Commodity Pool Operator Periodic Account Statements and Annual Financial Reports, 57585-57593 [E9-26789]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 74, Number 215 (Monday, November 9, 2009)]
[Rules and Regulations]
[Pages 57585-57593]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-26789]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 4

[RIN 3038-AC38]


Commodity Pool Operator Periodic Account Statements and Annual 
Financial Reports

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') is amending its regulations governing the periodic account 
statements that commodity pool operators (``CPOs'') are required to 
provide to commodity pool participants and the annual financial reports 
that CPOs are required to provide to commodity pool participants and 
file with the National Futures Association (``NFA''). The amendments: 
specify detailed information that must be included in the periodic 
account statements and annual reports for commodity pools with more 
than one series or class of ownership interest; clarify that the 
periodic account statements must disclose either the net asset value 
per outstanding participation unit in the pool, or the total value of a 
participant's interest or share in the pool; extend the time period for 
filing and distributing annual reports of commodity pools that invest 
in other funds; codify existing Commission staff interpretations 
regarding the proper accounting treatment and financial statement 
presentation of certain income and expense items in the periodic 
account statements and annual reports; streamline annual reporting 
requirements for pools ceasing operation; establish conditions for use 
of International Financial Reporting Standards (``IFRS'') in lieu of 
U.S. Generally Accepted Accounting Principles (``U.S. GAAP'') and a 
notice procedure for CPOs to claim such relief; and clarify and update 
several other requirements for periodic and annual reports prepared and 
distributed by CPOs.

DATES: Effective date: This rule is effective December 9, 2009.
    Applicability dates: Amendments to Sec. Sec.  4.7(b)(3) and 4.22(c) 
(other than 4.22(c)(7)) are applicable to commodity pool annual reports 
for fiscal years ending December 31, 2009 and later.

FOR FURTHER INFORMATION CONTACT: Eileen R. Chotiner, Senior Compliance 
Analyst, at (202) 418-5467, Division of Clearing and Intermediary 
Oversight, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581. Electronic mail: 
(echotiner@cftc.gov).

SUPPLEMENTARY INFORMATION: 

I. Background

    On February 24, 2009, the Commission published \1\ for public 
comment proposed amendments to the reporting provisions applicable to 
CPOs under Part 4 of its regulations (``Proposed Part 4 
Amendments'').\2\ Pursuant to regulations contained in Part 4, a 
registered CPO must distribute an account statement to each participant 
in each commodity pool that it operates within 30 days of the end of 
the reporting period, and must file with NFA, and provide to each 
participant, an annual financial report for each commodity pool that it 
operates within 90 days of the end of the pool's fiscal year or the 
permanent cessation of the pool's trading. The Part 4 Amendments codify 
existing staff interpretations, clarify reporting for series funds, 
extend financial reporting filing deadlines for CPOs operating 
commodity pools that that in invest in other funds, and streamline 
certain filing requirements for pools ceasing operation.
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    \1\ 74 FR 8220 (February 24, 2009).
    \2\ Commission regulations referred to herein are found at 17 
CFR Ch. I (2009 edition).
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II. Comments Received

    The Commission received four comment letters in response to the 
Proposed Part 4 Amendments. Comments were submitted by NFA; the 
Committee on Futures Regulation of the New York City Bar Association 
(``NYC Bar''); Arthur F. Bell & Associates, LLC,

[[Page 57586]]

an accounting firm (``Arthur Bell CPAs''); and the Managed Funds 
Association (``MFA''). All of the commenters generally supported the 
proposed amendments. Each of the commenters, however, had specific 
suggestions regarding clarification of certain aspects of the proposal. 
The commenters' suggestions are discussed below.

