Item 1: BUSINESS
(a)
General Development of Business
AIS Futures Fund IV L.P. (the “Partnership”) is a Delaware limited partnership organized on August 11, 1997 under the Delaware Revised Uniform Limited Partnership Act. AIS Futures Management LLC (“AIS” or the “General Partner”), a Delaware limited liability company, is the general partner and trading advisor of the Partnership. The Partnership’s business is speculative trading of futures contracts, options on futures contracts and physical commodities and other commodity-related contracts traded primarily on domestic markets (collectively “Futures Contracts”) pursuant to the trading and investment methodology of AIS. The Partnership holds a substantial majority of its assets in United States Treasury bills as margin, or available for margin, to support its futures trading activity. The Partnership began its trading activities on February 2, 1997. Under its Limited Partnership Agreement, as amended through the date of this annual report (the “Limited Partnership Agreement”), the Partnership has delegated all aspects of the Partnership’s management to AIS. Accordingly, AIS controls and manages the business of the Partnership, and purchasers of limited partnership interests (“Interests”) in the Partnership, as the Partnership’s “Limited Partners” have no right to participate in management or control of the Partnership.
AIS is the successor to AIS Futures Management, Inc., has been continuously registered with the Commodity Futures Trading Commission (“CFTC”) as a Commodity Pool Operator (“CPO”) since May 14, 1990 and as a Commodity Trading Advisor (“CTA”) since August 20, 1992, and has been a member of the National Futures Association (“NFA”) in such capacities since such dates.
As of February 28, 2010, the aggregate net asset value of the Partnership was $67,175,856.
The Partnership’s fiscal year ends on December 31.
The Partnership has no subsidiaries.
The Partnership will terminate when the first of the following occurs: (i) December 31, 2026; (ii) a decline in the Net Assets of the Partnership as of the close of business in New York, New York to $50,000 or less; (iii) the withdrawal (including withdrawal after suspension of trading), dissolution, bankruptcy or removal of the General Partner (unless a new general partner has been substituted and the Partnership is continued); or (iv) any event which shall make unlawful the continued existence of the Partnership or requiring termination of the Partnership.
The Partnership has not, to date, (1) been the subject of any bankruptcy, receivership or similar proceeding, (2) undergone any material reclassification, merger or consolidation, (3) had any material amount of its assets acquired or disposed of other than in the ordinary course of its business, or (4) undergone any material changes in the mode of conducting its business.
(b)
Financial Information About Segments
The Partnership’s business constitutes only one segment for financial reporting purposes - a speculative commodity pool. The Partnership does not engage in sales of goods or services. Financial information regarding the Partnership’s business is set forth in the Partnership’s financial statements, included herewith.
(c)
Narrative Description of Business
General
The Partnership was organized to engage in speculative trading of Futures Contracts (as defined above). AIS has authority over the Partnership’s assets to trade in the futures and forward markets. Newedge USA, LLC (“NUSA” or the “Commodity Broker”) currently serves as the Partnership’s commodity broker.
The Partnership trades Futures Contracts pursuant to a multi-asset investment program called the Multi Asset Allocation Portfolio (“MAAP”). MAAP was developed by Mr. John R. Hummel and Mr. Bradley C. Stern, principals and members of AIS.
The Partnership generally maintains positions, both long (contracts to buy) and short (contracts to sell), in Futures Contracts with a notional value equal to between approximately two and four times the Partnership’s aggregate net asset value. Except for temporary deviations from time to time, for example, as the value of the contracts purchased at the onset of a new position change or as prices in the market move up or down substantially, leverage in the Partnership ranges from zero to a level not significantly greater than four times the total capital of the Partnership. Depending on MAAP trading signals and AIS’ discretionary input, the leverage in the Partnership may be significantly less than four times total capital.
Description of Trading Approach
In trading for the Partnership, AIS employs its MAAP strategy. MAAP is a discretionary, long-term oriented investment strategy. The MAAP investment process begins with a global macro-economic analysis and then uses a technical and systematic study of current trends and futures contract valuation to determine the direction and size of positions to be taken in MAAP. Once in a position, the MAAP investment process includes consideration of both trend-following strategies and the valuation levels of the underlying futures contracts in making adjustments to position size and direction. The principals of AIS, have used the MAAP investment process for over 17 years.
MAAP maintains long, short or neutral positions in markets within each of the following six asset classes: equities, fixed income, currency, metals, agricultural products, energy products.
AIS believes that these six asset classes represent major economic/financial sectors of the global economy and that, historically, the performance of many of these asset classes has been non-correlated or negatively correlated to each other. AIS believes that a portfolio combining these six asset classes has the potential for a higher risk-adjusted return than would be achieved by a portfolio consisting of any one of these classes managed individually.
MAAP allocates approximately 1/6 of the portfolio’s potential total contract value (when fully invested) to each of the six asset classes described above. Approximately 1/6 of the portfolio’s potential value is allocated to each of the following three financial markets: equities, represented by positions in the S&P 500 futures contract; fixed income, represented by U.S. Treasury bond futures; and currencies, represented by Japanese yen, British pound, Swiss franc, Canadian dollar, Australian dollar, and euro currency futures.
Within each of the three physical commodity asset classes, while still allocating 1/6 to each asset class, AIS trades several markets that at times have a high degree of correlation. Within the 1/6 “agricultural products” allocation, soybean futures generally represent the largest potential position, but the portfolio also may include positions in corn, wheat, soybean oil and soybean meal futures. Within the 1/6 “metals” allocation, gold futures generally represent the largest potential position, but the portfolio also may include positions in silver and copper futures. Within the 1/6 “energy products” allocation, crude oil futures generally represent the largest potential position, but the portfolio also may include positions in heating oil, unleaded gasoline and natural gas futures. When the portfolio is fully invested, the relative weight of each contract position within the asset class is influenced by the relative liquidity and perceived profit potential of each contract traded.
The profitability of MAAP depends upon the occurrence of major price moves, or trends, in the futures contracts traded. However, there is no guarantee that there will actually be such trends in the future or that AIS will be able to identify or properly capitalize on future price trends.
The MAAP investment process begins with an analysis of the global macro economic conditions that could impact the environment for the six sectors traded. AIS believes that global economic growth rates, inflation trends, government policies, currency and interest rate trends, and demographic factors all interact to impact price trends in the various markets traded. In addition to global macro trends, analysis of specific supply and demand trends within each of the three commodity sectors is conducted on an ongoing basis. Finally, AIS analyzes the potential of supply demand conditions and price trends in one sector to impact prices in other sectors. Using their analysis of fundamental conditions, the trading principals then look to their quantitative and systematic models and utilize technical analysis to help with the timing of trades and the determination of the size of new or adjusted positions. The trading principals believe that combining both fundamental and quantitative analysis creates a more in-depth understanding of market dynamics.
AIS exercises discretion with respect to the timing of entering into new positions when additional funds are added, and the timing of closing out existing positions when there are withdrawals, but this usually occurs on the first and last business days of each month. When MAAP’s position weighting parameters signal that the number of positions in a futures contract should be increased or decreased due to overall portfolio gains or due to a need to rebalance, AIS may wait for corrections or advances prior to adjusting the number of contracts held in a particular asset’s position. During these periods, the Partnership’s leverage may substantially exceed or fall short of what it would be if a new position were initiated immediately upon additions to or withdrawals from the Partnership. If AIS believes the markets are subject to unusual risk, possible government intervention or temporary illiquidity, it may temporarily reduce overall portfolio leverage or leverage in a particular market.
