8220 Federal Register / Vol. 74, No. 35 / Tuesday, February 24, 2009 / Proposed Rules 

1The regulations of the Commission cited in this 

release may be found at 17 CFR Ch. I (2008). 

2Pursuant to Regulation 4.22(b), account 

statements must be provided monthly for pools 

with net asset values greater than $500,000 at the 

beginning of the pool’s fiscal year; otherwise, 

account statements may be provided quarterly. 

3NFA is a registered futures association pursuant 

to Section 17 of the Commodity Exchange Act 

(‘‘Act’’), 7 U.S.C. 21. 

4Regulation 4.7(a) defines ‘‘qualified eligible 

person’’ to include participants that meet certain 

eligibility criteria regarding their net worth, income, 

and investments. 

substantial number of small entities 

under the criteria of the Regulatory 

Flexibility Act. The FAA’s authority to 

issue rules regarding aviation safety is 

found in Title 49 of the U.S. Code. 

Subtitle 1, Section 106 describes the 

authority of the FAA Administrator. 

Subtitle VII, Aviation Programs, 

describes in more detail the scope of the 

agency’s authority. This rulemaking is 

promulgated under the authority 

described in Subtitle VII, Part A, 

Subpart I, Section 40103. Under that 

section, the FAA is charged with 

prescribing regulations to assign the use 

of airspace necessary to ensure the 

safety of aircraft and the efficient use of 

airspace. This regulation is within the 

scope of that authority as it would add 

additional controlled airspace at 

Coleman Municipal Airport, Coleman, 

TX. 

List of Subjects in 14 CFR Part 71 

Airspace, Incorporation by reference, 

Navigation (Air). 

The Proposed Amendment 

In consideration of the foregoing, the 

Federal Aviation Administration 

proposes to amend 14 CFR Part 71 as 

follows: 

PART 71—DESIGNATION OF CLASS A, 

B, C, D, AND E AIRSPACE AREAS; 

AIRWAYS; ROUTES; AND REPORTING 

POINTS 

1. The authority citation for Part 71 

continues to read as follows: 

Authority: 49 U.S.C. 106(g); 40103, 40113, 

40120; E.O. 10854, 24 FR 9565, 3 CFR, 1959– 

1963 Comp., p. 389. 

§ 71.1 [Amended] 

2. The incorporation by reference in 

14 CFR 71.1 of Federal Aviation 

Administration Order 7400.9S, Airspace 

Designations and Reporting Points, 

dated October 3, 2008, and effective 

October 31, 2008, is amended as 

follows: 

Paragraph 6005 Class E Airspace areas 

extending upward from 700 feet or more 

above the surface of the earth. 

* * * * * 

ASW TX E5 Coleman, TX [Amended] 

Coleman Municipal Airport, TX 

(Lat. 31°50′32′′ N., long. 99°24′14′′ W.) 

That airspace extending upward from 700 

feet above the surface within an 8-mile radius 

of Coleman Municipal Airport. 

* * * * * 

Issued in Fort Worth, TX on February 12, 

2009. 

Roger M. Trevino, 

Acting Manager, Operations Support Group, 

ATO Central Service Center. 

[FR Doc. E9–3815 Filed 2–23–09; 8:45 am] 

BILLING CODE 4910–13–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 4 

RIN 3038–AC38 

Commodity Pool Operator Periodic 

Account Statements and Annual 

Financial Reports 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Proposed rules. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is proposing to amend its 

regulations governing the periodic 

account statements that commodity pool 

operators (‘‘CPOs’’) are required to 

provide to commodity pool participants 

and the annual financial reports that 

CPOs are required to provide to 

commodity pool participants and file 

with the National Futures Association 

(‘‘NFA’’). The proposed amendments 

would: Specify detailed information 

that must be included in the periodic 

account statements and annual reports 

for 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 staff 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 annual reporting 

requirements for pools ceasing 

operation; and clarify and update 

several other requirements for periodic 

and annual reports prepared and 

distributed by CPOs. 

DATES: Comments must be received on 

or before March 26, 2009. 

ADDRESSES: You may submit comments, 

identified by RIN 3038–AC38 by any of 

the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov/search/index.jsp. 

Follow the instructions for submitting 

comments. 

• E-mail: secretary@cftc.gov. Include 

‘‘Commodity Pool Operator Periodic 

and Annual Reports’’ in the subject line 

of the message. 

• Fax: (202) 418–5521. 

• Mail: Send to David Stawick, 

Secretary, Commodity Futures Trading 

Commission, 1155 21st Street, NW., 

Washington, DC 20581. 

• Courier: Same as Mail above. 

All comments received will be posted 

without change to http://www.cftc.gov, 

including any personal information 

provided. 

FOR FURTHER INFORMATION CONTACT: 

Eileen R. Chotiner, Futures Trading 

Specialist, at (202) 418–5467, Division 

of Clearing and Intermediary Oversight, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. Electronic mail: 

echotiner@cftc.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Commission Regulation 4.22(a) 1

requires a registered CPO to distribute 

an account statement to each participant 

in each commodity pool that it operates 

within 30 days of the end of the 

reporting period.2 Regulation 4.22(c) 

requires a CPO to file with NFA, and to 

provide to each participant, an annual 

financial report, audited by an 

independent public accountant, for each 

commodity pool that it operates within 

90 days of the end of the pool’s fiscal 

year or the permanent cessation of the 

pool’s trading.3

CPOs operating pools offered solely to 

qualified eligible persons (‘‘QEPs’’) 

pursuant to Regulation 4.7 may claim 

relief from certain reporting 

requirements.4 In this regard, a CPO that 

has claimed an exemption from certain 

regulatory requirements pursuant to 

Regulation 4.7 must distribute periodic 

account statements to each participant 

of an exempt pool at least quarterly, and 

also must file with NFA and distribute 

to participants in the exempt pool an 

annual report within 90 days of the end 

mstockstill on PROD1PC66 with PROPOSALS

Federal Register / Vol. 74, No. 35 / Tuesday, February 24, 2009 / Proposed Rules 8221 

5Regulation 4.7(b)(3) permits the CPO of a 

Regulation 4.7-qualifying pool to claim exemption 

from the specific annual report content 

requirements and annual report certification 

requirements, respectively, of Regulations 4.22(c) 

and (d). 

6American Institute of Certified Public 

Accountants (‘‘AICPA’’) Audit and Accounting 

Guide, Investment Companies paragraph 7.03. 

7AICPA Audit and Accounting Guide, 

Investment Companies, Chapter 5, Complex Capital 

Structures. 

8 65 FR 81333 at 81334 (December 26, 2000). 

9However, the CPO of a commodity pool that 

operated as a fund of funds and claimed an 

automatic extension of 60 days pursuant to 

Regulation 4.22(f)(2) for the filing of the pool’s 

annual report would be limited to requesting no 

more than an additional 30-day extension under 

Regulation 4.22(f)(1). Thus, under Regulations 

4.22(f)(1) and (2), all pool annual reports must be 

distributed to pool participants and filed with NFA 

within 180 days of the end of the pool’s fiscal year. 

of the pool’s fiscal year or the 

permanent cessation of the pool’s 

trading. Annual reports for Regulation 

4.7 exempt pools are not required to be 

audited by an independent public 

accountant.5

II. Proposed Changes to Periodic 

Account Statements and Annual 

Financial Reports 

A. Periodic Account Statements for 

Regulation 4.7—Exempt Pools 

Regulation 4.7(b)(2) requires the CPO 

of a Regulation 4.7-exempt commodity 

pool to provide each participant in the 

pool with an account statement that 

must indicate: (1) The net asset value of 

the exempt pool as of the end of the 

reporting period; (2) the change in net 

asset value of the exempt pool from the 

end of the previous reporting period; 

and (3) the net asset value per 

outstanding unit of participation in the 

exempt pool as of the end of the 

reporting period. The account statement 

must be prepared in accordance with 

generally accepted accounting 

principles (‘‘GAAP’’), signed and 

affirmed by the CPO, and distributed to 

pool participants no less frequently than 

quarterly within 30 calendar days of the 

end of the reporting period. 

