments purchased under an
agreement to resell) are stated at amortized cost, which approximates fair
value. Instruments purchased under agreements to resell (with overnight
maturities) are collateralized by U.S. Government and agency obligations and
carried at the amounts at which the instruments will subsequently be resold plus
accrued interest.
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 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 accounting
principles generally accepted in the United States of America, which require the
use of certain estimates made by the Partnership’s management. Actual
results could differ from those estimates. The General Partner
believes, based on the nature of the business and operations of the Partnership,
that the estimates or assumptions relating to the application of the
Partnership’s critical accounting policies are reasonable and that the use of
other subjective assumptions or estimates would not be likely to result in
materially different results than those presented in the Partnership’s financial
statements.
(v) Off-Balance
Sheet Arrangements
The
Partnership does not engage in off-balance sheet arrangements with other
entities.
(vi) Results
of Operations
17
The
Partnership’s success depends primarily upon the Advisor’s ability to recognize
and capitalize on market trends in the different and varied sectors of the
global commodity futures market in which it trades.
2008
Second Quarter
2008. The Partnership was profitable during the second quarter
of 2008. Trading of commodity futures contracts by the Advisor on
behalf of the Partnership achieved net realized and unrealized gains of
$13,483,051, while brokerage commissions of $142,193 were
incurred. During the second quarter, the Partnership accrued total
expenses of $3,732,695, including $2,686,346 in incentive fees, $530,354 in
management fees paid to the General Partner, and $435,581 in service and
professional fees. The Partnership earned $958,284 in interest income
during the second quarter of 2008.
April
2008 saw performance dip slightly negative, although energy was a stand-out
performer, with the crude oil, unleaded gasoline and natural gas markets all
contributing. It was also a profitable month in
grains. However, the U.S. Dollar became somewhat range-bound while
equities rallied against the Partnership’s overall small net short
position. Low exposure to considerable gyrations in short-term
interest rates had little effect, but long-term bonds proved less
successful. Performance was positive in May of 2008, following small
declines in March and April. Five out of the nine sectors traded
showed positive returns. The continued boom in crude oil prices dominated the
month, and gold in particular resumed its uptrend, as did a number of base
metals. Grains were mixed, tending to net against each other. Small
profits in short-term interest rates and currencies were offset by equivalent
losses in bonds and equities. The Partnership’s position in equities
remained small during the period. June of 2008 saw a sharp decline in
global equity markets, as a technical bear market looked to be in place in the
United States. However, the Partnership was well positioned to
benefit from these conditions, with equity indices accounting for nearly half
the month’s positive return. Commodity markets, in particular crude
oil and grains, made significant contributions for the month.
First Quarter
2008. The Partnership was profitable during the first quarter
of 2008. Trading of commodity futures contracts by the Advisor on
behalf of the Partnership achieved net realized and unrealized gains of
$14,601,082, while brokerage commissions of $112,921 were
incurred. During the first quarter, the Partnership accrued total
expenses of $3,583,236, including $2,930,377 in incentive fees, $404,467 in
management fees paid to the General Partner, and $248,392 in service and
professional fees. The Partnership earned $974,544 in interest income
during the first quarter of 2008.
January of 2008 saw a sharp decline in
equities mirrored by rises in bonds and interest rate futures. The
Partnership’s exposure to the equity indices was small and decreased during the
month, and was more than offset by long positions in interest rate futures that
were the source of a major portion of the Partnership’s
profits. Sharply lower U.S. interest rates and rises in gold and
agricultural and other commodity also benefited the portfolio’s established long
positions, while offsetting losses were recorded in the energy
sector. Commodity markets experienced renewed strength in
February. The
18
Partnership’s
long positions in grains, metals and energy all made positive contributions,
while the U.S. Dollar renewed its overall decline towards the end of the month,
causing the Partnership to profit from its long exposure to the
Euro. The Partnership lost ground in March against a background of
acute and rising volatility across many markets and tightened
liquidity. Profits in March came from the currency and grain sectors,
while intra-month spikes in gold and energy prices caused losses for the
Partnership’s metal and energy sector positions. Trading in most
other sectors was flat, with losing sectors effectively cancelling out
profitable ones.
2007
During 2007, the Partnership achieved
net realized and unrealized gains of $13,737,417 from its trading of commodity
futures contracts and incurred brokerage commissions of $673,161. The
Partnership accrued total expenses of $4,686,783, including $2,765,664 in
incentive fees, $1,170,329 in management fees paid to the General Partner, and
$750,790 in service and professional fees. The Partnership earned
$3,810,719 in interest income during 2007. An analysis of the trading
gains and losses (not adjusted for fees) by market sector for the year is as
follows:
The
Partnership generated strong gains for the year as trading by the Advisor on
behalf of the Partnership generated profits in all but one of the market sectors
traded in 2007. The strongest gains were made in trading in
currencies, grains, interest rate markets and energy sectors, while modest
profits were made in metals, meats and equity index markets. The
Partnership suffered a small loss for the year in trading soft commodity futures
contracts.
Fourth Quarter
2007. The continuing weakening of the U.S. Dollar was the
dominating theme in currency markets during October. This led to
strong gains in both the Partnership’s Euro and British Pound
positions. Other sources of profitable trading included the rally in
crude oil and gold prices, moves which ensured strong performance in the
Partnership’s energy and metals sectors. In November, further credit
market problems, continued housing slow down and increased expectation of
further rate cuts from the Fed caused U.S treasuries to rally, and the
Partnership posted strong sector gains in both long- and short-term interest
rates. Although small losses were posted in the
19
equity
index sector, the results were nonetheless very encouraging particularly in
light of the sharp falls in equity markets around the world. December
saw strong gains in the energy and grain markets offset by losses in major bond
markets. Crude oil prices rallied over the course of December as
fears over inventory levels reappeared. Global bond markets sold off
strongly over the first half of the month, in part due to strong U.S. economic
data, and also as a result of the Fed’s decision to cut rates.
Third Quarter
2007. The main losses for the month of July were posted in the
equity index and interest rate sectors as investors began scaling back their
risk appetite – leading to a 3.6% drop in the S&P 500 Index for July and a
sizeable reduction in expected year-end U.S. interest rates. Currency
markets endured significant volatility in the month of August, with the New
Zealand and Australian Dollars in particular coming under severe
pressure. As a result, currencies posted the biggest loss for the
Partnership in August. This effect was partly offset by strong gains
in the fixed income sector as the markets re-assessed the ripple effects of
continuing trouble in the credit markets. In September, the continued
weakness in the U.S. Dollar led to strong gains in the Partnership’s currency
trades. Similar outperformance was seen in the grain markets, where government
crop reports highlighting global supply constraints supported rising commodity
prices.
Second Quarter
2007. The continued recovery in global equity markets, coupled
with the strength in both the Euro and British Pound currencies were the main
drivers behind the strong in performance in April. In May, equity
markets continued to rally as a combination of merger and acquisition activity
and a growing appetite for risk led to an increased demand for equities across
the globe. This fed into the fixed income markets, as bonds sold off
and short-term interest rate expectations increased in both the United States
and Europe. Market volatility increased in June, leading to more
strong returns for the Partnership in currency markets as the Euro and British
Pound currencies in particular continued to strengthen against the
Dollar. Strong returns were also posted in June due to the
Partnership’s exposure to fixed income markets, as both short- and long-term
interest rate expectations rose.
