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

To: All Commodity Pool Operators 

Attention: Chief Financial Officer 

Subject: Annual Reporting for Commodity Pools 

Date: February 17, 2006 

 The Division of Clearing and Intermediary Oversight (“DCIO” or “Division”) of the 

Commodity Futures Trading Commission (“CFTC” or “Commission”) is issuing this letter to 

assist commodity pool operators (“CPOs”) and public accountants with the preparation and filing 

of annual financial reports required under the Commodity Exchange Act (“Act”) and 

Commission regulations.1

 This letter highlights 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 that 

assist in the preparation of commodity pool annual financial statements. 

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

Compliance Information section of the CFTC’s website, www.cftc.gov. These letters should be 

consulted with respect to commodity pool annual financial statements and reporting. 

Specifically relevant and still applicable information is not being reproduced here as it is 

available in such prior letters, including the applicability of U.S. generally accepted accounting 

principles or “GAAP”; American Institute of Certified Public Accountant’s (“AICPA”) 

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; and AICPA SOP 95-2, Financial Reporting 

by Nonpublic Investment Partnerships, to both required audited and unaudited commodity pool 

annual financial reports. 

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

concerning the Act and the Commission’s regulations from 1995 forward are available on the 

Commission’s website. In particular, CFTC Interpretative Letter 94-3, Special Allocations of 

Investment Partnership Equity, addresses how a CPO should report a special allocation of 

partnership equity to the general partner of an investment partnership in the financial statements 

of a commodity pool. 

 

1 The Act is codified at 7 U.S.C. §1 et seq. (2004). The Commission’s regulations are found in Title 17 of 

the Code of Federal Regulations. Links to both the Act and regulations may be found on the Commission’s website, 

www.cftc.gov, in the Law & Regulation section. 
2

I. Due Dates of Commodity Pool Financial Filings – Late Filings

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

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

statements. These regulations establish the due dates by which such commodity pool annual 

financial statements must be provided to participants and received by the National Futures 

Association (“NFA”). 

The Division has noted a significant increase in the number of commodity pool annual 

reports that are distributed to participants and filed with NFA after the due dates set forth in the 

Commission’s regulations. In addition, CPOs do not always file requests for extensions of the 

filing due dates in accordance with Commission regulations. 

The Commission and NFA are committed to obtaining compliance with the required due 

dates under the regulations. In 2005, the Commission’s Division of Enforcement initiated 

reviews of certain CPOs with respect to existing late filings of commodity pool financial 

statements, and will continue to do so in 2006 if late filing is encountered. NFA also initiated 

examinations of CPOs that did not file pool annual reports in a timely manner, and referred 

certain CPOs to its Business Conduct Committee. The Commission also has strongly requested 

that NFA take appropriate steps in 2006, including referrals to its Business Conduct Committee, 

for CPOs that fail to comply with Commission regulations. 

 To avoid the potential adverse consequences of NFA disciplinary action or Commission 

enforcement action, CPOs must comply with Commission regulations. Specifically, 

Commission regulations provide that: 

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

filed with NFA within 90 calendar days of the pool’s fiscal year end. 

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

submitted to NFA prior to the original due date and must include the 

information required by Regulation 4.22(f)(1). 

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

may obtain an “automatic” 60-day extension of the distribution and filing 

due date by submitting the information required by Regulation 4.22(f)(2) to 

NFA prior to the original due date. 

II. Amendments to Part 4 

 A. Pool Annual Financial Reports 

The CFTC adopted amendments to the Part 4 regulations in February 2006 (available at 

www.cftc.gov, under Law & Regulation), which require CPOs to submit annual reports to NFA 

electronically in accordance with NFA’s electronic filing system. The CFTC permitted NFA to 

implement a pilot program for the electronic filing of commodity pool annual reports in 2005. 
3

Effective thirty days after publication in the Federal Register, these amendments require 

a CPO to file full annual reports electronically in the Portable Document Format (“PDF”) in 

addition to also submitting certain key financial statement balances from such annual reports into 

NFA’s database, which will be subject to edit and validation checks. Instead of filing a manually 

signed copy of the oath accompanying the report, the CPO must make the required oath on-line 

through electronic submission of the report, and separately must comply with a recordkeeping 

requirement to maintain copies of annual reports accompanied by manually signed oaths or 

affirmations. 

