U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre 

1155 21st Street, NW, Washington, DC 20581 

Telephone: (202) 418-5430 

Facsimile: (202) 418-5547 

Division of Clearing and 

Intermediary Oversight

To: All Commodity Pool Operators 

Attention: Chief Financial Officer 

Subject: Annual Reporting for Commodity Pools 

Date: January 16, 2008 

 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 their 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 at the 

Commission’s website.2

 Those 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: 

• American Institute of Certified Public Accountants’ (“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 (2005 letter; an illustration of the investments 

schedule and additional fund of funds disclosures can be found in Attachment B); 

• Reports for pools for the fiscal year in which an initial claim of exemption under 

Regulation 4.13 is filed (2006 letter); 

 

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

of the Code of Federal Regulations. The Commission’s internet website, www.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/industryoversight/intermediaries/guidancecporeports.html. 
• Notice of replacement of accountant (2006 letter); 

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

• Requests for 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 

concerning the Act and the Commission’s regulations 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 or any other special class of participant of an investment partnership in the 

financial statements of a commodity pool. 

 To avoid the potential adverse consequences of National Futures Association (“NFA”) 

disciplinary action or Commission enforcement action, CPOs must comply with NFA rules and 

Commission regulations. In 2007, the Commission brought two actions against CPOs for failure 

to file pool annual reports by the due dates set forth in the Commission’s regulations. NFA, at 

the behest of the Commission, also initiated examinations of CPOs that did not file pool annual 

reports in a timely manner, and referred certain CPOs to NFA’s Business Conduct Committee. 

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

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

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

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

statements must be provided to participants and received by the NFA and contain the following 

specific requirements. 

• 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. The filing date for 

Pool reports as of December 31, 2007 is March 31, 2008 (March 30, 2008, the 90th 

calendar day, is a Sunday). Copies of such reports should not be filed with the CFTC. 

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

EasyFile electronic filing system 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. 

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

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

required by Regulation 4.22(f)(1). Extension requests beyond 90 days should be 

addressed to the undersigned with copies to the NFA. 

2
• 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. In subsequent years, the requisite representations required by 

Regulation 4.22(f)(2) may be made in a statement attached to and filed at the same 

time as the annual report. 

• Some CPOs have filed incomplete, or “draft”, unaudited financial statements for pools 

exempt under Regulation 4.7 in an attempt to meet the filing due dates. Draft filings do 

not satisfy the requirement to provide pool participants with an annual report prepared in 

accordance with Commission regulations, including compliance with U.S. GAAP.

II. Complex Entities 

 

Master/Feeder Structures. 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 believes that CPOs should report amounts of income and 

fees paid to operators of 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 and fee structure of the commodity pool. Accordingly, CPOs are strongly 

encouraged to disclose amounts of income and fees associated with investments in 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 investment 

partnerships. Illustrative disclosures are in Attachment B to this letter. 

 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 pool’s financial statements, 

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

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

Commodity Pools 

 Division staff is aware that, in November 2007, the U.S. Securities and Exchange 

Commission (“SEC”) approved rule amendments under which financial statements from foreign 

private issuers in their filings with the SEC will be accepted without reconciliation to U.S. 

GAAP if they are prepared using International Financial Reporting Standards (“IFRS”) as issued 

by the International Accounting Standards Board.

 Division staff has received a number of questions about whether commodity pool 

financial statements prepared in accordance with IFRS will be accepted without reconciliation to 

U.S. GAAP. Commission regulations continue to require that audited and unaudited financial 

statements, as well as periodic account statements, be presented and computed in accordance 

with U.S. GAAP. The U.S. GAAP requirement also applies to pools operated pursuant to an 

3
exemption under Regulation 4.13. CPOs and public accountants should be familiar with the 

requirements for commodity pool financial statements that have been issued by the AICPA. 

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

that operate offshore pools by allowing such pools to prepare and to present pool financial 

statements in accordance with IFRS, or United Kingdom or Irish accounting standards, instead of 

U.S. GAAP. In cases where the Division provided relief, the relief was conditioned upon the 

offshore pool following certain key elements of U.S. GAAP standards, including: 1) determining 

fair values of investments in accordance with U.S. GAAP; 2) reporting of both realized and 

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

schedule of investments;3 and 4) reporting special allocations of partnership equity in accordance 

with CFTC Interpretative Letter 94-3. In addition, using other than U.S. GAAP must not conflict 

with any representations made to participants or potential participants in the pool. 

 

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

requirement should send the request to the undersigned at the address shown on this letterhead. 

If you have any further questions, contact Ronald Carletta, Branch Chief, or Al Goll, Auditor, at 

the phone numbers or addresses listed in Attachment A. 

 

IV. 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. A CPO that lists a commodity pool with NFA by, for example, filing a disclosure 

document, but does not commence operation of the commodity pool prior to December 31, 2007 

is not required to file a 2007 annual report with NFA for the commodity pool. However, the 

CPO must file a notice with NFA by January 30, 2008 notifying NFA that it did not operate the 

pool in 2007. A CPO may review a list of commodity pools listed with NFA by accessing 

NFA’s EasyFile electronic filing system. Further information may be obtained from NFA’s 

Notice to Members, available at NFA’s website, www.nfa.futures.org. 

 Upon request, 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 that 

includes 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. 