Although AIS generally takes positions in the most liquid, front month futures contract, it also analyzes spread relationships in order to take advantage of extremes in pricing between front month futures contracts and forward month futures contracts and may at times utilize forward month futures. AIS believes this flexibility periodically offers opportunities to reduce portfolio risk or increase portfolio return. AIS may also buy or sell options on futures at its discretion in an effort to reduce portfolio risk or to allow a managed account to enter or exit positions at certain prices and times.
AIS can generally apply MAAP with different degrees of leverage based on a client’s risk/reward parameters, ranging from no additional leverage to four times leverage. With respect to the Partnership, AIS will maintain, except for temporary deviations from time to time (as described herein) or if the prices of the futures contracts entered into at the onset of a new position change substantially, leverage at a level not materially greater than four times the Partnership’s Net Assets. However, depending on AIS’ discretionary assessment, leverage may be significantly less than four times the Partnership’s Net Assets.
AIS continues an active research program designed to improve investment returns and reduce portfolio risk. Such research may lead to the introduction of trading models in individual markets and to more extensive use of options on futures contracts. AIS’ research in the use of options on futures is primarily, but not solely, intended to seek ways to further reduce portfolio volatility.
AIS’ basic risk management decision-making is discretionary, using both fundamental and technical/quantitative information, however, beginning in mid-2009, AIS overlays these decisions with a systematic process to determine maximum leverage in the commodity sectors. The physical commodity risk overlay assigns positive or negative points to each of the twelve commodity markets traded within the three physical commodity asset classes of MAAP. These twelve markets include: gold, silver, copper, crude oil, RBOB (unleaded gasoline), heating oil, natural gas, corn, wheat, soybeans, soybean meal and soybean oil. A composite point level is then computed for the twelve commodity markets. If the composite reading for the twelve markets drops below the predetermined minimum level, leverage must be reduced to a maximum of 50 percent of potential leverage on the long side for MAAP’s commodity positions. Leverage on commodity long positions can only be brought back above 50 percent of maximum when the portfolio point system rises to a predetermined positive level.
The physical commodities risk overlay is designed to be long-term, with infrequent signals. During the 17 years that MAAP was traded prior to implementation of the physical commodities risk overlay, from 1992 through mid-2009, there would have been only seven negative signals had this risk overlay been in place. Three such negative signals would have avoided significant commodity market declines, two such negative signals would have added minimal value, and two such negative signals would have modestly reduced upside gains as commodity prices continued to rise. The risk overlay is not without its limitations and is intended to reduce, rather than eliminate, discretion in making risk management decisions. However, the long-term nature of the approach may avoid the problem of frequent whipsaws to which many systematic traders are subject, although there can be no assurance that this approach will be successful in doing so or not result in reduced returns for the Partnership.
Regulation
Under the Commodity Exchange Act, as amended (the “CEA”), commodity exchanges and futures trading are subject to regulation by the CFTC. NFA, a “registered futures association” under the CEA, is the only non-exchange self-regulatory organization for futures industry professionals. The CFTC has delegated to NFA responsibility for the registration of “commodity trading advisors,” “commodity pool operators,” “futures commission merchants,” “introducing brokers” and their respective associated persons and “floor brokers” and “floor traders.” The CEA requires commodity pool operators and commodity trading advisors, such as the General Partner, and commodity brokers or futures commission merchants, such as NUSA to be registered and to comply with various reporting and record keeping requirements. The CFTC may suspend a commodity pool operator’s or trading advisor’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 registration of the General Partner as a commodity pool operator or a commodity trading advisor were terminated or suspended, the General Partner would be unable to continue to manage the business of the Partnership. Should the General Partner’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 position which any person may hold or control in particular commodities. Most exchanges also limit the changes in futures contract prices that may occur during a single trading day.
Items 101(c)(i) through (xii) of Regulation S-K are not applicable.
The Partnership has no employees.
(d)
Partnership Assets and Cash Management Income
(i) Partnership Assets and Custody of Assets
The Partnership’s assets are not used to “purchase” any futures positions, but rather as good faith deposits to secure the Partnership’s obligations under the positions which it holds. The Partnership’s margin commitments generally range between 10% and 35% of net assets.
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 does not and will not: (1) invest in any equity security, (2) make loans to any person or entity (other than by the purchase of U.S. Treasury instruments) or (3) commingle its property with the property of any other person or entity.
(ii) Interest Income
Partnership assets necessary to margin the Partnership’s futures positions are deposited in the Partnership’s customer segregated trading account with the Commodity Broker in cash or in United States Treasury bills in accordance with CFTC regulations. The remainder of the Partnership’s assets are held at banks and broker-dealers, which includes a checking account containing nominal funds to pay expenses. All interest income earned on the Partnership’s assets, in accounts with both the Commodity Broker and banks and broker-dealers, accrues to the benefit of the Partnership.
AIS may trade foreign futures contracts on behalf of the Partnership. In connection with such trading, certain Partnership funds may be kept on deposit in accounts inside or outside the United States with entities eligible to act as depositories under the CFTC regulations governing foreign futures trading. The Commodity Broker obtains from each such depository an acknowledgment that such funds are held on behalf of foreign futures customers and are being held in accordance with applicable CFTC regulations. The interest, if any, earned by the Partnership on such funds varies depending upon the specific foreign futures contracts traded on behalf of the Partnership.
(e)
Charges
Recipient
Nature of Payment
Amount of Payment
Various service providers
Administrative expenses
The Partnership pays its routine legal, accounting and filing fees, operating expenses and other administrative costs as incurred. These costs are currently estimated at between $200,000 and $250,000 per year, although they may exceed this level. The Partnership will pay any taxes or extraordinary expenses applicable to it, but these are not expected to be material.
Recipient
Nature of Payment
Amount of Payment
General Partner
Profit Share
The General Partner receives an annual Profit Share equal to 20% of any New Trading Profit realized on Series A Interests payable at the end of each calendar year. New Trading Profit is calculated on a “high water mark” basis with respect to each Limited Partner so that a Limited Partner is charged a Profit Share only on the amount of trading profits allocated to such Limited Partner that exceed the previous high point in trading profit allocated to such limited partner since a Profit Share was last charged. Because Limited Partners purchase Interests at different times, they may recognize different amounts of New Trading Profit.
General Partner
Management Fee
Series A Interests pay the General Partner a monthly Management Fee equal to 1/12 of 2% of month-end Net Assets (a 2% annual rate).
The Commodity Broker and other executing brokers
Brokerage Commissions
The Partnership pays to the Commodity Broker brokerage commissions and certain other trading expenses incurred in connection with the Partnership’s futures trading. The Partnership pays to the Commodity Broker up to $8 per “round turn” trade, which includes all exchange, clearing, give up and NFA fees. If the Partnership uses an executing broker other than the Commodity Broker it pays up to $1.50 for trade execution. The Partnership is charged half of these round-turn rates on each purchase and sale of futures options. When an option is exercised and a futures position is acquired, the full round-turn rate is charged on that position. There is no charge when an option expires. The General Partner estimates that the annual brokerage commission expenses will, in the aggregate, range from 0.10% to 1.00% of the Partnership’s average month-end Net Assets, but such expenses may exceed this estimate under certain circumstances. If the Partnership engages in forward trading, the Partnership would typically be charged a bid/ask spread which is embedded in the price quoted by the forward contract counterparty and is thus unquantifiable.