In addition, the CPO is required to maintain records of supporting documentation 

showing how the key financial balances submitted electronically to NFA were compiled from the 

annual report. NFA has established the key balances, and instructions are available for what 

should be included in each as the submission form is completed. A CPO may enable its public 

accountant to enter the key balances and the PDF file of the annual report into NFA’s electronic 

filing system, but only an appropriately authorized representative of the CPO may actually affirm 

the report and submit the filing. 

CPOs and their public accountants with annual reports due in March 2006 for the year 

ended December 31, 2005, should read the amendments, available at www.cftc.gov, and consult 

with NFA in advance to ensure they will be able to comply and use EasyFile. To use EasyFile, 

CPOs must go to NFA’s website, www.nfa.futures.org. Under the Compliance Heading on 

NFA’s Home Page, click the Electronic Filings drop-down menu and select EasyFile (Pool 

filers). 

Annual reports to pool participants may continue to be provided as they have been 

previously, either through hard-copy distribution via postal mail or electronically, with the pool 

participants’ consent. Prior to an initial transmission of any account statement or annual report 

to a pool participant by means of electronic media, a CPO must disclose to the participant that it 

intends to distribute these documents electronically, absent objection from the participant no 

later than 10 business days following receipt of the disclosure. 

B. Other Filings 

The Part 4 amendments clarify that a CPO must file a written notification with NFA 

whenever there is a change in the public accountant auditing a commodity pool. The 

amendments also provide that required notifications for changes to a commodity pool’s fiscal 

year-end may be filed solely with NFA. 

In addition, the amendments clarify regulations in response to questions received by the 

Division concerning the representations required in an accountant’s letter supporting an 

extension request under Regulation 4.22(f)(1). The former reference to “segregation” has been 

clarified as referring to the prohibition on commingling of funds of a commodity pool with the 

assets of any other person. Also, as discussed in Section III, an amendment was made to 

specifically state that GAAP should be the basis of the presentation and computation of required 

information in account statements. 
4

 CPOs and their public accountants should be aware of these amendments and contact 

NFA or the Commission with any questions. 

III. Compliance with U.S. GAAP 

The requirement that financial statements be presented and computed in accordance with 

GAAP is applicable both to pools that are required to distribute audited financial statements to 

pool participants, as well as to certain pools that, while required to distribute financial statements 

to pool participants, are permitted by Commission Rule 4.7 to elect to distribute unaudited 

financial statements. In addition, the recently adopted amendments to Part 4 (See Section II) 

clarify that the information contained in account statements provided to all participants also must 

be presented and computed in accordance with GAAP. CPOs and public accountants should be 

familiar with the requirements for commodity pool financial statements that have been issued by 

the AICPA. Deficiencies, with respect to required GAAP disclosures in particular, previously 

have been noted in the Division’s prior letters to pool operators. 

GAAP requires that all significant accounting policies followed by an enterprise be 

disclosed in the notes to its financial statements (Accounting Principles Board Opinion 22). For 

commodity pools, one of the most significant, if not the most significant, accounting policies 

concerns the valuation of investments. Accordingly, CPOs are reminded that such policies are 

disclosures required by GAAP. Disclosures should quantify values arrived at by the valuation 

methods specified in the AICPA Audit and Accounting Guide, Audits of Investment Companies, 

paragraphs 2.28 through 2.40. 

Master/Feeder. Paragraph 7.07 of the AICPA Audit and Accounting Guide, Audits of 

Investment Companies, permits nonpublic feeder pools either to follow the disclosure and 

reporting provisions of SOP 95-2, as amended by SOPs 01-1 and 03-4, or to present a complete 

set of master financial statements with each feeder financial statement. 

