Registration of Securities (General Form) — Form 10
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-12G Registration of Securities (General Form) 52 231K
2: EX-3.1 Articles of Incorporation/Organization or By-Laws 5 13K
3: EX-4.1 Instrument Defining the Rights of Security Holders 15 71K
4: EX-10.1 Material Contract 26 96K
5: EX-16.1 Letter re: Change in Certifying Accountant 1 7K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934
AIS FUTURES FUND IV L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3909977
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o AIS FUTURES MANAGEMENT LLC
187 Danbury Road, P.O. Box 806
Wilton, Connecticut 06897
(Address of principal executive offices) (zip code)
John Hummel
AIS Futures Management LLC
187 Danbury Road, P.O. Box 806
Wilton, Connecticut 06897
(203) 563-1180
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Nathan Howell
James Biery
Sidley Austin LLP
One South Dearborn
Chicago, Illinois 60603
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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: Units of Limited
Partnership Interest
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(Title of Class)
Table of Contents
Item 1: Business...............................................................1
Item 1A: Risk Factors..........................................................9
Item 2: Financial Information.................................................13
Item 3: Properties............................................................24
Item 4: Security Ownership of Certain Beneficial Owners and Management........24
Item 5: Directors and Executive Officers......................................25
Item 6: Executive Compensation................................................27
Item 7: Certain Relationships and Related Transactions, and Director
Independence..........................................................27
Item 8: Legal Proceedings.....................................................28
Item 9: Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters................................28
Item 10: Recent Sales of Unregistered Securities..............................28
Item 11: Description of Registrant's Securities to be Registered..............30
Item 12: Indemnification of Directors and Executive Officers..................31
Item 13: Financial Statements and Supplementary Data..........................32
Item 14: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.............................................32
Item 15: Financial Statements and Exhibits....................................33
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Item 1: BUSINESS
AIS FUTURES FUND IV L.P.
ORGANIZATIONAL CHART
The organizational chart below illustrates the relationships among the
various service providers to AIS Futures Fund IV L.P. (the "Partnership"), to
which AIS Futures Management LLC ("AIS" or the "General Partner") acts as
general partner and trading advisor.
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| AIS Futures |
| Management LLC |
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| Limited Partnership Agreement
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Selling Agents| | AIS Futures Fund |
| Selling | IV L.P. |
--------------- Agreements -----------------------
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| Customer Agreement
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| Caylon Financial Inc. |
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| Global Futures and |
| Forward Markets |
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(a) General Development of Business
The Partnership is a Delaware limited partnership organized on August
11, 1997 under the Delaware Revised Uniform Limited Partnership Act. AIS
Futures Management LLC, 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 Second Amended and Restated
Limited Partnership Agreement (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 units of limited partnership ("Units") in the Partnership, as
the Partnership's "Limited Partners", have no right to participate in
management or control of the Partnership.
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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 March 31, 2007, the aggregate net asset value of the Partnership was
$58,063,703.
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).
(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.
The Partnership is not a registered investment company or mutual fund.
Accordingly, Limited Partners do not have the protections afforded by the
Investment Company Act of 1940, as amended.
(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 under "Item 2: Financial Information" and
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. Calyon Financial Inc.
("CFI" or the "Commodity Broker") currently serves as the Partnership's
commodity broker. The offices of the Partnership, where its books and records
are
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kept, are located at the office of the General Partner: 187 Danbury Road,
P.O. Box 806, Wilton, Connecticut 06897; telephone (203) 563-1180.
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 face 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 is not substantially greater than four times the
total capital of the Partnership, but 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 MAAP, which is a
trend-following trading process employing a combination of discretionary input
from AIS's principals and its proprietary applied intelligence software, which
is based on a quantitative analysis over years of daily historical prices and
probability theory.
MAAP maintains long, short or neutral positions in each of the following
six asset classes: equities, fixed income, currency, metals, agricultural
products, energy products.
AIS believes that these six asset classes represent the 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, because of their historic non- or negative
correlation, has the potential for a higher risk-adjusted return than would be
achieved by a portfolio consisting of any one of these asset classes managed
individually.
MAAP allocates approximately 1/6 of the Partnership's portfolio's
potential total contract value (approximately four times the Partnership's net
asset value when fully invested) to each of the six asset classes described
above. Equities are represented by positions in the S&P 500 futures contract;
fixed income is represented by United States Treasury bond futures; and
currency is represented by Japanese yen futures. In addition to the three
financial markets currently traded, AIS has completed research on additional
stock index, fixed income and currency contracts for both domestic and
international markets, and may diversify trading within these three asset
classes by trading one or more of these additional contracts. However, this
additional diversification will not change the maximum 1/6 weight assigned to
each of these three asset classes.
Within each of the three physical commodity asset classes, while still
allocating 1/6 to each asset class, AIS trades several closely correlated
markets within each class. 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
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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 determined primarily by relative historical volume and open interest of
each contract traded.
The profitability of trend-following trading techniques such as MAAP
depends upon the occurrence of major price moves, or trends, in the futures
contracts traded. Although historically there have been such trends identified
by MAPP in the Futures Contracts traded by the Partnership, there is no
assurance that there will not be significant periods during which no such
trends occur, or that MAAP will be able to identify and capitalize upon future
price trends.
MAAP's systematic component consists of a valuation methodology and a
trend-following methodology. Generally, the systematic component enters into a
long (buy) position in a particular contract if: (i) the asset class is
undervalued based on the program's application of probability theory; and (ii)
a statistically significant price reversal is evidenced while such asset class
is within the program's definition of undervaluation. On the other hand, the
valuation component only indicates a short sale when a market is no longer
defined as being statistically undervalued.
Once a long position is entered, MAAP applies a trend-following
methodology which defines a minimum expectation level which the asset must
meet to be classified as being in an uptrend. Once MAAP defines an uptrend in
place, following the trend takes precedence over valuation so long as the
minimum uptrend requirements set by MAAP are satisfied. This methodology is
based on the theory that a major uptrend will cause the price of the commodity
or financial instrument to rise to levels which may be considered overvalued.
Consequently, a major percentage of an upward move may occur while traditional
fundamental and technical approaches would define the commodity or financial
instrument to be overvalued. Only when price changes fail to remain within the
minimum definition of an uptrend will the program signal a reversal to a short
(sell) position.
MAAP uses at least three sets of values for the parameters applied to
each market for determining whether to be long or short in that market. Though
the multiple model sets are generally expected to yield similar trading
signals, slight differences in their indications of when to be long or short
are designed to improve risk management for the overall portfolio by
diversifying allocation timing and funding levels. In addition, one model is
designed to signal a neutral position in any market, when appropriate. AIS
continually researches the benefits of trading using MAAP models other than
the three model sets currently in use. As a result, AIS has introduced
additional MAAP models in some of the markets and may do so again in other
markets in the future. Additionally, AIS may deem it appropriate to reduce the
number of MAAP models in use in some or all of the markets traded by the
Partnership.
Applying MAAP using multiple models for each market traded, the
portfolio has the ability to be neutral, partial (e.g., 1/10, 1/4, 1/3, 1/2 to
2/3, etc.) or fully invested, long or short, in each of the markets traded.
AIS believes that the separate MAAP models improve trading results during
choppy or non-trending markets in which trend-following approaches generally
tend to perform poorly.
AIS exercises discretion with respect to the timing of placing new
positions when funds are added to the Partnership's account. When the number
of positions are recommended by the position weighting rules to be increased
or decreased as the account's value changes or as the value of the contracts
purchased at the onset of a new position change, AIS may decide to wait for
corrections or advances to rebalance the number of contracts held in a
particular asset's position. During this time,
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leverage may substantially exceed or fall short of what it would be if a new
position were initiated. AIS may, if it deems the markets to be subject to
conditions of unusual risk, or possible government intervention, or temporary
illiquidity, temporarily reduce overall portfolio leverage or leverage in a
particular market. In addition, AIS applies discretion in the timing of its
response to system signals to buy or sell either by anticipating a signal
change or delaying a response to a signal if it believes market conditions
justify such a response. AIS may also take positions counter to those
suggested by its systematic models when its fundamental research presents a
compelling argument for an opposite position. Such a situation could develop
as a result of government intervention or other factors, or might occur, for
instance, if fundamental research suggests extreme overvaluation and the
systematic components generate buy signals, or if fundamental research
suggests extreme undervaluation and the systematic components generate sell
signals. Such discretionary decisions may cause the portfolio leverage and
individual positions to be greater or less than what would be called for by a
totally systematic approach. AIS may also buy or sell options on futures at
its discretion as a means to reduce portfolio risk or to enter or exit
positions at certain prices and times. Such discretionary decision-making
could impact performance either negatively or positively compared to a purely
systematic process. As a means of disguising its order flow, AIS may
occasionally engage in extra trading in the opposite direction of its intended
orders.
AIS continues an active research program seeking ways to improve
investment returns and to reduce portfolio risk. Such research may lead to the
introduction of additional 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.
As insurance against extraordinary events, MAAP employs stop-loss orders
based on predetermined percentages. (Such stop-loss orders, however, may not
effectively prevent major losses, and, depending on the markets at the time,
may not be able to be executed at such stop-loss levels.)
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 CFI 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
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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
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Recipient Nature of Payment Amount of Payment
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Various service Administrative The Partnership pays its routine legal, accounting and
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Recipient Nature of Payment Amount of Payment
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providers expenses filing fees, operating expenses and other administrative costs as
incurred. These costs are currently estimated at approximately
$100,000 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.
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General Partner Management Fee Series A Units pay the General Partner a monthly Management Fee
equal to 1/12 of 2% of month-end Net Assets (a 2% annual rate).
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General Partner Profit Share The General Partner receives an annual Profit Share equal to 20% of
any New Trading Profit realized on Series A Units 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 Units at different times, they may recognize
different amounts of New Trading Profit.
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The Commodity Broker Brokerage The Partnership pays to the Commodity Broker brokerage commissions
and other executing Commissions and certain other trading expenses incurred in connection with the
brokers Partnership's futures trading. The Partnership pays to the
Commodity Broker up to $10 per "round turn" trade, which includes
all exchange, clearing, give up and National Futures Association
("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, be approximately 0.45%
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
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Recipient Nature of Payment Amount of Payment
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counterparty and is thus unqualifiable.
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Selling Agents Selling Agent Series A Units purchased by Limited Partners that were solicited by
Administrative and selling agents (collectively, the "Selling Agents") will pay to the
Service Fee 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 Units 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 Units sold by the Selling Agents.
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Various Selling Agents Upfront selling A selling commission of up to 2% of the subscription amount may be
commissions deducted from the subscription proceeds and paid to the applicable
Selling Agent, if any.