Selling Agents
Selling Agent
Administrative and
Service Fee
Series A Interests purchased by Limited Partners that were solicited by selling agents (collectively, the “Selling Agents”) will pay to the respective Selling Agent a Selling Agent Administrative and Service Fee (the “Service Fee”) equal to 1/12 of 2.5% (a 2.5% annual rate) of the month-end Net Asset Value of the Series A Interests sold by them which remain outstanding as of each month-end. The Selling Agent may pass on a portion of such Service Fees to its investment executives. The General Partner may also pay a portion of its Management Fee to the Selling Agents as additional sales compensation in respect of the Interests sold by the Selling Agents.
Various Selling Agents
Upfront selling commissions
A selling commission of up to 2% of the subscription amount may be deducted from the subscription proceeds and paid to the applicable Selling Agent, if any.
Series B Interests, which are available only to the General Partner, its principals and employees, pay no Management Fee, Selling Agent Administrative and Service Fee or Profit Share, although they pay brokerage commissions and all other Partnership expenses and are otherwise identical to Series A Interests.
Item 1A:
Item 1A: RISK FACTORS
The Partnership is a Smaller Reporting Company, as defined by Rule 229.10(f)(1) and therefore this item is not required.
Item 1B:
Item 1B: UNRESOLVED STAFF COMMENTS
Not applicable.
Item 2:
Item 2: PROPERTIES
The Partnership does not own or use any physical properties in the conduct of its business. The General Partner performs all administrative services for the Partnership from the General Partner’s offices at 187 Danbury Road, Suite 201, Wilton, Connecticut 06897.
Item 3:
Item 3: LEGAL PROCEEDINGS
The Partnership is not aware of any pending legal proceedings to which either the Partnership is a party or to which any of its assets are subject. In addition there are no pending material legal proceedings involving the General Partner.
Item 4:
Item 4: (RESERVED)
PART II
Item 5:
Item 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES
(a)
Market information
There is no trading market for the Interests, and none is likely to develop. Interests may be redeemed or transferred subject to the conditions imposed by the Limited Partnership Agreement.
(b)
Holders
As of February 28, 2010, there were 1,248 holders of Interests.
(c)
Dividends
AIS has sole discretion in determining what distributions, if any, the Partnership makes to Limited Partners. To date no distributions or dividends have been paid on the Interests, and the General Partner has no present intention to make any.
(d)
Securities Authorized for Issuance under Equity Compensation Plans
None.
(e) Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
The Partnership did not sell any unregistered securities within the past three years which have not previously been included in the Partnership’s Quarterly Reports on Form 10-Q or in a Current Report on Form 8-K.
(f) Issuer Purchases of Equity Securities
Pursuant to the Limited Partnership Agreement, Limited Partners may redeem their Interests in the Partnership as of the last business day of each calendar month upon ten days’ written notice to AIS. The redemption of capital from capital accounts by Limited Partners has no impact on the value of the capital accounts of other Limited Partners.
The following table summarizes Limited Partner redemptions during the fourth calendar quarter of 2009:
Item 6:
Item 6: SELECTED FINANCIAL DATA
The Partnership is a Smaller Reporting Company, as defined by Rule 229.10(f)(1) and therefore this item is not required.
Item 7:
Item 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to “Item 8. Financial Statements and Supplementary Data.” The information contained therein is essential to, and should be read in conjunction with, the following analysis.
(a) Capital Resources
The Partnership raises additional capital only through the sale of Interests and capital is increased through trading profits (if any) and interest income. The Partnership does not engage in borrowing.
The amount of capital raised for the Partnership should not have a significant impact on its operations, as the Partnership has no significant capital expenditure or working capital requirements other than for monies to pay trading losses, brokerage commissions and expenses. Within broad ranges of capitalization, the General Partner’s trading positions should increase or decrease in approximate proportion to the size of the Partnership.
The Partnership trades futures contracts and options on futures contracts on domestic markets. Risk arises from changes in the value of these instruments (market risk) and the potential inability of counterparties or brokers to perform under the terms of their contracts (credit risk). Market risk is generally to be measured by the face amount of the futures positions acquired and the volatility of the markets traded. The credit risk from counterparty non-performance associated with these instruments is the net unrealized gain, if any, on these positions plus the value of the margin or collateral held by the counterparty. The counterparty for futures and options on futures contracts traded in the United States is the clearinghouse associated with the relevant exchange. Clearinghouse arrangements are generally perceived to reduce credit risk because, in general, clearinghouses are backed by the corporate members of the clearinghouses, which are required to share any financial burden resulting from the non-performance of any one of the members of the clearinghouse.
The General Partner attempts to control market risk through: (1) real time monitoring of open positions; (2) diversifying positions among various markets; (3) moderating position size in each market traded on the basis of the trading signals indicated by MAAP (that is, taking a full, partial or no position); and (4) limiting the leverage in the Partnership’s portfolio to not more than approximately four times the net asset value of the Partnership. The Partnership controls credit risk by dealing exclusively with large, well capitalized financial institutions and futures brokers.
The financial instruments traded by the Partnership contain varying degrees of off-balance sheet risk whereby changes in the market values of the futures underlying the financial instruments or the Partnership’s satisfaction of the obligations may exceed the amount recognized in the statement of financial condition of the Partnership.
Due to the nature of the Partnership’s business, substantially all its assets are represented by cash and United States government obligations, while the Partnership maintains its market exposure through open futures contract positions.
The Partnership’s futures contracts are settled by offset and are cleared by the exchange clearinghouse function. Open futures positions are marked to market each trading day and the Partnership’s trading accounts are debited or credited accordingly. Options on futures contracts are settled either by offset or by exercise. If an option on a future is exercised, the Partnership is assigned a position in the underlying future which is then settled by offset.
The value of the Partnership’s cash and financial instruments is not materially affected by inflation. Changes in interest rates, which are often associated with inflation, could cause the value of certain of the Partnership’s debt securities to decline, but only to a limited extent. More importantly, changes in interest rates could cause periods of strong up or down market price trends, during which the Partnership’s profit potential generally increases. However, inflation can also give rise to markets which have numerous short price trends followed by rapid reversals, markets in which the Partnership is likely to suffer losses.
(b) 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, as necessary, to pay redemptions and expenses. Other than potential market-imposed limitations on liquidity, due, for example, to limited open interest in certain futures markets or to daily price fluctuation limits, which are inherent in the Partnership’s futures trading, the Partnership’s assets are highly liquid and are expected to remain so. During its operations through December 31, 2009, the Partnership experienced no meaningful periods of illiquidity in any of the markets traded by the General Partner on behalf of the Partnership.
(c) Critical Accounting Policies
The Partnership records its transactions in futures contracts, including related income and expenses, on a trade date basis. Open futures contracts traded on an exchange are valued at fair value, which is based on the closing settlement price on the exchange where the futures contract is traded by the Partnership on the day with respect to which Net Assets are being determined.
The Partnership accounts for certain assets and liabilities at fair value under the Financial Accounting Standards Board Accounting Standards Codification (the “Codification”). The Partnership adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS No. 157) on January 1, 2008. SFAS No. 157, which is now incorporated in the Codification, 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 statements of financial condition at December 31, 2009 and December 31, 2008 are categorized as Level 1 and Level 2 based on the inputs to the valuation techniques. Level 1 denotes fair value is based on unadjusted quoted prices for identical assets or liabilities in an active market that the Partnership has the ability to access. Level 2 denotes fair value is based on observable inputs other than quoted market prices that the Partnership has the ability to access.