III. The Final Regulations

A. Periodic Account Statements for Regulation 4.7-Exempt Pools

    Regulation 4.7(b)(2) requires the CPO of a commodity pool for which 
the CPO has claimed an exemption under Regulation 4.7 (i.e., a 
``Regulation 4.7-exempt commodity pool'') to provide each participant 
in the pool with periodic account statements that must indicate: (1) 
The net asset value of the exempt pool as of the end of the reporting 
period; (2) the change in net asset value of the exempt pool from the 
end of the previous reporting period; and (3) the net asset value per 
outstanding unit of participation in the exempt pool as of the end of 
the reporting period.
    The Commission proposed to amend Regulation 4.7(b)(2) to clarify 
that the periodic account statement provided to each pool participant 
must disclose either the net asset value per outstanding participation 
unit, or the total value of the participant's interest or share, in the 
commodity pool as of the end of the reporting period. The proposal was 
intended to ensure that pool participants receive sufficient 
information to determine the value of their investments in the 
commodity pool from the periodic account statement, particularly for 
non-unitized pools. The proposed amendments also would conform the 
account statement requirements for Regulation 4.7-exempt pools to those 
for non-exempt pools under Regulation 4.22(a).
    The Commission did not receive any comments regarding the proposed 
amendments to Regulation 4.7(b)(2). For the reasons set forth above and 
in the Proposed Part 4 Amendments, the Commission is adopting the 
amendments as proposed.

B. Series Pools and Pools With Multiple Classes of Ownership Interests

    The ownership structure of a commodity pool may be organized to 
include more than one series or class of ownership interest. The 
commodity pool may have more than one ownership series or class due to 
differences in fees and expenses charged to the series or classes, 
currency denomination of the series or classes, trading strategies, 
cash management strategies, or other aspects of the operation of the 
pool.
    Pool financial statements prepared pursuant to both Regulation 
4.22(c) and Regulation 4.7(b)(3) must be presented and computed in 
accordance with Generally Accepted Accounting Principles (``GAAP''). 
GAAP provides guidance regarding the presentation of financial 
statements for series funds \3\ and for investment funds with multiple 
ownership classes.\4\ As noted in the Proposed Part 4 Amendments, 
Commission staff has received several inquiries from CPOs, their 
attorneys and accountants, and NFA regarding the proper presentation of 
periodic account statements and annual financial reports for series 
funds and multi-class pools.
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    \3\ American Institute of Certified Public Accountants 
(``AICPA'') Audit and Accounting Guide, Investment Companies 
paragraph 7.03.
    \4\ AICPA Audit and Accounting Guide, Investment Companies, 
Chapter 5, Complex Capital Structures.
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    In order to address issues raised with series funds and to address 
the proper accounting treatment under GAAP, the Commission proposed to 
amend Regulations 4.7(b)(2) and 4.22(a) to specify that, for series 
funds structured with a limitation on liability among the different 
series, the periodic account statement may include only the information 
for the series being reported, although additional information on other 
series may be provided. The Commission further proposed that for multi-
class funds and for series funds that were not structured with a 
limitation on liability among the different series or classes, net 
asset value and other information required by the regulations must be 
presented for both the pool as a whole as well as for each series or 
class of ownership interest.
    The Commission also proposed to amend Regulations 4.7(b)(3) and 
4.22(c) to clarify that, for series funds structured with a limitation 
on liability among the different series, the annual report may include 
only the information for the series being reported. The Commission 
further noted that for both periodic account statements and annual 
financial reports, CPOs of series funds with a limitation on liability 
among the different series were not precluded by the proposed 
amendments from providing financial information to participants for 
other series or classes of a respective pool.
    The Commission did not receive any comment regarding the above 
proposals. For the reasons set forth above and in the Proposed Part 4 
Amendments, the Commission is adopting the amendments as proposed.