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Series B Units, which are available only to the General Partner and its
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 Units.
(f) Conflicts of Interest
The General Partner
The responsibilities of the General Partner include engaging a trading advisor
to make trading decisions for the Partnership. The General Partner does not
engage an outside trading advisor, but rather it is the sole trading advisor.
The General Partner will not hire an outside trading advisor even if its own
performance is unsatisfactory. The General Partner and its principals have a
conflict of interest between their responsibility to manage the Partnership
for the benefit of the Limited Partners and their interest in obtaining
favorable advisory fees for the trading advisor. The Partnership's Management
Fee and the General Partner's Profit Share have not been negotiated at arm's
length.
The General Partner and its principals have a conflict of interest in
determining whether to make distributions to Limited Partners because the
Management Fee payable by the Partnership will be higher if the amount of
assets under management is greater. As is typical in most commodity pools, the
General Partner does not intend to make any distributions to Limited Partners.
AIS, its principals and its employees may invest in accounts managed by AIS
(including the Partnership), and may trade commodity interest contracts for
their own proprietary accounts. For such accounts, AIS may use trading
approaches which are different from MAAP. Hence, it is
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possible that AIS, its principals and its employees may, from time to time, be
competing with the Partnership's account for similar commodity interest
contract positions in one or several markets or may take positions in their
proprietary accounts which are opposite, or ahead of, the positions taken in
the Partnership's account. The records of such trading will not be made
available to Limited Partners.
All of the positions held by all accounts directed by AIS are added
together for purposes of determining compliance with speculative position
limits. If open positions must be reduced as a result of the application of
speculative position limits, AIS is required to take such action, consistent
with its obligation to not deliberately favor any account advised by it over
the Partnership's account, as may be necessary to comply with such limits.
AIS manages and trades additional accounts, including commodity pools.
AIS will not, however, knowingly or deliberately employ a trading method or
recommendation on behalf of any account which it manages or trades which it
knows to be inferior to any trading method or recommendation which is employed
for other accounts or knowingly or deliberately favor one account over any
other such account. Moreover, the General Partner has a fiduciary duty to the
Limited Partners to exercise good faith and fairness in all dealings affecting
the Partnership and, if the underlying assets of the Partnership are
considered for purposes of ERISA to be assets of employee benefit plans, to
comply with the fiduciary provisions of ERISA with respect to the assets of
the Partnership. Because of price volatility, occasional variations in
liquidity, and differences in order execution, it is impossible for AIS to
obtain identical trade execution for all of its clients, including the
Partnership. Such variations and differences may produce differences in
performance among client accounts over time. In an effort to treat its clients
fairly, when block orders for client accounts are filled at different prices,
AIS assigns trades on a systematic basis. Although AIS trades all its MAAP
accounts in parallel (except as prohibited by law in respect of trading in
certain foreign markets), for reasons of confidentiality records of other
customers' trading are not available for inspection by Limited Partners.
The Selling Agents
Selling Agents engaged by the Partnership will receive ongoing
compensation based on Units sold by them which remain outstanding.
Consequently, when advising clients whether to redeem their Units, the Selling
Agents have a conflict of interest between maximizing the compensation they
receive from the Partnership and giving their clients financial advice the
Selling Agents believe to be in such clients' best interests. Additionally,
one or more Selling Agents may provide other services to the Partnership,
which may include brokerage and execution services.
(g) Allocation of Profit and Loss
Partnership Accounting. Each Limited Partner and the General Partner
(hereinafter individually referred to as a "Partner," and collectively as
"Partners") has a capital account, the initial balance of which consists of
such Partner's cash contribution to the Partnership. The Net Asset Value of
the Partnership is determined monthly and any increase or decrease in such Net
Asset Value from the preceding month is added to or subtracted from the
Partners' respective capital accounts on a monthly basis.
Federal Tax Allocations. At the end of each fiscal year, the
Partnership's income and expense and capital gain or loss is allocated among
the Partners, on a Series by Series basis, and each Partner is required to
include in his personal income tax return his share of such items,
irrespective of the fact that no distributions of cash or other property have
been made by the Partnership. Allocations of capital gain or loss will be pro
rata from short-term capital gain or loss and long-term capital gain or loss.
The General Partner receives a priority allocation of income and capital
gain in respect of its Profit Share. Any remaining ordinary income and
expenses will be allocated to each Partner in the ratio of each Partner's
capital account to the aggregate capital accounts of all Partners.
For the purpose of allocating capital gain or capital loss, a "tax
allocation account" is established with respect to each Unit, the initial
balance of which will be the amount paid for the Unit. At the end of each
fiscal year, an outstanding Unit's tax allocation account is increased by the
amount of income allocated to the Partner holding the Unit and decreased by
the amount of loss and expense allocated, and any distributions made, to the
Partner holding the Unit.
Capital gain remaining after the Profit Share allocation will be
allocated to each Partner who has redeemed a Unit during the fiscal year up to
any excess of the amount received upon redemption of the Unit over the tax
allocation account maintained for the redeemed Unit. If the capital gain to be
so allocated is less than the excess of all amounts received for redeemed
Units over all corresponding tax allocation accounts, the entire amount of
such capital gain will be allocated among the Partners who redeemed Units at a
value in excess of such Units' respective tax allocation accounts in the ratio
that each such Partner's excess bears to the aggregate excess of all such
Partners.
Capital gain remaining after the allocation described in the previous
paragraph is allocated among all Partners whose capital accounts are in excess
of their tax allocation accounts (after increasing such accounts in the amount
of the allocations described in the previous paragraph) in the ratio that each
such Partner's excess bears to all Partners' excesses. If the gain to be so
allocated is greater than the excess of all such Partners' capital accounts
over all such tax allocation accounts, the amount of such additional gain will
be allocated among all Partners in the ratio that each Partner's capital
account bears to all Partners' capital accounts.
Capital loss is allocated first to each Partner who has redeemed a Unit
during the fiscal year up to any excess of the tax allocation account
maintained for the redeemed Unit over the amount received upon redemption of
the Unit. If the aggregate capital loss to be so allocated is less than the
excess of all tax allocation accounts for redeemed Units over the amount
received upon redemption of such Units, the entire amount of such loss will be
allocated among the Partners who redeemed Units at a value less than such
Units' respective tax allocation accounts in proportion to the respective
amounts by which the redemption value for each Unit was less than the
applicable tax allocation account.
Capital loss remaining after the allocation described in the previous
paragraph is allocated among the Partners whose tax allocation accounts (after
decreasing such accounts by the amount of the allocations described in the
previous paragraph) are in excess of their capital accounts in the ratio that
each such Partner's excess bears to all such Partners' excesses. If the loss
to be so allocated is greater than the excess of all such Partners' tax
allocation accounts over all such capital accounts, the amount of such
additional loss will be allocated among all Partners in the ratio that each
Partner's capital account bears to all Partners' capital accounts.
Any "mark-to-market" gain or loss required to be taken into account in
accordance with Section 1256 of the Code will be considered a realized capital
gain or loss for purposes of the foregoing allocations.
(h) Reporting
Limited Partners receive monthly account statements, annual audited
financial statements and tax information.
Item 1A: Risk Factors
The Partnership is a Speculative Investment. Investors May Lose All or
Substantially All of Their Investment.
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Investors in the Partnership must be prepared to lose all or
substantially all of their investment. The Partnership has no "principal
protection" feature assuring the return of investors' initial investments as
of a specified future date.
Past performance of the Partnership is not necessarily indicative of how
the Partnership will perform in the future. The Partnership is a speculative
investment and involves a substantial risk of loss. Favorable market
conditions from 2003 through the first half of 2006 provided the Partnership
with the opportunity to achieve returns well in excess of the Partnership's
average return since inception. There can be no assurance, and investors
should not expect, that similar performance will be achieved in the future.
Investors Have a Limited Ability to Liquidate Their Investment in Units.
Units cannot be assigned, transferred, pledged or encumbered except on
the terms and conditions set forth in the Limited Partnership Agreement and
with the consent of the General Partner. Investors may require the Partnership
to redeem all or any part of their Units as of the close of business on the
last day of any month at the then current Net Asset Value of the Units.
However, the right to obtain payment on redemption is contingent upon the
receipt by the General Partner of ten days' prior written notice, and the
redemption value of Units may differ significantly from their value when
redemption is requested.
Trading in Commodity Interest Contracts Is Speculative and Volatile. The
Partnership may Incur Substantial Losses.
Commodity interest contract prices are highly volatile. Price movements
of commodity interest contracts are influenced by, among other things:
changing supply and demand relationships; climate; government agricultural,
trade, fiscal, monetary and exchange control programs and policies; national
and international political and economic events; crop diseases; the purchasing
and marketing programs of different nations; and changes in interest rates. In
addition, governments from time to time intervene, directly and by regulation,
in certain markets, particularly those in currencies and metals. Such
intervention is often intended to influence prices directly. None of these
factors can be controlled by AIS and no assurances can be given that its
advice will result in profitable trades for the Partnership or that the
Partnership will not incur substantial losses. The Partnership has in the past
incurred substantial losses over certain periods, and there can be no
assurance that such losses will not occur again.
Futures Trading Is Highly Leveraged. Small Adverse Price Moves May Result in
Substantial Losses.
The low margin deposits normally required in futures trading permit an
extremely high degree of leverage; margin requirements for futures trading
being in some cases as little as 2% of the face value of the contracts traded.
For example, if at the time of purchase 10% of the price of the futures
contract is deposited as margin, a 10% decrease in the price of the futures
contract would, if the contract was then closed out, result in a total loss of
the margin deposit before any deduction for the trading commission. A decrease
of more than 10% would result in a loss of more than the total margin deposit.
Accordingly, a relatively small adverse price movement in a futures contract
may result in immediate and substantial loss to the investor. Like other
leveraged investments, any futures trade may result in losses in excess of the
amount invested. While AIS generally limits the Partnership's leverage to
between two and four times the Partnership's total capital, thereby decreasing
the impact of small adverse price moves compared to what would be experienced
by a more highly leveraged portfolio, there can be no assurance that the
Partnership will not suffer rapid substantial losses.
10
Illiquidity in the Futures Markets May Result in Losses to the Partnership.
United States commodity exchanges impose "daily limits" on the amount by which
the price of most futures contracts traded on such exchanges may vary during a
single day. Daily limits prevent trades from being executed during a given
trading day at a price above or below the daily limit. Once the price of a
futures contract has moved to the limit price, it may be difficult, costly or
impossible to liquidate a position. Such limits could prevent AIS from
promptly liquidating unfavorable positions and restrict its ability to
exercise or offset commodity options held in the Partnership's account. In
addition, even if futures prices have not moved the daily limit, AIS may be
unable to execute trades at favorable prices if the liquidity of the market is
not adequate. It is also possible for an exchange or the CFTC to suspend
trading in a particular contract, order immediate settlement of a particular
contract or order that trading in a particular contract be conducted for
liquidation only.
