The primary investment objective of the Partnership is growth of capital. The business of the Partnership is the buying and selling of securities, including, without limitation, stocks, options, warrants, and rights of U.S. entities. The Partnership may invest and trade in public and private securities and may lend funds or assets and borrow money, with and without collateral. The Partnership ordinarily will invest in securities that trade in sufficient volume to allow for swift execution of transactions. Positions in securities may be held for very short periods, even as little as a portion of one day. The Partnership may engage in transactions in exchange listed options in conjunction with or in lieu of taking a position in the underlying securities, including writing uncovered options. The Partnership also may engage in short sales of securities and margin transactions. The Partnership shall have the power to do any and all acts necessary, appropriate, proper, advisable, incidental or convenient to or for the furtherance of the purposes and business described herein, and shall have, without limitation, any and all of the powers that may be exercised on behalf of the Partnership by the General Partner. The General Partner, ARMOUR CAPITAL MANAGEMENT LLC, has delegated authority over the Partnership’s trading activity and management of the Partnership’s portfolio to its affiliate, ARMOUR CAPITAL ADVISORS LLC (the “Investment Advisor”). ARMOUR CAPITAL ADVISORS LLC is not required to register as an investment advisor pursuant to N.C.G.S.A. § 78C 16 which provides for an exemption from registration as an investment advisor for advisers who, during the preceding 12 months, have had fewer than 15 clients, do not hold themselves out to the public as investment advisers, and do not act as advisers to investment companies registered under the Investment Company Act of 1940 or business development companies (N.C.G.S.A. § 78C 16).
The General Partner intends to implement the objective of the Partnership through aggressive and frequent trading of securities, primarily the U.S. dollar denominated exchange traded funds (“ETFs”) listed below. A secondary objective of the Partnership is to deliver total returns that exceed, and have a low to negative correlation to, the general U.S. equity markets as measured using an index of approximately 500 U.S. large capitalization stocks (the “Overall Market”) over market cycles. The Investment Advisor intends to primarily use a systematic model driven investment approach to make investments in several ETFs. There can be no assurance that any of the Partnership’s investment objectives will be achieved.
The Investment Advisor will typically invest the Partnership’s assets in one or more long or short positions in ETFs with any of the following three ticker symbols, or other similar ETFs with similar characteristics: (1) SPY (which tracks the S&P 500 index and is managed by State Street Global Advisors), (2) QQQ (which tracks the NASDAQ 100 index and is managed by Blackrock Fund Advisors), and (3) IWM (which tracks the Russell 2000 index and is managed by Invesco Capital Management LLC).
While the Investment Advisor intends to tactically invest the assets of the Partnership primarily in long and short positions in the three ETFs listed above, or other similar ETFs with similar characteristics, the Investment Advisor may also invest residual cash in money market instruments, registered money market funds, or such other liquid commingled investment vehicles deemed appropriate by the Investment Advisor.
The model used by the Investment Advisor to make investment decisions for the Partnership may be based primarily on mathematical or statistical calculations using historical price and volume data for the ETFs traded. The trade orders placed for the Partnership may be placed manually by the Investment Advisor through a broker dealer platform or website, or the orders may be placed through a broker dealer using an automated computer driven algorithm developed and maintained by the Investment Advisor or by a third party service provider that the Investment Advisor retains or subscribes to on behalf of the Partnership. The Partnership’s trading strategy may use various investment techniques, including day trading, buying and selling securities on margin through a margin account with a broker dealer, investing in long and short positions in securities and employing leverage.
Investing in a long position involves the Partnership exchanging cash for ownership of shares of a security (i.e. an ETF) through a broker dealer and later selling those shares in exchange for cash. Investing in a short position involves the Partnership borrowing shares of the security (i.e. an ETF) facilitated through a broker dealer, then selling those shares through a broker dealer at or near the time they are borrowed and later repurchasing the shares of the security in exchange for cash. Generally, the Partnership makes money when the price of a long position increases and loses money when the price of a long position declines over the holding period. Conversely, the Partnership will generally lose money when the price of a short position increases and make money when the price of a short position declines over the holding period. The securities prices and shares of ownership may be adjusted for dividends and splits consistent with industry practices.
Returns that have a low to negative correlation to the Overall Market may at times differ substantially from the returns of the Overall Market over similar time periods. For example, if the returns of the Overall Market are trending steadily higher over time, then returns that have a low to negative correlation to the Overall Market may lag those of the Overall Market significantly and may even move in the opposite direction of the Overall Market resulting in negative returns. Conversely, if the returns of the Overall Market are volatile and moving sharply negative or in a substantially negative trend, then returns that have a low to negative correlation to the Overall Market may significantly exceed those of the Overall Market and may even be positive.
The General Partner may utilize research and recommendations from various brokerage firms and will use such firms for execution of transactions in return for such services. It also may use the services of outside advisers and consultants in seeking to implement the Partnership s investment objective. From time to time, within limits deemed acceptable by the General Partner, the Partnership may make investments in restricted securities and in turnaround situations, all of which have a greater risk of illiquidity in addition to other risks.