The Commission is proposing to 

amend Regulation 4.7(b)(2) to clarify 

that the periodic account statement 

provided to each pool participant must 

disclose either the net asset value per 

outstanding participation unit, or the 

total value of the participant’s interest 

or share, in the commodity pool as of 

the end of the reporting period. The 

proposal is intended to ensure that pool 

participants receive sufficient 

information to determine the value of 

their investments in the commodity 

pool from the periodic account 

statement. Furthermore, the proposal is 

consistent with the comparable 

provision of Regulation 4.22(a) for pools 

that are not Regulation 4.7-exempt, 

which specifies that either the net asset 

value per outstanding participation unit 

or the total value of the participant’s 

interest or share in the pool be included 

in an account statement. 

B. Series Pools and Pools With Multiple 

Classes of Ownership Interests 

A commodity pool may contain an 

organizational structure that includes 

more than one series or class of 

ownership interest. Different ownership 

series or classes may exist due to 

differences in fees and expenses, 

currency denomination, trading, cash 

management strategies, and other 

aspects of the operation of the pool. 

GAAP provides guidance regarding 

the presentation of financial statements 

for series funds 6 and for investment 

funds with multiple ownership classes,7

and pool financial statements prepared 

pursuant to both Regulation 4.22(c) and 

Regulation 4.7(b)(3) must be in 

accordance with GAAP. Commission 

staff has received many questions from 

CPOs, their attorneys and accountants, 

and NFA regarding the proper 

presentation of periodic account 

statements and annual financial reports 

for series funds and multi-class pools. 

Therefore, the Commission is proposing 

to amend Regulations 4.7(b)(2) and 

4.22(a) to specify that, for series funds 

structured with a limitation on liability 

among the different series, the periodic 

account statement may include only the 

information for the series being 

reported, although additional 

information on other series may be 

provided; however, for other series 

funds and for multi-class funds, net 

asset value and other information 

required by the regulations must be 

presented for both the pool as a whole 

as well as for each series or class of 

ownership interest. 

The Commission also is proposing to 

amend Regulations 4.7(b)(3) and 4.22(c) 

to clarify that, for series funds 

structured with a limitation on liability 

among the different series, the annual 

report may include only the information 

for the series being reported. For both 

periodic account statements and annual 

financial reports, CPOs of series funds 

with a limitation on liability among the 

different series are not precluded by 

these amendments from providing 

financial information to participants for 

other series or classes of the pool. 

C. Changes to Extension Provisions 

Under Regulation 4.22(f) 

Regulations 4.7(b)(3) and 4.22(c) 

require a CPO to provide to each 

participant in each commodity pool that 

the CPO operates an annual report for 

the commodity pool within 90 calendar 

days of the end of the pool’s fiscal year. 

The CPO is further required to submit 

a copy of the annual report 

electronically to NFA. 

Regulation 4.22(f)(2) permits a CPO of 

a commodity pool that invests in other 

funds (referred to as a ‘‘fund of funds’’) 

to claim up to an additional 60 days to 

distribute the pool’s annual report to 

pool participants and to file a copy with 

NFA. CPOs may claim the Regulation 

4.22(f)(2) fund of funds 60-day 

extension by filing with NFA an initial 

notice, containing specified 

representations, in advance of the 

annual report’s due date for the first 

year the extension is claimed. In 

subsequent years, the CPO may confirm 

that the circumstances necessitating the 

relief continue to apply by restating 

certain representations in a statement 

filed at the same time as the pool’s 

annual report. 

Regulation 4.22(f)(2) currently is 

applicable only to CPOs that distribute 

annual reports that are audited by 

independent public accountants. CPOs 

of commodity pools that are permitted 

to distribute unaudited annual financial 

reports to participants pursuant to 

Regulation 4.7(b)(3) may request from 

NFA up to a 90-day extension of the 

filing deadline under Regulation 

4.22(f)(1). 

In adopting Regulation 4.22(f)(2), the 

Commission anticipated, based upon its 

experience, that a substantial majority of 

the CPOs of funds of funds would be 

able to distribute to the participants and 

to file with NFA the pools’ annual 

reports within 150 days of the end of the 

respective commodity pool’s fiscal 

year.8 The Commission further noted 

that CPOs that could not meet the 150- 

day filing timeframe under Regulation 

4.22(f)(2) could continue to request an 

extension of time to distribute and to 

file the pools’ annual reports pursuant 

to Regulation 4.22(f)(1).9

In recent years, however, the number 

of CPOs that have requested additional 

extensions under Regulation 4.22(f)(1) 

after having claimed the 60-day 

extension under Regulation 4.22(f)(2) 

has increased significantly. According 

to data provided by NFA for pool 

annual reports with a fiscal year ending 

in 2006, CPOs claimed the 60-day fund 

of funds extension under Regulation 

4.22(f)(2) for over 650 commodity pools. 

Subsequently, CPOs of approximately 

50 percent of such pools filed requests 

with NFA for an additional extension of 

up to 30 calendar days pursuant to 

Regulation 4.22(f)(1). Similarly, for 

mstockstill on PROD1PC66 with PROPOSALS

8222 Federal Register / Vol. 74, No. 35 / Tuesday, February 24, 2009 / Proposed Rules 

10 In this regard, the Commission would expect 

that pool annual financial reports would be issued 

to the pool’s participants shortly after the 

completion of the reports by the independent 

public accountant or, for unaudited annual 

financial reports, by the CPO. 

11 17 CFR 275.206(4)–2(b)(3). ‘‘Fund of funds’’ is 

defined for purposes of the custody rule at 

275.206(4)–2(b)(3)(c)(4). 

pools with fiscal years ending in 2007, 

CPOs claimed the 60-day filing 

extension under Regulation 4.22(f)(2) for 

over 500 commodity pools. 

Subsequently, CPOs of approximately 

45 percent of such pools filed requests 

with NFA for an additional extension of 

up to 30 calendar days under Regulation 

4.22(f)(1). 

To address this issue, the Commission 

is proposing to extend from 60 to 90 

days the maximum amount of 

additional time that a CPO that operates 

a commodity pool that invests in other 

funds may claim under Regulation 

4.22(f)(2). Therefore, under the 

proposal, annual financial reports for 

funds of funds may be distributed to 

pool participants and filed with NFA a 

maximum of 180 days from the end of 

a qualifying pool’s fiscal year. This 

amendment would eliminate the need 

for CPOs to file an additional request 

under Regulation 4.22(f)(1), and also 

would reduce the administrative burden 

to NFA of processing these additional 

requests. The Commission, however, 

expects CPOs to distribute pool annual 

reports to participants as soon after the 

end of the pool’s fiscal year-end as 

possible, notwithstanding the 

availability of the additional 

extension.10

The 180-day timeframe for CPOs of 

funds of funds to prepare and to 

distribute pool annual reports also 

would be consistent with the timeframe 

within which registered investment 

advisers distribute annual reports to 

investors in funds of funds under the 

Securities and Exchange Commission’s 

(‘‘SEC’s’’) custody rule.11 Registered 

investment advisers are not required to 

comply with certain provisions of the 

SEC’s custody rule with respect to the 

accounts of limited partnerships, 

limited liability companies, or other 

pooled investment vehicles that are 

subject to audit at least annually and for 

which the audited financial statements 

are distributed to partners, members or 

other beneficial owners within 120 days 

of the fund’s fiscal year-end or, in the 

case of a fund of funds, within 180 days 

of the end of its fiscal year. 