C. Changes to Fund of Funds Extension Provisions Under Regulation 
4.22(f)(2)

    Regulations 4.7(b)(3) and 4.22(c) require a CPO to provide to each 
participant in each commodity pool that the CPO operates an annual 
report for the commodity pool within 90 calendar days of the end of the 
pool's fiscal year. The CPO is further required to submit a copy of the 
annual report electronically to NFA.
    Regulation 4.22(f)(2) permits a CPO of a commodity pool that 
invests in other funds (referred to as a ``fund of funds'') to claim up 
to an additional 60 days to distribute the pool's annual report to pool 
participants and to file a copy with NFA. A CPO may claim the 
Regulation 4.22(f)(2) fund of funds 60-day extension by filing with NFA 
an initial notice, containing specified representations, in advance of 
the annual report's due date for the first year the extension is 
claimed. In subsequent years, the CPO may confirm that the 
circumstances necessitating the relief continue to apply by restating 
certain representations in a statement filed at the same time as the 
pool's annual report.
    The self-certification procedures for claiming an extension of the 
filing deadline for a fund of funds under Regulation 4.22(f)(2) 
currently are applicable only to CPOs that distribute annual reports 
that are audited by independent public accountants. CPOs of funds of 
funds that distribute unaudited annual financial reports to 
participants pursuant to Regulation 4.7(b)(3) may not claim an 
extension of the filing deadline under Regulation 4.22(f)(2). Such 
CPOs, however, may request from NFA up to a 90-day extension of the 
filing deadline under Regulation 4.22(f)(1).
    As discussed in the Proposed Part 4 Amendments, in adopting 
Regulation 4.22(f)(2), the Commission anticipated that a substantial 
majority of the CPOs of funds of funds would be able to distribute to 
the participants and to file with NFA the pools' annual reports within 
150 days of the end of the respective commodity pool's fiscal year.\5\ 
The number of CPOs that have requested additional extensions under 
Regulation 4.22(f)(1) after having claimed the 60-day extension under 
Regulation 4.22(f)(2), however, has increased significantly in recent 
years. To address this issue, the Commission proposed to extend from 60 
to 90 days the maximum period of additional time

[[Page 57587]]

that a CPO that operates a commodity pool that invests in other funds 
may claim under Regulation 4.22(f)(2).
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    \5\ 65 FR 81333 at 81334 (December 26, 2000).
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    The Commission also proposed to extend the application of 
Regulation 4.22(f)(2) to CPOs that operate Regulation 4.7-exempt 
commodity pools that do not prepare financial statements audited by 
independent public accountants. As noted in the Proposed Part 4 
Amendments, Regulation 4.22(f)(2) was adopted, in large part, to 
address difficulties that CPOs experience in obtaining timely 
information about their pools' investments in other funds in order for 
the pools' public accountants to prepare audited financial statements. 
Annual reports that are not audited, however, are still required to be 
prepared in accordance with GAAP. CPOs need information establishing 
the value of the pools' material investments from the investee funds. 
These investments may be in a number of investee funds, such as other 
commodity pools, securities funds, or hedge funds, both domestic and 
offshore. The information that the CPOs require frequently is 
unavailable until the investee funds complete their own audited 
financial statements. Thus, in many cases, the CPOs cannot obtain the 
information they require about the investee funds in time for the 
annual financial reports of the pools to be prepared and distributed by 
the due date. To address this issue, the Commission proposed to permit 
CPOs of funds of funds for which unaudited annual reports are prepared 
to be able to claim the extension under Regulation 4.22(f)(2).
    In addition, the Commission proposed to eliminate the requirement 
that a CPO that filed a claim of extension under Regulation 4.22(f)(2) 
for a particular pool restate certain representations in a statement 
filed with the pool's annual reports in subsequent years. Instead, 
under the proposal, the CPO would be presumed to operate the pool as a 
fund of funds and otherwise continue to qualify for the automatic 
extension. The CPO, however, must provide NFA with notice if the pool 
no longer operates as a fund of funds and must distribute the pool's 
annual report to pool participants and file a copy with NFA within 90 
days of the pool's fiscal year-end, as required by Regulation 4.22(c).
    The Commission received several comments generally supporting the 
proposed amendments, and no commenter opposed the proposed amendments. 
NFA and Arthur Bell CPAs supported the proposed amendments to 
Regulation 4.22(f)(2) extending the amount of time within which funds 
of funds must file their reports from 150 to 180 days after fiscal year 
end. NFA, however, commented that multi-tiered funds of funds could 
still have difficulty obtaining necessary information if their investee 
funds are commodity pools and the CPOs of the investee funds had 
claimed an extension under Regulation 4.22(f)(2) of up to 180 days. In 
such situations, the CPO of the fund of funds may not receive annual 
reports for investee funds until 180 days after the end of the investee 
fund's year-end, which would coincide with the due date for the CPO of 
the fund of funds to distribute an annual report to participants in the 
fund of funds. In its comment letter, NFA suggested that the Commission 
amend Regulation 4.22(f)(1) to provide for an additional extension of 
up to 210 days after the pool's year end to provide CPOs of funds of 
funds with additional time to prepare and to distribute annual reports 
for the commodity pool. The Commission did not receive any comments 
regarding the proposal to eliminate, after the initial year, the 
requirement in Regulation 4.22(f)(2) that a CPO claiming an extension 
of time provide a statement containing representations regarding 
operating a fund of funds each year after the initial year.
    Arthur Bell CPAs further supported the proposal to extend the 
availability of the fund of funds extension to Regulation 4.7-exempt 
pools for which audited reports are not prepared, noting that even for 
an unaudited report, the additional time is necessary due to the 
requirement under GAAP to provide a condensed schedule of investments, 
which necessitates obtaining information from investee funds.
    The Commission has considered the comments received and is adopting 
the amendments to Regulations 4.22(f)(1) and (2) as proposed. The 
Commission acknowledges that a CPO of a multi-tiered fund of funds may 
face challenges in obtaining the appropriate detailed financial 
information from each investee fund. The Commission, however, must 
balance the challenges faced by the CPO of a fund of funds with the 
need of pool participants to receive financial information regarding 
the performance of a fund in as timely a manner as possible. Based upon 
its review of annual report filings of commodity pools over the last 
several years, the Commission does not believe that there is a 
sufficient basis to propose additional extension provisions under 
Regulation 4.22(f)(1) that would extend the filing deadline to 210 days 
after the end of a pool's fiscal year end. Commission staff will 
monitor filings under the revised fund of funds timeframe closely to 
ascertain whether any further changes may be warranted.
    In addition, under the regulations as amended, CPOs that previously 
have claimed the fund of funds extension will not need to file new or 
revised notices with NFA in order to claim the additional 30 days to 
file and to distribute their qualifying pools' annual reports. However, 
the Commission continues to expect CPOs to file and to distribute their 
pools' annual reports as soon as possible after the pools' fiscal year-
ends to ensure that participants obtain information that is as current 
as possible.