It is Unlikely that the Partnership Will Trade Profitably if There are no
Price Trends of the Kind MAAP Seeks to Identify.
AIS applies a trend-following trading technique, which seeks to identify
significant price trends soon after they begin and participate in such trends
until soon after they have reversed. The profitability of any trend following
strategy depends upon the occurrence of major price moves in some markets.
Historically, the six asset classes employed in MAAP have had, on average,
approximately two moves per year up or down of 10% or greater. However, there
is no guarantee that there will actually be such trends in the future. The
best trend following strategy, whatever elements it may contain, is unlikely
to be profitable if there are no trends of the kind it seeks to identify.
Furthermore, a strategy which is successful in the case of upward price trends
may not be successful in downward trends and vice versa. Any factor which may
lessen the prospects of major trends in the future (such as increased
government control of, or participation in, the markets) may reduce the
prospects that any trend following strategy will be profitable.
The Discretionary Aspects of the AIS' Trading Strategy May Result in
Unprofitable Trades Being Made for the Partnership.
Although AIS applies a highly systematic strategy based upon MAAP, AIS'
strategy retains certain discretionary aspects. Decisions, for example, to
adjust the size of positions indicated by the systematic strategies, which
futures contracts to trade, delaying a response to a signal generated from
MAAP if AIS believes unusual market conditions justify such a response and
method of order entry, require judgmental input from AIS. Discretionary
decision-making may result in AIS' making unprofitable trades in situations
when a more wholly systematic approach based solely on MAAP's trading signals
would not have done so.
The Partnership is Dependent on Messrs. Hummel and Stern. The Loss of Either
of Their Services Would Affect the Partnership Adversely.
The Partnership will be dependent on the services of Messrs. Hummel and
Stern. The Partnership would be adversely affected if the services of either
of them were not available for any significant period of time. Although either
could serve as an effective liquidating agent for the Partnership, the
availability of both Messrs. Hummel and Stern is more conducive to the success
of the Partnership's ongoing operations.
11
Speculative Position Limits May Require AIS to Liquidate Partnership Positions
at a Cost to the Partnership.
The CFTC and the United States commodities exchanges have established
limits referred to as "speculative position limits" on the maximum net long or
net short speculative positions that any person may hold or control in any
particular futures or options contracts traded on United States commodities
exchanges. All accounts (proprietary or client) owned or managed by AIS are
combined for position limit purposes. AIS could be required to liquidate
positions held for the Partnership in order to comply with such limits. Any
such liquidation could result in substantial costs to the Partnership.
Trading in Options on Futures Contracts is Speculative and May Result in
Losses.
AIS infrequently engages in trading options on futures contracts,
generally to hedge futures positions or to enter or increase an existing
position to full leverage. Although successful trading in options on futures
contracts requires many of the same skills required for successful futures
trading, the risks involved are somewhat different. When purchasing or selling
an option, the risks associated with the transaction vary depending on the
type of option (i.e., put or call). When purchasing an option, it is necessary
to calculate the extent to which the value of the underlying must increase (in
the case of a call) or decrease (in the case of a put) in order for the
Partnership's position to become profitable, taking into account the premium
and all transaction costs. If the purchased options expire worthless, the
Partnership will suffer a total loss of the amount invested in the option that
will consist of the option premium plus transaction costs.
Selling an option generally entails considerably greater risk than
purchasing an option. Although the premium received by the seller is fixed,
the seller may sustain a loss well in excess of that amount. The seller will
be liable for additional margin to maintain the position if the market moves
unfavorably. The seller will also be exposed to the risk of the purchaser
exercising the option, and, upon such exercise, the seller will be obligated
to either settle the option in cash or to acquire or deliver the underlying
interest, depending on the terms of the option. If the option is "covered" by
the seller holding a corresponding position in the underlying interest or a
future or another option, the risk may be reduced. If the option is not
covered, the risk of loss can be unlimited.
The Profit Share May Cause AIS to Trade the Partnership's Account
Aggressively.
The General Partner's Profit Share gives it an incentive to trade more
aggressively than it otherwise would on behalf of the Partnership.
The Failure of the Partnership's Brokerage Firms Could Result in Losses.
As is required of futures commission merchants ("FCMs"), the
Partnership's Commodity Broker segregates all funds of the Partnership in
compliance with CFTC regulations. If the assets of the Partnership were not so
segregated, the Partnership would be subject to the risk of the failure of the
Commodity Broker. Even given proper segregation, in the event of the
insolvency of the Commodity Broker, the Partnership may be subject to a risk
of loss of its funds and would be able to recover only a pro rata share
(together with all other commodity customers of the Commodity Broker) of
assets, such as United States Treasury bills, specifically traceable to the
Partnership's account. In commodity broker insolvencies, customers have, in
fact, been unable to recover from
12
the broker's estate the full amount of their "customer" funds. In addition,
under certain circumstances, such as the inability of another client of an FCM
or the FCM itself to satisfy substantial deficiencies in such other client's
account, a client may be subject to a risk of loss of the funds on deposit
with the FCM, even if such funds are properly segregated. In the case of any
such bankruptcy or client loss, a client might recover, even in respect of
property specifically traceable to the client, only a pro rata share (which
may amount to a complete loss of funds on deposit with the FCM or a de minimis
recovery) of all property available for distribution to all of the FCM's
clients.
Item 2: FINANCIAL INFORMATION
(a) Selected Financial Data
The following selected financial data for fiscal years ended December
31, 2006, 2005, 2004, 2003 and 2002 has been derived from audited financial
statements of the Partnership.
[Enlarge/Download Table]
For the Year For the Year For the Year For the Year For the Year
Ended December Ended December Ended December Ended December Ended December
31, 2006 31, 2005 31, 2004 31, 2003 31, 2002
Income Statement Items
----------------------
Interest Income $2,140,749 $ 477,981 $ 77,745 $ 22,180 $ 24,007
Total trading gains (losses) (2,314,184) 3,439,767 936,222 838,743 (55,515)
----------- --------- ------- ------- --------
Expenses:
Selling Agent Administrative and
Service Fees 1,292,554 490,891 139,825 52,473 34,533
Management Fees 687,913 279,667 102,578 40,002 24,203
General Partner Profit Share
Allocation 141,714 692,016 175,476 117,836 0
Operating Expenses 69,180 38,677 24,306 18,699 31,960
------ ------ ------ ------ ------
Net Income (loss) $(2,364,796) $2,416,497 $571,782 $ 631,913 $(122,204)
============ ========== ======== ========= ==========
Balance Sheet Items
-------------------
Total Assets $52,787,723 $31,027,436 $ 8,517,025 $ 2,838,374 $ 1,778,125
=========== =========== =========== =========== ===========
Total Partners' Capital $51,744,274 $27,884,331 $ 7,887,630 $ 2,669,569 $ 1,754,886
=========== =========== =========== =========== ===========
[Enlarge/Download Table]
Series A Compound Monthly Rate of Return
----------------------------------------
----------------------------- ------------- ------------- ------------- ------------- --------------
Month 2006 2005 2004 2003 2002
----------------------------- ------------- ------------- ------------- ------------- --------------
January 6.58% (0.66)% 4.04% 6.26% (3.69)%
----------------------------- ------------- ------------- ------------- ------------- --------------
February (9.77) 16.90 10.92 10.55 (1.58)
----------------------------- ------------- ------------- ------------- ------------- --------------
March 9.53 4.59 11.81 (15.24) 4.02
----------------------------- ------------- ------------- ------------- ------------- --------------
April 15.01 (6.35) (8.26) (6.61) 0.28
----------------------------- ------------- ------------- ------------- ------------- --------------
May (2.75) 0.71 (2.97) 6.19 (6.23)
----------------------------- ------------- ------------- ------------- ------------- --------------
June (6.77) 3.00 (2.92) (2.25) 2.69
----------------------------- ------------- ------------- ------------- ------------- --------------
July 3.32 5.56 3.68 5.12 4.89
13
----------------------------- ------------- ------------- ------------- ------------- --------------
August (9.97) 4.45 4.16 6.56 5.45
----------------------------- ------------- ------------- ------------- ------------- --------------
September (12.55) 1.98 2.63 4.65 4.28
----------------------------- ------------- ------------- ------------- ------------- --------------
October 9.33 (12.37) 7.60 5.76 (14.79)
----------------------------- ------------- ------------- ------------- ------------- --------------
November 13.24 (4.20) 2.08 1.94 (4.92)
----------------------------- ------------- ------------- ------------- ------------- --------------
December (9.84) 12.34 (10.37) 9.46 4.16
----------------------------- ------------- ------------- ------------- ------------- --------------
Compound Annual Rate of (0.28)% 25.11% 21.64% 33.52% (7.33)%
Return
----------------------------- ------------- ------------- ------------- ------------- --------------
Monthly rates of return are calculated on an accrual basis in accordance
with generally accepted accounting principles and the rules of the CFTC.
(b) Management's Discussion and Analysis of Financial Condition and Results
of Operations
Reference is made to the "Selected Financial Data" presented above, as
well as 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) Capital Resources
Units 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 General Partner'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 Units
and capital is increased through trading profits (if any) and interest income.
The Partnership does not engage in borrowing.
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.
14
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
important, 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.
(ii) 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, 2006, the Partnership experienced no meaningful periods
of illiquidity in any of the markets traded by the General Partner on behalf
of the Partnership.
(iii) 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 subscriptions, allocations and redemptions
on a per partner capital account basis. Income or loss, prior to the General
Partner Profit Share allocation, is allocated pro rata to the capital accounts
of all partners.
15
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.
(iv) Off-Balance Sheet Arrangements
The Partnership does not engage in off-balance sheet arrangements with
other entities.
(v) Contractual Obligations
The Partnership does not enter into any contractual obligations or
commercial commitments to make future payments of a type that would be typical
for an operating company or that would affect its liquidity or capital
resources. The Partnership's sole business is trading futures contracts, both
long (contracts to buy) and short (contracts to sell). All such contracts are
settled by offset, not delivery. The maturities of the Partnership's futures
contracts vary widely; however, the Partnership generally offsets contracts or
rolls the contracts over into new contracts with similar maturities every few
months. Currency, stock index and bond positions generally turn over every
three months, energy positions every month, and metal and grain positions
approximately five to six times per year.
The Partnership's financial statements, included herewith, present a
condensed schedule of investments setting forth the fair value and percentage
of Partnership net asset value of the Partnership's open futures contracts,
both long and short, at December 31, 2006 and December 31, 2005.