The Commission also is proposing to 

extend the application of Regulation 

4.22(f)(2) to CPOs that operate 

Regulation 4.7-exempt commodity pools 

that do not prepare audited financial 

statements certified by independent 

public accountants. As previously 

noted, a CPO operating a pool that 

meets the criteria of Regulation 4.7 may 

claim exemption from certain annual 

reporting requirements, including the 

requirement of Regulation 4.22(d) that 

the financial statements contained in 

the annual report be audited by an 

independent public accountant. 

Regulation 4.22(f)(2) was adopted, in 

large part, to address difficulties that 

CPOs experience in obtaining timely 

information about their pools’ 

investments in other funds in order for 

the pools’ public accountants to prepare 

audited financial statements. Annual 

reports that are not audited, however, 

are still required to be prepared in 

accordance with GAAP. The CPOs of 

unaudited funds of funds have 

explained that they often experience 

difficulties in obtaining the information 

necessary from investee funds to 

complete the preparation of the pools’ 

financial statements by the time 

specified in Regulation 4.22(c). In order 

to complete the financial statements of 

the pools, the CPOs need information 

establishing the value of the pools’ 

material investments from the investee 

funds. These investments may be in a 

number of investee funds, such as other 

commodity pools, securities funds, or 

hedge funds, both domestic and 

offshore. The information that the CPOs 

require frequently is unavailable until 

the investee funds complete their own 

audited financial statements. Thus, in 

many cases, the CPOs cannot obtain the 

information they require about the 

investee funds in time for the annual 

financial reports of the pools to be 

prepared and distributed by the due 

date. Under the proposed amendment, 

CPOs of funds of funds for which 

unaudited annual reports are prepared 

also would be able to claim the 

extension under Regulation 4.22(f)(2). 

In addition, the Commission is 

proposing to remove the requirement 

that a CPO that has filed a claim of 

extension under Regulation 4.22(f)(2) for 

a particular pool must restate certain 

representations in a statement filed with 

the pool’s annual reports in subsequent 

years. Instead, having filed the initial 

claim, the CPO will be presumed to 

operate the pool as a fund of funds and 

otherwise continue to qualify for the 

automatic extension; however, if the 

pool no longer operates as a fund of 

funds, then its CPO must provide NFA 

with notice of the change in the pool’s 

status and must file the pool’s annual 

report within 90 days of the pool’s fiscal 

year-end, as required by Regulation 

4.22(c). 

If the proposed extension of the time 

period under Regulation 4.22(f)(2) is 

adopted, CPOs that have claimed the 

fund of funds extension will not need to 

file new notices with NFA in order to 

claim the additional 30 days to file and 

to distribute their qualifying pools’ 

annual reports. As noted previously, 

however, the Commission expects CPOs 

to file and to distribute their pools’ 

annual reports as soon as possible after 

the pools’ fiscal year-ends to ensure that 

participants obtain information that is 

as current as possible. 

D. Streamlined Filing Procedures for 

Liquidating Pools 

Regulation 4.22(c) requires a CPO of 

a commodity pool that has ceased 

operation to distribute a final annual 

report to commodity pool participants 

and to file a copy with NFA within 90 

days of the pool’s permanent cessation 

of trading, but in no event longer than 

90 days after funds are returned to pool 

participants. Due to confusion created 

by the reference in Regulation 4.22(c) to 

two possible timeframes for filing a final 

annual report, the Commission is 

proposing to amend this regulation to 

specify that the final annual report must 

be filed no later than 90 days after the 

pool ceases trading. A CPO that has not 

distributed all funds to participants by 

the date that the report is issued must 

provide information about the return of 

funds to pool participants, including an 

estimate of the value of funds remaining 

to be distributed and the anticipated 

timeframe of when those funds are 

expected to be returned. When the 

remaining funds are returned to 

participants, the CPO should send a 

notice to all participants and to NFA. 

The Commission further 

acknowledges that the cost of preparing 

audited financial statements, which may 

reduce significantly the amount of funds 

available to return to participants, 

particularly where the pool has ceased 

operation due to material trading and 

investment losses, may exceed the 

benefits to the pool participants. In 

these situations, the most significant 

information for participants is 

disclosure of the factors that led to the 

decline in the pool’s value, the fees and 

expenses attributable to the pool leading 

up to the liquidation, the manner in 

which the pool’s operations were 

concluded, and when and how much of 

the participants’ investment has been, or 

will be, returned. 

The Commission therefore is 

proposing to simplify the reporting 

requirements for CPOs of pools ceasing 

operation in order to assist them in 

providing participants with the most 

timely and meaningful information. 

mstockstill on PROD1PC66 with PROPOSALS

Federal Register / Vol. 74, No. 35 / Tuesday, February 24, 2009 / Proposed Rules 8223 

12CPO guidance letters issued by the 

Commission’s Division of Clearing and 

Intermediary Oversight (‘‘DCIO’’) are available at 

http://www.cftc.gov/industryoversight/ 

intermediaries/guidancecporeports.html. 

13Available at http://www.cftc.gov/tm/tm94- 

03.htm. 

14 ‘‘Special allocations’’ are generally 

distributions of profits or transfers of equity that 

exceed a class’s proportionate share of profits based 

upon the class’s proportionate capital contribution 

to the pool. As noted in Interpretative Letter No. 

94–3, a partnership agreement may often provide 

that a special allocation is to be made for the 

advisory services provided by the general partner, 

and that the amount of the allocation is based upon 

a percentage of the partnership’s net income. 

15AICPA Audit and Accounting Guide, 

Investment Companies, paragraph 7.49. 

16This position has been stated in DCIO’s annual 

CPO guidance letters. 

17CFTC Letter No. 95–52, Comm. Fut. L. Rep. 

(CCH) ¶ 26,421. 

18The proposed treatment of gains or losses from 

foreign currency translation is consistent with 

AICPA Audit and Accounting Guide, Audits of 

Investment Companies, paragraphs 7.51 and 7.54. 

This information would include a 

Statement of Operations and a 

Statement of Changes in Net Assets 

since the last fiscal year-end annual 

report, an explanation of the winding 

down of the pool’s operations, and a 

written disclosure that all interests in, 

and assets of, the pool have been 

redeemed, distributed, or transferred on 

behalf of the participants. If the report 

would otherwise be required to be 

audited pursuant to Regulation 4.22(d), 

the CPO may prepare an unaudited 

annual report provided that the CPO 

obtains from all participants, and files 

with NFA, written waivers of each of 

the participant’s rights to receive an 

audited annual report. This latter 

provision is consistent with case-bycase exemptions that Commission staff 

has provided to CPOs of pools that have 

ceased operation. 