 

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

4
 

 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 

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. 

V. Accounting Developments 

 A. Financial Accounting Standards Board Statement No. 150, Accounting for 

Certain Financial Instruments with Characteristics of Both Liabilities and Equity – CPOs are 

reminded of the continuing impact of Financial Accounting Standard (“FAS”) 150 on 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 U.S. 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 (“NAV”). 

 

 B. Alternative Investments, Audit Considerations – The AICPA 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., fund of funds). It 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. 

 

 C. AICPA Technical Guidance – AICPA recently issued technical guidance regarding 

accounting treatment of offering costs incurred by investment partnerships. This guidance: 

 

• provides that investment partnerships that continually offer interests should amortize 

offering costs over a 12-month 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 AICPA SOP No. 98-5, Reporting on the Costs of 

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

5
NAV 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. 

 

 D. FAS 157, Fair Value Measurements – Although FAS 157 is effective for financial 

statements issued for fiscal years beginning after November 15, 2007, and interim periods within 

those fiscal years, earlier application is encouraged; provided that the reporting entity has not yet 

issued financial statements for that fiscal year, including any financial statements for an interim 

period within that fiscal year. This Statement: 

 

• defines fair value; 

• establishes a framework for measuring fair value in U.S. GAAP; 

• expands disclosures about fair value measurements; 

• applies under other accounting pronouncements that require or permit fair value 

measurements, the FASB having previously concluded in those accounting 

pronouncements that fair value is the relevant measurement attribute; and 

• does not require any new fair value measurements; however, for some entities, the 

application of this Statement will change current practice. 

 

The changes to current practice resulting from the application of this Statement relate to the 

definition of fair value, the methods used to measure fair value, and the expanded disclosures 

about fair value measurements. 

 Resources that may be helpful in understanding and applying FAS 157 are: 

• Measurements of Fair Value in Illiquid (or Less Liquid) Markets, issued by the AICPA 

Center for Audit Quality, available at 

http://www.aicpa.org/caq/download/WP_Measurements_of_FV_in_Illiquid_Markets.pdf; 

• AICPA Audit Risk Alerts: Securities Industry Developments 2007/2008 and Investment 

Companies Industry Developments 2007/2008; and

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

Uncertainties, when auditing financial statements that contain complex fair value 

measurements.

VI. Recent Regulatory Development Affecting CPOs 

In 2007, the Commission amended its Part 4 Regulations to require CPOs and CTAs to 

file electronically with NFA all notices of exclusion or exemption from Part 4 requirements. The 

amendments were effective as of February 15, 2007, and apply to notices of exemption or 

exclusion under Regulations 4.5, 4.7, 4.12(b), 4.13 and 4.14(a)(8). However, persons or entities 

seeking an exemption under CFTC Advisory 18-96, Relief for Certain Registered CPOs from 

Disclosure, Reporting and Certain Recordkeeping Requirements in Connection with the 

Operation of Offshore Commodity Pools, should continue to file hardcopy notices with the NFA 

until further notice. 

6
VII. 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 

7
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 

Ronald A. Carletta 

Phone: 646-746-9726 

E-Mail: rcarletta@cftc.gov 

 

Al Goll 

Phone: 646-746-9723 

E-Mail: agoll@cftc.gov 

 

Fax: (646)-746-9937 

 

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 

Lisa M. Marlow 

Phone: 312-596-0566 

Fax: 312-596-0712 

E-Mail: lmarlow@cftc.gov 

Illinois, Indiana, 

Michigan, Ohio, 

and Wisconsin 

Southwestern 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 

National Futures Association 

300 South Riverside Plaza 

Suite 1800 

Chicago, IL 60606 

Tracey Hunt, Senior Manager, 

Compliance 

Phone: 312-781-1284 Fax: 312-559-3453 

E-Mail: thunt@nfa.futures.org

Denise Bent, Manager, Compliance 

Phone: 312-781-1483 Fax: 312-559-3371 

E-Mail: dbent@nfa.futures.org

8
9 

ATTACHMENT B 

ILLUSTRATION – Fund of Funds Additional Disclosures 

Note X. Investments 

As of December 31, 2007, 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, 

2007. 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 investee 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. 

Investment 

% of ABC’s 

Net Assets Fair Value 

 Income 

 (Loss) 

 Fees 

 Mgmt Incentive

Investment 

Objective 

Redemptions 

Permitted 

Airjo Fund 

Ltd. 

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

Carron 

Int’l Fund 

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

Vital Fund 

NV 

5.6 2,800,000 (30,000) 28,000 0 International 

equity 

Semi-Annual 

Other 

funds: 

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

 Total 20.0% $10,000,000 $480,000 $103,000 $97,000 

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

is shown below: 

Investment 

% of ABC’s 

Net Assets Fair Value 

 Income 

 (Loss) 

 Fees 

 Mgmt Incentive 

Investment 

Objective 

Redemptions 

Permitted 

Airjo Fund 

Ltd. 

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

Carron 

Int’l Fund 

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

Other 

funds: 

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

Subtotal 14.4 7,200,000 510,000 $75,000 $97,000

Vital Fund 

NV 

5.6 2,800,000 (30,000) * * International 

equity 

Semi-Annual 

 Total 20.0% $10,000,000 $480,000 

* = 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.