16
(vi) 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.
2006
During 2006, the Partnership achieved a net realized and unrealized loss
of $2,314,184 from its trading operations, which is net of brokerage
commissions of $125,731. The Partnership accrued total expenses of $2,049,647,
including $1,292,554 in Selling Agent Administrative and Service Fees,
$687,913 in Management Fees (paid to the General Partner) and $69,180 in
operating expenses. The Partnership earned $2,140,749 in interest income and
allocated a Profit Share of $141,714 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 0.48%
Bonds 1.44%
Yen (4.36)%
Energy (14.41)%
Metals 16.64%
Grains 8.83%
-----
Total Portfolio 3.01%
=====
The Partnership generated a moderate gain for the year, led by strong
performance of the Partnership's investments in metals and agricultural
commodities. Trading in S&P 500 futures and U.S. treasures added small amounts
to the Partnership's performance, but the Partnership suffered moderate losses
on its Yen trading and significant losses in energy trading.
Continued strong global economic conditions led to strong performance of
industrial and precious metal prices. Concerns over possible shortages also
supported prices of industrial metals. Concerns over inflation, weakening of
the U.S. Dollar, and diversification away from U.S. Dollars also boosted
precious metal prices.
17
During the first half of 2006, short positions in short-term and
long-term interest rate futures were widely profitable as interest rates rose
on the back of strong growth, inflation worries, and Fed Funds rate increases.
By July, however, there was growing concern that tighter Central Bank monetary
policies throughout the world might induce a growth slowdown. As a result,
interest rates, particularly long-term interest rates, came down. The downward
pressure on long-term interest rates was augmented by OPEC and Bank of China
purchases of longer term government bonds for reserve management purposes. On
balance, there was still a modest profit for the year from interest rate
trading.
The Partnership's Yen trading was unprofitable in 2006. Significant
volatility without sustained trends characterized most currency markets.
Elsewhere, trading of grains was profitable while the Partnership's energy
trading suffered significant overall losses for the year, despite several
strong months.
2005
During 2005, the Partnership achieved a net realized and unrealized gain
of $3,439,767 from its trading operations, which is net of brokerage
commissions of $104,850. The Partnership accrued total expenses of $809,235,
including $490,891 in Selling Agent Administrative and Service Fees, $279,667
in Management Fees (paid to the General Partner) and $38,677 in operating
expenses. The Partnership earned $477,981 in interest income and allocated a
Profit Share of $692,016 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 (0.23)%
Bonds (0.49)%
Yen (12.11)%
Energy 31.36%
Metals 16.21%
Grains 0.78%
-----
Total Portfolio 35.27%
======
The Partnership experienced another year of strong gains in 2005, led by
strong performance in the Partnership's investments in energy and metals
futures. The Partnership had small losses in its S&P 500 Futures and U.S.
treasuries and a small gain in its grain portfolio. The Partnership also
suffered losses in its Yen portfolio.
Strong growth of industrial production, especially in China, underpinned
demand for metals, and long positions in copper and silver generated gains.
Continuing expansion of money supply worldwide fueled demand for precious
metals and long gold and silver positions were also profitable.
Trading of U.S. stock indices, which were range-bound for much of the
year, was not profitable in 2005.
18
Energy prices were highly volatile in 2005 and the Partnership was able
to capitalize on that volatility.
Interest rates were also quite volatile during 2005. Early in the year,
markets expected continuing declines in non-U.S. interest rates, and further
advances in short term U.S. rates. Later on, however, interest rates rose
rather broadly as the European Central Bank joined the Federal Reserve in
raising official rates, as growth in emerging economies remained strong, as
Japan showed evidence of exiting from its protracted slump, and as high prices
for energy and other commodities induced inflation fears that periodically
roiled markets. The Partnership's portfolio of treasuries was down for the
year, with a slight net loss for 2005.
Turning to currencies, the Partnership's currency trading suffered
significant losses. Weakness in the Yen is a trend that has continued from
2004.
Trading of agricultural commodities generated only minimal gains on the
year. Prices of corn, wheat and elements of the soybean complex experienced
wide swings in 2005, and modest gains were sustained across the grain sector
of the portfolio.
2004
During 2004, the Partnership achieved a net realized and unrealized gain
of $936,222 from its trading operations, which is net of brokerage commissions
of $35,296. The Partnership accrued total expenses of $266,708, including
$139,825 in Selling Agent Administrative and Service Fees, $102,578 in
Management Fees (paid to the General Partner) and $24,305 in operating
expenses. The Partnership earned $77,745 in interest income and allocated a
Profit Share of $175,476 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 3.61%
Bonds (1.93)%
Yen 2.65%
Energy 25.40%
Metals 7.86%
Grains (9.09)%
-------
Total Portfolio 30.80%
======
The Partnership experienced strong gains in 2004, led by strong
performance in the Partnership's energy portfolio, as well as gains in its S&P
500, Yen and metals trading. The Partnership suffered losses in its U.S.
treasuries and its grain trading.
The year 2004 was distinguished by transitions in the underlying
character of market trading dynamics. Although there was volatility throughout
the markets, the Partnership was able to capitalize on opportunities and
experienced significant gains overall.
19
Uncertainties plagued the markets in the spring of 2004, as global
political developments led to uncertainty. Although the Partnership
experienced net losses from April 2004 through June 2004, a strong January
through March and July through November buoyed performance.
Rising energy prices benefited long energy positions, and equity and
metals trading was profitable throughout much of 2004.
(c) Quantitative and Qualitative Disclosures About Market Risk
(i) Introduction
Past Results Are Not Necessarily Indicative of Future Performance
The Partnership is a speculative commodity pool. Unlike an operating
company, the risk of market sensitive instruments is integral, not incidental,
to the Partnership's main line of business.
Market movements result in frequent changes in the fair market value of
the Partnership's open positions and, consequently, in its earnings and cash
flow. The Partnership's market risk is influenced by a wide variety of
factors, including the level and volatility of interest rates, exchange rates,
equity price levels, the market value of financial instruments and contracts,
the diversification effects among the Partnership's open positions and the
liquidity of the markets in which it trades.
The Partnership can rapidly acquire and/or liquidate both long and short
positions in a wide range of different markets. Consequently, it is not
possible to predict how a particular future market scenario will affect
performance, and the Partnership's past performance is not necessarily
indicative of its future results.
Value at Risk is a measure of the maximum amount which the Partnership
could reasonably be expected to lose in a given market sector. However, the
inherent uncertainty of the Partnership's speculative trading and the
recurrence in the markets traded by the Partnership of market movements far
exceeding expectations could result in actual trading or non-trading losses
far beyond the indicated Value at Risk or the Partnership's experience to date
(i.e., "risk of ruin"). In light of the foregoing as well as the risks and
uncertainties intrinsic to all future projections, the inclusion of the
quantification included in this section should not be considered to constitute
any assurance or representation that the Partnership's losses in any market
sector will be limited to Value at Risk or by the Partnership's attempts to
manage its market risk.
Materiality, as used in this section "Quantitative and Qualitative
Disclosures About Market Risk," is based on an assessment of reasonably
possible market movements and the potential losses caused by such movements,
taking into account the leverage, optionality and multiplier features of the
Partnership's market sensitive instruments.
(ii) Quantifying the Partnership's Trading Value at Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Partnership's market risk
exposures contain "forward-looking statements" within the meaning of the safe
harbor from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A
20
of the Securities Act and Section 21E of the Securities Exchange Act of 1934).
All quantitative disclosures in this section are deemed to be forward-looking
statements for purposes of the safe harbor, except for statements of
historical fact.
The Partnership's risk exposure in the various market sectors traded by the
General Partner is quantified below in terms of Value at Risk. Due to the
Partnership's mark-to-market accounting, any loss in the fair value of the
Partnership's open positions is directly reflected in the Partnership's
earnings (realized or unrealized) and cash flow (as profits and losses on open
positions in exchange-traded contracts are settled daily through variation
margin).
Exchange maintenance margin requirements have been used by the Partnership as
the measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed 95-99% of the maximum one-day losses in the fair
value of any given contract incurred during the time period over which
historical price fluctuations are researched for purposes of establishing
margin levels. The maintenance margin levels are established by dealers and
exchanges using historical price studies as well as an assessment of current
market volatility (including the implied volatility of the options on a given
futures contract) and economic fundamentals to provide a probabilistic
estimate of the maximum expected near-term one-day price fluctuation.
In quantifying the Partnership's Value at Risk, 100% positive correlation in
the different positions held in each market risk category has been assumed.
Consequently, the margin requirements applicable to the open contracts have
simply been aggregated to determine each trading category's aggregate Value at
Risk. The diversification effects resulting from the fact that the
Partnership's positions are rarely, if ever, 100% positively correlated have
not been reflected.
(iii) The Partnership's Trading Value at Risk in Different Market
Sectors
The following tables indicate the Value at Risk associated with the
Partnership's open positions by market category at December 31, 2006 and 2005.
As of December 31, 2006 and December 31, 2005 the Partnership's total
capitalization was approximately $51,714,229 and $28,357,809, respectively.
As of December 31, 2006:
Market Sector Value at Risk % of Capitalization
Stock Indices $392,000 0.76%
Interest Rates 368,500 0.71%
Currencies 708,000 1.37%
Energy 2,104,000 4.07%
Metals 1,497,250 2.89%
Grains 1,435,900 2.78%
------ --------- -----
Total $6,505,650 12.58%
===== ========== ======
As of December 31, 2005:
Market Sector Value at Risk % of Capitalization
------------------------------------------------------------------------
Stock Indices - 0.00%
21
Interest Rates $168,300 0.59%
Currencies 352,000 1.24%
Energy 1,010,500 3.56%
Metals 1,040,000 3.67%
Grains 1,078,850 3.80%
------ --------- -----
Total $3,649,650 12.87%
===== ========== ======
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership
is typically many times the applicable maintenance margin requirement
(maintenance margin requirements generally ranging between approximately 1%
and 10% of contract face value) as well as several times the capitalization of
the Partnership (generally ranging between two and four times capitalization).
The magnitude of the Partnership's open positions creates a "risk of ruin" not
typically found in most other investment vehicles. Because of the size of its
positions, certain market conditions -- unusual, but historically recurring
from time to time -- could cause the Partnership to incur severe losses over a
short period of time. The foregoing Value at Risk tables -- as well as the
past performance of the Partnership -- give no indication of this "risk of
ruin."