A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The fair values of futures contracts are based upon exchange settlement prices. The fair value of U.S. Government Securities is based on cost plus accrued interest, which approximates fair value, based on quoted market prices.
The Partnership accounts for subscriptions, allocations and redemptions on a per partner capital account basis. Income or loss, prior to the Management Fee, Selling Agent Administative and Service Fee and the General Partner Profit Share allocation, is allocated pro rata to the capital accounts of all partners.
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, such as accrual of expenses, that affect the amounts and disclosures reported in the financial statements. Based on the nature of the business and operations of the Partnership, the General Partner believes that the estimates utilized in preparing the Partnership’s financial statements are appropriate and reasonable; however, actual results could differ from these estimates.
The estimates used do not provide a range of possible results that would require the exercise of subjective judgment. The General Partner further believes that, based on the nature of the business and operations of the Partnership, no other reasonable assumptions relating to the application of the Partnership’s critical accounting estimates other than those currently used would likely result in materially different amounts from those reported.
(d) Off-Balance Sheet Arrangements
The Partnership does not engage in off-balance sheet arrangements with other entities.
(e) Contractual Obligations
The Partnership is a Smaller Reporting Company, as defined by Rule 229.10(f)(1) and therefore this item is not required.
(f) Results of Operations
Performance Summary
The profitability of trend-following trading techniques such as MAAP depends upon the occurrence of major price moves in at least some of the futures contracts traded. The General Partner’s trading methods are confidential, so that the only information that can be furnished regarding the Partnership’s results of operations is its performance record. The Partnership engages in speculative trading and the Partnership may enter into long, short or neutral positions in the markets in which it trades. Because the Partnership’s trading strategies depend heavily on global price trends (both positive and negative), and these price trends may be affected by global economic conditions and may at times be seasonal, the Partnership will be affected by such conditions and trends. The past performance of the Partnership is not necessarily indicative of future results. The General Partner believes, however, that there are certain market conditions - for example, markets with strong price trends - in which the Partnership has a better opportunity of being profitable than in others.
During 2009, the Partnership achieved a net realized and unrealized gain of $33,898,906 from its trading operations, which is net of brokerage commissions of $128,483. The Partnership incurred total expenses of $2,928,297 including $1,582,995 in Selling Agent Administrative and Service Fees, $1,117,262 in Management Fees (paid to the General Partner) and $228,040 in operating expenses. The Partnership earned $130,650 in interest income and allocated a Profit Share of $406,628 to the General Partner. An analysis of trading gains and losses (not adjusted for any fees or expenses) by market sector is as follows:
Sector
% Gain (Loss)
S&P 500
3.39%
Bonds
0.66%
Currency
11.22%
Energy
9.90%
Metals
28.78%
Grains
10.61%
During 2009, the Partnership achieved gains in all six asset classes traded in the portfolio. Approximately 40% of the portfolio gains came from the long positions in the metals sector. Currency, grains and energy long positions contributed significant gains as well. Small gains were acheived by the partial long position in the S&P 500 and a short position in bonds, entered into near the end of the year.
During 2008, the Partnership achieved a net realized and unrealized loss of $62,034,588 from its trading operations, which is net of brokerage commissions of $145,223. The Partnership incurred total expenses of $4,729,122 including $2,677,876 in Selling Agent Administrative and Service Fees, $1,840,216 in Management Fees (paid to the General Partner) and $211,030 in operating expenses. The Partnership earned $2,627,131 in interest income and allocated a Profit Share of $769,386 to the General Partner. An analysis of trading gains and losses (not adjusted for any fees or expenses) by market sector is as follows:
Sector
% Gain (Loss)
S&P 500
4.85%
Bonds
(8.87)%
Currency
9.11%
Energy
(31.95)%
Metals
(9.55)%
Grains
(17.13)%
The Partnership experienced sharp losses in 2008, primarily due to the reversal of commodity markets at mid-year. Although the Partnership profited from a short position in the S&P 500 and a long position in Japanese yen, the long positions in the three commodity sectors were unprofitable and more than offset the Partnership’s gains. In particular, the long position in energy contributed the largest loss, followed by the long position in grains, and to a lesser extent, the long position in metals. In addition, bond trading was also unprofitable, primarily due to a short position in U.S. Treasury bond contracts in the fourth quarter.
Item 7A.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is a Smaller Reporting Company, as defined by Rule 229.10(f)(1) and therefore this item is not required.
Item 8:
Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements required by this item, including the reports of Arthur F. Bell, Jr. & Associates, L.L.C. for the fiscal year ended December 31, 2009 and McGladrey & Pullen, LLP for the fiscal year ended December 31, 2008, are included herewith following the Index to Financial Statements set forth following the signature page hereof and incorporated by reference into this Item 8.
Because the Partnership is a Smaller Reporting Company, as defined by Rule 229.10(f)(1), the supplementary financial information required by Item 302 of Regulation S-K is not required.
Item 9:
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A(T):
Item 9A(T): CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
AIS, the general partner and trading advisor of the Partnership, with the participation of AIS’ President and Vice President, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Partnership as of the end of the period covered by this annual report, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective. Additionally, there were no significant changes in the Partnership’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
(b) Management’s Annual Report on Internal Control over Financial Reporting
AIS, the general partner and trading advisor of the Partnership, is responsible for establishing and maintaining adequate controls over financial reporting for the Partnership. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”).
The General Partner’s internal control over financial reporting includes those policies and procedures that (1) relate to records maintained by the Partnership to accurately and fairly reflect Partnership transactions and disposition of Partnership assets; (2) provide reasonable assurances that Partnership transactions are recorded accurately to permit preparation of Partnership financial statements in accordance with GAAP and that Partnership receipts and expenditures are being made in accordance with the authorizations of AIS’ management; and (3) provide reasonable assurances regarding the prevention and detection of unauthorized acquisition, use or disposal of Partnership assets that would have a material effect on the Partnership’s financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
AIS has assessed the effectiveness of its internal control over the financial reporting with respect to the Partnership as of December 31, 2009. Based on its assessment, management of AIS has concluded that, as of December 31, 2009, its internal control over financial reporting with respect to the Partnership is effective.
This annual report does not include an attestation report of the Partnership’s registered public accounting firm regarding internal control over financial reporting. This report was not subject to attestation by the Partnership’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.
(c) Changes in Internal Control over Financial Reporting
Section 404 of the Sarbanes-Oxley Act of 2002 requires the General Partner to evaluate annually the effectiveness of its internal controls over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of its internal control over financial reporting in all annual reports.
There were no changes in the General Partner’s internal control over financial reporting during the period ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B:
Item 9B: OTHER INFORMATION
None.
PART III
Item 10:
Item 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(a) Identification of Directors and Executive Officers.
(i) As a limited partnership, the Partnership itself has no officers, directors or employees. The Partnership’s affairs are managed by the General Partner. Trading decisions are made by the General Partner on behalf of the Partnership.
The principals of the General Partner and their business backgrounds are as follows.