First Quarter
2007. The early rise in U.S. equity markets and the decline in
crude oil prices led to significant gains in January, along with a surprise
increase in U.K. interest rates, which led to strong performance from short-term
interest rate positions. The steady gains made in early 2007 in
equities index positions and short-term rates were erased in several volatile
trading sessions at the end of February 2007. A sharp drop in the
Chinese stock market sparked a sell-off in global equities which greatly
affected fixed income markets. In late February and early March, the
Partnership’s portfolio experienced high levels of market volatility together
with increased correlation across asset classes. This led to
significantly lower margin to equity and value at risk (“VaR”). As
March progressed, market volatility reduced and a recovery mainly in equity
indices and currencies led to the Partnership finishing above the lows of the
first few days of March. Liquidity continued to remain strong across
all asset classes.
20
2006
During
2006, the Partnership achieved net realized and unrealized gains of $5,465,654
from its trading of commodity futures contracts and incurred brokerage
commissions of $676,866. The Partnership accrued total expenses of
$1,839,947, including $925,800 in incentive fees, $582,575 in management fees
paid to the General Partner, and $331,572 in service and professional
fees. The Partnership earned $1,783,498 in interest income during
2007. An analysis of the trading gains and losses (not adjusted for
fees) by market sector for the year is as follows:
Trading by the Advisor on behalf of the
Partnership generated overall gains for the year based primarily on profits
generated in only three market sectors: equity indices, metals and
currencies. The Partnership suffered small to moderate losses for the
year in the grains, softs, interest rate, meats and energy trading
sectors.
Fourth Quarter
2006. The Partnership made a modest profit in October as
strong equity markets were a central theme. U.S. stock indices
reached record levels and the metals sector enjoyed a similarly bullish
month. Energy prices declined amid volatility. In
November, currencies dominated activity at month end, as the U.S. Dollar came
under significant pressure and foreign exchange volatility increased with the
Euro leading the charge against the U.S. Dollar. This led to strong
gains in the currency sector, along with significant gains in equity index
trading. Losses in November stemmed primarily from the energy sector,
but losses also came from the interest rate sector due to a flattening of the
yield curve and from metals. The equity index sector gained as
equities continued their year long rally in December. The portfolio
experienced profits in the energy sector as well due to declines in crude oil
and heating oil prices, tempered by losses in the interest rate
sector.
Third Quarter
2006. Global markets traded in a relatively low volume
environment for the month of July, while short-term price volatility continued
to create periods of intense activity. Remarks by the Fed led to a
significant rally in fixed income markets as expectations of further rate hikes
receded. The British Pound gained strongly against the U.S.
Dollar. Metals had a quieter July but still continued to exhibit
significant price volatility. The Partnership’s VaR remained at
historically low levels throughout the month of July. Solid gains
were recorded in August in fixed income and currencies
21
against
modest losses in energies. Currencies were the strongest performing
sector as the result of market expectations for EU interest rate rises and poor
economic data from Japan, which also assisted the strong gains in fixed income,
as Japanese bonds surged and U.S. and European bonds moved
higher. Energies posted modest losses as prices fell throughout the
month, while metals posted small gains. The Partnership experienced
solid performance in fixed income during September due to perceptions that the
interest rate cycle had turned in the U.S. Equities also rallied
across Europe and Asia. A combination of factors, including relative
calm in the Middle East and growing crude inventories, led to a strong decline
in the price of oil that caused the Partnership’s energy portfolio to be the
worst performing sector in September. Metals also declined, while
currency markets were range bound.
Second Quarter
2006. In April, the Partnership experienced strong gains led
by the continuing surge in the metals and interest rate sectors, with modest to
small gains in index trading and softs. Currencies were the only
sector to experience moderate losses, with the remaining sectors being either
flat or slightly in the negative. May saw a reversal to the negative
side in several sectors, with the most notable being
currencies. In June, the Partnership’s portfolio experienced an
increase in volatility in global financial markets that led to risk reduction in
portfolios across the board. This resulted in a subsequent decline in
market activity for much of June. Fixed income posted modest losses
as did equity returns Energies produced modest gains as energy futures finished
mostly higher on concern that peak gasoline demand during the holiday period
will strain fuel supplies.
First Quarter
2006. January saw strong gains in equities and metals against
modest losses in fixed income and currency markets. Higher equity and
lower fixed income prices were largely a result of better than expected
sentiment indicators and company earnings reports, with the currency markets
remaining mostly directionless throughout the month. Metal and energy
prices were bolstered by continuing demand from China and the Iranian nuclear
situation. Sugar prices soared as Brazil announced it was directing
sugar cane into the production of ethanol. Currencies were the main
focus of attention in the latter half of February, as the Yen enjoyed strong
buying support. Gains were made in short-term rates as a strong U.S. economy led
to a flattening yield curve. As equity markets continued a bullish
run, the energy sector in February experienced continued
volatility. In March, financial markets were somewhat range bound as
foreign exchange markets in particular enjoyed a period of relative
calm. The majority of portfolio gains were made in the interest rate
and metals sectors.
Item
9: MARKET
PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(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 Partnership
Agreement.
22
(b) Holders
As of September 1, 2008 the Partnership
had 1,544 holders of Interests.
(c) Dividends
APM Funds has sole discretion in
determining what distributions, if any, the Partnership will make to its
investors. To date no distributions or dividends have been paid on
the Interests, and APM has no present intention to make any.
Item
11: DESCRIPTION
OF REGISTRANT’S SECURITIES TO BE REGISTERED
The securities to be registered are
Limited Partner Interests. Each Limited Partner in the Partnership
has a separate capital account.
Dividend
Rights. APM Funds has sole discretion in determining what
distributions of profits and income, if any, are made to
investors. Due to the capital appreciation investment objective of
the Partnership and the fact that Interests may be redeemed monthly (see below),
APM Funds does not anticipate making distributions.
Redemption
Provisions. Limited Partners may require the Partnership to
redeem some or all of their Interest in the Partnership as of the end of any
month on fifteen (15) days’ prior written notice to APM Funds. APM
Funds may declare additional redemption dates upon notice to the Limited
Partners. Redemptions will be paid only if (a) all liabilities,
contingent or otherwise, of the Partnership (except any liability to partners on
account of their capital contributions) have been paid or there remains property
of the Partnership sufficient to pay them as required under CULPA, and (b) APM
Funds has received a timely request for redemption. Upon redemption,
a partner (or any assignee of whom the General Partner has received notice as
described below) receives from the Partnership, an amount equal to the Net Asset
Value of the Interest less any amount owing by such partner (and assignees, if
any) to the Partnership. The Partnership or APM Funds may call and
redeem Interests owned by any or all Limited Partners for any reason and at any
time. The Partnership and APM generally intend only to call or redeem
Interests for regulatory reasons and generally would effect such call or
redemption on a pro
rata basis to the extent practicable. Payment of redemption
proceeds generally is made within thirty (30) business days after the effective
date of redemption, except that under certain special circumstances (for
example, inability to liquidate commodity positions as of a date of redemption,
or default or delay in payments due the Partnership from commodity brokers,
banks, commodity pools or other persons) the Partnership may delay payment to
partners requesting redemption of Interests of the proportionate part of the Net
Asset Value of the Interests equal to that proportionate part of the
Partnership’s Net Asset Value represented by the sums which are the subject of
certain defaults or delays.
