8230 Federal Register / Vol. 58, No. 28 / Friday, February 12, 1993-/ Rules and: Regulations

periods and is able to state that to the » terminating single-employer pension
best of its knowledge there is no plans and optional for others. The —
reason why the CTA could not have | Pension Benefit Guaranty Corporation
adjusts the interest rates and factors
eriodically to reflect changes in
nancial and annuity markets. This
amendment adopts the rates and factors
applicable to plans that terminate on or
q inni after March 1, 1993, which will remain
Hane ro Pagan, CEA bes ceed a in effect until the PBGC issues new
new method of computing rate-of-return interest rates and factors.
and performance disclosure, referred to EFFECTIVE DATE: March 1, 1993.
as the “Fully-Funded Subset” method, | FOR FURTHER INFORMATION CONTACT:
pursuant to an Advisory published by Harold J. Ashner, Assistant General
the CFTC, To qualify for use of the Counsel, Office of the General Counsel,
Fully-Funded Subset method, the Code 22500;Pension Benefit Guaranty
- Corporation, 2020 K Street, NW.,
computations be made in order to arrive Washington, DC 20006, 202-778-8850
at the Fully-Funded Subset and that the (202-778-8859 for TTY and TDD only).
accounts for which performance isso. , These are not toll-free numbers.
reported meet two tests which are SUPPLEMENTARY INFORMATION: The
designed to provide assurance that the _ Pension Benefit Guaranty Corporation's
Fully-Funded Subset and the resultant (“PBGC’s") regulation on Valuation of,
RORs are representative of the trading Plan Benefits in Single-Employer Plans
program. X CTA has performed these _—"_ (29 CFR part 2619) sets forth the
Computations for periods subsequent to. methods for valuing plan benefits of ”
January 1, 1992. However, for periods ~ * terminating single-employer plans“.
prior to January 1, 1992, due to cost covered under Title IV of the Employee
considerations, the Fully-Funded Subset Retirement Income Security Act of 1974;
method has not been used. Instead, the _ as amended (“ERISA”). Under ERISA
coy section 4041(c), s}] plans wishing to
computation which uses the Nominal terminate in a distress termination must
Values of all of the accounts included in value guaranteed benefits and “benefit-
the composite table. X CTA believes that liabilities”, i-e., all benefits provided *
this method yields substantially the -under the plan as of the plan
same RORs es the Fully-Funded Subset termination date, using the formulas set
method and that the RORs presented in _ forth in part 2619, subpart C. (Plans
the performance table are representative _ terminating in a standard termination
of the trading program for the periods may, for purposes of the Standard - ~
presented. Termination Notice filed with PBGC,

Issued in Washington, DC, February 8, use these formulas to value benefit
liabilities, although this is not required.)
Jean A. Webb, In addition, when the PBGC terminates
an underfunded plan involuntarily
{FR Doc. 93-3335 Filed 2-11-93: 8:45 am} _—-— Pursuant to ERISA section 4042(a), it
uses the subpart C formulas to
determine the amount of the plan’s
underfunding.

Appendix B in part 2619 sets forth the
interest ratés and factors that are to be
used in the formulas contained in the
29 CFR Part 2619 regulation. Because these rates and

factors are intended to reflect current
Valuation of Plan Benefits In Single- conditions in the financial and annuity

Employer Plans; Ai markets, it is necessary.to update the
mploye ins; Amendment Adopting rates and factors periodically.

The rates and factors currently in use
AGENCY: Pension Benefit Guaranty have been in effect since February 1,
Corporation. 1993. This amendment adds to
ACTION: Final rule. appendix B a new set of interest rates
7 + and factors for valuing benefits in plans
SUMMARY: This amendment to the that terminate on or after March 1, 1993,
regulation on Valuation of Plan Benefits which set reflects a decrease of %
in Singie-Employer Plans contains the _percent in the immediate interest rate
interest rates and factors for the period from 51%

used the Fully-Funded Subset
Method.

The following is the text which fi
should baused: : .
In the accompanying performance

Advisory requires that certain

RORs reported are based upon a

1993, by the Commission.
Secretary of the Commission.