In order to clarify that the 

requirement to file an annual financial 

report upon the permanent cessation of 

trading applies to Regulation 4.7-exempt 

pools, the Commission proposes to add 

to the introductory text of Regulation 

4.7(b)(3) the language that appears in 

the introductory text of Regulation 

4.22(c) to this effect, subject to the 

clarification proposed above. 

Commission staff has confirmed that 

Regulation 4.7-exempt pools are subject 

to the same requirements as non-exempt 

pools with respect to their final annual 

reports in the annual report guidance 

letter issued to CPOs each year by 

Commission staff.12

E. Codifying Existing Policies Regarding 

Special Allocations of Ownership 

Equity, Unrealized Gains and Losses, 

and Investee Funds’ Income and 

Expenses 

1. Special Allocations of Ownership 

Interests 

CFTC Interpretative Letter No. 94–3, 

Special Allocations of Investment 

Partnership Equity,13 describes the 

procedures for reporting in a pool’s 

annual financial report special 

allocations of partnership equity from 

limited partners to the general partner.14

These special allocations must be 

recognized in the financial statements in 

the same reporting period as the net 

income, interest income, or other basis 

of computation of the special allocation; 

classified in the Statement of Operations 

as either an expense or a special 

allocation of net income; separately 

reported in the Statement of Partnership 

Equity; and deducted in the 

computation of the GAAP-required 

disclosures. 

At the time Interpretative Letter 94–3 

was issued, no specific accounting 

standard existed to address special 

allocations of partnership equity. 

Subsequently, the AICPA issued the 

Audit and Accounting Guide, Audits of 

Investment Companies, which contains 

a provision stating that special 

allocations of investment partnership 

equity can be accounted for in one of 

two ways. Pursuant to the Audit and 

Accounting Guide, the amounts of any 

special allocations may be presented in 

either the Statement of Operations or 

the Statement of Changes in Partners’ 

Capital in accordance with the 

partnership agreement, and the method 

of computing such payments or 

allocations should be described in the 

notes to the financial statements.15

Commission staff has consistently 

taken the position that requiring a CPO 

to report a special allocation in a pool’s 

Statement of Operations provides the 

pool’s participants with more complete 

information of the impact of a 

distribution of a special allocation to 

their respective capital accounts, 

notwithstanding the flexibility provided 

by the Audit and Accounting Guide.16

The Commission, therefore, is proposing 

to amend Regulation 4.22(e) to 

incorporate the requirements currently 

detailed in Interpretative Letter No. 94– 

3. CPOs may continue to use the sample 

financial statement reporting formats set 

forth in the Interpretative Letter. 

2. Combining Gains and Losses on 

Regulated Futures Transactions With 

Gains and Losses on Non-CFTC 

Regulated Transactions in the Statement 

of Operations 

Regulation 4.22(e) provides that a 

commodity pool’s Statement of 

Operations must itemize the pool’s total 

realized net gain or loss from 

commodity interest trading and the 

change in unrealized net gain or loss in 

commodity interest positions during the 

pool’s fiscal year. Regulation 4.22(e) 

does not provide explicitly for separate 

disclosure on the Statement of 

Operations of realized and unrealized 

gains and losses on non-commodity 

interest trading activities. 

In 1995, Commission staff issued an 

interpretation of the requirements for 

itemization of realized and unrealized 

gains or losses in the commodity pool’s 

Statement of Operations.17 The 

interpretation noted that trading is often 

done by commodity pools using 

strategies that combine financial 

instruments from different types of 

markets, and, to reflect meaningfully the 

results of such trading strategies, 

permits the separate reporting of 

realized and unrealized gains and losses 

that combines the results of commodity 

interest trading and non-commodity 

interest trading that are part of the same 

trading strategy. The interpretation 

further noted that reporting realized and 

unrealized gains and/or losses for 

commodity interest transactions 

separately from other financial 

instruments that are part of the pool’s 

trading strategy may be misleading to 

pool participants as the separate 

reporting may distort the real results of 

the pool’s trading strategies. 

In order to formally establish staff’s 

interpretation, the Commission is 

proposing to amend Regulation 4.22(e) 

to state that realized and unrealized 

gains and losses on regulated 

commodities transactions presented in 

the Statement of Operations of a 

commodity pool may be combined with 

realized or unrealized gains and losses, 

respectively, from non-commodity 

interest trading, provided that the gains 

and losses to be combined are part of a 

related trading strategy. Furthermore, 

gains or losses from foreign currency 

translations and conversions also may 

be included with the related trading 

strategy, or reported separately.18

3. Fees and Expenses of Investee Funds 

Commission Regulation 4.22(e) 

requires a CPO to itemize in the 

Statement of Operations brokerage 

commissions, management fees, 

advisory fees, incentive fees, interest 

income and expense, total realized net 

gain or loss from commodity interest 

trading, and change in unrealized net 

gain or loss on commodity interest 

positions during the pool’s fiscal year 

directly incurred by the pool during the 

course of the reporting period. A 

purpose of this provision is to ensure 

mstockstill on PROD1PC66 with PROPOSALS

8224 Federal Register / Vol. 74, No. 35 / Tuesday, February 24, 2009 / Proposed Rules 

19Commission staff has discussed these 

disclosures in the annual CPO guidance letters. 

20Fees and expenses are generally reported net of 

any income by the investee fund to the CPO. 

21AICPA Statement of Position (‘‘SOP’’) 03–04, 

Reporting Financial Highlights and Schedule of 

Investments by Nonregistered Investment 

Partnerships: An Amendment to the Audit and 

Accounting Guide, Audits of Investment 

Companies. 

22The annual CPO guidance letters issued by 

Commission staff have discussed the conditions 

under which such exemptions may be granted and 

the procedure for making exemption requests. See, 

e.g., Section III of the January 16, 2008 annual 

guidance letter at http://www.cftc.gov/stellent/ 

groups/public/@iointermediaries/documents/ 

generic/cpoannualguidanceletter2007.pdf. 23As required by AICPA SOP 95–2, subsequently 

amended by SOP 01–1 and SOP 03–4. 

24See, e.g., the February 27, 2006 Memorandum 

of Understanding between the Financial 

Accounting Standards Board and the International 

Accounting Standards Board on convergence of 

IFRS and U.S. GAAP: http://www.fasb.org/intl/ 

mou_02-27-06.pdf. 

25 17 CFR 230.501(a) (2008). 

that pool participants receive a detailed 

listing of the fees and other expenses 

incurred by the pool for the reporting 

period. 

For over a decade, consistent with the 

policy of detailed disclosure of material 

fees and expenses set forth in 

Regulation 4.22(e), Commission staff has 

encouraged CPOs to disclose separately 

in pool annual reports income received 

from, and fees paid to, investee pools.19

Specifically, CPOs were encouraged to 

disclose in the notes to the financial 

statements the amounts of management 

and incentive fees and expenses 

indirectly incurred as a result of 

investing in any fund where the 

investment in the fund exceeded five 

percent of the pool’s net asset value. 

Commission staff took the position that 

such income, fees, and expenses should 

be disclosed separately for each fund in 

which a CPO invested five or more 

percent of a pool’s net asset value. 