23
Voting Rights. The
Partnership Agreement gives APM Funds the exclusive power to conduct the
business of the Partnership. Limited Partners generally have no right
to vote and have no right to participate in management of the
Partnership. If APM Funds deems doing so necessary or desirable, it
may amend the Partnership Agreement with the consent of Limited Partners owning
more than 50% of the Interests then owned by all Limited Partners. At
a meeting called in accordance with the Partnership Agreement, upon the
affirmative vote (in person or by proxy) of Limited Partners owning more than
50% of the Interests then owned by the Limited Partners (or as otherwise
provided for by state law), the following actions may be taken without the
consent of APM Funds: (i) the Partnership Agreement may be amended in accordance
with and only to the extent permissible under CULPA, provided, however, that
consent of all Limited Partners is required for amendments requiring consent of
all Limited Partners (i.e., changing or altering the provisions of the
Partnership Agreement relating to amendments and meetings, extending the term of
the Partnership, reducing the capital account of any partner or modifying the
percentage of profits, losses or distributions to which any partner is
entitled); in addition, reduction of the capital account of any assignee or
modification of the percentage of profits, losses or distributions to which an
assignee is entitled can not be effected by amendment or supplement to the
Partnership Agreement without the assignee’s consent; (ii) the Partnership may
be dissolved; (iii) APM Funds may be removed as general partner and replaced;
(iv) a new general partner or general partners may (to the extent permitted by
CULPA) be elected if APM Funds elects to withdraw from the Partnership; (v) the
sale of all or substantially all of the assets of the Partnership may be
approved; and (vi) any contract for services with APM Funds or its affiliates
may be canceled on sixty (60) days written notice without penalty.
Liquidation
Rights. Upon the occurrence of an event causing the
dissolution of the Partnership, the Partnership will terminate and be
dissolved. Dissolution, payment of creditors and distribution of
Partnership assets will be effected as soon as practicable in accordance with
CULPA.
Liability of the Limited
Partners. Except as otherwise provided by law, the Interests,
when purchased in accordance with the Partnership Agreement, are fully paid and
non-assessable. APM Funds will be liable for all obligations of the
Partnership to the extent that the assets of the fund are insufficient to
discharge such obligations. No Limited Partner will be liable for the
Partnership’s obligations in excess of the capital contributed by such Limited
Partner, plus the Limited Partner’s share of undistributed profits and assets
(including the Limited Partner’s obligation, as required by law, under certain
circumstances to return to the Partnership distributions and returns of
contributions).
Restrictions on
Alienability. The Interests are subject to restrictions on
alienability. Each Limited Partner expressly agrees in the
Partnership Agreement that he will not assign, transfer or dispose of, by gift
or otherwise, any of his Interest or any part of all of his right, title and
interest in the capital or profits of the Partnership without the written
consent of APM Funds.
24
The
following sections of Item 202 of Regulation S-K are not applicable to the
Interests: (a)(1)(ii), (iii), (vi), (viii), (xi); (a)(2) through (5); (b)
through (f).
Item
13: 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 13. The supplementary
financial information specified in Item 302 of Regulation S-K is not
applicable.
Item
15: FINANCIAL STATEMENTS AND EXHIBITS
(a)
Financial
Statements
The financial statements filed as a
part of the Registration Statement on Form 10 are identified in the Index to
Financial Statements appearing after the signature page hereof, which is
incorporated by reference into this Item 15.
(b)
Exhibits
The following documents are filed
herewith and made part of this Registration Statement.
Exhibit
Designation
Description
3.1*
Certificate
of Formation of Winton Futures Fund, L.P. (US)
4.1*
First
Amended Agreement of Limited Partnership of Winton Futures Fund, L.P.
(US)
10.1
Advisory
Contract between Winton Futures Fund, L.P. (US), Rockwell Futures
Management, Inc.* and Winton Capital Management Limited and Amendment
thereto dated June 1, 2008
10.2*
Introducing
Broker Clearing Agreement between Fimat USA LLC*** and Altegris
Investments, Inc.
**
Rockwell Futures Management, Inc. is now Altegris Portfolio Management,
Inc.
*** Fimat
USA, LLC is now Newedge USA, LLC
25
SIGNATURES
Pursuant to the requirements of Section
12 of the Securities Exchange Act of 1934, as amended, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Adjustments
to reconcile net income to net cash from (for)
operating
activities:
Decrease
(increase) in commodity futures trading accounts:
Cash
(9,724,295
)
5,586,928
United
States government securities
0
(3,954,686
)
Unrealized
(gain) loss on open commodity futures contracts
(6,557,140
)
1,173,888
(Increase)
decrease in interest receivable
33,503
(16,132
)
(Increase)
decrease in other assets
750
750
Increase
(decrease) in commissions payable
378
2,370
Increase
(decrease) in management fee and service fees payable
201,925
45,871
Increase
(decrease) in incentive fee payable
1,697,497
299,563
Increase
(decrease) in other liabilities
(892
)
(652
)
Net
cash from (for) operating activities
8,352,756
7,821,512
CASH
FLOWS FROM FINANCING ACTIVITIES:
Capital
withdrawals
(15,655,095
)
(5,541,430
)
Capital
contributions
101,036,523
20,681,871
Offering
costs
(57,792
)
(605
)
Net
cash from financing activities
85,323,636
15,139,836
NET
INCREASE IN CASH AND CASH EQUIVALENTS
93,676,392
22,961,348
CASH,
at beginning of period
84,729,844
44,437,784
CASH,
at end of period
$
178,406,236
$
67,399,132
See
accompanying notes.
A-6
WINTON
FUTURES FUND, L.P. (US)
NOTES
TO FINANCIAL STATEMENTS
_______________
NOTE
1
- ORGANIZATION
AND SIGNIFICANT ACCOUNTING POLICIES
General Description of the
Partnership
The
Partnership was organized as a limited partnership in Colorado in March 1999,
and will continue until December 31, 2035, unless sooner terminated as provided
for in the Amended Agreement of Limited Partnership
(“Agreement”). The Partnership’s general partner is Altegris
Portfolio Management, Inc. (the “General Partner”). The Partnership
speculatively trades commodity futures contracts, options on futures contracts,
forward contracts and other commodity interests. The objective of the
Partnership’s business is appreciation of its assets.
Valuation of
Investments
Open
commodity futures contracts are valued at the closing market quotations on the
last business day of the month. Brokerage commissions are accrued on
a full-turn basis.