John Hummel, age 63, has been the President, Treasurer and Director of AIS since its inception. Mr. Hummel has been a member, associated person and principal of AIS since May 1990. Mr. Hummel has been a research analyst and portfolio manager in the securities field since June 1967 and has traded commodities for his personal account since February 1981 and for customers since June 1983. Mr. Hummel has also been, since its inception in September 1993, the President and a Director, member, associated person and principal of AIS Capital Management LLC (“AIS Capital Management”) and its predecessor, AIS Capital Management, Inc., a registered commodity pool operator and investment adviser. Mr. Hummel currently serves as the portfolio manager of AIS Balanced Fund L.P. (formerly Cowen Premier Balanced Fund L.P.), AIS Capital Growth Fund, L.P., and AIS Gold Fund L.P., the general partner of each of which is AIS Capital Management. From May 1990 until March 31, 1993, Mr. Hummel was affiliated with Cowen & Company, a broker-dealer and investment adviser formed in 1918 which is a member of the New York Stock Exchange and all other principal United States exchanges. At Cowen & Company, Mr. Hummel was directly responsible for managing individual and institutional stock and bond portfolios. From June 1987 until July 1990, Mr. Hummel was affiliated with Matuschka & Co. L.P. (formerly Matuschka Moser Partners L.P.), a United States affiliate of The Matuschka Group, a privately-owned investment firm headquartered in Germany, where he was directly responsible for managing individual and institutional stock and bond portfolios. Also during such time, Mr. Hummel was affiliated with Matuschka Moser Futures Management Corporation from June 1987 until October 1990 where he acted as a portfolio manager with respect to futures trading. Prior to joining Matuschka & Co. L.P. in June 1987, Mr. Hummel was a Managing Director of Mitchell Hutchins Asset Management, Inc., at the time a subsidiary of PaineWebber Inc. (which was later acquired by UBS Global Asset Management US Inc.), where he had been responsible for individual and institutional investment portfolios since January 1977. Mr. Hummel directed the trading of Mitchell Hutchins Futures Fund, Ltd. from its inception in December 1983 through June 1987. From April 1976 to December 1976, Mr. Hummel worked for Reynolds Securities, Inc. in Milwaukee, Wisconsin. From June 1969 to April 1976, Mr. Hummel served as President of Asset Management Corporation, an investment advisory firm which he helped organize. From June 1967 to June 1969, Mr. Hummel worked as a research analyst for Robert W. Baird & Co., a brokerage firm in Milwaukee, Wisconsin. Mr. Hummel received a B.S. degree in investment management from Northwestern University in 1967.
Bradley C. Stern, age 42, is the Vice President of AIS and of AIS Capital Management. Mr. Stern has been a member and associated person of AIS since March 1993, a member and associated person of AIS Capital Management since March 2004 and a principal of both AIS and AIS Capital Management since November 1993. Mr. Stern graduated from Emory University in with a B.B.A. degree and did post graduate work in finance at New York University in 1991 and 1992. From September 1988 to April 1989, he was an account executive with Winston Resources, a recruiting firm. From April 1989 to September 1989, he worked as a liaison between retail brokers and insurance companies regarding such insurance products as annuities, term life and whole life insurance at Thomson McKinnon Securities Inc., a registered broker-dealer. From September 1989 through March 1993, Mr. Stern was an Assistant Portfolio Manager at Cowen & Company, a broker-dealer and investment adviser formed in 1918 which is a member of the New York Stock Exchange and all other principal United States exchanges, and his responsibilities increased during his time there to include acting as a Trading Analyst for Cowen & Company. In March 1993, Mr. Stern left Cowen & Company with Mr. Hummel to join AIS and has been with AIS since that time.
Robert F. Ward is a principal of AIS, but does not participate in making trading or operational decisions for the Partnership and does not supervise persons so engaged.
(ii) Identification of Certain Significant Employees
None.
(iii) Family Relationships
None.
(iv) Business Experience
See above.
(v) Involvement in Certain Legal Proceedings.
None.
(vi) Promoters and Control Persons
Not Applicable.
(b) Section 16(a) Beneficial Ownership Reporting Compliance
AIS Futures Management LLC, John Hummel and Brad Stern each filed their initial reports on Form 3 after the Interests became registered under Section 12 of the Securities Exchange Act of 1934. No subsequent filings on Form 4 or Form 5 have been required.
(c) Code of ethics
The Partnership has no employees, officers or directors and is managed by AIS. AIS has adopted a Code of Ethics that applies to its principal executive officer and certain other officers and employees of AIS. A copy of this Code of Ethics may be obtained at no charge by written request to AIS Futures Management LLC, 187 Danbury Road, Suite 201, Wilton, CT 06897 or by calling AIS at (203) 563-1180.
Item 11:
Item 11: EXECUTIVE COMPENSATION
The Partnership itself has no officers, directors or employees. None of the principals, officers or employees of AIS receive compensation from the Partnership. AIS makes all trading decisions for the Partnership. AIS receives a monthly Management Fee from the Partnership of 1/12 of 2% of month-end Net Assets attributable to Series A Interests and an annual Profit Share equal to 20% of New Trading Profit realized on Series A Interests, payable at the end of each calendar year on a “high water mark” basis. Because Limited Partners purchase Interests at different times, they may recognize different amounts of New Trading Profit. Each Limited Partner is charged a Profit Share only on the New Trading Profit allocable to such Limited Partner’s investment in the Partnership. There is no Management Fee or Profit Share with respect to Series B Interests, which are available only to AIS, its principals and employees.
The officers of AIS are compensated by AIS in their respective positions. The officers receive no other compensation from the Partnership. There are no compensation plans or arrangements relating to a change in control of either the Partnership or AIS.
Item 12:
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
(a)
Securities authorized for issuance under equity compensation plans
None.
(b)
Security ownership of certain beneficial owners
As of February 28, 2010, the General Partner knows of the following persons who own beneficially more than 5% of the Partnership’s Interests as follows:
Name and Address
Value of Interests held
Percentage Ownership
City of Meridian Police and Fire Fund H
142 East Main Street
Meriden, CT 06108
$5,317,695
7.92%
City of Meridian Employees Fund M
142 East Main Street
Meriden, CT 06108
$5,317,695
7.92%
All of the Partnership’s general partner interest is held by AIS Futures Management LLC.
(c)
Security Ownership of Management
The Partnership has no officers or directors. Under the terms of the Limited Partnership Agreement, the Partnership’s affairs are managed by the General Partner, which has discretionary authority over the Partnership’s trading. As of February 28, 2010, the General Partner’s interest in the Partnership was valued at $224,996, which constituted 0.335% of the Partnership’s total assets.
As of February 28, 2010, no director, executive officer or member of the General Partner beneficially owned Interests in the Partnership.
(d)
Changes in Control
There have been no changes in control of the Partnership.
Item 13:
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
See “Item 11: Executive Compensation” and “Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” The Partnership paid the General Partner $1,117,262 in Management Fees for the year ended December 31, 2009. The Partnership allocated to the General Partner $406,628 in Profit Shares for the year ended December 31, 2009. The General Partner’s interest in the Partnership showed an allocation of profit of $108,575 for the year ended December 31, 2009. The Management Fees and Profit Shares paid by the Partnership to AIS were not negotiated and are higher than they would have been had they been the result of arm’s-length bargaining.
The Partnership has not and does not make any loans to the General Partner, its affiliates, their respective officers, directors or employees or the immediate family members of any of the foregoing, or to any entity, trust or other estate in which any of the foregoing has any interest, or to any other person (provided that the purchase of U.S. Treasury obligations and the deposit of Partnership assets with banks, futures brokers and foreign exchange counterparties in connection with the trading operations of the Partnership are not considered to be loans).