BILLING CODE 6351-01-44

PENSION BENEFIT ‘GUARANTY
CORPORATION

Additional PBGC Rates

beginning March 1, 1993. The use of
‘benefits is mandatory for some

it to 5% percent.

ly, the interest ratesand
these interest rates and factors to value _ factors will be in effect for at least one
month. However, any. published rates

and factors will remain in offect until
such time as the PBGC publishes ©
another amendment changing them.
Any change in the rates normally will
be published in the Federal Register by
the 15th of the month preceding the
effective date of the new rates or as
close to that date as circumstances
permit: +

The PBGC has determined that notice
and public comment on this amendment
are impracticable and contrary to the
public interest. This finding is based on
the need to determine and issue new
interest rates and factors promptly so
that the rates can reflect, as accurately
as possible, current market conditions.

jecause of the need to provide

immediate guidance for the valuation of
benefits in plans that will terminate on
or after March 1, 1993, and because no
adjustment by ongoing plans is required
by this amendment, the PBGC finds that
good cause exists for making the rates
set forth in this amendment effective

. less than 30 days after publication.

The PBGC has determined that this is

“ not a “major rule” under the criteria set

forth-in Executive Order 12291, because
it will not result in an annual effect on
the economy of $100 million or more, a
major increase in costs for consumers or
individual industries, or significant
adverse effects on competition,

-employment, investment, productivity,

or innovation.

List of Subjects in 29 CFR Part 2619

Employee benefit plans, Pension
‘insurance, and Pensions.

In consideration of the foregoing, part
2619 of chapter XXVI, title 29, Code of
Federal Regulations, is hereby amended
as follows:

PART 2619—-[AMENDED]}

“1, The authority citation for part 2619
continues to read as follows:

Authority: 29 U.S.C. 1301(a), 1302(b)(3),
1341, 1344, and 1362 (1988).

2. Rate Set 103 of appendix B is
revised and Rate Set 104 of appendix B
is added to read as follows. The
introductory text is republished for the
convenience of the reader and remains
unchanged. a

Appendix B—Interest Rates and
Quantities Used to Value Immediate
and Deferred Annuities

In the table that follows, the
immediate annuity rate is used to value
immediate annuities, to compute the
quantity “Gy” for deferred annuities

. and to value both portions of a refund

annuity. An interest rate of 5% shall be
used to value death benefits other than
the decreasing term insurance portion of


Federal Register / Vol. 58, No. 28./ Friday, February 12, 1993 / Rules.and Regulations. : 8229

You are reminded that the account size you
have agreed to in writing {the “nominal” or
“notional” account size) is not the maximum
possible loss that your account may
experience. . .

You should consult the account statements
received from your futures commission-
merchant in order to determine the actual
activity in your account, including profits,
Josses and current cash equity balance: To

. the extent that the equity in your account is
at any timo less than the nominal account
size you should be aware of the following:

1, Although your gains and losses, foes and
commissions measured in dollars will-be
the same, they will be greater when
expressed as a percentage of account
equity.

2, You may receive more frequent and larger
margin calls.

3. The disclosures which accompany the
performance table may be used to convert
the rates-of-return (“RORs”) in the
performance table to the corresponding
RORs for particular partial funding levels.

VI. Materiality—Quantitative - *

For purposes of this Advisory the
terminology “materially the same” or
“not materially different” when used in
comparing percentage amounts, will be
interpreted © as follows:

(i) If two percentage amounts being
compared average 10-percentage
points or more, they. will be deemed
to be not materially different, if the
difference between the two amounts
is less than 10 percent of their
average;

(ii) If two percentage amounts being
compared average less than 10 and
greater than 5, they will be deemed to
be not materially different, if the
difference between the two amounts
is 1.5 percentage points or less; and

(iii) If two percentage amounts being
‘compared average 5 or less they will
be deemed to be not materially
different, if the difference between the
two amounts is 1.0 percentage point
or less.

