U.S. COMMODITY FUTURES TRADING COMMISSION 

Three Lafayette Centre 

1155 21st Street, NW, Washington, DC 20581 

Telephone: (202) 418-5430 

Facsimile: (202) 418-5536 

Division of Clearing and 

Intermediary Oversight 

January 21, 2010 

To: 

Attention: 

All Commodity Pool Operators 

Chief Financial Officer 

Subject: Annual Reporting for Commodity Pools 

The Division of Clearing and Intermediary Oversight ("'DCJO" or "Division"') of the 

Commodity Futures Trading Commission ('"CFTC'. or ·'Commission"') is issuing this letter to 

assist commodity pool operators ("CPOs'') with the preparation and filing of commodity pool 

annual financial reports required tmder the Commodity Exchange Act ("Act") and Commission 

regulations. 1 This Jetter highlights cunent regulatory changes affecting CPOs with respect to 

financial filing and provides reminders of requirements in response to common deficiencies 

observed in prior years' annual reports. CPOs, including those that operate in non-U.S. 

jurisdictions, are encouraged to provide this letter to their public accountants and others assisting 

in the preparation of commodity pool annual financial statements. 

The Division has issued similar guidance letters in prior years, which are available at the 

Commission's website.2 Those letters should be consulted as they contain infom1ation relevant 

for many commodity pools including the following topics: 

• American Institute of Certified Public Accountants' ("AICPA") Statement of Position 

("SOP") 03-04, Reporting Financial Highlights and Schedule of Investments by 

Nonregistered Jnveslment Partnerships: An Amendmenllo !he Audit and Accounting 

Guide, Audils of Jnveslment Companies ( Accounting Standards Codification (ACS) 946-

210-50-4 ) (2004 letter); an illustration of the investments schedule can be found in 

Attachment B); 

• A CPO's reporting obligation when claiming relief under Regulation 4.13 for a pool 

previously operated without exemptive relief (2006 letter); 

1 The Act is codified at 7 U.S.C. §I et seq. The Commission's regulations are found in Title 17 

of the Code of Federal Regulations. The Commission's internet website, \..VWw.cftc.gov, 

provides links to both the Act and Commission regulations. 

2 Prior letters from 1998 forward are available at the Commission's website at 

http://www.cftc.gov/industrvovcrsightlintermediaries/guidancecporeports.html. 
• A CPO's obligation to provide notice of replacement of accountant (2006 letter); 

• Notice regarding election of fiscal year other than calendar year (2006 letter); 

• Process for requesting confidential treatment of commodity pool annual reports (2006 

letter); and 

• AICPA SOP 95-2, Financial Reporting by Nonpublic Investment Partnerships, 

applicability to both required audited and unaudited commodity pool annual financial 

reports (2004 letter). 

In addition, CFTC interpretations and other staff letters that provide written guidance 

conceming the Act and the Commission's regulations are available on the Cornmission·s 

website. Tn particular, an illustrative example regarding Regulation 4.22(e)(2) is available in 

CFTC Interpretative Letter 94-3, Special Allocations of Investment Partnership Equity. 

l. Recent Regulatory Amendments 

CPOs and public accountants should be familiar with the Commission's regulations, 

particularly Regulations 4.7 and 4.22, in preparing and fi ling commodity pool annual financial 

statements. The CFTC recently amended its regulations3 governing the periodic account 

statements that CPOs are required to provide to commodity pool participants and, effective for 

2009, the annual financial reports that CPOs are required to provide to commodity pool 

participants and file with the National Futures Association ("NF A"). The amendments became 

effective December 9, 2009 and changes that affect annual reporting requirements will be 

applicable to commodity pool annual reports for fiscal years ending December 31 , 2009 and 

later. The amendments: 

• Specify detailed information that must be included in the periodic account statements and 

annual reports for certain commodity pools with more than one series or class of 

ownership interest; 

• Clarify that the periodic account statements must disclose either the net asset value per 

outstanding participation unit in the pool, or the total value of a participant's interest or 

share in the pool; 