Fund of Funds. The Division has long believed that CPOs should report amounts of 

income and fees for nonregistered investment partnerships in which they invested significant 

portions of their capital as such information is deemed material for participants to fully 

comprehend the investment strategy of the CPO. CPOs are strongly encouraged to disclose 

amounts of income and fees associated with investments in nonregistered investment 

partnerships that exceed five percent of the pool’s net assets. The five percent threshold is 

consistent with the reporting thresholds set forth in SOP 95-2 and SOP 03-4 for nonregistered 

investment partnerships. 

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

compliance with GAAP, the CPO may be required to revise the pool’s financial statements, 

distribute the revised statements to participants, and refile the statements with NFA. 
5

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

Commodity Pools 

 Division staff has, on a case-by-case basis, provided limited relief to CPOs of offshore 

pools allowing such pools to prepare and to present pool financial statements in accordance with 

International, United Kingdom or Irish accounting standards in lieu of U.S. GAAP. 

 In each case, the Division’s relief was conditioned upon the offshore pools following 

certain key elements of U.S. GAAP standards, including: 1) determining fair values of 

investments as required using the valuation methods specified in the AICPA Audit and 

Accounting Guide, Audits of Investment Companies; 2) reporting of both realized and unrealized 

gains and losses through the statement of operations; 3) preparing a condensed schedule of 

investments;2

 and 4) reporting special allocations of partnership equity in accordance with CFTC 

Interpretative Letter 94-3. 

CPOs that operate offshore pools that would like to request relief from the U.S. GAAP 

requirement must contact Ronald Carletta, Supervisory Auditor, or Al Goll, Auditor, at the 

phone numbers or addresses listed in Appendix A, for further information. 

V. Initial Annual Reports and Final Annual Reports 

 A CPO that commences operation of a commodity pool is required to prepare an annual 

report for the pool within 90 days of the pool’s fiscal year-end, even if the pool did not operate 

for a full 12-month period. A pool is deemed to commence operations upon the initiation of 

investment activities on behalf of participants, and not solely upon the receipt of participants’ 

contributions. 

The Commission may grant a CPO an exemption from the requirement to prepare an 

audited annual report as of the pool’s initial year-end date in cases where a pool commences 

operations within three months of the end of its fiscal year. The exemption generally is 

conditioned upon the CPO filing with NFA and distributing to pool participants year-end 

unaudited pool financial statements that are prepared in accordance with U.S. GAAP and 

otherwise complying with Commission regulations. The exemption is further conditioned upon 

the CPO filing an audited annual report as of the date of the pool’s second year-end and must 

include an income statement covering the period from the commencement of operations of the 

pool through the date of the pool’s second year-end date. For the full requirements for such an 

exemption, please contact Kevin Walek, Assistant Director, at kwalek@cftc.gov, or (202) 418-

5463. 

Commission Regulation 4.22(c) requires a CPO to file with NFA and to distribute to pool 

participants a final annual report whenever a pool ceases trading. This requirement also is 

applicable for pools that have claimed an exemption under Regulations 4.7 or 4.12. The final 

report should be in the same format and include the same information as an annual financial 

report, even if the final report is not for a full 12-month period. If the final distribution of pool 

assets has not been made as of the balance sheet date, a subsequent event note to the financial 

 

2

 As required by AICPA SOP 95-2, subsequently amended by SOP 01-1 and SOP 03-4. 
6

statements should disclose the date on which all pool assets were subsequently, or are expected 

to be, distributed to the participants. A CPO should clearly state when it intends a report to be a 

final report. A legend on the cover of the report is an effective way to do so. 

The final report is due within 90 calendar days after the end of the pool’s fiscal year or 

the permanent cessation of trading, whichever is earlier, but in no event longer than 90 days after 

the assets are distributed to pool participants. 