VII. The Nominal (Notional) Account
Size

ACTA’s Nominal or Notional
Account Sizes should be established on
a systematic basis for all the accounts.
The number of contracts traded and
held and the pattern of trading must be
_Materially the same for all accounts of
a given Nominal Account Size which
are presented in the same performance

This “safe harbor" is applicable only in the
context of the disclosures required by application
of this Advisory. In other contexts {t may not be
appropriate to rely solely upon numerical factors in

-_, assessing whethor something might be of “material”

interest or concom to a prospective investor. Thus,
registrants must continue to consider all relevant
facts and circumstances in determining whether
information is material in any context not-
addressed here...

table. This relationship must be
maintained across all of the CTA’s
accounts, which are presented in the
same composite performance table. In
addition, because an account's gross .
trading profits are a function of au
positions traded and held, the ratio of
Gross trading profits to Nominal «
Account Size should be materially the
same for accounts included in the
composite performance table.

For example, if one of a CTA’s.
accounts is nominally a $100,000
account, such account must have
substantially the same positions as all
other $100,000-denominated accounts
of the CTA, which are in the same
program and reflected in the same
performance table. If a client were to
deposit Actual Funds equal to the
Nominal Account Size, based upon
historical experience with the program’.
or other available data, it should be
unlikely that any further cash deposits
would be required from the client over
the course of the client’s expected term
of participation in the CTA’s program.

VUI. The CrAACHent Agreement

All customer accounts reported
pursuant to this Advisory must be
documented by an agreement between
the CTA and its customer. The
agreement must specify:”

a. the name of the CTA’s trading
program in which the customer is ~
participating:

b. the Nominal Account Size, including
how profits, losses and withdrawals/
additions of Actual Funds and trading
would affect or be related to the
Nominal Account Size; and

¢. how and to what extent (as a
percentage of the account’s Nominal
Account Size) the account will be
funded with Actual Funds.

IX. Applicability of this Advisory to
Commodity Pools

ACTA applying this Advisory to its
trading of an account for a pool would
treat such pool account exactly as any
other type of client account, i.e., as
Fully-Funded or as partially funded, as.
the case may be. (For information
regarding pool allocations to a CTA
under a “liquid asset allocation
system”, where not all funds allocated
to a CTA are maintained in the CTA’s
trading account, see Comm. Fut. L. Rep.
{CCH) 924,058, p. 34639 (December 16,
1987),} However, the Division believes
that it would not be appropriate to”
apply the concept of Notional or partial’

7 Tho Commission notes that the issues covered
by this section would generally be deemed to be
“material information” and, thus, e required
disclosure to all customers with partlally funded
accounts.

- funding to the reporting by a pool of its

performance results, since a pool fs, in

fact, trading only with the funds’. -

contained in the pool. The proper --
mothod of reporting for pools is based
upon genera! q accepted accounting
principles and:is set forth in tha

Commission's part 4 regulations.

Nothing in this Advisory is intended to

alter or change those requirements.

X. Representations and Required -

Disclosures
A. The CTA to the public--In making

representations and disclosures to the

public, both with respect to the ~
disclosure document (other than the
disclosures in the performance tables
specified in the Advisory)‘and in other
written or oral communications, the’
following should be observed by CTA:

i, When referring to funds under
management, the amount of Actual
Funds under management should
always be disclosed. If also referring
to the amount of funds under
management inclusive of Notional
Funds, such amount should be
referred to as “including Notional
Funds”.

ii. Asset based costs/fees should be
denominated as a percentage of the
amount of Actual Funds to be
collected from a prospective customer
at the inception of the account,
although use of the percentage of the
Nominal Account Size may also be
disclosed: . 7 ~
B. The CTA to the carrying FCM—The

CTA will supply the carrying FCM with

each partially funded customer's

Nominal Account Size and whether that

accaunt size will fluctuate based on

changes in account equity.