None of the General Partner, its affiliates, their respective officers, directors and employees or the immediate family members of any of the foregoing, or any entity trust or other estate in which any of the foregoing has any interest has, to date, sold any asset, directly or indirectly, to the Partnership.
The Partnership has no directors, officers or employees and is managed by the General Partner. The General Partner is managed by its principals, none of whom are independent of the General Partner.
Item 14:
Item 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the fees billed to the Partnership for professional audit services provided by McGladrey & Pullen, LLP, the Partnership’s independent registered public accountant for 2008, for the audit of the Partnership’s annual financial statements for the years ended December 31, 2009 and 2008, respectively. The fees billed for the year ended December 31, 2009 pertain to work completed with respect to the annual financial statements and review of financial statements included in the Partnership’s quarterly reports prior to the Partnership’s appointment of Arthur F. Bell, Jr. & Associates, L.L.C. as its independent registered public accountant for 2009.
McGladrey & Pullen, LLP
FEE CATEGORY
Audit Fees(1)
$124,763
$67,500
Audit-Related Fees
-
-
Tax Fees(2)
-
-
All Other Fees
-
-
TOTAL FEES
$124,763
$67,500
_____________
(1)
Audit fees consist of fees for professional services rendered for the audit of the Partnership’s financial statements and review of financial statements included in the Partnership’s quarterly reports.
(2)
Tax fees consist of fees for the preparation of the Partnership's U.S. federal and required state tax returns.
The following table sets forth the fees billed to the Partnership for professional tax services provided by Arthur F. Bell, Jr. & Associates, L.L.C., the Partnership’s independent registered public accountant for 2009, for the filing of the Partnership’s annual income tax returns for the years ended December 31, 2009 and 2008, respectively. Arthur F. Bell, Jr. & Associates, L.L.C. has not billed fees for professional audit services provided to the Partnership for the year ended December 31, 2009.
Arthur F. Bell, Jr. & Associates, L.L.C.
FEE CATEGORY
Audit Fees(1)
-
-
Audit-Related Fees
-
-
Tax Fees(2)
$16,064
$15,865
All Other Fees
-
-
TOTAL FEES
$16,064
$15,865
___________
(1)
Audit fees consist of fees for professional services rendered for the audit of the Partnership’s financial statements and review of financial statements included in the Partnership’s quarterly reports.
(2)
Tax fees consist of fees for the preparation of the Partnership's U.S. federal and required state tax returns.
Neither the Partnership nor AIS has an audit committee to pre-approve accountant and auditor fees and services. In lieu of an audit committee, the principals of AIS pre-approve the engagement of the auditor prior to the commencement of services.
PART IV
Item 15:
Item 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
Financial Statements
The following financial statements are included herewith, beginning following the Index to Financial Statements appearing after the signature page hereof, and are incorporated into Item 8:
·
Statements of Financial Condition at December 31, 2009 and 2008;
·
Condensed Schedule of Investments at December 31, 2009;
·
Condensed Schedule of Investments at December 31, 2008;
·
Statements of Operations For the Years Ended December 31, 2009 and 2008; and
·
Statements of Changes in Partners’ Capital (Net Asset Value) For the Years Ended December 31, 2009 and 2008.
(b)
Exhibits
The following documents (unless otherwise indicated) are filed herewith and made part of this registration statement.
Exhibit Designation
Description
________________________
* This exhibit is incorporated by reference to the exhibit of the same number and description filed with the Partnership’s Registration Statement (File No. 000-52599) filed on April 30, 2007 on Form 10 under the Securities Exchange Act of 1934.
** This exhibit is incorporated by reference to the exhibit of the same number and description filed with the Partnership’s Current Report (File No. 000-52599) filed on March 5, 2008 on Form 8-K under the Securities Exchange Act of 1934.
*** This exhibit is incorporated by reference to the exhibit of the same number and description filed with the Partnership’s Registration Statement (File No. 000-52599) filed on April 30, 2007 on Form 10 under the Securities Exchange Act of 1934. As of January 2, 2008, Calyon Financial Inc. was renamed Newedge Financial Inc. The existing Customer Agreement remains in effect, but under the new name.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 2010
AIS FUTURES FUND IV L.P.
By: AIS FUTURES MANAGEMENT LLC
By: /s/ John Hummel
Name: John Hummel
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the General Partner of the Registrant and in the capacities and on the date indicated.
Dated: March 31, 2010
By: /s/ John Hummel
Name: John Hummel
Title: Executive Officer, Principal Financial Officer and majority of the board of directors, or equivalent thereof, of AIS Futures Management LLC
AIS Futures Fund IV L.P. Annual Report, December 31, 2009
Report of Independent Registered Public Accounting Firm for 2009
Report of Independent Registered Public Accounting Firm for 2008
Statements of Financial Condition at December 31, 2009 and 2008
Condensed Schedule of Investments at December 31, 2009
Condensed Schedule of Investments at December 31, 2008
Statements of Operations For the Years Ended December 31, 2009 and 2008
Statements of Changes in Partners’ Capital (Net Asset Value) For the Years Ended December 31, 2009 and 2008
Notes to Financial Statements
-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2009
To the Partners
AIS Futures Fund IV L.P.
We have audited the accompanying statement of financial condition of AIS Futures Fund IV L.P., including the condensed schedule of investments, as of December 31, 2009, and the related statements of operations and changes in partners’ capital (net asset value) for the year 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 financial statements referred to above present fairly, in all material respects, the financial position of AIS Futures Fund IV L.P. as of December 31, 2009, and the results of its operations and the changes in its net asset value for the year then ended, in conformity with U.S. generally accepted accounting principles.
We were not engaged to examine management’s assertion about the effectiveness of AIS Futures Fund IV L.P.’s internal control over financial reporting as of December 31, 2009, included in the accompanying management’s annual report on internal controls over financial reporting and, accordingly, we do not express an opinion thereon.
/s/ Arthur F. Bell, Jr. & Associates, L.L.C.
Hunt Valley, Maryland
March 31, 2010
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2008
To the General Partner
AIS Futures Fund IV L.P.
We have audited the accompanying statement of financial condition, including the condensed schedule of investments, of AIS Futures Fund IV L.P. (the Partnership) as of December 31, 2008 and the related statements of operations and changes in partners’ capital for the year 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 financial statements referred to above present fairly, in all material respects, the financial position of AIS Futures Fund IV L.P. as of December 31, 2008, and the results of its operations for the year then ended in conformity with U.S. generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Chicago, Illinois
March 25, 2009
AIS FUTURES FUND IV L.P.
STATEMENTS OF FINANCIAL CONDITION
December 31, 2009 and 2008
_________________
The accompanying notes are an integral part of these financial statements.
AIS FUTURES FUND IV L.P.
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2009
_______________
The accompanying notes are an integral part of these financial statements.
AIS FUTURES FUND IV L.P.
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2008
_______________
The accompanying notes are an integral part of these financial statements.
AIS FUTURES FUND IV L.P.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2009 and 2008
_______________
The accompanying notes are an integral part of these financial statements.
AIS FUTURES FUND IV L.P.
STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL (NET ASSET VALUE)
For the Years Ended December 31, 2009 and 2008
_______________
The accompanying notes are an integral part of these financial statements.
AIS FUTURES FUND IV L.P.