Capital Accounts and
Allocation of Income and Losses
The
Partnership accounts for subscriptions, allocations and redemptions on a per
partner capital account basis. A capital account will be maintained for
each partner in the Winton Futures Fund, L.P. (US) (the “Partnership”) in
accordance with the terms of the Agreement of Limited Partnership as amended
from time to time (the “Agreement”). A partner’s capital account will be
increased by the partner’s capital contributions and reduced by the partner’s
capital withdrawals and any distributions to the Partner. Each partner’s
capital account will be reduced by management fees and service fees applicable
to their capital account for the month. Any remaining net profits or net
losses during any month shall be allocated as of the end of each month to the
capital account of all partners in the proportion which each partner’s capital
account as of the beginning of such month bore to the sum of the capital
accounts of all the partners as of the beginning of the month. With
respect to each partner who has been allocated trading profits to its capital
account for a month, the incentive fee payable to the Partnership’s advisor is
then deducted from the capital account of the partner based on their allocable
share of the trading profits.
Income
and losses from the Partnership are allocated pro rata among the partners based
on their respective capital accounts as of the end of each month in which the
items accrue pursuant to the terms of the Amended Agreement of Limited
Partnership.
Income
Taxes
The
Partnership is not subject to federal income taxes; each partner reports his
allocable share of income, gain, loss, deductions or credits on their own income
tax return.
Cash and Cash
Equivalents
Cash
equivalents represent short-term highly liquid investments with maturities of 90
days or less and include money market accounts, securities purchased under
agreements to resell, commercial paper, and U.S. Government and agency
obligations with variable rate and demand features that qualify them as cash
equivalents. These cash equivalents, with exception of securities
purchased under agreement to resell, are stated at amortized cost, which
approximates fair value. Securities purchased under agreements to
resell, with overnight maturity, are collateralized by U.S. Government and
agency obligations, and are carried at the amounts at which the securities will
subsequently be resold plus accrued interest.
A-7
WINTON
FUTURES FUND, L.P. (US)
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE
1 -
ORGANIZATION
AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Method of
Reporting
The
Partnership’s financial statements are presented in accordance with
accounting principles generally accepted in the United States of America,
which require the use of certain estimates made by the Partnership’s
management. Actual results could differ from those
estimates.
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 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.
Fair
Value
The
Partnership accounts for certain assets and liabilities at fair value under
various accounting literature and applicable industry guidance. The
Company adopted Statement of Financial Accounting Standard No. 157, Fair Value Measurement (SFAS
No. 157) on January 1, 2008. SFAS No. 157 defines fair value, establishes
a framework for measuring fair value, establishes a fair value hierarchy based
on the quality of inputs used to measure fair value, and enhances disclosure
requirements for fair value measurements. In accordance with SFAS No. 157,
the Partnership has categorized its financial instruments, based on the priority
of inputs to the valuation technique, into a three-level fair value
hierarchy. The fair value gives the highest priority to quoted prices in
active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3). If the inputs used to measure
the financial instruments fall within different levels of the hierarchy, the
categorization is based on the lowest level input that is significant to the
fair value measurement of the instrument.
Financial
assets and liabilities recorded on the statement of financial condition at June30, 2008 are categorized as Level 1 based on the inputs to the valuation
techniques. Level 1 means they are based on unadjusted quoted prices for
identical assets or liabilities in an active market that the Partnership has the
ability to access.
A-8
WINTON
FUTURES FUND, L.P. (US)
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE
1 - ORGANIZATION
AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value
(continued)
The fair
values of Level 1 financial instruments at June 30, 2008, consisted of the
following:
The fair
values of futures contracts are based upon an underlying asset, index, or
reference rate or a combination of these factors. The Partnership uses futures
contracts as part of its trading activities. The fair value of U.S.
Treasury Bills is based on amortized cost, which approximates fair
value.
Interim Financial
Statements
The
financial statements included herein were prepared by us without audit. The
financial statements reflect, in the opinion of management, all adjustments
necessary that were of normal and recurring nature and adequate disclosures to
present fairly the financial position and results of operations as of and for
the periods indicated. The results of operations for the three and
six months ended June 30, 2008 and 2007 are not necessarily indicative of the
results to be expected for the full year or for any other period.
The
Partnership’s trading activities are conducted pursuant to an advisory contract
with Winton Capital Management, Limited (“Advisor”). The Partnership
pays the Advisor a quarterly incentive fee of 20% of the trading profits (as
defined). However, the quarterly incentive fee is payable only on
cumulative profits achieved from commodity trading (as defined).
A-9
WINTON
FUTURES FUND, L.P. (US)
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE
2 - AGREEMENTS AND
RELATED PARTIES (CONTINUED)
Brokerage
Agreements
FIMAT
USA, LLC (now known as Newedge USA, LLC) became the Partnership’s commodity
broker (the “Clearing Broker”) during 2007, pursuant to the terms of a brokerage
agreement. Prior to FIMAT USA, LLC, Man Financial Inc. acted as the
Partnership’s commodity broker. The Partnership pays brokerage
commissions to the Clearing Broker for clearing trades on its
behalf.
General Partner Management
Fee
The
General Partner receives from the Partnership a monthly management fee equal to
0.0625% (0.75% annually) for Class A, 0.146% (1.75% annually) for Class B, and
currently 0.125% (1.5% annually) for Special Interests of the Partnership’s
management fee net asset value (as defined). The terms of the
Partnership Agreement provide that the General Partner may declare any Limited
Partner a “Special Limited Partner” (referred to as a “Special Interest” in
these financial statements) and the management fees or other fees charged to any
such Partner may be different than those charged to other Limited Partners as
described in the Partnership’s Offering Memorandum. The specific
circumstances under which the General Partner may exercise such discretion are
varied, and could include, but are not limited to, consideration as to the type
of investor, size of investment, and/or commitment for future additional
investment. A determination by the General Partner to declare any
partner a Special Limited Partner will not affect fees charged to other Limited
Partners.
Service
Fees
Class A
of the Partnership pays selling agents an ongoing payment of 0.166% of the
month-end net asset value (2% annually) of the value of interests sold by them
which are outstanding at month end as compensation for their continuing services
to the limited partners.
Related
Party
Altegris
Investments, Inc. (“Altegris”), an affiliate of the General Partner, is
registered as a broker-dealer with the Securities and Exchange Commission and an
independent introducing broker registered with the Commodity Futures Trading
Commission. Altegris has entered into a selling agreement with the
Partnership where it receives 2% per annum as continuing compensation for
interests sold by Altegris that are outstanding at month end. Altegris, as the
Partnership’s introducing broker, also receives a portion of the commodity
brokerage commissions paid by the Partnership to the Clearing Broker and
interest income retained by the Clearing Broker. For the three and six months
ended June 30, 2008 and 2007, commissions and continuing compensation received
by Altegris amounted to $385,992, $174,696, $628,226 and $405,510,
respectively.
A-10
WINTON
FUTURES FUND, L.P. (US)
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE
2 - AGREEMENTS AND
RELATED PARTIES (CONTINUED)
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 in the
Agreement. The General Partner may request and receive redemption of
capital, subject to the same terms as any Limited Partner.