Income, fees, and expenses incurred 

from investments in one or more funds 

where each investment in a fund 

represented less than five percent of the 

pool’s net asset value could be 

combined and reported in the aggregate; 

the total income on the detail schedule 

should agree with the amount of income 

reported for the income from 

investments in other funds in the pool’s 

Statement of Operations.20 The rationale 

for this disclosure is that such 

information is material for pool 

participants to comprehend fully the 

investment strategy and fee structure of 

a commodity pool. In addition, the five 

percent threshold is consistent with the 

reporting thresholds set forth in the 

relevant accounting requirements 

regarding disclosure of investments in 

other funds.21

Accordingly, the Commission is 

proposing that information on the 

amounts of income and expenses 

associated with a pool’s investments in 

investee funds, and identifying by name 

the investee funds in which investments 

exceed five percent of the pool’s net 

assets, be required in annual reports for 

pools prepared under both Regulation 

4.22(c) and Regulation 4.7(b)(3). 

F. Use of GAAP 

1. Regulations 4.22(c) and 4.7(b)(3) 

Commission regulations require that 

audited and unaudited financial 

statements, as well as periodic account 

statements, be presented and computed 

in accordance with GAAP. This 

provision consistently has been 

interpreted by Commission staff to mean 

GAAP as established in the United 

States (‘‘U.S. GAAP’’). Nevertheless, 

Commission staff has, on a case-by-case 

basis, provided limited relief to CPOs 

that operate commodity pools organized 

under the laws of a foreign jurisdiction 

by allowing the financial statements of 

such pools to be prepared and presented 

in accordance with International 

Financial Reporting Standards (‘‘IFRS’’) 

instead of U.S. GAAP.22 In cases where 

staff has provided relief, the relief was 

conditioned upon the offshore pool 

following certain key elements of U.S. 

GAAP standards, including preparing a 

condensed Schedule of Investments; 23

reporting special allocations of 

partnership equity in accordance with 

CFTC Interpretative Letter 94–3, 

proposed to be codified as Regulation 

4.22(e)(2); and, in the event that IFRS 

would require consolidated financial 

statements for the pool, adequately 

reporting results of operations and 

financial position specific to each class 

of the pool’s investors. In addition, 

using accounting standards other than 

U.S. GAAP must not conflict with any 

representations made to participants or 

potential participants in the pool. 

Because these criteria under which 

CPOs have been granted relief from the 

requirement to prepare pool financial 

reports in accordance with U.S. GAAP 

have remained constant, the 

Commission is proposing that CPOs be 

permitted to claim relief to prepare 

financial statements pursuant to IFRS by 

filing a notice that includes 

representations regarding the operations 

of their offshore pools, the preparation 

of the pools’ financial statements in 

accordance with IFRS, and the 

additional information that will be 

included in the reports in order for the 

financial statements to be consistent 

with U.S. GAAP. If IFRS would require 

consolidated financial statements for a 

pool, such as those with complex 

capital structures (for example, masterfeeder structures or funds of funds), 

such financial statements must contain 

disclosures that adequately report 

results of operations and financial 

position specific to each class of the 

pool’s investors. 

Under the proposal, the notice must 

be filed with NFA prior to the due date 

for the report, and the CPO can continue 

to prepare annual reports for future 

years in accordance with IFRS as long 

as all representations made in the initial 

notice remain in effect. A single notice 

may be filed for more than one pool 

operated by the CPO as long as all the 

representations in the notice apply to 

each of the pools named therein. 

Commission staff also has provided 

relief on a case-by-case basis to CPOs 

operating offshore commodity pools 

permitting the use of accounting 

standards established in other 

jurisdictions, including the United 

Kingdom, Ireland, and Luxembourg. 

However, the Commission currently is 

proposing to establish the notice 

procedure solely for pools that are 

following IFRS, due to IFRS’s global 

nature and the various efforts under way 

in the U.S. and other countries to 

achieve convergence between IFRS and 

local accounting standards.24 CPOs of 

offshore pools that meet the criteria 

specified in proposed Regulation 

4.22(d)(2) but are using accounting 

standards other than IFRS may continue 

to seek case-by-case relief from the U.S. 

GAAP requirement by filing relief 

requests with Commission staff. 

2. GAAP Requirement in Regulation 

4.13 

Regulation 4.13 provides an 

exemption from registration for CPOs 

that operate only one pool at a time, for 

which no advertising is done and no 

compensation is received; or that 

operate pools that include no more than 

15 participants each, and the aggregate 

subscriptions to all pools do not exceed 

$400,000. In 2003, the Commission 

adopted additional registration 

exemptions for CPOs of pools whose 

participants are SEC ‘‘accredited 

investors’’ 25 and that limit their trading 

of commodity interests to a de minimis 

amount, or that limit participation to 

certain highly sophisticated investors. 

In proposing the Regulation 4.13(a)(3) 

and (4) exemptions that were adopted in 

2003, the Commission stated that ‘‘this 

relief is intended to encourage and 

mstockstill on PROD1PC66 with PROPOSALS

Federal Register / Vol. 74, No. 35 / Tuesday, February 24, 2009 / Proposed Rules 8225 

26 68 FR 12625 (March 17, 2003). 

27 47 FR 18618 (April 30, 1982). 

28 47 FR at 18619. 29 44 U.S.C. 3507(d). 

facilitate participation in the commodity 

interest markets by additional collective 

investment vehicles and their advisers, 

with the added benefit to all market 

participants of increased liquidity.’’ 26

Regulation 4.13(c) specifies that, if a 

CPO that has claimed an exemption 

from registration under Regulation 4.13 

distributes an annual report to pool 

participants, the annual report must be 

presented and computed in accordance 

with GAAP and, if audited by an 

independent public accountant, 

certified in accordance with Regulation 

1.16. The Commission has reconsidered 

this requirement and determined that it 

does not need to prescribe the form of 

an annual report that is not required by 

its regulations to be prepared, 

distributed, or filed. Accordingly, the 

Commission is proposing to remove the 

requirement in Regulation 4.13(c) that 

an annual report distributed to 

participants in a pool for which 

exemption under Regulation 4.13 has 

been claimed must be prepared in 

accordance with GAAP. The 

Commission expects, however, that 

CPOs will prepare their pools’ reports 

pursuant to the terms of the pools’ 

operating documents. 

III. Updating References to Financial 

Schedules 

The Commission is proposing to 

update both the periodic and annual 

reporting provisions of Part 4 to 

conform with current accounting 

practices with respect to the references 

to various financial schedules. These 

changes would delete references to the 

Statement of Changes in Financial 

Position, which no longer exists; rename 

the Statement of Income (Loss) as the 

Statement of Operations; and rename 

the Statement of Changes in Net Asset 

Value as the Statement of Changes in 

Net Assets. 

IV. Related Matters 

Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’), 5 U.S.C. 601 et seq., requires 

that agencies, in proposing regulations, 

consider the impact of those regulations 

on small businesses. The Commission 

previously has established certain 

definitions of ‘‘small entities’’ to be used 

by the Commission in evaluating the 

impact of its regulations on such entities 

in accordance with the RFA.27 The 

Commission has determined previously 

that registered CPOs are not small 

entities for the purpose of the RFA.28

The proposed amendments to 

Regulation 4.7 and Regulation 4.22 

would apply only to registered CPOs. 

With respect to CPOs exempt from 

registration, the Commission has 

previously determined that a CPO is a 

small entity if it meets the criteria for 

exemption from registration under 

current Regulation 4.13(a)(2). The 

proposed amendment to Regulation 4.13 

would remove an existing requirement 

and does not impose any significant 

burdens. Therefore, the Chairman, on 

behalf of the Commission, hereby 

certifies, pursuant to 5 U.S.C. 605(b), 

that the action proposed to be taken 

herein will not have a significant 

economic impact on a substantial 

number of small entities. 

A. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(‘‘PRA’’) 29 imposes certain 

requirements on federal agencies 

(including the Commission) in 

connection with their conducting or 

sponsoring any collection of 

information as defined by the PRA. 

Pursuant to the PRA, the Commission 

has submitted a copy of this section to 

the Office of Management and Budget 

(‘‘OMB’’) for its review. 

Collection of Information. (Rules 

Relating to the Operations and 

Activities of Commodity Pool Operators 

and Commodity Trading Advisors and 

to Monthly Reporting by Futures 

Commission Merchants, OMB Control 

Number 3038–0005.) 

The proposed amendments will not 

require a new collection of information 

on the part of any entities subject to the 

proposed amendments. Specifically, the 

proposed amendments will modify 

existing regulatory requirements by 

clarifying information that must be 

included in required periodic and 

annual reports. The expected effect of 

the proposed amended regulations will 

be to increase slightly the burden for 

this collection of information due to 

including specific fee and expense 

information in annual reports for funds 

of funds. This increase affects only 

annual reports for pools that invest in 

other funds and therefore are required to 

include the additional fee and expense 

information, and does not affect reports 

for pools that do not invest in other 

funds. In addition, because the previous 

submission of this collection contained 

a calculation error with respect to the 

total number of respondents, the burden 

has been recalculated and the corrected 

numbers are included in the current 

estimate. The Commission estimates the 

burden of this collection of information 

as follows: 

Estimated Annual Reporting Burden: 

Number of Respondents: 9,200. 

Total Annual Responses: 28,275. 

Total Annual Hours: 167,550. 

The Commission considers comments 

by the public on this proposed 

collection of information in— 

Evaluating whether the proposed 

collection of information is necessary 

for the proper performance of the 

functions of the Commission, including 

whether the information will have a 

practical use; 

Evaluating the accuracy of the 

Commission’s estimate of the burden of 

the proposed collection of information, 

including the validity of the 

methodology and assumptions used; 

Enhancing the quality, utility, and 

clarity of the information to be 

collected; and 

Minimizing the burden of the 

collection of information on those who 

are to respond, including through the 

use of appropriate automated, 

electronic, mechanical, or other 

technological collection techniques or 

other forms of information technology, 

e.g., permitting electronic submission of 

responses. 

Organizations and individuals 

desiring to submit comments on the 

information collection should contact 

the Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10235, New Executive 

Office Building, Washington, DC 20503, 

Attn: Desk Officer of the Commodity 

Futures Commission. OMB is required 

to make a decision concerning the 

collection of information contained in 

these proposed regulations between 30 

and 90 days after publication of this 

document in the Federal Register. 

Therefore, a comment to OMB is best 

assured of having its full effect if OMB 

receives it within 30 days of 

publication. This does not affect the 

deadline for the public to comment to 

the Commission on the proposed 

regulations. Copies of the information 

collection submission to OMB are 

available from the CFTC Clearance 

Officer, 1155 21st Street, NW., 

Washington, DC 20581 or (202) 418– 

5160. 

B. Cost-Benefit Analysis 

Section 15(a) of the Act requires the 

Commission to consider the costs and 

benefits of its action before issuing a 

new regulation under the Act. By its 

terms, Section 15(a) does not require the 

Commission to quantify the costs and 

benefits of a new regulation or to 

determine whether the benefits of the 

regulation outweigh its costs. Rather, 

Section 15(a) simply requires the 

mstockstill on PROD1PC66 with PROPOSALS

8226 Federal Register / Vol. 74, No. 35 / Tuesday, February 24, 2009 / Proposed Rules 

Commission to ‘‘consider the costs and 

benefits’’ of its action. 

Section 15(a) of the Act further 

specifies that costs and benefits shall be 

evaluated in light of five broad areas of 

market and public concern: Protection 

of market participants and the public; 

efficiency, competitiveness, and 

financial integrity of futures markets; 

price discovery; sound risk management 

practices; and other public interest 

considerations. Accordingly, the 

Commission could in its discretion give 

greater weight to any one of the five 

enumerated areas and could in its 

discretion determine that, 

notwithstanding its costs, a particular 

regulation was necessary or appropriate 

to protect the public interest or to 

effectuate any of the provisions or to 

accomplish any of the purposes of the 

Act. 

The Commission has considered the 

costs and benefits of this proposed 

regulation in light of the specific 

provisions of Section 15(a) of the Act, as 

follows: 

1. Protection of market participants 

and the public. The proposed 

amendments should not affect the 

protection of market participants and 

the public as they primarily clarify 

existing reporting requirements for 

commodity pools. 

2. Efficiency and competition. The 

Commission anticipates that the 

proposed amendments will benefit 

efficiency by streamlining the annual 

report filing process for funds of funds 

and pools ceasing operation. The 

proposal will also reduce the number of 

requests for additional extensions for 

funds of funds that must be processed 

by NFA. The proposed amendments are 

considered by the Commission as 

benefiting efficiency and not impacting 

competition. 

3. Financial integrity of futures 

markets and price discovery. The 

proposed amendments should have no 

effect, from the standpoint of imposing 

costs or creating benefits, on the 

financial integrity of futures markets or 

the price discovery function of such 

markets. 

4. Sound risk management practices. 

The proposed amendments should have 

no effect, from the standpoint of 

imposing costs or creating benefits, on 

sound risk management practices. 

5. Other public interest 

considerations. The Commission 

believes that the proposed clarification 

of requirements for periodic reporting of 

multi-class or series pools is beneficial 

in that it results in the provision of more 

meaningful information to participants 

in those pools. 

After considering these factors, the 

Commission has determined to propose 

the amendments discussed above. The 

Commission invites public comment on 

its application of the cost-benefit 

provision. Commenters also are invited 

to submit any data that they may have 

quantifying the costs and benefits of the 

proposal with their comment letters. 

List of Subjects in 17 CFR Part 4 

Advertising, Commodity futures, 

Commodity pool operators, Consumer 

protection, Reporting and recordkeeping 

requirements. 

For the reasons discussed in the 

preamble, the Commission proposes to 

amend 17 CFR part 4 as follows: 

PART 4—COMMODITY POOL 

OPERATORS AND COMMODITY 

TRADING ADVISORS 

1. The authority citation for part 4 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 4, 6b, 6c, 6l, 6m, 

6n, 6o, 12a, and 23. 

2. Amend § 4.7 to revise paragraphs 

(b)(2)(iii), (b)(3)(i) introductory text, 

(b)(3)(i)(B), and (b)(3)(i)(C), and to add 

paragraph (b)(3)(i)(D) to read as follows: 

§ 4.7 Exemption from certain part 4 

requirements for commodity pool operators 

with respect to offerings to qualified eligible 

persons and for commodity trading 

advisors with respect to advising qualified 

eligible persons. 

* * * * * 

(b) * * * 

(2) * * * 

(iii)(A) Either the net asset value per 

outstanding participation unit in the 

exempt pool as of the end of the 

reporting period, or 

(B) The total value of the participant’s 

interest or share in the exempt pool as 

of the end of the reporting period; 

(C) Where the pool is comprised of 

more than one ownership class or series, 

the net asset value of the series or class 

on which the account statement is 

reporting, and the net asset value per 

unit or value of the participant’s share, 

also must be included in the statement 

required by this paragraph (b)(2); except 

that, for a pool that is a series fund 

structured with a limitation on liability 

among the different series, the account 

statement required by this paragraph 

(b)(2) is not required to include the 

consolidated net asset value of all series 

of the pool. 