XI. Initial Implementation of the

Advisory
This Advisory is effective as of the

issue date indicated below. <
Regarding retroactive application of

this Advisory, the Commission :

recognizes that calculating the two tests

i

. for each period prosented for several

prior years might be difficult. Because

the Commission wishes to facilitate the

retroactive use of the Advisory, the’

Commission will not require explicit

compliance with the tests for such prior

periods provided that:

(2) To avoid compounding the
cumulative impact of any errors or
inaccuracies, any VAMI, or any other
similar measure, presented for such
prior periods is reset to its base
amount annually; and

(2) The CTA uses the Nominal. Account
sizes for the entire composite in
computing RORs for such prior

5


8226

Federal Register / Vol. 58, No. 28 / Friday, February 12, 1993 / Rules and Regulations

(1) Any operator complying with paragraph
(b) of this AD may use an alternative
rocordkeoping mathod to that otherwise
required by FAR § 91.417 or § 121.380 for the
actions required by this AD, provided it is
approved by the FAA and Is included ina
revision to the FAA-approved maintenance/
inspection program.

(2) Subsequont to the accomplishment of
the initial corrosion task, extensions of R
intervals specified in the Service Bulletin
must be approved by the FAA.

(c) To accommodate unanticipated
scheduling requirements, it is acceptable for
an R intorval to be increased by up to 10%,
but not to exceed 6 months. The FAA must
bo informod, in writing, of any such
extension within 30 days after such
adjustment of the schedule.

(d)(0) If, as a rosult of any inspection
conducted in accordance with paragraph (a)
or (b) of this AD, Level 3 corrosion is :
determined to oxist in any area, accomplish
either paragraph (d)(1)(i) or (d)(1)(ii) within
7 days after such determination:

(i) Submit a report of that determination to
the FAA and complete the corrosion task in
the affected areas on all Model BAC 1-11
series airplanes in the operator's fleet; or

(ii) Submit to the FAA for approval one of
the following:

(A) A proposed schedule for performing
the corrosion tasks in the affected areas on
the remaining Model BAC 1-11 series
airplanes in the operator's fleet, which is
adequate to ensure that any other Level 3
corrosion is detected in a timely manner,
along with substantiating data for that
schedule; or

(B) Data substantiating that the Level 3
corrosion found is an isolated occurrence.

Note 8: Notwithstanding the provisions of
Table 1 of the Service Bulletin, which would
permit corrosion that otherwise meets tho
definition of Levol 3 corrosion (i.e., which is
determined to bo a potentially urgent
airworthiness concer requiring expeditious
action) to be treated as Level 1 if the operator
finds that it, “‘can be attributed to an event
not typical of the operator's usage of other
airplanes in the same fleet,” this paragraph
requires that data substantiating any such
finding be submitted to the FAA for
approval.

(2) The FAA may impose schedules other
than those proposed, upon finding that such
changes are necessary to ensure that any
other Level 3 corrosion is detected in a
timely manner.

(3) Within the time schedule approved
under paragraph (d)(1) or (d)(2) of this AD,
accomplish the corrosion tasks in the affected
areas of the remaining Model BAC 1-11
series airplanes in the operator's fleot.

{o) If, as a result of any inspection after the
initial inspection conducted in accordance -
with paragraph (a) or (b) of this AD, it is
detormined that corrosion findings exceed
Level 1 in any area, within 60 days after such
determination a means approved by the FAA
must be implemented to reduce future
findings of corrosion in that area to Level 1
or better.

(f) Before any operator places into service
any airplane subject to the requirements of

this AD, a schedule for the accomplishment

of corrosion tasks required by this AD must
be established In accordance with paragraph
{(1) or (9(2) of this AD, as applicable:

(1) For airplanes proviously maintained in
accordance with this AD, the first corrosion
task in each area to be performed by the now
operator must be accomplished in
accordance with the previous operator's
schodule or with the new operator's
schedule, whichever would result in the
earlier accomplishment date for that task.
After each corrosion task has been performed
once, each subsequent task must be
performed in accordance with the new
operator's schedule.

(2) For airplanes that have not been
previously maintained in accordance with
this AD, the first corrosion task for each area
to be performed by the new operator must be
accomplished prior to further flight or in
accordance with a schedule approved by the
FAA,

{g) Reports of Level 2 and Level 3 corrosion
must be submitted at least quarterly to British
Aerospace in accordance with Section 2.5.0f
the Service Bulletin.

Note 9: Reporting of Level 2 and Level 3
corrosion found as a result of any
opportunity inspections is highly desirable.

