Dear 

COMMODITY FUTURES TRADING COMMISSION 

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

Februa.D.J 6 , 19 86 

RE: :'No-Action" !Position for CPO of Foreign Pool. 

This is in response to your letter dated January 16, 1986, as 

supplemented by your letter dated January 24, 1986, in which you requAsted 

confirmation that the Dj~rision will not recommend that the Cqmmission take 

any enforcement action against any director or the ac1m:inistrator '}) of the 

Fund as a result of engaging in the activities described below without 

registering as a commodity pool operator ("CPO") pursuant to Section 4m(1) of 

the Corrmoc1ity Exchange Act (the "Act"), 7 U.S.C. §6m(1) (1982). Y 

Y For the purposes of this letter, and as your correspondence requests, the 

tArm "e1clministrator" includAs any United States affiliate of the aclministrator or any principal of the aclministrator or its United States 

affiliates. 

]:_/ You also have requested a "no-action" position on behalf of any director 

of the Fund and t:he Fund' s administrator in the event that they engaged 

in the activities described below without registering as a cornrrodity 

trading advisor ("erA") pursuant to Section 4m(1). In light of the 

nature of the responsibilities of those persons as describecl below --

i.e. , essentially only the selection and the review of the Fund's outside 

investroent managers, we do not believe that their activities \1-lOUld, 

however, require them to register as a erA. See 49 Fed. Reg. 4778 at 

4780 (February 8, 1984), wherein the Commission explained that Rule 

4.20(a), 17 C.F.I~. §4.20(a) (1985), which establishes certain 

organizational requirements for CPOs, is intended to clarify the 

responsibility of CPOs for the activities and investment policies of 

their pools. The Commission further explained: 

[F] requentl y, Corcrnission staff is called upon by 

members of the public to offer guidance on determining 

vlho, in fact, would be the CPO of a particular pool. 

In providing such guidance, the s·taff typically looks 

(Footnote continued) 
Page 2 

I 

Based upon the representations made in your correspondence, ·we 

'l.mderstand the facts to be as follows : 

The Fund 

The Fund is an open-ended investment company 

incorporated in the Cayman Islands and resident in 

Guernsey (Channel Islands). The Fund is not registered 

with the Securities and Exchange Comnission as an 

investment company under the Investment Company Act of 

1940. None of the participating shares of the Fund 

(the "shares") are registered with the Securities and 

Exchange Commission under the Securities Act of 1933. 

The shares may not be directly or indirectly offered or 

sold in the United States of America (including its 

territories, possessions and areas subject to its 

jurisdiction) or to or for the benefit of a United 

States person. 21 

(Footnote continued) 

at such factors as who will be acting in the manner 

conte1rplated by the :3tat.utory definition of the term 

"corrmodity pool operator" -- ~, who will be proooting the pool by soliciting, accepting or receiving 

fran others, property for the purpose of commodity 

interest trading -- and Who will have the authority to 

hire (and to fire) the pool 1 s CI'A and to select (and to 

change) the pool 1 s FCM. 

21 Specifically, your correspondence represents that the placing meirorandum 

in respect of the shares defines the tem "United States pen~on" for the 

purposes of this restriction as follows: 

a national or resident of the United Stc.tes of America, 

a partnership organized or e...xist.ing in any state, 

territory or possession of the United St~tes of 

America, a corporation orgw.ized under the laws of the 

United States of America or of any state, territory or 

possession thereof or any estate or trust other than an 

estate or trust the incorre of Which fran sources 

outside of the United States of America (which is not 

effectively connected \'li·th the conduct of a trade or 

business within the United States of America) is not 

included in gross incorre for the purposes of canputing 

United States federal incane tax. 

In a telephone conversation held with Division staff on J'anuary 31, 1986, 

(Footnote continued) 
Page 3 

The Fund is comprised of 5 individual funds, 

including a fixP-d income fund and an equity fund 

investing in securities issued and traded in the United 

States. Trading in each individual fund is directed by 

investment managers selected by the board of directors 

of the Fund. Each investment manager exercises sole 

investment discretion with respect to that portion of 

the individual fund 1 s assets which is allocated to it, 

subject to guidelines adopted by the board of directors. (The board of directors may from time to time 

establish guidelines for the use of corrm:xli ty futures 

contracts and comrrodi ty options contract.s ("futures 

contracts") by canrrodi ty trading advisors and, in 

certain ci.rcUil1Btances, direct that such guidelines be 

implemented.) The board of directors of the Fund has 

responsibility for reviP-wing the investment performance 

of P-ach investment manager and, to the extent deemed 

desirable, dismissing investment managers and hiring 

new or additional investment managers. The board of 

directors is assisted in this function by the ~.&ninistrator which is responsible for providing the board of 

directors with such statistical and other information 

respecting investment managemPnt results as the board 

of directors may require. . . . 