NOTES TO FINANCIAL STATEMENTS
_______________
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General Description of the Partnership
AIS Futures Fund IV L.P. (the Partnership) is a Delaware limited partnership, which operates as a commodity investment pool. The Partnership engages in the speculative trading of futures contracts and options on futures contracts. The Partnership is subject to the regulations of the Commodity Futures Trading Commission, an agency of the United States (U.S.) government which regulates most aspects of the commodity futures industry; rules of the National Futures Association, an industry self-regulatory organization; and the requirements of commodity exchanges and Futures Commission Merchants (brokers) through which the Partnership trades.
The Fourth Amended and Restated Limited Partnership Agreement (the Limited Partnership Agreement) provides, among other things, that the Partnership shall dissolve no later than December 31, 2026.
B. Method of Reporting and Use of Estimates
The Partnership’s financial statements are presented in conformity with U.S. generally accepted accounting principles (U.S. GAAP) which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Effective July 1, 2009, the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC), referred to as FASB ASC or the Codification, became the single source of U.S. GAAP for interim and annual periods ending after September 15, 2009. Existing accounting standards are incorporated into the Codification and standards not incorporated into the Codification are considered nonauthoritative.
Pursuant to the Cash Flows Topic of the Codification and pursuant to Statement of Financial Accounting Standards No. 102 prior to the effective date of the Codification, the Partnership qualifies for an exemption from the requirement to provide a statement of cash flows and has elected not to provide a statement of cash flows.
C. Futures and Options on Futures Contracts
Futures and options on futures contracts are recorded on the trade date and reflected at fair value, based on quoted market prices, which is generally the closing settlement price on the primary exchange. Gains or losses are realized when contracts are liquidated. As the broker has the right of offset, the Partnership presents unrealized gains and losses on open contracts (the difference between contract trade price and quoted market price) as a net amount in the statement of financial condition. Any change in net unrealized gain or loss from the preceding period is reported in the statement of operations. Brokerage commissions include other trading fees and are charged to expense when contracts are opened.
AIS FUTURES FUND IV L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
_______________
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. United States Government Securities
U.S. government securities are stated at cost plus accrued interest, which approximates fair value based on quoted market prices. Any change in value of these securities is reported in interest income on the statement of operations.
E. Income Taxes
The Partnership prepares and files calendar year U.S. and applicable state information tax returns and reports to the partners their allocable shares of the Partnership’s income, expenses and trading gains or losses. No provision for income taxes has been made in these financial statements as each partner is individually responsible for reporting income or loss based on its respective share of the Partnership’s income and expenses as reporting for income tax purposes. The Partnership has elected an accounting policy to classify interest and penalties, if any, as interest expense. The 2006 through 2009 tax years generally remain subject to examination by U.S. federal and most state tax authorities.
The Partnership applies the provisions of FASB Interpretation No. 48 (FIN 48) entitled “Accounting For Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109.” FIN 48, which is now incorporated in the Codification in Topics 740, Income Taxes; 805, Business Combinations; and 835, Interest, prescribes the minimum recognition threshold a tax position must meet in connection with accounting for uncertainties in income tax positions taken or expected to be taken by an entity before being measured and recognized in the financial statements. This accounting standard requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnership’s financial statements to determine whether the tax positions are “more-likely-or-not” of being sustained by the applicable tax authority. Tax positions with respect to tax at the Partnership level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year. The General Partner has concluded there is no tax expense or associated interest and penalties to be recorded by the Partnership for the years ended December 31, 2009 and 2008.
F. Capital Accounts
The Partnership offers two Series of Interests. The Series A Interests are available to all qualified investors, subject to applicable conditions and restrictions. The Series B Interests are available for sale to the General Partner and its principals. The Partnership accounts for subscriptions, allocations and redemptions on a per partner capital account basis. Income or loss, prior to the Management Fee, Selling Agent Administrative and Service Fee and General Partner Profit Share allocation, is allocated pro rata to the capital accounts of all partners. Each Series A Limited Partner is then charged their applicable Management Fee and Selling Agent Administrative and Service Fee. The General Partner Profit Share allocation applicable to each Series A Limited Partner is then allocated to the General Partner’s capital account from the Series A Limited Partner’s capital account at the end of each calendar year or upon redemption by a Series A Limited Partner.
AIS FUTURES FUND IV L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
_______________
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. Capital Accounts (continued)
On March 1, 2008, the Partnership adopted its Fourth Amended and Restated Limited Partnership Agreement. This agreement changed the defined term used to describe interests in Partnership from “Units of Limited Partnership Interest” to “Limited Partnership Interests” to prevent confusion over the use of the term “units.” The Partnership accounted for its “Units of Limited Partnership Interest” on a capital account basis prior to March 1, 2008 and will continue to account for its “Limited Partnership Interests” on the same basis going forward.
G. Redemptions
Limited Partners may require the Partnership to redeem some or all of their capital upon ten days prior written notice. The ten days prior written notice may be waived at the discretion of the General Partner. Partner redemptions are recorded on their effective date, which is generally the last day of the month.
H. Recently Issued Accounting Pronouncements
Effective January 1, 2009, the Partnership adopted Statement of Financial Accounting Standards No. 161, “Disclosure about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133” (FAS 161). FAS 161, which is now incorporated in the Codification in the Derivatives and Hedging Topic, establishes, among other things, the disclosure requirements for derivative instruments and for hedging activities. The adoption of this accounting pronouncement did not have a material impact on the Partnership’s financial statements. The disclosures required by the Derivatives and Hedging Topic related to this accounting pronouncement are included in Note 6. of these financial statements.
In May 2009, the FASB issued FASB Statement No. 165, “Subsequent Events” (FAS 165) which establishes general standards of accounting for and disclosure of events that occur after the date of the statement of financial condition but before the financial statements are issued or are available to be issued. FAS 165, which is now incorporated in the Codification in the Subsequent Events Topic, is effective for interim and annual periods ending after June 15, 2009. The adoption of this accounting pronouncement did not have a material impact on the Partnership’s financial statements.
Note 2. GENERAL PARTNER
The General Partner and commodity trading advisor of the Partnership is AIS Futures Management LLC, which conducts and manages the business and trading activities of the Partnership.
The Limited Partnership Agreement provides for the General Partner to receive a monthly Management Fee equal to 1/12 of 2% (2% annually) of each Series A Limited Partner’s month-end
AIS FUTURES FUND IV L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
_______________
Note 2. GENERAL PARTNER (CONTINUED)
Net Assets, as defined. The General Partner also receives a Profit Share allocation equal to 20% of any New Trading Profit, as defined, attributable to each Series A Limited Partner’s Interest achieved as of each calendar year-end or upon redemption.
During 2009 and 2008, certain Series A Limited Partners were charged Management Fees at a rate lower than described above, to offset the effect of the additional 1.5% per annum Selling Agent Administrative and Service Fee described in Note 3. Accordingly, for the years ended December 31, 2009 and 2008, Management Fees were reduced by approximately $109,000 and $192,000, respectively.
The General Partner has paid all organizational and offering costs and will not be reimbursed therefor.
Note 3. SELLING AGENT ADMINISTRATIVE AND SERVICE FEES
Certain Series A Limited Partners that were solicited by Selling Agents are charged a Selling Agent Administrative and Service Fee (the Service Fee) equal to 1/12 of 2.5% (2.5% annually) of each Series A Limited Partner’s month-end Net Assets, as defined, sold by them which remain outstanding as of each month-end. The Selling Agents may pass on a portion of the Service Fee to its investment executives. In the event the Service Fee is no longer payable to a Selling Agent, the relevant Limited Partner who was solicited by such Selling Agent will no longer be charged the Service Fee. For the years ended December 31, 2009 and 2008, certain Limited Partners were not subject to the Service Fee. The Service Fee is accrued and expensed as incurred.