(h) An alternative method of compliance or
adjustment of the compliance time that ,
provides an acceptable level of safety may be
used if approved by the Manager,
Standardization Branch, ANM-113, FAA,
Transport Airplane Directorate. Operators -
shall submit their requests through an . .
appropriate FAA Principal Maintenance
Inspector, who may add comments and then
send it to the Manager, Standardization
Branch, ANM-113.

Note 10: Information concerning the
existence of approved alternative methods of
compliance with this AD, if any, may be .
obtained from the Standardization Branch,
ANM-113.

(i) Special flight permits may be issued in
accordance with FAR 21.197 and 21.199 to
operate the airplane to a location where the
requirements of this AD can be
accomplished.

(j) Reports of corrosion inspection results
required by this AD have been approved by
the Office of Management and Budget (OMB)
under the provisiohs of the Paperwork
Reduction Act of 1980 (44 U.S.C. 3501 et
seq.) and have been assigned OMB Control
Number 2120-0056.

(k) The corrosion tasks and reports shail be
done in accordance with British Aerospace
Alert Service Bulletin 5~A-PM5987, “Time
Limits—Aircraft General—Corrosion Control
Programme,” Issue 2, dated June 30, 1992,
which contains the following list of effective

pages:

Revision
Page No. level | Date chown on
: page
Bulletin Text, in- -

cluding Content

Checklist:

1-3, 5-6, 8, 11, 2 | June 20, 1992.
13-14, 19.

4,7, 9-10, 12, 1| Nov. 30, 1990.
15-18.

Famer | Date shown on
Page No. eneteion | Om page
page .
2 | June 30, 1992.
1 | Nov. 30, 1990.
2 | Yune 30, 1992.
1] Nov. 30, 1990.
4-5, 7-10, 12— 2| June 20, 1992.
14, 16-19,
23-28, 31-37,
37A, 39-44,
A4A, 45-46,
48-55, 58-59,
62, 64-75, 7.
6, 11, 15, 20- 1| Nov. 30, 1990.
, 29-30, 38,
47, 56-57,
60-61, 63, 76, :
78.
Appendix 4:
2-5, 8-10 2 | June 30, 1992
1, 6-7, 11-12 « 1| Nov. 30, 1990

* ‘This incorporation by reference was

approved by the Director of the Federal
Register in accordance with 5 U.S.C. 552(a)
and 1 CFR part 51. Copies may be obtained
from British Aerospace, PLC, Librarian for
Service Bulletins, P.O. Box 17414, Dulles
Internationa! Airport, Washington, DC 20041.
Copies may be inspected at the FAA,
Transport Airplane Directorate, 1601 Lind
Avenue, SW., Renton, Washington; or at the
Office of the Federal Register, 800 North
Capitol Street, NW., suite 700, Washington,

(1) This amendment becomes effective on
March 19, 1993.

Issued in Renton, Washington, on February
4, 1993.

james V. Devany,
Acting Manager, Transport Airplane
Directorate, Aircraft Certification Service.
{FR Doc. 93-3422 Filed 2-11-93; 8:45 am]
BILLING CODE 4910-13-P

COMMODITY FUTURES TRADING
COMMISSION

17 CFR Part 4

Computation and Presentation of Rate-
Of-Return Information and Other
Disclosures Regarding Partially
Funded Accounts Managed By
Commodity Trading Advisors

AGENCY: Commodity Futures Trading
Commission.

ACTION: Issuance of advisory.

SUMMARY: A past performance record
contains information required to be
presented by commodity trading
advisors (“CTAs”’) pursuant to
Commodity Futures Trading
Commission (“Commission”) rule
4.31(a)(3)? and is intended to present

* Commission rules referred to herein are found
at 17 CFR Ch. 1 (1992). .