• Extend the time period for filing and distributing annual reports of commodity pools that 

invest in other funds; 

• Codify existing Commission stati interpretations regarding the proper accounting 

treatment and financial statement presentation of certain income and expense items in the 

periodic account statements and annual reports; 

• Streamline the final reporting requirements for pools ceasing operation; 

• Establish conditions for use of Tnternational Financial Reporting Standards ("IFRS") in 

lieu of U.S. Generally Accepted Accounting Principles ("U.S. GAAP") and a notice 

procedure for CPOs to c laim such relief; and 

See 74 FR 57585 (November 9. 2009). 

2 
• Clarify and update several other requirements for periodic and annual reports prepared 

and distributed by CPOs. 

These amendments are discussed further below. 

II. Filing Procedures and Due Dates of Commodity Pool Financial Filings 

Commission regulations establish the dates by which such commodity pool annual 

financia l statements must be provided to participants and rece ived by the NF A. 

Specifically, Commission regulations provide that: 

• Commodity pool annual reports must be distributed to pool participants and fil ed 

with NFA within 90 calendar days of the pool's fiscal year end. The filing date for 

commodity pool reports as of December 3 1. 2009 is March 3 1, 201 0. Copies of such 

reports should be filed with the NF A. A CPO should not file a copy of a commodity 

pool's annual report with the Commjssion. 

• Applications for an extension of the distribution and filing date must be submitted 

to NFA prior to the original due da te and must include the information required by 

Regulation 4.22(t)(l). Extension requests beyond 90 days should be addressed to 

the undersigned with copies to the NF A. 

• CPOs of commodity pools that invest in other collective investment vehicles may 

obtain an "automatic" 90-day extension of the distribution and filing due date by 

submitting the information specified by Regulation 4.22(f)(2) to NFA prior to the 

original due date. In subsequent years, the CPO will be presumed to operate the pool as 

a fund of flmds and continue to qualify for the automatic extension.4 However, the CPO 

is obligated to inform the NF A if those circumstances change and to begin filing within 

the standard 90-day time frame. In addition, this extension of time has been made 

available to Regulation 4. 7 exempt pools, even if the report is not audited by an 

independent public accountant. 

• CPOs must submit annual reports to NFA electronically in accordance with NFA's 

EasvFile electronic filing svstem and procedures. 

• An annual report may be distributed in hardcopy or electronically to pool 

participants. The CPO, however, must obtain a participant's prior consent to 

distribute an annual report in electronic format. 

• Draft fmancial statements. Some CPOs have filed incomplete, or "draft,"' unaudited 

financial statements for pools exempt under Regulation 4. 7 to meet the due dates for such 

4 The CPO is no longer required to confirm that the pool is continuing to operate as a fund of 

funds each year by restating certain representations in a statement filed at the same time as the 

pool's annual report. 

3 
filings. CPOs are reminded that although Regulation 4. 7 provides exemption from 

certain requirements, reports filed and distributed to investors must include all required 

information and be in accordance with U.S. GAAP or, in some instances, IFRS to be 

considered timely filed. 

III. Master/Feeder and Fund of Funds 

Master/Feeder Structures. Paragraph 7.08 of the May I, 2009 edition of the AICPA 

Audit and Accounting Guide, Audits of Investment Companies, notes that F ASB ASC 946-205-

45-6 permits nonpublic feeder pools either to follow the disclosure and reporting provisions of 

F ASB ASC 946-21 0, or to present a complete set of master financial statements with each feeder 

financial statement. 

Fund of Funds. Year end 2009 pool financial statements must disclose specific income 

and fee information for investee pools as specified in Regulation 4.22(c)(5). CPOs must disclose 

amounts of income and fees associated with investments in investment partnerships that exceed 

five percent of the commodity pool's net assets. Attachment B to this letter contains examples of 

these disclosures as well as other information for investee funds that is required to be included in 

the condensed schedule of investments. 