NOTE
3 - 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 since, in over the counter transactions, the Partnership must rely
solely on the credit of their respective individual
counterparties. However if, in the future, 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 since 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 cash with Wilmington Trust (Custodian) in excess of the FDIC
insurance coverage of $100,000. At June 30, 2008, the Partnership had
$14,658,957 in excess of the FDIC insurance coverage limit which is subject to
loss should the Custodian cease operations.
The
Partnership utilizes Horizon Cash Management, L.L.C. (Horizon) to manage cash
not held with the Clearing Broker or Custodian. At June 30, 2008, the
asset balance with Horizon was $163,647,279.
NOTE
4 - 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.
NOTE
5
- SUBSEQUENT
EVENTS
On June2, 2008 the Partnership amended its Offering Memorandum. The amended
Offering Memorandum stipulates that, effective July 1, 2008, the
Partnership will offer three Classes of Interests, Class A, Class B, and
Institutional, all of which will be assessed a monthly management fee (as
defined). The management fee is payable to both the General Partner
and the Advisor. The Amendment also stipulates that variable expenses
and other fixed fees, including a fixed administrative fee payable to the
General Partner, are charged to the Interests (as defined).
In August
2008, the Partnership terminated cash management services with Horizon Cash
Management, L.L.C. Concurrently, the agreement with Wilmington Trust
Company was expanded to include cash management services for cash not held with
the Clearing Broker.
A-12
WINTON
FUTURES FUND, L.P. (US)
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE
6 -FINANCIAL HIGHLIGHTS
The
following information presents the financial highlights of the Partnership for
the three months and six months ended June 30, 2008 and 2007. This
information has been derived from information presented in the financial
statements.
Total
return and the ratios to average net asset value are calculated for 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.
Adjustments
to reconcile net income to net cash from (for)
operating
activities:
Decrease
(increase) in commodity futures trading accounts:
Cash
(2,111,728
)
4,032,339
United
States government securities
(2,995,380
)
0
Unrealized
loss on open commodity futures contracts
2,386,643
779,334
(Increase)
decrease in interest receivable
24,109
(1,134
)
(Increase)
decrease in other assets
375
375
Increase
(decrease) in commissions payable
(10,944
)
(6,684
)
Increase
(decrease) in management fee and service fees payable
67,237
21,930
Increase
(decrease) in incentive fee payable
1,941,528
(642,850
)
Increase
(decrease) in other liabilities
(6,873
)
(657
)
Net
cash from (for) operating activities
11,287,357
(443,320
)
CASH
FLOWS FROM FINANCING ACTIVITIES:
Capital
withdrawals
(7,728,853
)
(3,403,001
)
Capital
contributions
33,903,838
15,088,371
Net
cash from financing activities
26,174,985
11,685,370
NET
INCREASE IN CASH AND CASH EQUIVALENTS
37,462,342
11,242,050
CASH,
at beginning of period
84,729,844
44,437,784
CASH,
at end of period
$
122,192,186
$
55,679,834
See
accompanying notes.
B-6
WINTON
FUTURES FUND, L.P. (US)
NOTES
TO FINANCIAL STATEMENTS
_______________
NOTE
1 - ORGANIZATION AND
SIGNIFICANT ACCOUNTING POLICIES
General Description of the
Partnership
The
Partnership was organized as a limited partnership in Colorado in March 1999,
and will continue until December 31, 2035, unless sooner terminated as provided
for in the Amended Agreement of Limited Partnership
(“Agreement”). The Partnership’s general partner is Altegris
Portfolio Management, Inc. (the “General Partner”). The Partnership
speculatively trades commodity futures contracts, options on futures contracts,
forward contracts and other commodity interests. The objective of the
Partnership’s business is appreciation of its assets.
Valuation of
Investments
Open
commodity futures contracts are valued at the closing market quotations on the
last business day of the month. Brokerage commissions are accrued on
a full-turn basis.
Capital Accounts and
Allocation of Income and Losses
The
Partnership accounts for subscriptions, allocations and redemptions on a per
partner capital account basis. A capital account will be maintained for
each partner in the Winton Futures Fund, L.P. (US) (the “Partnership”) in
accordance with the terms of the Agreement of Limited Partnership, as amended
from time to time, (the “Agreement”). A partner’s capital account will be
increased by the partner’s capital contributions and reduced by the partner’s
capital withdrawals and any distributions to the Partner. Each partner’s
capital account will be reduced by management fees and service fees applicable
to their capital account for the month. Any remaining net profits or net
losses during any month shall be allocated as of the end of each month to the
capital account of all partners in the proportion which each partner’s capital
account as of the beginning of such month bore to the sum of the capital
accounts of all the partners as of the beginning of the month. With
respect to each partner who has been allocated trading profits to its capital
account for a month, the incentive fee payable to the Partnership’s advisor is
then deducted from the capital account of the partner based on their allocable
share of the trading profits.
Income
and losses from the Partnership are allocated pro rata among the partners based
on their respective capital accounts as of the end of each month in which the
items accrue pursuant to the terms of the Amended Agreement of Limited
Partnership.
Income
Taxes
The
Partnership is not subject to federal income taxes; each partner reports his
allocable share of income, gain, loss, deductions or credits on their own income
tax return.
Cash and Cash
Equivalents
Cash
equivalents represent short-term highly liquid investments with maturities of 90
days or less and include money market accounts, securities purchased under
agreements to resell, commercial paper, and U.S. Government and agency
obligations with variable rate and demand features that qualify them as cash
equivalents. These cash equivalents, with exception of securities
purchased under agreement to resell, are stated at amortized cost, which
approximates fair value. Securities purchased under agreements to
resell, with overnight maturity, are collateralized by U.S. Government and
agency obligations, and are carried at the amounts at which the securities will
subsequently be resold plus accrued interest.
B-7
WINTON
FUTURES FUND, L.P. (US)
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE
1 - ORGANIZATION
AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Method of
Reporting
The
Partnership’s financial statements are presented in accordance with accounting
principles generally accepted in the United States of America, which require the
use of certain estimates made by the Partnership’s management. Actual
results could differ from those estimates.
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 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.
Fair
Value
The
Partnership accounts for certain assets and liabilities at fair value under
various accounting literature and applicable industry guidance. The
Company adopted Statement of Financial Accounting Standard No. 157, Fair Value Measurement (SFAS
No. 157) on January 1, 2008. SFAS No. 157 defines fair value, establishes
a framework for measuring fair value, establishes a fair value hierarchy based
on the quality of inputs used to measure fair value, and enhances disclosure
requirements for fair value measurements. In accordance with SFAS No. 157,
the Partnership has categorized its financial instruments, based on the priority
of inputs to the valuation technique, into a three-level fair value
hierarchy. The fair value gives the highest priority to quoted prices in
active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3). If the inputs used to measure
the financial instruments fall within different levels of the hierarchy, the
categorization is based on the lowest level input that is significant to the
fair value measurement of the instrument.
Financial
assets and liabilities recorded on the statement of financial condition at March31, 2008 are categorized as Level 1 based on the inputs to the valuation
techniques. Level 1 means they are based on unadjusted quoted prices for
identical assets or liabilities in an active market that the Partnership has the
ability to access.