Federal Register / Vol. 58, No. 28 / Friday, February 12, 1993 / Rules and Regulations

8227

the historical periodic performance of
accounts operated or directed ina .
prescribed format for purposes of
disclosure to customers or prospective
customers..The prescribed format.
includes periodic rate of return (“ROR”)
information. On November 10, 1992, the
Commission published a proposed
Advisory entitled: “Consolidating In
The Same Performance Table Similarly
Traded Accounts Funded With Different
Amounts of Actual Funds” and allowed
thirty days for comments thereon. The
Advisory interprets the Commission's
existing performance disclosure
regulations to permit (but not require)
ROR for a CTA’s program to be
presented on the basis of a ‘“Fully-
Funded” subset of the accounts
included in a particular trading program
offered by the CTA, as set forth in the
Advisory and-provides guidance
concerning the disclosure of material
information pertaining to partially
funded trading programs. Use of the
Advisory may permit a reduction in the
number of performance tables required
to disclose fully the past performance of ~
all of a CTA’s accounts traded pursuant
to a particular program. Further, use of
the Advisory, including the special
disclosures associated with it; could

- enhance a prospective customer's
understanding of the interrelationship
between the level of funding in an
account and the relative rates of return.
The Commission has carefully
considered the comments received and
has determined to issue the Advisory
essentially as proposed, with only
minor modifications incorporating
specific comments received with respect
to the implementation of the Advisory.
DATES: This advisory is effective
February 8, 1993.
FOR FURTHER INFORMATION CONTACT:
Paul H. Bjarnason, Jr., Chief Accountant,
Division of Trading and Markets,
Commodity Futures Trading
Commission, 2033 K Street NW.,
Washington, DC 20581. Telephone:
(202) 254-8955.
SUPPLEMENTARY INFORMATION: The
Commission received a total of four
comment letters: One from a trade
association representing Commission“
registrants; one from a bar association;
one from a law firm; one from a person
registered as both a CTA and a
commodity pool operator (“CPO”).
Several of the letters encouraged the

* Commission to continue to pursue
various performance reporting issues,
some of which are related to matters
covered by the Advisory. Although !
certain commenters believed that the
Purposes and manner of performance
disclosure should continue to be t

explored by the Commission, in
response to the request for comment
contemporaneously published with the
proposed Advisory, these commenters
were generally supportive of issuing the
Advisory at this time. Moreover, the
commenters indicated that the issuance
of the Advisory would constitute an
improvement over the existing scheme
of performance reporting. The
commenters also provided some
suggestions for revision of the Advisory
which have been considered in making

‘the final changes to the Advisory. The

most significant changes in the
Advisory concem implementation
issues. In order to permit retroactive
application of the Advisory to prior
years, Section XI. provides flexibility to
CTAs in the initial implementation of
the Advisory respecting application of
the two tests contained in Section IV. to
periods prior to January 1, 1992.
Additionally, Section II. was amended
to indicate that the two tests did not
necessarily need to be met for all
periods presented, thus providing
flexibility to CTAs in meeting the two
tests on an ongoing basis. In addition, as
one commenter suggested, the Advisory
provides guidance as to how the
Commission's requirements for CTAs.to
make all material disclosures may be
satisfied by CTAs offering partially
funded accounts, generally.

The Advisory

This Advisory specifies an acceptable
methodology for a Commodity Trading
Advisor (“CTA”) to consolidate in the
same performance table customer
accounts traded under the same trading
program which have materially different
Jevels of funding; and provides
guidance concerning the disclosure of
material information pertaining to
partially funded trading programs,
generally. This Advisory addresses the
presentation of Rate-of-Return (“ROR”)?
information for accounts which contain
different percentage levels of Actual
Funds, but have the same Nominal
Account Size (as defined below). This
Advisory permits the ROR information,
which is required to be included in a
performance table, to be based on the
CTA’s Fully-Funded accounts, and uses

: a matrix, descriptive text or graphs to

demonstrate the effect on ROR of

* accounts funded at lesser levels.

Accordingly, use of the Advisory
methodology may permit a CTA to

‘reduce the required number of
' performance tables and, in effect,
A

2 Commission regulation 4.31(a)(3) requires CTAs

» to disclose past performance. ROR is part of the

information contained in the required performance
table.

permits a CTA to show performance of
similarly traded “Notional” accounts as
if they were Fully-Funded.

Although a client should not rely
solely on ROR information, nonetheless,
it is one of the types of information
roquired by the Commission to help the
public assess a CTA’s performance. This
Advisory is intended to enhance the
usefulness of that information.