Non-Trading Risk
The Partnership has non-trading cash flow risk as a result of holding a
substantial portion (generally over 95%) of its assets in U.S. Treasury bill
(as well as any market risk they represent) for margin and cash management
purposes. Although the General Partner does not anticipate that, even in the
case of major interest rate movements, the Partnership would sustain a
material mark-to-market loss on its securities positions, if short-term
interest rates decline so will the Partnership's cash management income. The
Partnership also maintains a portion (approximately 3-5%) of its assets in
cash in interest-bearing accounts. These cash balances are also subject (as
well as any market risk they represent) to cash flow risk, which is not
material.
(iv) Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's market
risk exposures -- except for (i) those disclosures that are statements of
historical fact and (ii) the descriptions of how the General Partner manages
the Partnership's primary market risk exposures -- constitute forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act. The Partnership's primary market risk
exposures as well as the strategies used and to be used by the General Partner
for managing such exposures are subject to numerous uncertainties,
contingencies and risks, any one of which could cause the actual results of
the Partnership's risk controls to differ materially from the objectives of
such strategies. Government interventions, defaults and expropriations,
illiquid markets, the emergence of dominant fundamental factors, political
upheavals, changes in historical price relationships, an influx of new market
participants, increased regulation and many other factors could result in
material losses as well as in material changes to the risk exposures and the
risk management strategies of the Partnership. There can be no assurance that
the Partnership's current market exposure and/or risk management strategies
will not change materially or that any such strategies will be effective in
either the short- or long-term.
22
The following were the primary trading risk exposures of the Partnership
as of December 31, 2006, by market sector.
Agricultural Commodities. The Partnership is exposed to movements in the
price of agricultural commodities, which are often directly affected by severe
or unexpected weather conditions. As of December 31, 2006, the Partnership had
exposure to soybeans, soybean meal, soybean oil, corn and wheat.
Currencies. The Partnership's currency positions are exposed to the risk
of changes in the exchange rate between the foreign currencies held by the
Partnership and the currency in which the Partnership calculates its net
assets, the U.S. Dollar. These fluctuations are caused by changes in interest
rates, political developments and general economic conditions. As of December
31, 2006, the Partnership's foreign currency trading is limited to a single
currency, Japanese Yen.
Energy. The Partnership is exposed to the risk of price movements in the
oil and gas markets, which may result from political developments in the
Middle East, and elsewhere, as well as general economic conditions worldwide.
Energy prices are volatile and substantial profits and losses have been
experienced and are expected to continue in these markets. As of December 31,
2006, the Partnership's energy trading is limited to crude oil, heating oil,
unleaded gasoline and natural gas.
Stock Index Futures. Interest rate movements and general economic
conditions affect the value of the Partnership's positions in stock index
futures. As of December 31, 2006, the Partnership's stock index futures
trading was limited to the S&P 500.
Metals. The Partnership is exposed to the risk of price movements in the
base and precious metal markets. These prices are affected by industrial
demand, interest rates and general economic conditions. As of December 31,
2006, the Partnership's metals trading was limited to gold, silver and copper.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the
Partnership as of December 31, 2006:
U.S. Treasury Bills. The Partnership's only market exposure in
instruments held other than for trading is in the market for U.S. treasuries.
The Partnership holds U.S. Treasury Bills as margin for its futures positions.
Interest rates directly affect the market prices of these instruments. The
General Partner anticipates that interest rates, both long-term and
short-term, will remain the primary non-trading market exposure of the
Partnership for the foreseeable future.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
AIS attempts to control the risk in the Partnership's trading by
diversifying the Partnership's portfolio across six market sectors - equities,
fixed income, currency, metals, agricultural products and energy products -
and by not allocating more than 1/6th of the Partnership's full portfolio
potential to each such sector; by real time monitoring of open positions; by
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 by limiting the leverage in the Partnership's portfolio to not more than
approximately four times the net asset value of the Partnership.
23
If AIS deems the markets to be subject to conditions of unusual risk,
possible government intervention, or temporary illiquidity, AIS may exercise
its discretion to temporarily reduce overall portfolio leverage or leverage in
a particular market. In addition, AIS applies discretion in the timing of its
response to system signals to buy or sell either by anticipating a signal
change or delaying a response to a signal if it believes market conditions
justify such a response. AIS may also take positions counter to those
suggested by its systematic models when its fundamental research presents a
compelling argument for an opposite position. However, the exercise of such
discretion by AIS could impact the Partnership negatively compared to a purely
systematic risk management approach.
AIS may also cause the Partnership to buy or sell options on futures as
a means of reducing portfolio volatility. In addition, AIS employs stop-loss
orders based on predetermined percentage ranges, indicated by MAAP, to exit
market positions if such predetermined percentages are exceeded.
AIS controls risk in the Partnership's passive, cash management
non-trading instruments (generally United States Treasury bills) by limiting
their duration to less than one year.
Item 3: 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, P.O. Box 806, Wilton, Connecticut 06897.
Item 4: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners
As of April 1, 2007, the General Partner knows of the following persons
who own beneficially more than 5% of the Partnership's Units as follows:
[Download Table]
Name and Address Value of Units held Percentage Ownership*
---------------- ------------------- --------------------
City of Meridian Police and $ 4,009,710 6.91%
Fire Fund
P.O. Box 66734
St. Louis, MO 36166
City of Meridian Employees Fund $ 4,009,710 6.91%
P.O. Box 66734
St. Louis, MO 63166
Judith L. Sargent TTEE Judith L. $ 3,503,002 6.03%
Sargent Term Trust UAD 06-17-06
4730 S. Fort Apache #170
24
Las Vegas, NV 89147
* "Percentage Ownership" is calculated based on the value of Limited
Partners' capital accounts, and not on the number of Units held by Limited
Partners. The Value of Limited Partners' Units varies depending on the timing
of subscriptions and withdrawals and there is no uniform Unit value.
All of the Partnership's general partner interest is held by AIS.
(b) Security Ownership of Management
The Partnership has no officers or directors. Under the terms of the
Limited Partnership Agreement, the Partnership's affairs are managed by the
General Partner, which has discretionary authority over the Partnership's
trading. As of April 1, 2007, the General Partner's interest in the
Partnership was valued at $196,008, which constituted 0.34% of the
Partnership's total assets.
As of April 1, 2007, no director, executive officer or member of the
General Partner beneficially owned Units in the Partnership.
(c) Changes in Control
There have been no changes in control of the Partnership.
Item 5: DIRECTORS AND EXECUTIVE OFFICERS
(a), (b) Identification of Directors and Executive Officers.
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 62, has been the President, Treasurer, Director, a
member and a principal of AIS since its inception. 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 1983. Mr. Hummel has also been, since its inception in
1993, the President and a Director and member of AIS Capital Management LLC
("AIS Capital Management") and its predecessor, AIS Capital Management, Inc.,
a registered commodity pool operator and investment adviser. 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 joining Cowen &
Company, 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 where he acted as a portfolio
manager with respect to futures trading. Prior to joining Matuschka &
25
Co. L.P., 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 1977.
Mr. Hummel directed the trading of Mitchell Hutchins Futures Fund, Ltd. from
its inception in December 1983 through May 31, 1987. From 1969 to 1976, Mr.
Hummel served as President of Asset Management Corporation, an investment
advisory firm which he helped organize. From 1967 to 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 41, is the Vice President and a member and
principal of AIS and of AIS Capital Management. Mr. Stern graduated from Emory
University in May 1988 with a B.B.A. degree and did post-graduate work in
finance at New York University in 1991 and 1992. In September 1988, he became
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. In September 1989, Mr. Stern became an Assistant Portfolio
Manager at Cowen & Company and his responsibilities increased over the
following three years to include acting as a Trading Analyst for Cowen &
Company. In March 1993, Mr. Stern left Cowen & Company with Mr. Hummel to join
AIS as an associated person. Mr. Stern became a principal of AIS in November
1993.
Robert F. Ward, age 56, is a member and principal of AIS. Mr. Ward has
27 years of investment consulting and investment experience. Mr. Ward
graduated from Metropolitan State College in 1974. Prior to joining AIS in
December of 2005, Mr. Ward was a Senior Vice-President, Investments with
Morgan Stanley (2000-2005), Paine Webber (1988-2000) and Kidder Peabody, Inc.
(1983-1988). His business relationship with AIS and John Hummel has spanned
over two decades.
(c) Identification of Certain Significant Employees
None.
(d) Family Relationships
None.
(e) Business Experience
See above.
(f) Involvement in Certain Legal Proceedings.
None.
(g) Promoters and Control Persons
Not Applicable.
26
Item 6: 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% month-end Net
Assets attributable to Series A Units and an annual Profit Share equal to 20%
of New Trading Profit realized on Series A Units, payable at the end of each
calendar year on a "high water mark" basis. Because Limited Partners purchase
Units 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 Units,
which are available only to AIS and its principals.
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 7: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
See "Item 6: Executive Compensation" and "Item 4: Security Ownership of
Certain Beneficial Owners and Management." The Partnership paid the General
Partner $242,294, $687,913, $279,667 and $102,578 in Management Fees for the
three month period ended March 31, 2007 and the years ended December 31, 2006,
2005 and 2004, respectively. The Partnership paid the General Partner $4,054,
$141,714, $692,016 and $175,476 in Profit Shares for the three month period
ended March 31, 2007 and the years ended December 31, 2006, 2005 and 2004,
respectively. The General Partner's interest in the Partnership showed an
allocation of profit (loss) of $16,839, $8,201, $46,841 and $31,126 for the
three month period ended March 31, 2007 and the years ended December 31, 2006,
2005 and 2004, respectively. 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 is independent of the General Partner.
27
Item 8: 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 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 Units, and none is likely to develop.
Units may be redeemed or transferred subject to the conditions imposed by the
Limited Partnership Agreement.
(b) Holders
As of April 1, 2007, there were 681 holders of Units.
(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 Units, and the General Partner has no present intention
to make any.
(d) Securities Authorized for Issuance under Equity Compensation Plans
None.
Item 10: RECENT SALES OF UNREGISTERED SECURITIES
Units are sold on a monthly basis through the General Partner and
certain Selling Agents retained by the General Partner to act as its agents.
The offering price of a Unit is the average Net Asset Value of all outstanding
Units on the date of issue. Between the Partnership's inception and March 30,
2007, the Partnership issued Series A Units to both new and existing Limited
Partners in monthly closings as set forth in the following chart.