Management and Aclministration of the Fund 

The management of the Fund is under the control of 

the board of directors. The board of directors is 

canprised of 4 directors, one of whan, "X," is a U.S. 

citizen and a principal of "Y," a domestic investment 

consulting firm which is registered with the Securities 

and Exchange Commission as an investment adviser 

pursuant to the Investment Advisers Act of 1940. 

[Neither "X" nor "Y" is directly or indirectly 

affiliated with any Camnission registrant. iJ) All 

(Footnote continued) 

your associate represented that we may interpret the foregoing as 

prohibiting the use of a foreign corporation (or other such entity) by 

United States residents or citizens for the purposes of evading the 

restriction on sales of the Fund 1 s shares to a "Unit.ed States person." 

i/ This representation also was made by your associate in the January 31, , 

1986 telephone conversation held with Division staff. 

Your correspondence further represents that "X" has been a principal of 

(Footnote continued) 
Page 4 

meetings of the board of directors have been, and will 

in the, future be, con<'lucted outside of the United 

States and all other activities of the directors 

related to the management of the Fund have been, and 

will in the future be, conducted outside of the 

United States. 

The administrator of the Fund is "Z, 11 a limited 

liability company incorporated in Guernsey, Channel 

Islands. The administrator is empowered to delegate 

its administrative responsibilities and to retain 

consultants. It will not, however, delegate its 

administrative responsibilities, directly or 

indirectly, to any United States person or other person 

located in the United States. 5/ Pursuant to its 

authority, the administrator has delegated certain of 

its administrative responsibilities, including certain 

recordkeeping, valuation and reporting duties, to the 

custodian of the Fund, hank and trust c001pany of 

Guernsey, Channel Islands. 

(Footnote continued) 

the firm since its inception in the 1970s and that, as of June 30, 1985, 

the aggregate asset value of all multiple manager investment programs 

supervised by the firm substantially exceeded one billion dollars. 

5 I In this regard, your correspondence e_xplains that the administrator is 

indirectly affiliated with certain United States firm.s, including 11Y11 • 

Your correspondence further represents, however, that while the 

administrator may retain its affiliates to perform certain ministerial 

functions-- e.g., verification of asset valuations and transmission of 

information on investment managers, no affiliate will receive a fee for 

performing any such service. Rather, the affiliate only will receive 

reimbursement for its "direct out~of-pocket" expenses incurred in 

performing such service. 

Further in support of tl1e requested relief your correspondence represents 

that neither any director (or affiliat.e) of the Fund, the adminiAtrator 

(or affiliate) of the Fund, nor any principal of any of the foregoing 

persons has bePn subject within the last ten years to any material civil, 

criminal or administrative action which would adversely reflect upon such 

person's fitness to act in a fiduciary capacity. 
Page 5 

Futures Trading Activity 

It is anticipated that a portion of the assets of 

certain of the individual funds comprising the Fund may 

be comroi tted to investment in futures contracts in the 

United States. The discretion to invest any assets of 

the Fund in futures contracts will, however, only be 

granted to an invesbuent manager if it is registered as 

a comrrodi ty trading advisor. with the National Futures 

Association, exempt fran such registration under the 

Act or otherwise not required to so register under the 

Act. 

Under existing agreements the aggregate underlying 

carrrnodity value of all futures contracts in a particular manager's investment portfolio would not be permitted to exceed the aggregate value of cash and cash 

market instruments in that roanager's investment po:r.tfolio. As a result of this rest:r.iction, it is 

extrertlE!ly unlikely (given existing margin levels) that 

more than 5 percent of any individual fund's net assets 

would ever be cormni tted at any one time to initial 

margin and premiums -- even if every investment manager 

exercisins discretion over the assets of the individual 

fund were authorized to invest, and to the fullest 

extent of its authority did invest, in futures 

contracts. §_/ 

As you are aware, Conmission staff has considered the application of 

the registration requirements of Section 4m ( 1) of the Act to the CPO of a 

"foreign" carrrnodity pool on several prior occasions. For example, C.onrnission 

staff previously stated that it would not recommend enforcement action based 

upon the failure of a person operating a ccmrodity pool outside of the United 

St.Rtes to register as a CPO with the Corrmission where, am:mg other things, 

the following facts are present: (1) such pe:r.son is located outside the 

territorial United States~ (2) such person confines its pool activities to 

areas outside the territorial United States; (3) none of the participants in 

the pool is a resident or citizen of the United States; and (4) no funds or 

other capital are contributed to the pool from United States sources. CFI'C 

Staff Interpretative Letter No. 76-21, [1975-1977 Transfer Binder] Comm. Fut. 