For investment executives associated with the sale of Series A Limited Partnership Interests in excess of $500,000, the investment executive’s firm will receive an additional 1.5% per annum Service Fee with respect to such Series A Limited Partnership Interests in excess of $500,000, for the first twelve months following the sale of such Series A Limited Partnership Interests. The additional Service Fee is paid by the Partnership, however, the General Partner reduces their Management Fee (see Note 2.) related to the Series A Limited Partner’s Interest. Accordingly, this additional Service Fee does not affect the total fees charged to the Series A Limited Partner.
Note 4. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
Investments in the Partnership are made by subscription agreement, subject to acceptance by the General Partner. A selling commission of up to 2% of the subscription amount may be deducted from the subscription proceeds and paid to the applicable Selling Agent, if any. For the years ended December 31, 2009 and 2008, $200 and $30,737, respectively, in selling commissions were charged to Series A Limited Partners. Series A Limited Partner subscriptions, as presented in the statement of changes in partners’ capital (net asset value), are net of such selling commissions, if any.
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 partial or full redemption of their capital account as of the close of business on the last business day of any month, subject to restrictions in the Limited Partnership Agreement.
AIS FUTURES FUND IV L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
_______________
Note 5. FAIR VALUE
Fair value, as defined in the Fair Value Measurements and Disclosures Topic of the Codification, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy, as set forth in the Fair Value Measurements and Disclosures Topic of the Codification, prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: quoted market prices in active markets for identical assets or liabilities (Level 1); inputs other than quoted market prices that are observable for the asset or liability, either directly or indirectly (Level 2); and unobservable inputs for an asset or liability (Level 3). If the inputs used to measure a financial instrument fall within different levels of the fair value hierarchy, the categorization is based on the lowest level input that is significant to the measurement of that financial instrument.
Financial assets and liabilities recorded on the statements of financial condition at December 31, 2009 and 2008 and are categorized as Level 1 and Level 2 based on the inputs to valuation techniques. Level 1 denotes fair value is based on unadjusted quoted prices for identical assets or liabilities in an active market that the Partnership has the ability to access. Level 2 denotes fair value is based on inputs other than quoted market prices that the Partnership has the ability to access. The Partnership had no level 3 assets or liabilities during the years ended December 31, 2009 or 2008.
A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The following tables summarize the Partnership’s assets accounted for at fair value at December 31, 2009 and 2008 using the fair value hierarchy:
The fair value of futures contracts is based on exchange settlement prices and the fair value of U.S. Treasury bills is based on cost plus accrued interest, which approximates fair value.
AIS FUTURES FUND IV L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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Note 6. DERIVATIVES
The Partnership engages in the speculative trading of futures contracts and options on futures contracts (collectively, “derivatives”) for the purpose of achieving capital appreciation. None of the Partnership’s derivative instruments are designated as hedging instruments, as defined in the Derivatives and Hedging Topic of the Codification, nor are they used for other risk management purposes. The General Partner actively assesses, manages and monitors risk exposure on derivatives on a contract basis, a sector basis (e.g., agricultural, currencies, metals, etc.), and on an overall basis in accordance with established risk parameters. Due to the speculative nature of the Partnership’s derivative trading activity, the Partnership is subject to the risk of substantial losses from derivatives trading.
The following table presents the fair value of derivative contracts at December 31, 2009. The fair value of derivative contracts is presented as an asset if in a gain position and a liability if in a loss position. Fair value is presented on a gross basis in the table below even though the derivative contracts qualify for net presentation in the statement of financial condition.
Within the statement of financial condition, the fair value of futures contracts is reflected as unrealized gain on open contracts, net.
The following presents the trading results of the Partnership’s derivative trading and information related to the volume of the Partnership’s derivative activity for the year ended December 31, 2009. The below captions of “Realized” and “Change in unrealized” correspond to the captions in the statements of operations.
The number of contracts closed represents the aggregate number of contracts closed during the year ended December 31, 2009 in the applicable category.
AIS FUTURES FUND IV L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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Note 7. DEPOSITS WITH BROKER
The Partnership deposits funds with Newedge USA, LLC, subject to Commodity Futures Trading Commission regulations and various exchange and broker requirements. Margin requirements are satisfied by the deposit of U.S. Treasury bills and cash with such broker. Accordingly, assets used to meet margin and other broker or regulatory requirements are partially restricted. The Partnership earns interest income on its assets deposited with the broker.
Note 8. MARKET AND CREDIT RISKS
The Partnership engages in the speculative trading of U.S. futures contracts and options on U.S. futures contracts. The Partnership is exposed to both market risk, the risk arising from changes in the fair value of the contracts, and credit risk, the risk of failure by another party to perform according to the terms of a contract.
Purchase and sale of futures and options on futures contracts requires margin deposits with the broker. Additional deposits may be necessary for any loss on contract fair value. The Commodity Exchange Act requires a broker to segregate all customer transactions and assets from such broker’s proprietary activities. A customer’s cash and other property (for example, U.S. Treasury bills) deposited with a broker are considered commingled with all other customer funds subject to the broker’s segregation requirements. In the event of a broker’s insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than total cash and other property deposited. As the Partnership deposits substantially all of its assets with the broker, Newedge USA, LLC, the Partnership has a significant concentration of credit risk with the broker.
For futures contracts, risks arise from changes in the fair value of the contracts. Theoretically, the Partnership is exposed to a market risk equal to the notional contract value of futures contracts purchased and unlimited liability on such contracts sold short.
The Partnership maintains its cash in bank deposit accounts at Wachovia Bank, N.A., Greenwich, Connecticut. Such accounts may, at times, exceed federally insured limits. The Partnership has not experienced any losses in such accounts. The General Partner believes the Partnership is not exposed to any significant credit risk on cash.
The General Partner has established procedures to actively monitor market risk and minimize credit risk, although there can be no assurance that it will, in fact, succeed in doing so. The Limited Partners bear the risk of loss only to the extent of the fair value of their respective investments and, in certain specific circumstances, distributions and redemptions received.
Note 9. INDEMNIFICATIONS
In the normal course of business, the Partnership enters into contracts and agreements that contain a variety of representations and warranties, both of 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.
AIS FUTURES FUND IV L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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Note 10. SUBSEQUENT EVENTS
The General Partner has evaluated subsequent events through the date the financial statements were issued, and has determined there are no subsequent events that require disclosure.
Note 11. FINANCIAL HIGHLIGHTS
The following information presents the financial highlights for Series A Limited Partners of the Partnership for the years ended December 31, 2009 and 2008. This information has been derived from information presented in the financial statements.
The total returns and ratios are presented for Series A Limited Partners taken as a whole based on the Partnership’s standard Management Fee, Service Fee and General Partner Profit Share allocation arrangements. An individual limited partner’s total returns and ratios may vary from the above total returns and ratios based on the timing of their subscriptions and redemptions and given potentially different fee arrangements for a Series A Limited Partner.
The total returns and ratios exclude the effects of any 2% upfront selling commissions charged by Selling Agents.
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(1)
The ratio of expenses and net investment (loss) to average net asset value do not include brokerage commissions.
(2)
The net investment (loss) is comprised of interest income less total expenses, excluding brokerage commissions and the General Partner Profit Share allocation.