(3) Annual report relief. (i) Exemption 

from the specific requirements of 

§§ 4.22(c) and (d); Provided, That within 

90 calendar days after the end of the 

exempt pool’s fiscal year or the 

permanent cessation of trading, 

whichever is earlier, the commodity 

pool operator electronically files with 

the National Futures Association and 

distributes to each participant in lieu of 

the financial information and statements 

specified by those sections, an annual 

report for the exempt pool, affirmed in 

accordance with § 4.22(h) which 

contains, at a minimum: 

* * * * * 

(B) A Statement of Operations for that 

year; 

(C) Appropriate footnote disclosure 

and such further material information as 

may be necessary to make the required 

statements not misleading. For a pool 

that invests in other funds, this 

information must include, but is not 

limited to, separately disclosing the 

amounts of income and expenses 

associated with each investment in an 

investee fund that exceeds five percent 

of the pool’s net assets. The income and 

expenses associated with an investment 

in an investee fund that is less than five 

percent of the pool’s net assets may be 

combined and reported in the aggregate 

with the income and expenses of other 

investee funds that, individually, 

represent an investment of less than five 

percent of the pool’s net assets; 

(D) Where the pool is comprised of 

more than one ownership class or series, 

information for the series or class on 

which the financial statements are 

reporting should be presented in 

addition to the information presented 

for the pool as a whole; except that, for 

a pool that is a series fund structured 

with a limitation on liability among the 

different series, the financial statements 

are not required to include consolidated 

information for all series. 

* * * * * 

§ 4.22 [Amended] 

3. Amend § 4.13 by removing 

paragraph (c)(2) and redesignating 

paragraph (c)(3) as (c)(2). 

4. Amend § 4.22 to revise paragraphs 

(a) introductory text, (a)(1) introductory 

text, (a)(2) introductory text, (c) 

introductory text, (c)(4), (c)(5), (d), (e) 

and (f)(2), and to add paragraphs 

(a)(2)(vii) and (c)(7) to read as follows: 

§ 4.22 Reporting to pool participants. 

(a) Except as provided in paragraph 

(a)(4) of this section, each commodity 

pool operator registered or required to 

be registered under the Act must 

periodically distribute to each 

participant in each pool that it operates, 

within 30 calendar days after the last 

date of the reporting period prescribed 

in paragraph (b) of this section, an 

Account Statement, which shall be 

presented in the form of a Statement of 

Operations and a Statement of Changes 

mstockstill on PROD1PC66 with PROPOSALS

Federal Register / Vol. 74, No. 35 / Tuesday, February 24, 2009 / Proposed Rules 8227 

in Net Assets, for the prescribed period. 

These financial statements must be 

presented and computed in accordance 

with generally accepted accounting 

principles consistently applied. The 

Account Statement must be signed in 

accordance with paragraph (h) of this 

section. 

(1) The portion of the Account 

Statement which must be presented in 

the form of a Statement of Operations 

must separately itemize the following 

information: 

* * * * * 

(2) The portion of the Account 

Statement that must be presented in the 

form of a Statement of Changes in Net 

Assets must separately itemize the 

following information: 

* * * * * 

(vii) Where the pool is comprised of 

more than one ownership class or series, 

information for the series or class on 

which the account statement is 

reporting should be presented in 

addition to the information presented 

for the pool as a whole; except that, for 

a pool that is a series fund structured 

with a limitation on liability among the 

different series, the account statement is 

not required to include consolidated 

information for all series. 

* * * * * 

(c) Except as provided in paragraph 

(c)(6) of this section, each commodity 

pool operator registered or required to 

be registered under the Act must 

distribute an Annual Report to each 

participant in each pool that it operates, 

and must electronically submit a copy 

of the Report and key financial balances 

from the Report to the National Futures 

Association pursuant to the electronic 

filing procedures of the National 

Futures Association, within 90 calendar 

days after the end of the pool’s fiscal 

year or the permanent cessation of 

trading, whichever is earlier; Provided, 

however, that if during any calendar 

year the commodity pool operator did 

not operate a commodity pool, the pool 

operator must so notify the National 

Futures Association within 30 calendar 

days after the end of such calendar year. 

The Annual Report must be affirmed 

pursuant to paragraph (h) of this section 

and must contain the following: 

* * * * * 

(4) Statements of Operations, and 

Changes in Net Assets, for the period 

between: 

(i) The later of: 

(A) The date of the most recent 

Statement of Financial Condition 

delivered to the National Futures 

Association pursuant to this paragraph 

(c), or 

(B) The date of the formation of the 

pool, and 

(ii) The close of the pool’s fiscal year, 

together with Statements of Operations, 

and Changes in Net Assets for the 

corresponding period of the previous 

fiscal year. 

(5) Appropriate footnote disclosure 

and such further material information as 

may be necessary to make the required 

statements not misleading. 

(i) For a pool that invests in other 

funds, this information must include, 

but is not limited to, separately 

disclosing the amounts of income and 

expenses associated with each 

investment in an investee fund that 

exceeds five percent of the pool’s net 

assets. The income and expenses 

associated with an investment in an 

investee fund that is less than five 

percent of the pool’s net assets may be 

combined and reported in the aggregate 

with the income and expenses of other 

investee funds that, individually, 

represent an investment of less than five 

percent of the pool’s net assets; 

(ii) Where the pool is comprised of 

more than one ownership class or series, 

information for the series or class on 

which the financial statements are 

reporting should be presented in 

addition to the information presented 

for the pool as a whole; except that, for 

a pool that is a series fund structured 

with a limitation on liability among the 

different series, the financial statements 

are not required to include consolidated 

information for all series. 

* * * * * 

(7) For a pool that has ceased 

operation prior to, or as of, the end of 

the fiscal year, the commodity pool 

operator may provide the following in 

lieu of the annual report that would 

otherwise be required by § 4.22(c) or 

§ 4.7(b)(3): 

(i) Statements of Operations and 

Changes in Net Assets for the period 

between: 

(A) The later of: 

(1) The date of the most recent 

Statement of Financial Condition filed 

with the National Futures Association 

pursuant to this paragraph (c), or 

(2) The date of the formation of the 

pool; and 

(B) The close of the pool’s fiscal year 

or the date of the cessation of trading, 

whichever is earlier, 

(ii)(A) 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 the participants; 

(B) If all funds have not yet been 

distributed or transferred to participants 

by the time that the final report is 

issued, disclosure of the value of assets 

remaining to be distributed and an 

approximate time frame of when the 

distribution will occur. At the time of 

the final distribution of the pool’s 

assets, the commodity pool operator 

must provide written notice to each 

participant and to the National Futures 

Association that all interests in, and 

assets of, the pool have been redeemed, 

distributed or transferred on behalf of 

the participants. 

(iii) A report filed pursuant to 

paragraph (c)(7) of this section that 

would otherwise be required by 

§ 4.22(c) is not required to be certified 

in accordance with paragraph (d) of this 

section if the commodity pool operator 

obtains from all participants, and files 

with the National Futures Association 

no later than the time that the 

commodity pool operator files the 

Annual Report, written waivers of their 

rights to receive an audited Annual 

Report. 