[Enlarge/Download Table]
------------------------------ ----------------------------- ----------------------------
Date of Closing Number of Investors (New Dollar Amount of Units Sold
and Existing)
------------------------------ ----------------------------- ----------------------------
January 30, 2004 1 $25,000
------------------------------ ----------------------------- ----------------------------
February 27, 2004 2 $75,000
------------------------------ ----------------------------- ----------------------------
March 31, 2004 7 $247,000
------------------------------ ----------------------------- ----------------------------
April 30, 2004 12 $378,300
------------------------------ ----------------------------- ----------------------------
May 31, 2004 16 $1,130,000
------------------------------ ----------------------------- ----------------------------
June 30, 2004 10 $614,000
------------------------------ ----------------------------- ----------------------------
July 30, 2004 5 $159,000
------------------------------ ----------------------------- ----------------------------
August 31, 2004 5 $175,000
------------------------------ ----------------------------- ----------------------------
September 30, 2004 7 $414,000
------------------------------ ----------------------------- ----------------------------
October 29, 2004 8 $225,000
------------------------------ ----------------------------- ----------------------------
November 30, 2004 14 $661,472
------------------------------ ----------------------------- ----------------------------
28
------------------------------ ----------------------------- ----------------------------
Date of Closing Number of Investors (New Dollar Amount of Units Sold
and Existing)
------------------------------ ----------------------------- ----------------------------
December 31, 2004 15 $571,000
------------------------------ ----------------------------- ----------------------------
------------------------------ ----------------------------- ----------------------------
January 31, 2005 10 $405,000
------------------------------ ----------------------------- ----------------------------
February 28, 2005 12 $879,968
------------------------------ ----------------------------- ----------------------------
March 31, 2005 11 $446,000
------------------------------ ----------------------------- ----------------------------
April 29, 2005 23 $1,708,000
------------------------------ ----------------------------- ----------------------------
May 31, 2005 27 $1,745,970
------------------------------ ----------------------------- ----------------------------
June 30, 2005 19 $748,000
------------------------------ ----------------------------- ----------------------------
July 29, 2005 24 $1,646,589
------------------------------ ----------------------------- ----------------------------
August 31, 2005 22 $544,880
------------------------------ ----------------------------- ----------------------------
September 30, 2005 36 $1,343,500
------------------------------ ----------------------------- ----------------------------
October 31, 2005 29 $7,635,067
------------------------------ ----------------------------- ----------------------------
November 30, 2005 34 $1,211,790
------------------------------ ----------------------------- ----------------------------
December 30, 2005 25 $1,577,008
------------------------------ ----------------------------- ----------------------------
------------------------------ ----------------------------- ----------------------------
January 31, 2006 21 $1,872,655
------------------------------ ----------------------------- ----------------------------
February 28, 2006 24 $1,252,932
------------------------------ ----------------------------- ----------------------------
March 31, 2006 44 $1,998,532
------------------------------ ----------------------------- ----------------------------
April 28, 2006 55 $2,143,814
------------------------------ ----------------------------- ----------------------------
May 31, 2006 58 $3,843,234
------------------------------ ----------------------------- ----------------------------
June 30, 2006 85 $4,073,448
------------------------------ ----------------------------- ----------------------------
July 31, 2006 72 $4,907,395
------------------------------ ----------------------------- ----------------------------
August 31, 2006 29 $4,825,322
------------------------------ ----------------------------- ----------------------------
September 29, 2006 58 $2,405,509
------------------------------ ----------------------------- ----------------------------
October 31, 2006 18 $599,274
------------------------------ ----------------------------- ----------------------------
November 30, 2006 16 $912,313
------------------------------ ----------------------------- ----------------------------
December 29, 2006 10 $649,145
------------------------------ ----------------------------- ----------------------------
------------------------------ ----------------------------- ----------------------------
January 31, 2007 18 $632,027
------------------------------ ----------------------------- ----------------------------
February 28, 2007 20 $2,499,066
------------------------------ ----------------------------- ----------------------------
March 30, 2007 13 $514,900
------------------------------ ----------------------------- ----------------------------
Each of the foregoing Units was privately offered and sold only to
"accredited investors" as defined in Rule 501(a) under the Securities Act in
reliance on the exemption from registration provided by Rule 506 under the
Securities Act, and with whom the Partnership, the General Partner or a
Selling Agent acting on behalf of the General Partner has a pre-existing
substantive relationship and with respect to whom it has been determined that
the Units are a suitable investment.
No underwriting commissions or underwriting discounts were paid in
connection with the sale of the Units. Selling Agent compensation is described
above under Item 1(e) "Charges."
29
Item 11: DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The securities to be registered consist of Units of Limited Partnership
Interest ("Units") in the Partnership. The Net Asset Value of Units is
different for each Limited Partner due to the timing of subscriptions and
redemptions and applicability of the Profit Share based on Limited Partners'
individual capital account balances rather than on a per Unit Net Asset Value.
The Partnership accounts for subscriptions, allocations and redemptions on a
per partner capital account basis. Income (loss), prior to the Profit Share
allocation to the General Partner, is allocated to Limited Partner pro rata to
the capital accounts of all partners.
Dividend Rights. The General Partner has sole discretion in determining
what distributions of profits and income, if any, are made to investors.
Redemption Provisions. A Limited Partner may cause any or all of its
Units to be redeemed by the Partnership as of the close of business on the
last business day of any month on ten days' written notice to the General
Partner (or such lesser notice period as may be acceptable to the General
Partner). Redemption payments will be made within a reasonable time after the
date of redemption, but in no event more than 30 business days after the
redemption date. Under special circumstances, including but not limited to
default or delay in payments due the Partnership from the Commodity Broker,
banks or other persons, the Partnership may in turn delay payment to Limited
Partners requesting redemption of Units of the proportionate part of the Net
Asset Value represented by the sums which are the subject of such default or
delay. The General Partner may, upon 30 days' written notice, cause the
involuntary withdrawal of any Limited Partner by redeeming all of his Units as
of any month-end. In addition, the General Partner may require a Limited
Partner to redeem all or a portion of such Partner's Units if it considers
doing so to be desirable for the protection of the Partnership. When a Unit is
redeemed, any accrued Profit Share will reduce the redemption value of such
Unit. Redemption values are calculated after reduction of Net Asset Value for
the monthly Management Fee accrued in respect of the month of redemption.
Redemption requests must be submitted at least 10 days in advance of month-end
(unless the General Partner decides to waive such requirement).
Voting Rights. The Limited Partnership Agreement gives the General
Partner full control over the affairs of the Partnership. Although Limited
Partners have no right to vote on or participate in the control or management
of the Partnership, they are entitled to (i) approve, by vote of a majority of
Units (either a majority of Units of all Limited Partners or of Units of
Limited Partners of a Series that is particularly affected by a proposed
amendment), amendments to the Limited Partnership Agreement; (ii) within 90
days of the withdrawal of the last general partner of the Partnership, agree
unanimously to continue the business of the Partnership; and (iii) by
submission to the General Partner of a signed request of Limited Partners
representing at least 10% of the outstanding Units, call a meeting to vote
upon the possible removal of the General Partner.
Limited Partners are not required to consent to amendments to the
Limited Partnership Agreement which (a) clarify any inaccuracy or ambiguity or
reconcile any inconsistency; (b) add to the representations, duties or
obligations of the General Partner or surrender any right or power of the
General Partner for the benefit of the Limited Partners; (c) delete or add any
provision required to be deleted or added by any federal agency or any state
official or in order to opt to be governed by any amendment or successor
statute to the Delaware Revised Uniform Limited Partnership Act; (d) change
the location of the principal place of business of the Partnership; (e) are
appropriate or
30
necessary to qualify the Partnership as a limited partnership or that is
necessary to ensure taxation as a partnership; (f) do not adversely affect the
Limited Partners in any material respect or that are required or contemplated
by other provisions of the Limited Partnership Agreement or that are required
by law; (g) are appropriate or necessary, in the opinion of the General
Partner, to prevent the Partnership or the General Partner or its managers or
officers from in any manner being subjected to the provisions of the
Investment Company Act of 1940, as amended, the Investment Advisers Act of
1940, as amended (to the extent any such person is not already so subject);
(h) are appropriate, in the opinion of the General Partner, to avoid the
assets of the Partnership being treated for any purpose of ERISA or Section
4975 of the Code as assets of any "employee benefit plan" as defined in and
subject to ERISA or of any plan or account subject to Section 4975 of the Code
(or any corresponding provisions of succeeding law) or to avoid the
Partnership's engaging in a prohibited transaction as defined in Section 406
of ERISA or Section 4975(c) of the Code; (i) effect the allocations of the
Limited Partnership Agreement to the maximum practicable extent if such
allocations are effectively altered by any change in the federal tax law; or
(j) are similar to the foregoing.
Liquidation Rights. Upon the occurrence of an event causing the
dissolution of the Partnership, the Partnership shall terminate and be
dissolved. Dissolution, payment of creditors and distribution of Partnership
assets will be effected as soon as practicable in accordance with the Delaware
Revised Uniform Limited Partnership Act. In such an event, the General Partner
and each Limited Partner will share in the assets of the Partnership pro rata
in accordance with their respective interests in the Partnership, less any
amount owed by such Limited Partner to the Partnership.
Liability of the Limited Partners. Except as otherwise provided by law,
the Units, when purchased in accordance with the Limited Partnership
Agreement, are fully paid and non-assessable. The General Partner 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
shall 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. Units are subject to restrictions on
alienability. Each Limited Partner expressly agrees in the Limited Partnership
Agreement that such Limited Partner will not assign, transfer or dispose of,
by gift, pledge, hypothecation or otherwise, any of the Limited Partner's
Units or any part or all of the Limited Partner's right, title or interest in
the capital or profits of the Partnership without giving written notice of the
assignment, transfer or disposition to the General Partner, and receiving the
General Partner's consent thereto. Such consent may be withheld in the General
Partner's absolute discretion.
The following sections of Item 202 of Regulation S-K are not applicable
to the Units: (a)(1)(ii), (iii), (vi), (viii), (xi); (a)(2) through (5); (b)
through (f).
Item 12: INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Limited Partnership Agreement provides that to the fullest extent
permitted by law, the General Partner and its affiliates will be indemnified
by the Partnership against any losses, judgments, liabilities, expenses and
amounts paid in settlement of any claims sustained by them in
31
connection with the Partnership, provided that the same were not the result of
negligence or misconduct on the part of the General Partner or its affiliates.
Notwithstanding the preceding paragraph, the General Partner and its
affiliates are not indemnified for any losses, liabilities or expenses arising
from or out of an alleged violation of federal or state securities laws
unless: (1) there has been a successful adjudication on the merits of each
count involving alleged securities law violations as to the particular
indemnitee; (2) such claims have been dismissed with prejudice on the merits
by a court of competent jurisdiction as to the particular indemnitee; or (3) a
court of competent jurisdiction approves a settlement of the claims against a
particular indemnitee.
Item 13: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements required by this item, including the report of
McGladrey & Pullen, LLP for the fiscal year ended December 31, 2006, and the
report of Salvatore Albanese & Co. for the fiscal years ended December 31,
2005 and 2004 are included herewith following the Index to Financial
Statements.