If a commodity pool's annual financial statements are found deficient with respect to 

compliance with U.S. GAAP, the CPO may be required to revise the commodity pool's financial 

statements, distribute the revised statements to participants, and re-file the statements with NF A. 

IV. Requests for Limited Relief from U.S. GAAP Compliance for Certain Offshore 

Commodity Pools 

Regulation 4.22(d) has been amended, applicable to year end 2009 annual reports and all 

subsequent year end annual reports, to permit CPOs that operate commodity pools organized 

under the laws of a non-U.S. jurisdiction to prepare financial statements for such pools using 

IFRS, provided that: 

• The use of accounting standards other than U.S. GAAP does not conflict with any 

representations made in the pool's offering memorandum or other operative document; 

• The IFRS financial statements contain a condensed schedule of investments as required 

by U.S. GAAP (FASB ASC 946-210-50); 

• The IFRS financial statements report special allocations of partnership equity in 

accordance with Commission Regulation 4.22(e)(2); and 

• If IFRS would require that the pool consolidate its financial statements with another 

entity, such as a feeder fund consolidating with its master fund, all applicable disclosures 

required by U.S. GAAP for the feeder must be presented with the reporting pool's 

consolidated financial statements. 

To claim the relief to use IFRS accounting standards, the CPO must file a notice with 

NFA within 90 days after the end of the pool's fiscal year. Furthermore, in accordance with the 

above regulation, amended Regulations 4.22(a) and 4.7(b)(2) permit a CPO to present a pool's 

4 
periodic account statements on the same basis as that of its annual report. 

In addition, Division staff has, on a case-by-case basis, provided limited relief to CPOs 

that operate offshore pools by allowing such commodity pools to prepare and to present their 

financial statements in accordance with another comprehensive basis of accounting other than 

IFRS, such as United Kingdom or Irish accounting standards, instead of U.S. GAAP. In each 

case, the Division's relief was conditioned upon the offshore pool following the elements of U.S. 

GAAP now required to use IFRS. 

CPOs seeking to prepare and present their offshore pools' financial statements on the 

basis of another comprehensive basis of accounting other than IFRS may request relief from the 

U.S. GAAP requirement by submitting their requests, enumerating compliance with each of the 

elements specified in Regulation 4.22( d)(2), to the undersigned at the address shown on this 

letterhead. If you have any further questions, contact Ronald Carl etta, Branch Chief, or AI Go II, 

Auditor, at the phone numbers or addresses listed in Attachment A. 

V. CPOs Claiming Exemption under Regulation 4.13 

Regulation 4.13 provides an exemption from registration for CPOs of certain commodity 

pools. Prior to a recent amendment, Regulation 4.13( c )(2) did not require a CPO of an exempt 

pool to provide an annual report to each pool participant, but did require that if the CPO provided 

an annual report to participants, the report must be presented in accordance with U.S. GAAP. 

The Commission has amended Regulation 4.13(c) to delete the requirement that annual reports 

for pools for which the CPO has claimed exemption from registration under Regulation 4.13 

must be presented and computed in accordance with U.S. GAAP. CPOs of pools operating 

under Regulation 4.13 will no longer need to request relief in order to use financial standards 

other than U.S. GAAP. 

VI. Reports of Liquidating Pools 

Commission Regulation 4.22( c) has been amended to clarify and streamline procedures 

for CPOs filing final annual reports for pools that have ceased operations. The amendments 

provide for the filing and distribution of a final annual report within 90 days of a pool's 

permanent cessation of trading. Alternatively, the CPO of a liquidating pool may provide the 

following information within 90 days of the permanent cessation of trading in lieu of an 

otherwise required final annual report: 

• Statements of Operations and Changes in Net Assets for the relevant period as contained 

in the regulation; and, 

• An explanation of the winding down of the pool's operations and written disclosure that 

all interests in, and assets of, the pool have been redeemed, distributed, or transferred on 

behalf of participants; or 

• In the event that all interests in, and assets of, the pool have not been distributed, 

redeemed, or transferred to participants by the time the final report is issued, the CPO 

must disclose the value of assets remaining to be distributed and an approximate 

timeframe for when the CPO expects distribution to occur. If the CPO is unable to 

5 
complete distribution within the estimated timeframe, the CPO must update the above 

detailed information to both NF A and participants in writing. 