B-8
WINTON
FUTURES FUND, L.P. (US)
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE
1 - ORGANIZATION
AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value
(continued)
The fair
values of Level 1 financial instruments at March 31, 2008, consisted of the
following:
The fair
values of futures contracts are based upon an underlying asset, index, or
reference rate or a combination of these factors. The Partnership uses futures
contracts as part of its trading activities. The fair value of U.S.
Treasury Bills is based on amortized cost, which approximates fair
value.
Interim Financial
Statements
The
financial statements included herein were prepared by us without audit. The
financial statements reflect, in the opinion of management, all adjustments
necessary that were of normal and recurring nature and adequate disclosures to
present fairly the financial position and results of operations as of and for
the periods indicated. The results of operations for the three months
ended March 31, 2008 and 2007 are not necessarily indicative of the results to
be expected for the full year or for any other period.
The
Partnership’s trading activities are conducted pursuant to an advisory contract
with Winton Capital Management, Limited (“Advisor”). The Partnership
pays the Advisor a quarterly incentive fee of 20% of the trading profits (as
defined). However, the quarterly incentive fee is payable only on
cumulative profits achieved from commodity trading (as defined).
B-9
WINTON
FUTURES FUND, L.P. (US)
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE
2 - AGREEMENTS AND
RELATED PARTIES (CONTINUED)
Brokerage
Agreements
FIMAT
USA, LLC (now known as Newedge USA, LLC) became the Partnership’s commodity
broker (the “Clearing Broker”) during 2007, pursuant to the terms of a brokerage
agreement. Prior to FIMAT USA, LLC, Man Financial Inc. acted as the
Partnership’s commodity broker. The Partnership pays brokerage
commissions to the Clearing Broker for clearing trades on its
behalf.
General Partner Management
Fee
The
General Partner receives from the Partnership a monthly management fee equal to
0.0625% (0.75% annually) for Class A, 0.146% (1.75% annually) for Class B, and
currently 0.125% (1.5% annually) for Special Interests of the Partnership’s
management fee net asset value (as defined). The terms of the
Partnership Agreement provide that the General Partner may declare any Limited
Partner a “Special Limited Partner” (referred to as a “Special Interest” in
these financial statements) and the management fees or other fees charged to any
such Partner may be different than those charged to other Limited Partners as
described in the Partnership’s Offering Memorandum. The specific
circumstances under which the General Partner may exercise such discretion are
varied, and could include, but are not limited to, consideration as to the type
of investor, size of investment, and/or commitment for future additional
investment. A determination by the General Partner to declare any
partner a Special Limited Partner will not affect fees charged to other Limited
Partners.
Service
Fees
Class A
of the Partnership pays selling agents an ongoing payment of 0.166% of the
month-end net asset value (2% annually) of the value of interests sold by them
which are outstanding at month end as compensation for their continuing services
to the limited partners.
Related
Party
Altegris
Investments, Inc. (“Altegris”), an affiliate of the General Partner, is
registered as a broker-dealer with the Securities and Exchange Commission and an
independent introducing broker registered with the Commodity Futures Trading
Commission. Altegris has entered into a selling agreement with the
Partnership where it receives 2% per annum as continuing compensation for
interests sold by Altegris that are outstanding at month end. Altegris, as the
Partnership’s introducing broker, also receives a portion of the commodity
brokerage commissions paid by the Partnership to the Clearing Broker and
interest income retained by the Clearing Broker. For the three months ended
March 31, 2008 and 2007, commissions and continuing compensation received by
Altegris amounted to $242,234 and $230,814, respectively.
B-10
WINTON
FUTURES FUND, L.P. (US)
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE
2 - AGREEMENTS AND
RELATED PARTIES (CONTINUED)
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 in the
Agreement. The General Partner may request and receive redemption of
capital, subject to the same terms as any Limited Partner.
NOTE
3 - 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 since, in over the counter transactions, the Partnership must rely
solely on the credit of their respective individual
counterparties. However if, in the future, 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 since 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 cash with Wilmington Trust (Custodian) in excess of the FDIC
insurance coverage of $100,000. At March 31, 2008, the Partnership had
$3,043,206 in excess of the FDIC insurance coverage limit which is subject to
loss should the Custodian cease operations.
The
Partnership utilizes Horizon Cash Management, L.L.C. (Horizon) to manage cash
not held with the Clearing Broker or Custodian. At March 31, 2008,
the asset balance with Horizon was $119,048,980.
NOTE
4 - 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.
B-12
WINTON
FUTURES FUND, L.P. (US)
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
_______________
NOTE
5 - FINANCIAL
HIGHLIGHTS
The
following information presents the financial highlights of the Partnership for
the three months ended March 31, 2008 and 2007. This information has
been derived from information presented in the financial
statements.
Total
return and the ratios to average net asset value are calculated for 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.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Partners of
Winton
Futures Fund, L.P. (US)
We have
audited the accompanying statements of financial condition, including the
condensed schedules of investments of Winton Futures Fund, L.P. (US) (A Colorado
Limited Partnership) as of December 31, 2007 and 2006, and the related
statements of operations, changes in partners’ capital and cash flows for the
years then ended. These financial statements are the responsibility
of the Partnership’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes 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
Company’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, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Winton Futures Fund, L.P. (US) as
of December 31, 2007 and 2006, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
Adjustments
to reconcile net income to net cash from (for)
operating
activities:
Decrease
(increase) in commodity futures trading accounts:
Cash
(5,166,271
)
(13,081,112
)
Unrealized
gain on open commodity futures contracts
739,757
(1,396,014
)
(Increase)
decrease in interest receivable
1,745
(43,372
)
Increase
(decrease) in commissions payable
(4,464
)
8,904
Increase
in management fee and service fees payable
77,915
53,217
Increase
in incentive fee payable
331,047
655,795
Increase
in other liabilities
19,621
6,058
Net
cash from (for) operating activities
8,860,703
(8,387,319
)
CASH
FLOWS FROM FINANCING ACTIVITIES:
Capital
withdrawals
(12,896,744
)
(5,504,260
)
Capital
contributions
44,344,167
41,685,507
Offering
costs
(16,066
)
(9,300
)
Net
cash from financing activities
31,431,357
36,171,947
NET
INCREASE IN CASH
AND
CASH EQUIVALENTS
40,292,060
27,784,628
CASH, at beginning of
year
44,437,784
16,653,156
CASH, at end of
year
$
84,729,844
$
44,437,784
See
accompanying notes.
C-7
WINTON
FUTURES FUND, L.P. (US)
NOTES
TO FINANCIAL STATEMENTS
NOTE
1 - ORGANIZATION AND SIGNIFICANT
ACCOUNTING POLICIES
General Description of the
Partnership
The
Partnership was organized as a limited partnership in Colorado in March 1999,
and will continue until December 31, 2035, unless sooner terminated as provided
for in the Amended Agreement of Limited Partnership
(“Agreement”). The Partnership’s general partner is Altegris
Portfolio Management, Inc. (the “General Partner”). The Partnership
speculatively trades commodity futures contracts, options on futures contracts,
forward contracts and other commodity interests. The objective of the
Partnership’s business is appreciation of its assets.