The supplementary financial information specified in Item 302 of
Regulation S-K is not applicable.
Item 14: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 27, 2006 the General Partner dismissed Salvatore Albanese & Co.
("SAC") as the independent auditor for the Partnership and approved the
engagement of McGladrey & Pullen, LLP as independent auditors for the
Partnership. During the period from January 1, 2005 through June 27, 2006, the
General Partner had no disagreements with SAC on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of SAC,
would have caused it to make reference to the subject matter thereof in its
report on the financial statements of the Partnership for such period. There
were no other reportable events (as defined in paragraph (A) through (D) of
Regulation S-K Item 304(a)(1)(v)) during the period from January 1, 2005
through June 27, 2006. The General Partner, on behalf of the Partnership, has
requested that SAC furnish it a letter addressed to the Commission stating
whether it agrees with the above statements. This letter is attached as Exhibit
16.1 hereto.
On December 31, 2006 the General Partner approved the engagement of
McGladrey & Pullen, LLP as independent auditors for the Partnership. During
the Partnership's prior year and the interim period prior to engaging
McGladrey & Pullen, LLP, the General Partner did not consult McGladrey &
Pullen, LLP on behalf of the Partnership with respect to any of the matters
described in Regulation S-K Item 304(a)(2)(i) or (ii).
32
Item 15: FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The financial statements required by this Item are included herewith,
beginning following the Index to Financial Statements appearing after the
signature page hereof, and are incorporated into this Item 15.
Supplementary financial information specified by Item 302 of Regulation
S-K is not applicable.
(b) Exhibits
The following documents (unless otherwise indicated) are filed herewith
and made part of this registration statement.
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------------------------------------- ----------------------------------------------------------------------
Exhibit Designation Description
------------------- -----------
------------------------------------- ----------------------------------------------------------------------
3.1 Certificate of Formation of AIS Futures Fund IV L.P.
------------------------------------- ----------------------------------------------------------------------
4.1 Second Amended and Restated Limited Partnership Agreement of AIS
Futures Fund IV L.P.
------------------------------------- ----------------------------------------------------------------------
10.1 Customer Agreement between Calyon Financial Inc. and AIS Futures
Fund IV L.P.
------------------------------------- ----------------------------------------------------------------------
16.1 Letter re: Change in Certifying Accountant
------------------------------------- ----------------------------------------------------------------------
33
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.
Dated: April 30, 2007
AIS FUTURES FUND IV L.P.
By: AIS FUTURES MANAGEMENT LLC
By: /S/ John Hummel
---------------------------------
Name: John Hummel
Title: President
34
Index to Financial Statements
AIS Futures Fund IV L.P.
Report of Independent Registered Public Accounting Firm
Independent Auditor's Report
Statements of Financial Condition at December 31, 2006 and 2005
Condensed Schedule of Investments at December 31, 2006 and 2005
Statements of Operations For the Years Ended December 31, 2006,
2005 and 2004
Statements of Changes in Partner's Capital (Net Asset Value) For the
Years Ended December 31, 2006, 2005 and 2004
Notes to Financial Statements
35
AIS FUTURES FUND IV L.P.
ANNUAL REPORT
December 31, 2006
36
AIS FUTURES FUND IV L.P.
----------------------
TABLE OF CONTENTS
----------------------
PAGES
-----
Report of Independent Registered Public Accounting Firm 38
Independent Auditor's Report 39
Financial Statements
Statements of Financial Condition 40
Condensed Schedules of Investments 41 - 42
Statements of Operations 43
Statements of Changes in Partners' Capital (Net Asset Value) 44
Notes to Financial Statements 45 - 50
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
AIS Futures Fund IV L.P.
Wilton, Connecticut
We have audited the accompanying statement of financial condition, including
the condensed schedule of investments, of AIS Futures Fund IV L.P. as of
December 31, 2006 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, 2006, 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 28, 2007
38
Salvatore Albanese & Co.
------------------------
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
To the Partners
AIS Futures Fund IV L.P.
Wilton, Connecticut
We have audited the accompanying statement of financial condition, including
the condensed schedule of investments, of AIS Futures Fund IV L.P. as of
December 31, 2005, and the statements of operations and changes in partners'
capital for the years ended December 31, 2005 and 2004. These financial
statements are the responsibility of the Partnership's management. Our
responsibility to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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
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 AIS Futures Fund IV L.P. as
of December 31, 2005, and the results of its operations for the years ended
December 31, 2005 and 2004, in conformity with accounting principles generally
accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the 2005
and 2004 basic financial statements taken as a whole. The supplementary
information is presented for purposes of additional analysis and is not a
required part of the basic financial statements, but is supplementary
information required by Regulation 4.22(c) under the Commodity Exchange Act.
Such information as of December 31, 2005 and 2004 has been subjected to the
auditing procedures applied in the audit of the 2005 and 2004 basic financial
statements taken as a whole.
New York, New York
March 19, 2006
875 Avenue of the Americas, New York, NY 10001
Tel: (212) 714-0064 Fax: (212) 629-9553
65 East John Street, Hicksville, NY 11801
Tel: (516) 417-8503 Fax: (516) 213-4895
www.salabanese.com
39
[Enlarge/Download Table]
AIS FUTURES FUND IV L.P.
STATEMENTS OF FINANCIAL CONDITION
December 31, 2006 and 2005
-----------------
2005
2006 (As Restated)
---- -------------
ASSETS
Equity in broker trading account
Cash $ 3,341,803 $ 366,808
United States government securities 50,875,254 26,017,706
Unrealized gain (loss) on open contracts (1,978,076) 2,770,383
Interest receivable 2,712 2,624
---------------------- ------------------------
Deposits with broker 52,241,693 29,157,521
Cash 546,030 1,869,915
---------------------- ------------------------
Total assets $ 52,787,723 $ 31,027,436
====================== ========================
LIABILITIES
Accounts payable $ 51,208 $ 16,942
Commissions and other trading fees
on open contracts 19,112 12,013
Management Fee payable 72,095 34,612
General Partner Profit Share allocation payable 83,935 635,438
Selling Agent administrative and service fee payable 140,573 93,017
Subscriptions received in advance 546,000 1,869,885
Redemptions payable 130,526 481,198
---------------------- ------------------------
Total liabilities 1,043,449 3,143,105
---------------------- ------------------------
PARTNERS' CAPITAL (Net Asset Value)
General Partner - Series B
(57.468 units outstanding at December 31, 2006 and 2005) 179,169 170,968
Limited Partners - Series A
(30,118.862 and 16,141.872 (as restated) units outstanding
outstanding at December 31, 2006 and 2005) 51,565,105 27,713,363
---------------------- ------------------------
Total partners' capital (Net Asset Value) 51,744,274 27,884,331
---------------------- ------------------------
$ 52,787,723 $ 31,027,436
====================== ========================
See accompany notes.
40
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AIS FUTURES FUND IV L.P.
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2006
---------------
UNITED STATES GOVERNMENT SECURITIES
% of Net
Face Value Maturity Date Description Fair Value Asset Value
---------- ------------- ----------- ---------- -----------
$ 9,000,000 01/04/07 U.S. Treasury Bills $ 8,992,318 17.38%
2,000,000 01/11/07 U.S. Treasury Bills 1,996,279 3.86%
500,000 01/18/07 U.S. Treasury Bills 498,584 0.96%
6,000,000 02/01/07 U.S. Treasury Bills 5,971,749 11.54%
8,000,000 04/05/07 U.S. Treasury Bills 7,893,629 15.26%
11,000,000 05/03/07 U.S. Treasury Bills 10,811,138 20.89%
9,000,000 05/10/07 U.S. Treasury Bills 8,836,491 17.08%
6,000,000 05/31/07 U.S. Treasury Bills 5,875,066 11.35%
---------------- ---------------
Total United States government securities*
(cost, plus accrued interest, - $50,875,254) $ 50,875,254 98.32%
================ ===============
LONG FUTURES CONTRACTS
% of Net
Description Fair Value Asset Value
----------- ---------- -----------
Agricultural $ 10,090 0.02%
Currencies (953,587) -1.84%
Energy (732,312) -1.42%
Stock Index 43,050 0.08%
Metals (1,423,598) -2.75%
---------------- ---------------
Total long futures contracts (3,056,357) -5.91%
---------------- ---------------
SHORT FUTURES CONTRACTS
Number of
Contracts Description
335 Interest Rates (30 Year U.S. Treasury Bond, expires 03/2007) 1,078,281 2.08%
---------------- ---------------
Total futures contracts $ (1,978,076) -3.83%
================ ===============
* Pledged as collateral for the trading of futures and options on futures contracts.
See accompany notes.
41
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AIS FUTURES FUND IV L.P.
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2005
---------------
UNITED STATES GOVERNMENT SECURITIES
% of Net
Face Value Maturity Date Description Fair Value Asset Value
---------- ------------- ----------- ---------- -----------
$ 1,500,000 01/19/06 U.S. Treasury Bills $ 1,497,128 5.37%
3,000,000 02/16/06 U.S. Treasury Bills 2,985,077 10.71%
2,000,000 03/02/06 U.S. Treasury Bills 1,987,160 7.13%
900,000 03/09/06 U.S. Treasury Bills 893,809 3.21%
1,500,000 03/10/06 U.S. Treasury Bills 1,438,002 5.16%
7,000,000 04/05/06 U.S. Treasury Bills 6,908,829 24.77%
500,000 04/13/06 U.S. Treasury Bills 494,270 1.77%
1,500,000 05/25/06 U.S. Treasury Bills 1,474,886 5.29%
2,000,000 06/08/06 U.S. Treasury Bills 1,963,376 7.04%
3,500,000 06/08/06 U.S. Treasury Bills 3,435,299 12.32%
3,000,000 06/22/06 U.S. Treasury Bills 2,939,870 10.54%
---------------- ---------------
Total United States government securities*
(cost, plus accrued interest, - $26,017,706) $ 26,017,706 93.31%
================ ===============
LONG FUTURES CONTRACTS
% of Net
Description Fair Value Asset Value
----------- ---------- -----------
Agricultural $ 564,451 2.02%
Currencies 365,200 1.31%
Energy 793,521 2.85%
Metals 832,055 2.98%
---------------- ---------------
Total long futures contracts 2,555,227 9.16%
---------------- ---------------
SHORT FUTURES CONTRACTS
-----------------------
Number of
Contracts Description
--------- -----------
153 Interest Rates (30 Year U.S. Treasury Bond, expires 03/2006) 215,156 0.77%
---------------- ---------------
Total futures contracts $ 2,770,383 9.93%
================ ===============
* Pledged as collateral for the trading of futures and options on futures contracts.
See accompany notes.