* * * * * 

(d)(1) The financial statements in the 

Annual Report must be presented and 

computed in accordance with generally 

accepted accounting principles 

consistently applied and must be 

certified by an independent public 

accountant. The requirements of 

§ 1.16(g) of this chapter shall apply with 

respect to the engagement of such 

independent public accountants, except 

that any related notifications to be made 

may be made solely to the National 

Futures Association, and the 

certification must be in accordance with 

§ 1.16 of this chapter, except that the 

following requirements of that section 

shall not apply: 

(i) The audit objectives of § 1.16(d)(1) 

of this chapter concerning the periodic 

computation of minimum capital and 

property in segregation; 

(ii) All other references in § 1.16 of 

this chapter to the segregation 

requirements; and 

(iii) Sections 1.16(c)(5), (d)(2), (e)(2), 

and (f) of this chapter. 

(2)(i) The financial statements in the 

Annual Report required by this section 

or by § 4.7(b)(3) may be presented and 

computed in accordance with 

International Financial Reporting 

Standards issued by the International 

Accounting Standards Board if the 

following conditions are met: 

(A) The pool is organized under the 

laws of a foreign jurisdiction; 

(B) The Annual Report will include a 

condensed schedule of investments, or, 

if required by the alternate accounting 

standards, a full schedule of 

investments; 

mstockstill on PROD1PC66 with PROPOSALS

8228 Federal Register / Vol. 74, No. 35 / Tuesday, February 24, 2009 / Proposed Rules 

(C) The preparation of the pool’s 

financial statements under International 

Financial Reporting Standards is not 

inconsistent with representations set 

forth in the pool’s offering 

memorandum or similar document; 

(D) Special allocations of ownership 

equity will be reported in accordance 

with § 4.22(e)(2); and 

(E) In the event that the International 

Financial Reporting Standards require 

consolidated financial statements for the 

pool, such financial statements must 

contain disclosures that adequately 

report results of operations and 

financial position specific to each class 

of the pool’s investors. 

(ii) The commodity pool operator of a 

pool that meets the conditions specified 

in paragraph (d)(2) of this section may 

claim relief from the requirement in 

paragraph (d)(1) of this section by filing 

a notice with the National Futures 

Association, within 90 calendar days of 

the end of the pool’s fiscal year. 

(A) The notice must contain the name, 

main business address, main telephone 

number and the National Futures 

Association registration identification 

number of the commodity pool operator, 

and name and the identification number 

of the commodity pool. 

(B) The notice must include 

representations regarding the pool’s 

compliance with each of the conditions 

specified in § 4.22(d)(2)(i)(A) through 

(D), and, if applicable, (d)(2)(i)(E); and 

(C) The notice must be signed by the 

commodity pool operator in accordance 

with paragraph (h) of this section. 

(e)(1) The Statement of Operations 

required by this section must itemize 

brokerage commissions, management 

fees, advisory fees, incentive fees, 

interest income and expense, total 

realized net gain or loss from 

commodity interest trading, and change 

in unrealized net gain or loss on 

commodity interest positions during the 

pool’s fiscal year. Gains and losses on 

commodity interests need not be 

itemized by commodity or by specific 

delivery or expiration date. 

(2)(i) Any share of a pool’s profits or 

transfer of a pool’s equity which 

exceeds the general partner’s or any 

other class’s share of profits computed 

on the general partner’s or other class’s 

pro rata capital contribution are ‘‘special 

allocations.’’ Special allocations of 

partnership equity or other interests 

must be recognized in the pool’s 

Statement of Operations in the same 

period as the net income, interest 

income, or other basis of computation of 

the special allocation is recognized. 

Special allocations must be recognized 

and classified either as an expense of 

the pool or, if not recognized as an 

expense of the pool, presented in the 

Statement of Operations as a separate, 

itemized allocation of the pool’s net 

income to arrive at net income available 

for pro rata distribution to all partners. 

(ii) Special allocations of ownership 

interest also must be reported separately 

in the Statement of Partners’ Equity, in 

addition to the pro-rata allocations of 

net income, as to each class of 

ownership interest. 

(3) Realized gains or losses on 

regulated commodities transactions 

presented in the Statement of 

Operations of a commodity pool may be 

combined with realized gains or losses 

from trading in non-commodity interest 

transactions, provided that the gains or 

losses to be combined are part of a 

related trading strategy. Unrealized 

gains or losses on open regulated 

commodity positions presented in the 

Statement of Operations of a commodity 

pool may be combined with unrealized 

gains or losses from open positions in 

non-commodity positions, provided that 

the gains or losses to be combined are 

part of a related trading strategy. 

(f) * * * 

(2) In the event a commodity pool 

operator finds that it cannot obtain 

information necessary to prepare annual 

financial statements for a pool that it 

operates within the time specified in 

either paragraph (c) of this section or 

§ 4.7(b)(3)(i), as a result of the pool 

investing in another collective 

investment vehicle, it may claim an 

extension of time under the following 

conditions: 

(i) The commodity pool operator 

must, within 90 calendar days of the 

end of the pool’s fiscal year, file a notice 

with the National Futures Association, 

except as provided in paragraph (f)(2)(v) 

of this section. 

(ii) The notice must contain the name, 

main business address, main telephone 

number and the National Futures 

Association registration identification 

number of the commodity pool operator, 

and name and the identification number 

of the commodity pool. 

(iii) The notice must state the date by 

which the Annual Report will be 

distributed and filed (the ‘‘Extended 

Date’’), which must be no more than 180 

calendar days after the end of the pool’s 

fiscal year. The Annual Report must be 

distributed and filed by the Extended 

Date. 

(iv) The notice must include 

representations by the commodity pool 

operator that: 

(A) The pool for which the Annual 

Report is being prepared has 

investments in one or more collective 

investment vehicles (the 

‘‘Investments’’); 

(B) For all reports prepared under 

paragraph (c) of this section and for 

reports prepared under § 4.7(b)(3)(i) that 

are certified by an independent public 

accountant, the commodity pool 

operator has been informed by the 

certified public accountant engaged to 

audit the commodity pool’s financial 

statements that specified information 

required to complete the pool’s annual 

report is necessary in order for the 

accountant to render an opinion on the 

commodity pool’s financial statements. 

The notice must include the name, main 

business address, main telephone 

number, and contact person of the 

accountant; and 

(C) The information specified by the 

accountant cannot be obtained in 

sufficient time for the Annual Report to 

be prepared, audited, and distributed 

before the Extended Date. 

(D) For unaudited reports prepared 

under § 4.7(b)(3)(i), the commodity pool 

operator has been informed by the 

operators of the Investments that 

specified information required to 

complete the pool’s annual report 

cannot be obtained in sufficient time for 

the Annual Report to be prepared and 

distributed before the Extended Date. 

(v) For each fiscal year following the 

filing of the notice described in 

paragraph (f)(2)(i) of this section, for a 

particular pool, it shall be presumed 

that the particular pool continues to 

invest in another collective investment 

vehicle and the commodity pool 

operator may claim the extension of 

time; provided, however, that if the 

particular pool is no longer investing in 

another collective investment vehicle, 

then the commodity pool operator must 

file electronically with the National 

Futures Association an Annual Report 

within 90 days after the pool’s fiscal 

year-end accompanied by a notice 

indicating the change in the pool’s 

status. 

(vi) Any notice or statement filed 

pursuant to paragraph (f)(2) of this 

section must be signed by the 

commodity pool operator in accordance 

with paragraph (h) of this section. 

* * * * * 

Issued in Washington, DC, on February 18, 

2009 by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

[FR Doc. E9–3840 Filed 2–23–09; 8:45 am] 

BILLING CODE 6351–01–P 

mstockstill on PROD1PC66 with PROPOSALS