DIVISION OF 

TRADING AND MARKETS 

Re: 

Dear 

COMMODITY FUTURES TRADING COMMISSION 

2033 K STREET, N.W., WASHINGTON, D.C. 20581 

(202) 254-8955 

(202) 254-3534 FACSIMILE 

, .. · January 10, 1992 

This is in response to your letter dated November 30, 1990, 

to the Division of Trading and Markets (the "Division"), as 

supplemented by telephone conversations with Division staff, in 

which you requested on behalf of 

relief from registration as a 

commodity pool operator ("CPO"). 

Based on your letter, as supplemented, we understand the 

facts to be as follows. is an international labor 

union of which various local unions are members. Officers of 

are elected every three years by a convention of delegates 

who are in turn elected by individual members of the local 

unions. The number of delegates representing a local depends on 

the number of individual members of the local. Each local is 

represented by at least one delegate. 

maintains and invests monies belonging to itself 

and to some, but not all, of the local unions of . These monies, in contrast to certain employee benefit plans 

monies administered by trustees, are referred to within the 

as "general funds" or collectively as the "General Fund." Such 

general funds are used by and by the participating 

local unions for general operating and administrative purposes of 

and those local unions and not to fund specific 

benefits to individual worker-memb~rs of those unions. 

desires to invest some assets of the General Fund in the trading 

of commodity interests. 

has been duly authorized by the participating 

local unions to pool and invest their funds together with its own 

funds. and the participating local unions share 

investment income and losses in the ratio that each of them have 

deposited funds into the General Fund. , acting through 

an investment committee composed of representatives of the 

and some, but not all, of the participating local unions (the 
Page 2 

"Investment Committee")'.l/ selects and hires an investment 

consultant for the General Fund. The investment consultant is 

registered as an investment .adviser with the Securities and 

Exchange Commission pursuant to the ··Investment Advisers Act of 

1940. The investment consultant recommends and oversees several 

investment managers, each of whom is hired by to manage a 

portion of the General Fund. The Investment Committee meets 

quarterly on a regular basis, with special meetings scheduled as 

needed, to review the status and performance of the General Fund 

and make decisions with respect thereto. 

The investment consultant prepares reports on the 

performance of the investment managers and distributes the 

reports to the participating local unions at each quarterly 

meeting of the Investment Committee. provides the 

participating local unions with monthly reports which include a 

report of , custodian of the General 

Fund, as well as a "cash flow analysis" that sets forth, inter 

alia, that local union's percentage of the General Fund, interest 

and dividend income earned, deposits and withdrawals made, and 

gains and losses on sale of investments. 

Both and the local unions of (the 

"Union") are subject to reporting, disclosure, administration and 

enforcement requirements under the Labor-Management Reporting and 

Disclosure Act of 1959, as ·amended. 29 u.s.c. § 401 et seq. 

(1988); Specifically, and each local union, inter 

alia, must file a detailed annual financial report with the 

Department of Labor, providing information with respect to its 

financial condition and operations, including its assets and 

liabilities. Failure to comply with this requirement, including 

the disclosure of false or misleading information, is punishable 

by criminal and civil penalties. The officers of the Union are 

also personally liable for any losses suffered by the Union as a 

result of the breach of their fiduciary responsibilities to the 

Union. 

The General Fund, notwithstanding that it engages in the 

business of investing, reinvesting and trading in securities, is 

not beneficially owned by more than 100 persons, nor has it 

offered or does it propose to offer participation to the public. 

On these bases, neither the Union nor the General Fund has 

1../ Although each participating local union is entitled to at 

least one representative on the Investment Committee, as a , practical matter some of the participating local unions do 

not send a representative to Investment Committee meetings. 

Others may designate the representative of another 

participating local union as their own representative. 

Investment Committee decisions are made by majority vote. 
Page 3 

registered as an investment company under the Investment Company 

Act of 1940, as amended. See 15 u.s.c. §§ 80a-3(a) (1) and (c) (1) 

(1988). Each of the unions participating in the General Fund is 

exempt from federal income taxation Under Section 501(c) (5) of 

the Internal Revenue Code. 