42
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AIS FUTURES FUND IV L.P.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2006, 2005 and 2004
---------------
2006 2005 2004
---- ---- ----
TRADING GAINS (LOSSES)
Trading gains (losses)
Realized $ 2,560,006 $ 234,113 $ 1,646,683
Change in unrealized (4,748,459) 3,310,504 (675,165)
Brokerage commissions (125,731) (104,850) (35,296)
---------------- --------------- ----------------
Total trading gains (losses) (2,314,184) 3,439,767 936,222
---------------- --------------- ----------------
NET INVESTMENT INCOME
Income
Interest income 2,140,749 477,981 77,745
---------------- --------------- ----------------
Expenses
Selling Agent Administrative and Service Fee 1,292,554 490,891 139,825
Management Fees 687,913 279,667 102,578
Operating expenses 69,180 38,677 24,306
---------------- --------------- ----------------
Total expenses 2,049,647 809,235 266,709
---------------- --------------- ----------------
Net investment income (loss) 91,102 (331,254) (188,964)
---------------- --------------- ----------------
NET INCOME (LOSS) (2,223,082) 3,108,513 747,258
---------------- --------------- ----------------
Less: General Partner Profit Share allocation 141,714 692,016 175,476
---------------- --------------- ----------------
Net income (loss) for pro rata allocation to all partners $ (2,364,796) $ 2,416,497 $ 571,782
================ =============== ================
See accompany notes.
43
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AIS FUTURES FUND IV L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Years Ended December 31, 2006, 2005 and 2004
---------------
Partners' Capital
----------------------------------------------------------------
Series B Series A
General Limited
Partner Partner Total
------- ------- -----
Balanced at December 31, 2003 $ 93,002 $ 2,576,567 $ 2,669,569
Net income for the year ended
December 31, 2004
General Partner Profit Share allocation 175,476 0 175,476
Pro rata allocation to all partners 31,125 540,657 571,782
Subscriptions 0 4,646,278 4,646,278
Redemptions (175,476) 0 (175,476)
------------------- -------------------- -----------------
Balances at December 31, 2004 124,127 7,763,502 7,887,629
Net income for the year ended
December 31, 2005
General Partner Profit Share allocation 692,016 0 692,016
Pro rata allocation to all partners 46,841 2,369,656 2,416,497
Subscriptions 0 19,891,772 19,891,772
Redemptions (692,016) (1,830,369) (2,522,385)
------------------- -------------------- -----------------
Balances at December 31, 2005
As previously reported 170,968 28,194,561 28,365,529
Restatement for redemptions (Note 1)
December 31, 2005 0 (481,198) (481,198)
------------------- -------------------- -----------------
Balances at December 31, 2005
as restated 170,968 27,713,363 27,884,331
Net income (loss) for the year ended
December 31, 2006
General Partner Profit Share allocation 141,714 0 141,714
Pro rata allocation to all partners 8,201 (2,372,997) (2,364,796)
Subscriptions 0 29,483,774 29,483,774
Redemptions (141,714) (3,259,035) (3,400,749)
------------------- -------------------- -----------------
Balances at December 31, 2006 $ 179,169 $ 51,565,105 $ 51,744,274
=================== ==================== =================
See accompany notes.
44
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 limited partnership agreement provides, among other
things, that the Partnership shall dissolve no later than
December 31, 2026.
B. 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.
C. Futures and Options on Futures Contracts
Futures and options on futures are recorded on trade date
and reflected at fair value, based on quoted market prices.
Gains or losses are realized when contracts are liquidated.
Net unrealized gains or losses on open contracts (the
difference between contract trade price and quoted market
price) are reflected 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.
D. Securities
United States government securities are stated at cost plus
accrued interest, which approximates fair value.
E. Income Taxes
The Partnership prepares 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.
45
AIS FUTURES FUND IV L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
---------------
Note 1.c ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
(CONTINUED)
-----------
F. Capital Accounts
The Partnership offers two Series of Units. The Series A
Units are available to all qualified investors, subject to
applicable conditions and restrictions. The Series B Units
are available for sale to the General Partner and its
principals. The Limited Partner's net asset value per unit
is different due to timing of subscriptions and redemptions
and applicability of the General Profit Share allocation
based on each Limited Partner's capital account balances
rather than the fund as a whole. The Partnership accounts
for subscriptions, allocations and redemptions on a per
partner capital account basis. Income or loss, prior to the
General Partner Profit Share allocation, is allocated pro
rata to the capital accounts of all partners. The General
Partner Profit Share allocation applicable to each Limited
Partner is allocated to the General Partner's capital
account from the Limited Partner's capital account at the
end of each calendar year or upon redemption by a Limited
Partner.
G. Redemptions
Limited Partners may require the Partnership to redeem some
or all of their capital upon ten days prior written notice.
Partner redemptions are recorded on their effective date,
which is generally the last day of the month.
H. Reclassifications
Certain amounts in the 2005 financial statements were
reclassified to conform with the 2006 presentation.
I. Statement of Cash Flows
The Partnership has elected not to provide statements of
cash flows as permitted by Statement of Financial Accounting
Standards No. 102, "Statements of Cash Flows - Exemption of
Certain Enterprises and Classification of Cash Flows from
Certain Securities Acquired for Resale."
J. Recently Issued Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 48 (FIN 48) entitled
"Accounting For Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109." FIN 48 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. Adoption of FIN 48 is required for fiscal years
beginning after December 15, 2006. The implementation of FIN
48 is not expected to have a material impact on the
Partnership's financial statements.
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.
46
AIS FUTURES FUND IV L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
---------------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
(CONTINUED)
-----------
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.
In September 2006, the SEC issued Staff Accounting Bulletin
No. 108 ("SAB 108"), "Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year
Financial Statements", providing guidance on quantifying
financial statement misstatement and implementation (e.g.,
restatement or cumulative effect to assets, liabilities and
retained earnings) when first applying this guidance. SAB
108 is effective for the Partnership for the year ending
December 31, 2006. The adoption of SAB 108 did not have a
material effect on the Partnership's financial statements.
K. Fair Value
All of the Partnership's assets and liabilities are
considered financial instruments and are reflected at fair value,
or at carrying amounts that approximate fair value because of the
short maturity of the instruments.
L. Change in Accounting Principle and Prior Period Restatement
Pursuant to the provisions of Statement of Financial
Accounting Standards No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both
Liabilities and Equity" (FAS 150), redemptions approved by
the General Partner prior to year end with a fixed effective
date and fixed amount should be recorded as redemptions
payable as of year end. FAS 150 became effective for the
Partnership during the year ended December 31, 2005. The
December 31, 2005 financial statements have been restated to
reflect redemptions payable of $481,198, which was
previously reported as partners' capital.
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 Second Amended and Restated Limited Partnership Agreement (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 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 2006 and 2005, 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 Service Fee
described in Note 3. Accordingly, for the years ended December 31, 2006
and 2005, Management Fees were reduced by approximately $195,000 and
$63,000, respectively.
47
AIS FUTURES FUND IV L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
---------------
Note 3. SELLING AGENT ADMINISTRATIVE AND SERVICE FEES
---------------------------------------------
Certain Series A Limited Partners that were solicited by Selling
Agents are charged an 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 year ended December 31, 2006, certain Limited Partners were
not subject to the Service Fee. For the year ended December 31,
2005, all Limited Partners were subject to the Service Fee.
For investment executives associated with the sale of Limited
Partner 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 Limited Partner Interests in excess of
$500,000, for the first twelve months following the sale of such
Limited Partner Interests. Effectively, the additional Service Fee
is paid by the General Partner, not the Limited Partner, through a
reduced Management Fee, as discussed in Note 2.
Note 4. DEPOSITS WITH BROKER
--------------------
The Partnership deposits funds with its clearing broker 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 5. 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, 2006 and 2005, $1,350 and $0
in selling commissions were charged to Limited Partners. Limited
Partner additions, as presented in the statement of changes in
partners' capital (net asset value), are net of such selling
commissions.
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 redemptions 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.
Note 6. TRADING ACTIVITIES AND RELATED RISKS
------------------------------------
The Partnership engages in the speculative trading of U.S. futures
contracts and for a brief period of time in 2006 traded options on
U.S. futures contracts. The Partnership is exposed to both market
risk, the risk arising from changes in the market value of the
contracts, and credit risk, the risk of failure by another party
to perform according to the terms of a contract.
48
AIS FUTURES FUND IV L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
---------------
Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
------------------------------------------------
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 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.
For futures and options on futures contracts, risks arise from
changes in the market 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. As both a buyer and seller
of options, the Partnership pays or receives a premium at the
outset and then bears the risk of unfavorable changes in the price
of the contract underlying the option. Written options expose the
Partnership to potentially unlimited liability; for purchased
options, the risk of loss is limited o the premiums paid.
In addition to market risk, in entering commodity interest
contracts, there is a credit risk that a counterparty will not be
able to meet its obligations to the Partnership. The counterparty
for futures and options on futures contracts traded in the United
States and on most non-U.S. futures exchanges is the clearinghouse
associated with such exchange. In general, clearinghouses are
backed by the corporate members of the clearinghouse who are
required to share any financial burden resulting from the
nonperformance by one of their members and, as such, should
significantly reduce the credit risk.
The Partnership maintains its cash in bank deposit accounts that,
at times, may 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 their
respective investments and, in certain specific circumstances,
distributions and redemptions received.
Note 7. 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.
49
AIS FUTURES FUND IV L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
---------------
Note 8. FINANCIAL HIGHLIGHTS
--------------------
The following information presents the financial highlights of the
Partnership for the years ended December 31, 2006, 2005 and 2004.
This information has been derived from information presented in
the financial statements.
[Enlarge/Download Table]
2006 2005 2004
---- ---- ----
Total return for Series A Limited Partners taken as a whole
Total return before Profit Share allocation 0.17 % 1.78 % 27.82 %
Profit Share allocation (0.47)% (7.18)% (6.82)%
---------- ---------- --------
Total return after Profit Share allocation (0.30)% 24.59 % 21.00 %
========== ========== =======
Supplemental Data for Series A Limited Partners
Ratio of expenses to average net asset value:
Expenses, excluding Profit Share allocation 4.66 % 4.70 % 4.88 %
Profit Share allocation 0.32 % 4.02 % 3.21 %
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Total expenses 4.98 % 8.73 % 8.09 %
========== ========== ========
Net investment income (loss) (1) 0.17 % (1.95)% (3.48)%
========== ========== ========
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 Profit Share allocation
arrangements. An individual partner's total returns and ratios may
vary from the above total returns and ratios based on the timing
of their capital additions 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.
--------------------------
(1) The net investment income (loss) is comprised of interest
income less total expenses, excluding the General Partner
Profit Share allocation.
50
Dates Referenced Herein
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