Valuation of
Investments
Open
commodity futures contracts are valued at the closing market quotations on the
last business day of the month. Brokerage commissions are accrued on
a full-turn basis.
Capital Accounts and
Allocation of Income and Losses
The
Partnership accounts for subscriptions, allocations and redemptions on a per
partner capital account basis.
Income
and losses from Winton Futures Fund, L.P. (the “Partnership”) are allocated pro
rata among the partners based on their respective capital accounts as of the end
of each month in which the items accrue pursuant to the terms of the Amended
Agreement of Limited Partnership.
Income
Taxes
The
Partnership is not subject to federal income taxes; each partner reports his
allocable share of income, gain, loss, deductions or credits on their own income
tax return.
Cash and Cash
Equivalents
Cash
equivalents represent short-term highly liquid investments with maturities of 90
days or less and include money market accounts, securities purchased under
agreements to resell, commercial paper, and U.S. Government and agency
obligations with variable rate and demand features that qualify them as cash
equivalents. These cash equivalents, with exception of securities
purchased under agreement to resell, are stated at amortized cost, which
approximates fair value. Securities purchased under agreements to
resell, with overnight maturity, are collateralized by U.S. Government and
agency obligations, and are carried at the amounts at which the securities will
subsequently be resold plus accrued interest.
C-8
WINTON
FUTURES FUND, L.P. (US)
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
NOTE
1 -
ORGANIZATION
AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Method of
Reporting
The
Partnership’s financial statements are presented in accordance with
accounting principles generally accepted in the United States of America,
which require the use of certain estimates made by the Partnership’s
management. Actual results could differ from those
estimates.
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 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.
Reclassification
Certain
amounts in the 2006 financial statements were reclassified to conform with
the 2007 presentation.
Recently Issued Accounting
Pronouncement
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, “Fair Value Measurements” (FAS 157). FAS 157 defines fair value,
establishes a framework for measuring fair value in accounting principles
generally accepted in the United States of America, and expands disclosures
about fair value measurements. While FAS 157 does not require any new fair value
measurements, for some entities, the application of FAS 157 may change current
practice. FAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The implementation of FAS 157 is not expected to have a
material impact on the Partnership’s financial statements.
The
Partnership’s trading activities are conducted pursuant to an advisory contract
with Winton Capital Management, Limited (“Advisor”). The Partnership
pays the Advisor a quarterly incentive fee of 20% of the trading profits (as
defined). However, the quarterly incentive fee is payable only on
cumulative profits achieved from commodity trading (as defined).
Brokerage
Agreements
FIMAT
USA, LLC became the Partnership’s commodity broker (the “Clearing Broker”)
during 2007, pursuant to the terms of a brokerage agreement. Prior to FIMAT USA,
LLC, Man Financial Inc. acted as the Partnership’s commodity
broker. The Partnership pays brokerage commissions to the Clearing
Broker for clearing trades on its behalf.
General Partner Management
Fee
The
General Partner receives from the Partnership a monthly management fee equal to
0.0625% (0.75% annually) for Class A, 0.146% (1.75% annually) for Class B, and
currently 0.125% (1.5% annually) for Special Interests of the Partnership’s
management fee net asset value (as defined). 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.
Service
Fees
Class A
of the Partnership pays selling agents an ongoing payment of 0.166% of the
month-end net asset value (2% annually) of the value of interests sold by them
which are outstanding at month end as compensation for their continuing services
to the limited partners.
Related
Party
Altegris
Investments, Inc. (“Altegris”), an affiliate of the General Partner, is
registered as a broker-dealer with the SEC Securities and Exchange Commission
and an independent introducing broker registered with the Commodity Futures
Trading Commission. Altegris has entered into a selling agreement with the
Partnership where it receives 2% per annum as continuing compensation for
interests sold by Altegris that are outstanding at month end. Altegris, as the
Partnership’s introducing broker, also receives a portion of the commodity
brokerage commissions paid by the Partnership to the Clearing Broker and
interest income retained by the Clearing Broker. For the years ended December31, 2007 and 2006, commissions and continuing compensation received by Altegris
amounted to $639,040 and $493,601, respectively.
C-10
WINTON
FUTURES FUND, L.P. (US)
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
NOTE
2 - AGREEMENTS AND RELATED PARTIES
(CONTINUED)
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 in the
Agreement. The General Partner may request and receive redemption of
capital, subject to the same terms as any Limited Partner.
NOTE
3 - 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 since, in over the counter transactions, the Partnership must rely
solely on the credit of their respective individual
counterparties. However if, in the future, 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 since 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 cash with Wilmington Trust (Custodian) in excess of the FDIC
insurance coverage of $100,000. At December 31, 2007, the Partnership had
$10,525,771 in excess of the FDIC insurance coverage limit which is subject to
loss should the Custodian cease operations.
The
Partnership utilizes Horizon Cash Management, L.L.C. (Horizon) to manage cash
not held with the Clearing Broker or Custodian. At December 31, 2007,
the asset balance with Horizon was $74,106,351.
NOTE
4 - 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.
C-12
WINTON
FUTURES FUND, L.P. (US)
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
NOTE
5 - FINANCIAL HIGHLIGHTS
The
following information presents the financial highlights of the Partnership for
the years ended December 31, 2007 and 2006. This information has been
derived from information presented in the financial statements.
2007
Special
Class
A
Class
B
Interests
Total
return for Limited Partners
13.61
%
14.97
%
15.45
%
Ratio
to average net asset value
Expenses
prior to incentive fee (1)
3.05
%
2.03
%
1.77
%
Incentive
fee
3.46
%
3.33
%
2.87
%
Total
expenses
6.51
%
5.36
%
4.64
%
Net
investment income (1) (2)
1.51
%
2.56
%
2.79
%
2006
Special
Class
A
Class
B
Interests
Total
return for Limited Partners
13.31
%
14.53
%
14.37
%
Ratio
to average net asset value
Expenses
prior to incentive fee (1)
3.00
%
1.98
%
1.73
%
Incentive
fee
2.19
%
2.22
%
2.34
%
Total
expenses
5.19
%
4.20
%
4.07
%
Net
investment income (1) (2)
1.32
%
2.32
%
2.59
%
Total
returns and the ratios to average net asset value are calculated for Limited
Partners’ capital taken as a whole. An individual Limited Partner’s total
returns and ratios may vary from the above returns and ratios due to the timing
of their contributions and withdrawals.
(1)
Includes
offering costs.
(2)
Excludes
incentive fee.
See
accompanying notes.
C-13
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors of
Altegris
Portfolio Management, Inc.
We have
audited the accompanying balance sheet of Altegris Portfolio Management, Inc. as
of December 31, 2007. This financial statement is the responsibility of the
Company’s management. Our responsibility is to express an opinion on
this financial statement based on our audit.
We
conducted our audit in accordance with 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 are free of material misstatement. An audit
includes 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
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the balance sheet referred to above presents fairly, in all material
respects, the financial position of Altegris Portfolio Management, Inc. as of
December 31, 2007 in conformity with accounting principles generally accepted in
the United States of America.
