U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre 

1155 21st Street, NW, Washington, DC 20581 

Telephone: (202) 418-5430 

Facsimile: (202) 418-5536 

www.cftc.gov

Division of Clearing and 

Intermediary Oversight

To: All Commodity Pool Operators 

Attention: Chief Financial Officer 

Subject: Annual Reporting for Commodity Pools 

Date: January 31, 2007 

 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.2 

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

Commission’s website.3 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. An illustration of the investments schedule and 

additional fund of funds disclosures can be found in Attachment B to the Division’s letter dated 

January 25, 2005. 

 

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. The Commission’s internet website, www.cftc.gov, 

provides links to both the Act and Commission regulations. 

2

 A CPO that did not operate any pools, or did not operate one or more of the pools listed with 

NFA, must file a notice with NFA by January 30, 2007. Further information has been provided 

by NFA in Notice to Members 1-07-03, available at NFA’s website, www.nfa.futures.org. 

3

 Prior letters from 1998 forward are available at the Commission’s website in the Compliance

section, under Law and Regulation. 
 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 NFA disciplinary action or Commission 

enforcement action, CPOs must comply with Commission regulations. In 2005 and 2006, the 

Commission’s Division of Enforcement initiated reviews of certain CPOs with respect to 

existing late filings of commodity pool financial statements. 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 its 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 due dates by which such commodity pool annual 

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

Association (“NFA”). 

 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. The filing date for 

Pool reports as of December 31, 2006 is April 2, 2007 (March 31, 2007, the 90th calendar 

day, is a Saturday). 

• 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 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. 

• 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 

2
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 to meet the due dates for such filings. CPOs are reminded that 

although Regulation 4.7 provides exemption from certain requirements, reports filed and 

distributed to investors must include all required information and be in accordance with GAAP 

to be considered timely filed. 

II. Other Filings by CPOs 

Replacement of accountant – A CPO must file a written notification, in accordance with 

Regulation 1.16(g), with NFA whenever there is a change in the public accountant auditing a 

commodity pool. A notice also should be filed with NFA if a pool changes its filing status to a 

Regulation 4.7 pool, which allows the CPO to file unaudited financial statements. 

Election of fiscal year – Regulation 4.22(g)(2) provides that all commodity pools are 

deemed to have a fiscal year-end as of December 31, unless the CPO provides written notice of a 

different fiscal year-end to the pool’s participants and NFA within 90 calendar days of the date 

of formation. A request for a change to a commodity pool’s fiscal year-end must be filed in 

accordance with Regulation 4.22(g)(3). 

 Pools filing for an exemption under Regulation 4.13 – A CPO that files a notice of 

exemption for a commodity pool under Regulation 4.13 is not required to file an annual report 

for the exempt commodity pool with NFA commencing with the year that the claim for 

exemption was filed. For example, a 2006 annual report is not required if a notice of a claim for 

exemption is filed before January 1, 2007. However, a 2006 annual report is required if the 

claim for exemption is filed after December 31, 2006. 

 

III. Compliance with U.S. GAAP 

 Audited and unaudited financial statements, as well as periodic account statements, must 

be presented and computed in accordance with U.S. GAAP. The U.S. GAAP requirement also 

applies to pools operated pursuant to an 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. 

 Past Division letters to CPOs have noted deficiencies with respect to footnote disclosures 

that are required under GAAP. 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 

3
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 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 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 commodity pool. Accordingly, 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. 

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 that operate 

offshore pools by allowing such pools to prepare and to present pool financial statements in 

accordance with International Financial Reporting Standards, or 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;4

 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 should contact Ronald Carletta, Branch Chief, or Al Goll, Auditor, at the phone 

numbers or addresses listed in Attachment A, for further information. 

 

4

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

4
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 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. 

 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. 

VI. 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 GAAP disclosures, including the summary schedule of investments and 

5
the financial highlights, also may be affected as such a reclassification would result in a lower 

net asset value. 

 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 

(i.e., funds-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. 

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 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. 

VII. Requests for Confidential Treatment of Commodity Pool Annual Reports 

 CPOs may request in writing that the Commission afford confidential treatment under the 

Freedom of Information Act (“FOIA”) to commodity pool annual reports filed with NFA. 

6
Commission Regulation 145.9 contains detailed requirements for submitting a request for 

confidential treatment of information filed with the Commission, including commodity pool 

annual reports that are received by NFA on behalf of the Commission. In addition, the NFA has 

issued guidance to CPOs on how to file a request for confidential treatment of their pool annual 

reports. This guidance, Requests for Confidential Treatment of Commodity Pool Financial 

Statements, is available on the NFA website. 

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 

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 

Melissa B. Hendrickson 

Phone: 312-596-0661 

Fax: 312-596-0712 

E-Mail: mhendrickson@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

16th Floor 

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

National Futures As

00 West Madison, 

sociation 

2

Chicago, IL 60606 

Erin Mattes, Manager, Compliance Department 

Phone: 312-781-2236 

Fax: 312-220-9003 

E-Mail: emattes@nfa.futures.org

Denise Bent, Manager, Compliance Department 

-Mail: dbent@nfa.futures.org

Phone: 312-781-1483 

Fax: 312-220-9003 

E

8
9