In order to use the methodology :
provided in this Advisory, all ofthe +
conditions set forth herein must be met
for each of the time periods presented
in the performance table. .

The sections of this Advisory are:

“1. Definitions

1]. The Composite Table and Notes _

Ul.. The Fully-Punded Subset .

IV. The Matrix—RORs for Accounts Not fri
the Subset

V. Special Notionally-Funded Account
Disclosure

VI. Materiality—Qauntitative .

VII. The Nominal (Notional) Account Size

VIII. The CTA/Client Agreement

IX, Applicability of this Advisary to
Commodity Pools :

X. Representations and Required Disclosures

XI. Initial Implementation of the/Advisory

1. Definitions

Actual Funds—The amount of
margin-qualifying assets on deposit in a
commodity interest account, generally
cash and marketable securities. “Actual
Funds” can include certain additional
funds which are held.in other accounts.
identified by.the customer provided the~ ©

* conditions set forth in Division of

Trading and Markets Advisory No. 87—
2 are met.

Nominal or Notional Account Size—
The dollar amount that a CTA and its
customers have agreed in writing will
determine the level of trading in an
account regardless of the amount of
Actual Funds. Accounts in which the
Nominal or Notional Account Size
exceeds the amount of Actual Funds are
hereinafter referred to as “Notionally- '
Funded Accounts”. The terms
“Nominal Account Size” and “Notional
Account Size” are used interchangeably
herein. . a

Notional Funds—The amount by
which the Nominal Account Size
exceeds the amount of Actual Funds
which are on deposit in an account.

Fully-Funded Account—An account
which atits inception contains an
amount of Actual Funds equal to its
Nominal Account Size.

Ii, The Composite Table and Notes _
A. Columnar Format

The composite table should be in a
columnar format as follows:
(1) Reporting Period
>

J


Federal Register /-Vol.‘58, No.'28 / Friday, ‘February 12, 1993 / Rule’ and Regulations

8228
[2) Beginning Net Asset Value: '~—s In computing compliance with the ‘given Fully-Funded ROR tothe -
¢ TBRAV' Actos! Funds + two tests enumerated above, any ~ equivalent ROR for any Notional

. (3) BNAV—Nominal Account Size 4
(4) Additions to Col. 3
'5) Withdrawals from.Col. 3

(6) Net Performance : . .

(7) Ending Net Asset Value—Cols. 3-6

(8) Rate-ol-Return—calculated based
upon the Actual Funds contained in
the subset of “Fully-Funded”
accounts >

’ B. Notes To The Table And Other
Disclosures ‘

As more fully explained later in this
Advisory, the notes to the table or the .
text of the disclosure document should
contain:”

(1) An explanation of how the

composite performance table was

developed. Generally, there should be +

a separate composite table for each of

the CTA’s separate trading programs;

(2) Information to permit conversion of
the RORs presented on the face of the
table (which are based upon the
Fully-Funded subset) to Actual
Funds-based RORs, for an account TM.
funded at each of the other funding
levels offered by the CTA. The
disclosure should be made in a clear
and concise fashion using descriptive
text, a matrix, or a graph; and

(3) Any additional disclosures which
may be material under Commission
rules 4.31(a) (3) and 4.31(g).

Ill. The Fully-Funded Subset

A. The Fully-Funded Subset (the
“Subset") is comprised of all Fully-
Funded accounts, adjusted to include or
exclude certain accounts, as explained
below. The Subset must meet the
following two tests, as explained further
below:

1, The aggregate of the Subset’s Actual
Funds must be at least 10% of the
aggregate of the Nominal Account
Sizes of the accounts which make up
the composite performance table; and

2. The Gross Trading Profit (Loss) Ratio
(“GTPR”) of the aggregate ofthe
accounts contained in the Subset
based on Actual Funds must be
materially * the same as the GTPR for
the aggregate of accounts contained in
the composite performance table
based d upon the Nominal Account

ze.

? ROR for the Fully-Funded subset is computed

by dividing the sum of the net performance, i.s., the |

aggregate of net performance for each of the
. sccounts, for the Fully-Fundod subset, by the’sum

of the Actual Funds-based BNAVs for the Pully-
Punded subset. : :

“See section VIL re: Materiality.