If the CPO is not be able to liquidate the pool's assets within time to prepare, file, and 

distribute the final annual report as prescribed by the regulation, the amendments to Commission 

Regulation 4.22(c) require the CPO to provide written notice to each participant and NFA, 

disclosing the following: 

• The value of assets remaining to be liquidated, the timeframe within which liquidation is 

expected to occur, any impediments to liquidation and any fees or expenses that will be 

charged to the pool prior to final distribution; 

• Which financial reports the CPO will continue to provide to participants from the time of 

the cessation of trading until the final annual report is distributed, and the frequency of 

such reports, pursuant to the pool's constitutive documents; and 

• The timing of the final annual report. 

Additionally, the amendments provide that a CPO who is availing itself of the alternative 

filing in lieu of a final annual report may file unaudited information provided that the CPO 

obtains waivers from all participants and certifies the same to NF A when the final report is filed. 

Nothing in the amendments to Commission Regulation 4.22(c) is intended to relieve 

CPOs of their obligations to continue to comply with the periodic and annual reporting 

requirements under the Commissions regulations. 

This relief also is applicable for pools that have claimed an exemption under Regulations 

4.7 or 4.12. 

VII. Reports of Series Funds Structured with a Limitation on Liability Among the 

Different Series 

Commission Regulation 4.22(a) has been amended to permit series funds structured with 

a limitation on liability among the different series to prepare and distribute to participants 

periodic account statements that contain information limited to the series in which the participant 

holds an interest. The CPO of such a series fund would not have to provide consolidated 

information for all series. 

Additionally, Commission Regulation 4.22(c) has been amended to permit series funds 

structured with a limitation on liability among the different series to prepare, file, and distribute 

an Annual Report that contains financial reports with information limited to the series in 

question. The CPO of such a series fund would not have to provide consolidated information for 

all series. 

6 
VIII. Accounting Developments 

A. F ASB Accounting Standards Codification 

On July 1, 2009 the Financial Accounting Standards Board (F ASB) launched the FASB 

Accounting Standards Cod(ficationTM (the "Codification") as the single source of authoritative 

nongovernmental U.S. GAAP. The Codification is effective for interim and annual periods 

ending after September 15. 2009. All existing accounting standards documents are superseded 

as described in FASB Statement No. 168, The F ASB Accounting Standards Codification nt and 

the Hierarchy of Generally Accepted Accounting Principles. All other accounting literature not 

included in the Codification is nonauthoritative. 

The Codification reorganizes the thousands of U.S. GAAP pronouncements into roughly 

90 accounting topics and displays all topics using a consistent structure. It also includes relevant 

Securities and Exchange Commission (SEC) guidance that follows the same topical structure in 

separate sections in the Codification 

B. Disclosures About Derivative Instruments 

ASC 815-1 0( F ASB Statement No. 161 , Disclosures about Derivarive Instruments and 

Hedging Activiries, an amendment of FASB Sratemenl No. I 33 is effective for financial 

statements issued for fiscal years and interim periods beginning after November 15, 2008. The 

Statement amends and expands the disclosure requirements ofF AS-133 (ASC 815) with the 

objective of providing users of fi nanci al statements with an enhanced understanding of the 

purpose and nature of an entity's derivatives activity, the accounting treatment applied to 

derivative instruments, and the effect of derivative instrument activity on an entity's reported 

performance and cash flows. 

C. AICPA Commodities Audit Practice Aid 

The revised and updated AI CPA Audit Practice Aid, Audits of Futures Commission 

J\1erchants, Introducing Brokers, and Commodity Pools (Second Edition; product number 

006639) was published this past summer and is a useful tool for auditors and accountants of 

commodity entities. It can be purchased at the AICPA website: http://www.AJCPA2biz.com. 