L. Rep. (CCH) ~20,222 (August 15, 1976). See also Division of Trading and 

Markets Interpretative Letter No. 85-18, Ccmn. Fut. L. Rep. (CCH) '.[22: 786 

(October 16, 1985) (with respect to the foreign administrator and the foreign 

§} We note that for the purposes of this letter it has not been necessary 

for us to consider and to opine on whether such trading of futures 

contracts would come within the definition of the term "bona fide hedging 

transactions and positions" set forth in Rule 1.3(z), 17 C.F.R. §1.3(z) 

(1985) • 
Page 6 

manager of a foreign comrrodity pool). Cf. Division of Trading and Markets 

:Lnterpretative Letter No. 84-2, [198/.-1984 Transfer Binder] Corrm. Fut. L. 

Rep. (CCH) '.1[21,983 (January 17, 1984) (wherein Corrrnission staff similarly 

issued a "no-action" position to, arrong other persons, a United States 

domiciled firm based upon a finding that the trading vehicle at issue was not 

a ccmncx:lity pool within the :rreaning and intent of Rule 4.10 (d), 17 C.P.R. 

§4.10(d) (1985)). In certain other cases, however, Commission staff declined 

to issue such a "no-action" position. 7 I See Division of Trading and Markets 

Interpretative Letter No. 85-18, supra-(with respect to the United States 

domiciled Invesbrent Consultant of a foreign conm:xiity pool; Division of 

Trading and Markets Interpretative Letter No. 83-14, [1982-1984 Transfer 

Binder] Comm. Fut. L. Rep. (CCH) '.1[21,967 (June 6, 1983) (where all of the 

officers and all but one of the directors of a foreign general partner of a 

foreign commodity pool were United States residents and citizens and where 

the foreign general partner "~:las a wholly-awned subsidiary of a Corrmission 

registrant and maintained an office in the United States). 

The instant case does not fall squarely within either category of 

cases Corrmission staff previously has considered. On the one hand, it 

presents the following facts which similarly were present in the "no-action" 

ca.ses: (1) the commodity pool activities of the Fund will be confined to 

areas outside the territorial United States; (2) none of the participants in 

the Fund may be a United St.ates resident or citizen; and (3) no funds or 

other capital mDY be comnitted to the Fund fran United States sources. On 

the other hand, like those cases where staff declined to issue a "no-action" 

position but provided certain other relief, it presents the fact that "X," 

one member of the Fund's Board of Directors, is a United States citizen. 

In this regard, we note that the instant case presents such further 

facts as: (1) all meetings and all other activities of the Board of 

Directors related to the management of the Fund have been, and will in the 

future be, conducted outside of the United States; (2) "X" is but one of four 

directors of the Fund; and (3) neither "X" nor "Y" is direct.ly or indirectly 

affiliated with any Commission registrant. In light of these further facts, 

we believe that the instant case more closely resPJmbles those cases in which 

Cormuission staff issued a "no-action" position. 

Accordingly, based upon the representations you have made to us, the 

Division will not recommend that the Comrrd.ssion take any enforcement action 

against any director or the administrator of the Fund as a result of engaging 

in the activities described above without registering as a CPO. 

2/ In those cases staff required the CPO of the foreign canrrodity pool to 

register as such but provided relief fran, among other t:hings, the 

disclosure and reporting requirerrents of Rules 4. 21 and 4. 22, respectively, 17 C.F.R. §§4.21 and 4.22 (1985). 
Page 7 

We note tha_t this letter does not excuse any person covered thereby 

:(rom cq:nplianc.e with any other applicable requiremPnts contained in the Act 

or in the Corrrnission' s regulations thereunder. For example, each would 

remain subject to the anti-fraud provisions of Section 4o of the Act, 7 

U.S.C. §6o (1982), and to the reporting requirements for-traders set forth in 

Parts 15,-18 and 19 of the rPgU1ations, 17 C.F.R. Parts 15, 18 and 19 (1985). 

Moreover, the position we have taken herein is solely applicable to such 

persons in connection with their operation of the Fund. 

This letter is based upon the represe-ntations that have been made to 

us. Any different, changed or omitted facts or conditions might require us 

to reach a different conclusion. 8/ In this connection, we request that you 

notify us immediately in the event that operations of the Fund; including its 

shareholder and Board of Directors compositions, change in any way from that 

as represented to us. 

8/ 

Very truly yours, 

Andrea M. Corcoran 

Director 

For example, the "no-action" position issued herein may no longer obtain 

in the event "X" becomes affiliated with a Corrmission registrant or if 

another United States resident or citizen becomes a member of the Fund's 

Board of Directors.