VI. FAS 150 Implementation

 FASB Staff Position No. FAS 150-3 deferred certain classification, measurement and 

disclosure provisions of FASB Statement of Financial Accounting Standards No. 150 (“FAS 

150”).3

 For non-public entities not registered with the Securities and Exchange Commission 

with financial instruments that are mandatorily redeemable on fixed dates for amounts that either 

are fixed or are determined by reference to an external index, the classification and disclosure 

requirements are required for fiscal periods beginning after December 15, 2004. Accordingly, 

commodity pools must apply the requirements of FAS 150 for 2005 financial statements. 

 CPOs and their CPAs should be aware of the applicability of FAS 150 under GAAP to 

obligations to redeem interests in commodity pools as year-end financial statements are being 

prepared and notifications of redemptions are received by CPOs. If redemption of an equity 

interest is at the holder’s option and the holder has elected to redeem its interest, under FAS 150 

such interests would be mandatorily redeemable and should be reclassified from equity to 

liability. The threshold amounts for GAAP disclosures, including the summary schedule of 

investments and the financial highlights, also may be affected as such a reclassification would 

result in a lower net asset value. 

VII. Reminder Regarding Availability of Annual Report Information under the Freedom 

of Information Act (“FOIA”) 

 Finally, CPOs are reminded that annual reports required by the Commission to be filed 

with NFA are subject to requests under FOIA, as NFA acts as the Commission’s delegate with 

respect to receiving and reviewing such reports. CPOs are further reminded that they may 

petition the Commission to provide confidential treatment of reports by filing a request with the 

Commission’s Secretariat pursuant to the procedure set forth in Commission Regulation 145.9. 

No confidential treatment will be provided when a FOIA request for a filing is made, unless a 

proper request for confidential treatment has been received and granted by the Commission. 

 

3

 FASB Staff Position No. FAS 150-3, “Effective Date, Disclosures, and Transition for Mandatorily 

Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable 

Noncontrolling Interests under FASB Statement No. 150, Accounting for Certain Financial Instruments with 

Characteristics of Both Liabilities and Equity”.
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VIII. DCIO and NFA Contact Information 

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

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

 Very truly yours, 

 

 Thomas J. Smith 

 Deputy Director and 

 Chief Accountant 
8

ATTACHMENT A

CFTC DIVISION OF CLEARING AND INTERMEDIARY OVERSIGHT 

CONTACT INFORMATION 

Regional Office 

Locations

Contacts Location of CPO’s 

Principal Office

Eastern Region

140 Broadway, 19th Floor 

New York NY 10005-1146 

Fax: (646)-746-9937 

Ronald A. Carletta 

Phone: (646)-746-9726 

E-Mail: rcarletta@cftc.gov

Al Goll 

Phone: (646)-746-9723 

E-Mail: agoll@cftc.gov

All states east of the Mississippi 

River, except Illinois, Indiana, 

Michigan, Ohio, and Wisconsin.

Any location outside of the United 

States 

Central Region 

525 West Monroe Street 

Suite 1100 

Chicago, IL 60661 

Melissa B. Hendrickson 

Phone: 312-596-0661 

Fax: 312-596-0712 

E-Mail: 

mhendrickson@cftc.gov

Illinois, Indiana, Michigan, Ohio, 

and Wisconsin 

Southwest Region 

Two Emanuel Cleaver II 

Boulevard, Suite 300 

Kansas City, MO 64112 

Kurt Harms 

Phone: 816-960-7711 

Fax: 816-960-7750 

E-Mail: kharms@cftc.gov

All states west of the Mississippi 

River 

NATIONAL FUTURES ASSOCIATION 

CONTACT INFORMATION 

Patricia Cushing 

Associate Director, Compliance Department 

National Futures Association 

200 West Madison, 16th Floor 

Chicago, IL 60606 

Phone: 312-658-6747 

Fax: 312-220-9003 

E-Mail: pcushing@nfa.futures.org 

Web site: http://www.nfa.futures.org