INVESTMENTS
- General partner interests in commodity
pool
partnerships (Note 2)
FURNITURE,
EQUIPMENT AND SOFTWARE,
8,697
7,487
net
of accumulated depreciation of $41,137
1,166
1,166
$
512,625
$
341,800
LIABILITIES
AND SHAREHOLDER'S SURPLUS
CURRENT
LIABILITIES:
Commissions
payable
$
210,207
$
163,743
Accounts
payable
36,447
14,698
Other
liabilities
-
17,968
Total
current liabilities
246,654
196,409
COMMITMENTS
(Note 3)
SHAREHOLDER'S
EQUITY (Note 4)
Common
stock, no par value; 1,000,000 shares authorized,
200
shares issued and outstanding
10,000
10,000
Class
A common stock, no par value, 10,000 shares authorized,
no
shares issued
-
-
Additional
paid in capital
135,391
135,391
Retained
earnings
120,580
-
Total
shareholder's equity
265,971
145,391
$
512,625
$
341,800
D-2
ALTEGRIS
PORTFOLIO MANAGEMENT, INC.
NOTES
TO BALANCE SHEETS
NOTE
1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of
Business
Altegris
Portfolio Management, Inc. (the “Company”) was incorporated in Arkansas on
December 2, 1985, is registered as an investment advisor with the state of
California and as a commodity pool operator with the Commodity Futures Trading
Commission. As the General Partner and commodity pool operator for
limited partnerships that engage in the speculative trading of equities,
commodity futures and securities, the Company maintains all related books and
records. In addition, the Company receives fees from related entities for
consulting and administrative services. The Company is a wholly owned
subsidiary of Altegris Capital, L.L.C. (the “Parent”).
Effective
January 15, 2007, the Company’s shares in its subsidiary, Altegris Investments,
Inc. (“AII”), were distributed to the shareholders of the Company’s Parent, see
Note 4.
Investments in Affiliated
Partnerships
Investments
in affiliated partnerships are carried at the Company’s underlying interest in
the net asset value of the Partnerships. This method results in
accounting for the investments on the equity method wherein the investments are
stated at cost and adjusted for the Company’s share of the income or loss of the
investee partnerships.
Furniture, Equipment and
Software
Furniture,
equipment and software is stated at cost less accumulated
depreciation. Depreciation is provided on the declining balance
method, based on estimated useful lives of five to seven years.
Income
taxes
The
Company is included in the consolidated income tax return of its
parent. As such, it has elected to be taxed under Subchapter S of the
Internal Revenue Code. Accordingly, taxable income or loss of the
Company will be allocated to its shareholders, who are responsible for the
payment of the taxes thereon.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Management believes that the estimates utilized
in the preparation of the financial statements are prudent and
reasonable. Actual results could differ from those
estimates.
D-3
ALTEGRIS
PORTFOLIO MANAGEMENT, INC.
NOTES
TO BALANCE SHEETS
NOTE 1
- SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Cash and Cash
Equivalents
All
highly liquid debt instruments purchased with an original maturity of three
months or less are considered to be cash equivalents.
Fair Value of Financial
Instruments
Substantially
all of the Company’s assets and liabilities are carried at fair value or
contracted amounts that approximate fair value. Estimates of fair
value are made at a specific point in time, based on relative market information
and information about the financial instrument, specifically, the value of the
underlying financial instrument. Assets that are recorded at fair
value consist largely of short-term receivables, and other current assets, which
are carried at contracted amounts that approximate fair
value. Similarly, the Company’s liabilities consist of short-term
liabilities and accrued expenses recorded at contracted amounts that approximate
fair value.
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value
Measurements”. This standard clarifies the definition of fair value for
financial reporting, establishes a framework for measuring fair value and
requires additional disclosures about the use of fair value measurements. SFAS
No. 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal years. As of
December 31, 2007the Company does not believe the adoption of SFAS No. 157 will
impact the amounts reported in the financial statements. However, additional
disclosures will be required about the inputs used to develop the measurements
of fair value and the effect of certain of the measurements reported in the
statement of operations for a fiscal period.
NOTE
2 - INVESTMENTS IN AFFILIATED
PARTNERSHIPS AND RECEIVABLES
The
Company is the General Partner and commodity pool operator for several limited
partnerships. The Company, as General Partner, receives management
fees as compensation for services provided on behalf of the limited
partnerships.
The
Company, in its capacity as General Partner, has advanced offering and
organizational expenses for various partnerships. The Company is
reimbursed if sufficient limited partnership units are sold during the offering
period and the pool commences operations. In addition, the Company
pays all general operating expenses on behalf of the limited partnerships and is
reimbursed on a monthly basis.
D-4
ALTEGRIS
PORTFOLIO MANAGEMENT, INC.
NOTES
TO BALANCE SHEETS
NOTE 2
- INVESTMENTS IN AFFILIATED
PARTNERSHIPS AND RECEIVABLES (continued)
Management
fees and other receivables due from the limited partnerships at June 30, 2008
and December 31, 2007 were as follows:
Management Fees
Receivable
Other
Receivables
June
30,
December
31,
June
30,
December
31,
Partnership
2008
2007
2008
2007
APM
- Valhalla Resource Fund, LLC
$
11,119
$
12,140
$
5,231
$
7,634
APM
- Torrey Pines Fund, LP
77,979
41,555
5,176
8,060
Clarke
Worldwide Fund, LP
871
668
-
-
Winton
Futures Fund, L.P. (US)
196,840
115,550
36,479
5,348
$
286,809
$
169,913
$
46,886
$
21,042
The
Company also receives commissions from an unrelated offshore
fund. Commissions receivable were $148,000 and $58,146 at June 30,2008 and December 31, 2007, respectively.
* This
fee is received in the form of (i) a general partner management fee of 0.75%
from the partnership, and (ii) a rebate from the portfolio manager management
fee of 1.0%.
D-5
ALTEGRIS
PORTFOLIO MANAGEMENT, INC.
NOTES
TO BALANCE SHEETS
NOTE
3 - OFF BALANCE SHEET RISKS AND
UNCERTAINTIES
The
Company is the General Partner of various partnerships. The
partnerships participate in the speculative trading of equities, commodity
futures, mutual funds and securities which may be subject to margin
requirements. The partnerships are limited partnerships; therefore a
limited partner bears only the risk of his investment in the
partnership. However, the Company as General Partner, additionally
bears the risk for any legal actions taken against the partnership, margin calls
or liabilities in excess of the partnership’s assets.
The
Company’s policy is to continuously monitor the exposure to the partnerships
through the use of a variety of financial position and credit exposure reporting
and control procedures. In addition, the Company, as General Partner,
has a policy of reviewing the credit standing of each clearing broker or
counterparty with which the partnerships conduct business.
NOTE
4 - EQUITY TRANSACTIONS
Effective
January 15, 2007, the Company’s former subsidiary, AII, was spun off from the
Company to its Parent’s shareholders. This resulted in an equity
distribution of $1,876,820.
SPICER JEFFRIES LLP