D. AICP A Audit Risk Alert 

The AJCPA 2009 Audit Risk Alert ("ARA") Financial Institutions contains sections on 

the commodities industry. The practice of issuing a separate risk alert for the securities industry 

in which commodities was covered has been discontinued. The ARA can be purchased at the 

AICPA website: http://www.AlCPA2biz.com. 

7 
E. FASB ASC Topic 820 (Formerly FAS ./57, Fair Value Measurements) 

Resources that may be helpful in understanding and applying FASB ASC Topic 820 are: 

• Measurements of Fair Value in 11/iquid (or Less Liquid) Markets, issued by the AI CPA 

Center for Audit Quality available at 

http://www.aicpa.org/caq/download/caqalert2007 51 10032007 .pdf; 

• AICPA Statement of Position 94-6, Disclosure ofCertain Significant Risks and 

Uncertainties, when auditing financial statements that contain complex fa ir value 

measurements; 

• F ASB Staff Position No. 157-3 "Determining the Fair Value of a Financial Asset When 

the Market for That Asset Is Not Active" ; 

• Proposed FSP F ASB 157-g, Estimating the Fair Value of Investments in Investment 

Companies That Have Calculated Net Asset Value per Share in Accordance with the 

A/CPA Audit and Accounting Guide, Investment Compani es (for now the net asset value 

reported by investee investment companies will continue to be an acceptable fair value 

indicator, with certain exceptions.) 

• AICPA publications, including Technical Practice Aid (TPA) on Liquidity Restrictions, 

Investment Companies TPAs, etc. - please refer to 

hrtp://www.aicpa.org/ProfessionaJ+Resources/Accounting+and+Auditing/Accounting+St 

andards for more information. 

F. Alternative Investments, Audit and Accounting Considerations 

The AI CPA Practice Aid, Alternative Investments Audit Considerations: A Practice Aid 

for Auditors, should be of interest to management of investor entities including, but not limited 

to, other investment companies (e.g .. funds-of-funds). lt provides guidance to assist auditors in 

addressing the existence and valuation assertions associated with alternative investments due to 

the lack of a readily determinable fair value and the limited investment information generally 

provided by investee fund managers. 

The Accounting Standards Executive Committee of the AICPA issued a Draft Issues 

Paper, FASB Statement No. I 57 Valuation Considerations/or Interests in Alternative 

Investments, which includes guidance on how to value investm ents in investment companies that 

have prohibited withdrawals by investors. 

G. AICPA Technical G uidance 

AJCPA issued technical guidance regarding accounting treatment of offering costs incurred 

by investment partnerships.

5 This guidance: 

• Provides that investment partnerships that continually offer interests should defer 

5 See paragraph 8.27 of the AlCPA Audit and Accounting Guide, Investment Companies (May I, 

2009 edition). 

8 
offering costs incurred prior to commencement of operations and then amortize them 

over the period that it continually offers interests up to a maximum of 12-months period 

generally on a straight line basis; and 

• Defines the phrase "continually offer interests." 

Registrants are reminded that organization costs are not affected by this guidance and must 

be charged to expense as incurred as required by AI CPA SOP No. 98-5, Reporting on the Costs 

of Start-up Activities. However, if appropriately disclosed to investors and potential investors, 

NA V used to compute investment entrance and exit values, may be adjusted to amortize such 

costs differently, but generally not to exceed a period of 60 months. 

IX. DCIO and NF A Contact Information 

If a CPO or a public accountant has any questions on the foregoing, please feel free to 

contact the DCIO staff or NF A staff listed in Attachment A to this letter. 