intends to conduct the proposed commodity interest 

trading activities of the General Fund solely for bona fide 

hedging purposes.~/ commodity interest trading is proposed to 

be conducted by only one df the General Fund's six current 

investment managers. This investment manager is registered as a 

commodity trading advisor. At no time will enter into 

futures and options contracts for which the aggregate initial 

margins and premiums exceed five percent (5%) of the fair market 

value of the General Fund's assets, after taking into account 

unrealized profits and unrealized losses on any such contracts it 

has entered into. intends to disclose the purposes and 

scope of the commodity interest trading engaged in by the General 

Fund to the Investment Committee before their quarterly meetings. 

will not be, and has not been, marketing participations 

in the General Fund to the public as or in a commodity pool or 

otherwise as or in a vehicle for trading in the commodity futures 

or commodity options markets. 

does not receive any compensation, directly or 

indirectly, for operating the General Fund, except for 

reimbursement of administrative expenses related to the operation 

of the General Fund. The General Fund is administered by 

as part of a union governance structure in which the locals 

are participating members and thus have a voice in the 

administration of the fund. The General Fund is the only fund 

operated by which proposes to engage in commodity 

interest trading.d/ does not conduct any advertising 

£1 

ll 

For the purpose of the position we are taking below, we are 

strictly interpreting the term 11 bona fide hedging'~ as 

employed in this letter to mean the same as "bona fide 

hedging transactions and positions" in Rule 1. 3 (z) (1). 

compare Rule 4.12(b) (1) (D), which specifies that one of the 

operating criteria for relief under Rule 4.12(b) is that a 

pool may only trade commodity interests "in a manner solely 

incidental" to its securities trading activities. 

Commission rules referred to herein are found at 17 C.F.R. 

Ch . I ( 19 91 ) . 

' a multiemployer welfare benefit plan administered by a Board 

of Trustees comprised of officials of 

local unions, has proposed to engage in 

trading. A letter was submitted to the 

and various 

commodity interest 

Commission on 
., ' 

Page 4 

in connection with the General Fund. is not otherwise 

required to register with the commission, nor is it a business 

affiliate of

1

any person required to register with the 

commission.1:. ,.. 

The Union requests that the Division staff recommend that 

the Commission take no enforcement action against and 

its affiliated local unions if fails to register as a 

CPO in connection with its proposed commodity interest trading 

activities on behalf of the General Fund. Based upon your 

representations, the Division believes that your request has 

merit and that your requested relief would not be contrary to the 

public interest. Accordingly, the Division will not recommend 

that the commission take any enforcement action for failure to 

register as a CPO against in connection with its 

operation of the General Fund. This no-action position is 

conditioned upon maintaining all books and records 

prepared in connection with its activities as a CPO for a period 

of five years from the date of preparation, and keeping such 

books and records readily accessible during the first two years 

of the five year period. All such books and records shall be 

open to inspection by any representative of the Commission or the 

United states Department of Justice. 

We note that this letter does not excuse from 

compliance with any applicable requirements contained in the 

Commodity Exchange Act (the "Act"), 7 u.s.c § 1 et seg., or in 

the Commission's regulations thereunder. For example, it remains 

subject to the antifraud provisions of Section 4Q of the Act, 7 

u.s.c. § 6Q {1988), and to the rep~rting requirements for traders 

set forth in Parts 15, 18 and 19 of the regulations. 

This letter is based upon.the representations that have been 

made to us. Any different, changed or omitted facts or 

conditions might require us to reach a different conclusion. In 

this connection, we request that you notify us in the event that 

the General Fund's operations, including membership composition 

November 7, 1990 requesting relief with respect to the 

proposed activities of the 

Fund. The Division affirmatively responded to that request 

by letter dated May 28, 1991. You have also requested 

relief with respect to the proposed activities of the Death 

Benefit Fund of , which is also administered by a 

Board of Trustees comprised of officials of and 

various local unions, by letter dated August 1, 1991. The 

Division is responding to that request by a separate letter. 

i/ See Rule 4.13 (a) (1). 
Page 5 

and the source of capital contributions, change in any way from 

those as represented to us. 

Finally, this position is that ·of the Division of Trading 

and Markets only and does not necessarily represent the views of 

the Commission or any other office or division of the Commission. 

If you have any questions concerning the foregoing, please 

call Carla Behnfeldt, an attorney on my staff, at (202) 254-8955. 

"'\ 

Very truly yop.~s '·) _ ,, 

.. \ \ (j_.} 

,. 

-·· 

/ 

_jl.. .,. ·v._...c... <I .... • ;·lL ( / ., .... 

\..__Andrea M. Cor co an ~,·C' l-•t., 'L~, ..... ~-.......--- .. 

Director