* AGTPR is computed by dividing gross trading

ts ‘account any single account

profits by the size for any sing]
or by the aggregates of the account sizes for any
subset of accounts (Notional or Actual Funds):

accounts excluded from the Subset

pursuant to adjustments required below

should be: (1) Inclided in thé aggregate
of the accounts contained in the
composite performance table for

purposes of test No. A.1.; and (2)

Excluded from the aggregate of the

accounts contained in the composite

performance table for purposes of test"

No. A.2.

B, The following adjustments to the
Subset are permitted:

1. Accounts which are closed during a
reporting period should be excluded,
if inclusion of such account(s) would
materially change the ROR reported
for the Subset;

2. Accounts which are newly-opened

. should be excluded for one or more of
their first 3 months of existence, if
inclusion of such account(s) would
materially change the ROR.reported”
for the Subset for one or more of the

first 3 months; and. a
3. Accounts in which the net liquidating’

equity has materially déclined from

the initial Fully-Funded level may be

excluded. .

The CTA should consider whether
performance information on certain |
accounts excluded from the subset, if .
any, may be material to prospective

« investors. If such information may be

material, it must be disclosed.

_ In the event that the accounts to be
included in the composite table do not
meet both tests in every period
presented, the Advisory may
nonetheless be used, provided that:

(1) Failures to meet the first test, if any,
were for a limited number of periods;

(2) Any differences in GTPR are not
related to substantive differences in
the trading program included in the
composite, e.g., they are related to
differences in fills among accounts

" which were beyond the control of the

(3) To avoid compounding the
cumulative impact of any errors or
inaccuracies the Value Added
Monthly Index (““VAMI") or any other
similar measure presented in the
performance table, the measure is
reset to its base amount at the
beginning of each year presented; and

(4) The RORs presented in the table are
not misleading as to the results of the
Program in the particular reporting
period.

IV. Disclosures for Accounts not in the

Subset

Disclosure must accompany the
performance table, which would permit
4 prospective customer to convert any -

funding level offered by the CTA, as set .
forth below. The information should be
provided using a matrix, descriptive text
ora graphic format. If a matrix is used,
it would have two axes. The fitst axis
would display the range of Fully-
Funded RORs for each period appearing
in the performance table, including
negative RORs, if any. The second axis
would display Actual Funding levels
offered by the CTA expressed as
percentages (¢.g., 60%, 70%), including
a 100% (Fully-Funded) level.
Therefore, with the required

disclosure, a client would be able to
convert each ROR in the table to an ROR
for the percentage range of Actual
Funding for accounts traded by that
CTA. For example, where a matrix is
used, a 10% ROR reported for a Fully-
Funded account on the face of the table
for the month of January would, by
reference to the matrix, approximate a
20% return on a 50%-funded account.
This is because the 50%-funded account
would contain one-half the Actual
Funds of a Fully-Funded account,
although the absolute dollar amount of
net performance would be
approximately the same.

if the disclosures provided above
should fail to convey adequately the
Tisks of accounts funded at lesser levels,
additional disclosures should be
provided.

V. Special Notionally-Funded Account

Disclosure Statement

The following special disclosure must
be provided by a CTA which elects to
report ROR pursuant to the Fully
Funded Subset Method provided in this
Advisory. This special disclosure (with
the deletion of item number (3) may also
be used by CTAs, who offer to manage

" partially funded accounts but who do

not use the Fully Funded Subset
Method, as a means of making material
disclosure regarding partially funded
accounts. The special disclosure may be
included either in the disclosure
document or in the customer account
agreement. The special disclosure is:
Special Disclosure for Notionally-Funded
Accounts .

- You should request your commodity
trading advisor to advise you of the amount

. of cash or other assets (Actual Funds) which

should be deposited to the advisor’s trading
program for your account to be considered
“Pully-Funded”. This is the amount upon
which the commodity trading advisor will
determine the number of contracts traded in
your account and should be an amount
sufficient to make it unlikely that any further
cash deposits would be required from you
over the course of your participation in the
commodity trading advisor’s program.