Very truly yours, 

Thomas 

Deputy Director and 

Chief Accountant 

9 
ATTACHMENT A 

CFTC DIVISION OF CLEARING AND INTERMEDIARY OVERSIGHT CONTACT 

INFORMATION 

Regional Office Locations Contacts -.= I[ Location of 

~ CPO's 

t 11 Principal 

Offtce 

Eastern Region 

140 Broadway, 19th Floor Ronald A. Carletta All states east of 

New York, NY 10005- Phone: ( 646)-7 46-9726 the Mississippi 

1146 E-Mail: rcarletta@cftc.gov River, except 

Illinois, Indiana, 

AI Goll Michigan, Qhjo, 

Phone: (646)-746-9723 and Wisconsin. 

E-Mail: agoll@cftc.gov Any location 

outside of the 

Fax: (646)-746-9937 United States 

Central Region 

525 West Monroe Street Lisa M. Marlow Illinois, Indiana, 

Suite 1100 Phone: 312-596-0566 Michigan, Qhjo, 

Chicago, IL 60661 Fax: 31 2-596-0712 and Wisconsin 

E-Mail: Lrnarlow(@.cftc. gov 

Southwestern Region 

Two Emanuel Cleaver II Kurt Harms All states west 

Boulevard, Suite 300 Phone: 816-960-771 I of the 

Kansas City, MO 64 112 Fax: 816-960-7750 Mississippi 

E-Mail: kharms@cftc.gov Rjver 

National Futures Association Contact Information 

Tracy Hunt, Senior Manager, Compliance 

National Futures Association Phone: 312-781-1284 Fax: 312-559-3453 

300 South Rjverside Plaza, E-Mail: thunt@nfa.futures.org 

Suite 1800 

Chicago, IL 60606 

10 
ATTACHMENT B 

ILLUSTRATION -Fund of Funds Additional Disclosures 

Note X. Investments 

As of December 31, 2009, ABC Fund invested in other funds, none of which were related 

parties. 

The following table summarizes ABC Fund's investments in other funds as of December 31, 

2009. Funds in which ABC Fund invested more than 5% of its net assets are individually 

identified, while smaller investments in three other funds are aggregated. The management 

agreements of the in vestee funds provide for compensation to the managers in the form of fees 

ranging from 1% to 3% annually of net assets and performance incentive fees ranging from 5% 

to 25% of net profits earned. 

%of ABC's Income Fees Investment Redemptions 

Investment Net Assets Fair Value (Loss) Mgmt Incentive Objective Permitted• 

AirjoFund 5.0 $ 2,500,000 $200,000 $25,000 $30,000 Emerging market Quarterly 

Ltd. 

Carron 5.2 2,600,000 210,000 26,000 42,000 Sector investment Monthly 

lnt'l Fund 

Vital Fund 5.6 2,800,000 (30,000) 28,000 0 International Semi-Annual 

NV equity 

Other 4.2 2,100,000 100,000 24,000 25,000 Other Monthly-Annually 

funds: 

Total 2.Q.O% UOtQO_Q,OOO _$~,0QQ $JJU,OOO $97,000 

An alternative illustrative table, for unusual cases, where the fee information cannot be obtained 

is shown below: 

%of ABC's 

Investment Net Assets 

Airjo Fund 5.0 

Ltd. 

Carron 5.2 

lnt'l Fund 

Other 4.2 

funds: 

Fair Value 

$ 2,500,000 

Income 

(Loss) 

$200,000 

2,600,000 21 0,000 

2,100,000 I 00.000 

Fees 

Mgmt Incentive 

$ 25,000 $ 30,000 

Investment 

Objective 

Emerging market 

Redemptions 

Permitted+ 

Quarterly 

26,000 42,000 Sector investment Monthly 

24,000 25.000 Other Monthly-Annually 

Subtotal 14.4 7,200,000 510,000 ~$J~ $97,000 

Vital Fund 5.6 2,800,000 (30,000) 

NV 

Total 2Q..Q% ~0.000 ~80,000 

* * International 

equity 

Semi-Annual 

* = The fund operator is not able to obtain the specific fee amounts for this fund and does not 

know what those amounts are. However, management fees are computed based on 1% per year 

of net asset balances at the beginning of each month; incentive fees are computed based on 20% 

per year of net income. 

• Note any funds in which redemptions have been suspended. 

11