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

January 26, 2009 

To: All Commodity Pool Operators 

Attention: Chief Financial Officer 

Subject: Annual Reporting for Commodity Pools 

 

 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 assisting 

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. In particular, prior letters contain information 

regarding the following topics, which are still relevant for many commodity pools: 

• 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. (2007). 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); 

• AICPA SOP 95-2, Financial Reporting by Nonpublic Investment Partnerships, 

applicability to both required audited and unaudited commodity pool annual financial 

reports (2004 letter); and 

• Filing of initial annual reports and final annual reports (2007 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. 

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 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 

commodity pool reports as of December 31, 2008 is March 31, 2009. Copies of such 

reports should be filed electronically with the NFA. A CPO should not file a copy of a 

commodity pool’s annual report with the Commission. 

• 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 specified by Regulation 4.22(f)(2) to NFA prior to the 

original due date. In subsequent years, the requisite representations required by 

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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 participants must include all required information and be in accordance 

with Generally Accepted Accounting Principles as established in the United States (“U.S. 

GAAP”) to be considered timely filed. 

II. Complex Entities and Complex Capital Structures 

 

Master/Feeder Structures. Paragraph 7.07 of the May 1, 2008 edition 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 

the commodity pool’s 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 investment 

partnerships that exceed five percent of the commodity 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 commodity pool’s financial 

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

 

See Accounting Developments below for possible additional guidance in valuing 

investments in funds that have prohibited redemptions by investors. 

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

Commodity Pools 

The SEC approved, in November 2007, rule amendments under which financial 

statements from foreign private issuers in the U.S. will be accepted without reconciliation to U.S. 

GAAP only if they are prepared using International Financial Reporting Standards (IFRS) as 

issued by the International Accounting Standards Board. In furtherance of its move to 

international uniformity of accounting principles, the SEC issued a Proposed Rule: Roadmap for 

the Potential Use of Financial Statements Prepared in Accordance with International Financial 

Reporting Standards by U.S. Issuers (Release No. 33-8982; November 14, 2008), with 

comments due by February 19, 2009. 

CFTC rules, however, require that audited and unaudited financial statements, as well as 

3
periodic account statements, must be presented and computed in accordance with U.S. GAAP. 

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

under Regulation 4.13. 

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

that operate offshore pools by allowing the operators of such commodity pools to prepare and to 

present their financial statements in accordance with another comprehensive basis of accounting 

including International Financial Reporting Standards, or United Kingdom or Irish accounting 

standards, instead of U.S. GAAP. 

 

In each case, the Division’s 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. Further, if an investment company is consolidated with another entity, 

such as a feeder fund consolidating with its master fund, all applicable disclosures required by 

U.S. GAAP for the feeder must be presented with its consolidated financial statements. 

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. 

 

CPOs operating offshore pools may request relief from the U.S. GAAP requirement by 

submitting their requests, enumerating compliance with each of the elements noted above, 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. Accounting Developments 

 A. FAS 157, Fair Value Measurements –Applicable to 2008 financial statements, 

FAS 157: 

 

• defines fair value; 

• establishes a framework for measuring fair value under 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 

 

3

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

4
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 

www.aicpa.org/caq/download/caqalert2007_51_10032007.pdf; 

• AICPA Audit Risk Alerts: Securities Industry Developments 2008/2009 and Investment 

Companies Industry Developments 2008/2009;

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

Uncertainties, when auditing financial statements that contain complex fair value 

measurements; 

• FASB Staff Position No. 157-3 “Determining the Fair Value of a Financial Asset When 

the Market for That Asset Is Not Active”; 

• Valuation Resource Group – in particular, issue 2008-10 “Use of Net Asset Value in 

Fund of Funds Investments” (you may want to visit 

http://www.fasb.org/project/vrg_summary_of_discussions.pdf); and 

• AICPA publications, including Technical Practice Aid (TPA) on Liquidity Restrictions, 

Investment Companies TPAs, etc. – please refer to 

http://www.aicpa.org/Professional+Resources/Accounting+and+Auditing/Accounting+St

andards for more information. 

 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., 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. 

 

 The Accounting Standards Executive Committee of the AICPA issued a Draft Issues 

Paper, FASB Statement No. 157 Valuation Considerations for Interests in Alternative 

Investments, which includes guidance on how to value investments in investment companies that 

have prohibited withdrawals by investors. 

 C. AICPA Technical Guidance – AICPA issued technical guidance regarding 

accounting treatment of offering costs incurred by investment partnerships.4

 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.” 

 

 

4

 See footnote 1 to paragraph 8.24 of the AICPA Audit and Accounting Guide, Investment 

Companies (May 1, 2008 edition). 

5
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 participants and potential 

participants, net asset value 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. 

 

V. 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 

6
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 

Shamika Carr 

312-781-1621 

scarr@nfa.futures.org

Joe Patrick 

312-781-1596 

jpatrick@nfa.futures.org

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ATTACHMENT B

ILLUSTRATION – Fund of Funds Additional Disclosures 

Note X. Investments 

As of December 31, 2008, 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, 

2008. 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% 

 

8
9

per year of net income. 

♦ Note any funds in which redemptions have been suspended.