D. Procedures for Preparation and Filing of Reports for Liquidating 
Pools

    The Commission proposed to clarify and to streamline procedures for 
CPOs filing final reports for pools that had ceased operation. 
Currently, Regulation 4.22(c) requires a CPO of a commodity pool that 
has ceased operation to distribute a final annual report to commodity 
pool participants and to file a copy with NFA within 90 days of the 
pool's permanent cessation of trading, but in no event longer than 90 
days after funds are returned to pool participants. The Commission 
proposed to eliminate the confusion created by the reference in 
Regulation 4.22(c) to two possible timeframes for filing a final annual 
report by amending the regulation to specify that the final annual 
report must be filed no later than 90 days after the pool ceases 
trading. Under the proposed amendment, if a CPO has not distributed all 
funds to participants by the date that the report is issued, the CPO 
must provide information about the return of funds to pool 
participants, including an estimate of the value of funds remaining to 
be distributed and the anticipated timeframe of when those funds are 
expected to be returned. When the remaining funds are returned to 
participants, the CPO should send a notice to all participants and to 
NFA. The proposed amendment also would permit CPOs to prepare unaudited 
final reports as long as the CPO obtains from all participants, and 
files with NFA, written waivers of their right to receive an audited 
report.
    NFA supported the Commission's proposal to clarify the timeframe 
within which the final report must be filed; however, MFA noted that 
requiring reports to be filed within 90 days of the cessation of 
trading would create reporting inefficiencies for CPOs and participants 
of pools that hold assets that are difficult to liquidate. MFA's 
comment letter described scenarios in which inefficiencies would be 
created, such as when the pool holds assets that

[[Page 57588]]

cannot be liquidated for an extended period of time, or the pool is 
involved in bankruptcy. The MFA comment letter also noted that a CPO 
may have difficulty in obtaining an audit opinion on financial 
statements for a pool that has significant assets that have not been 
liquidated.
    MFA suggested as an alternative to the proposal that CPOs that have 
determined to liquidate a pool provide notice to NFA and pool 
participants shortly after the pool ceases trading, and file the pool's 
final annual report within 90 days of returning funds to the 
participants. NFA suggested an alternative to the proposed requirement 
that CPOs that have not distributed all funds by the time the final 
report is filed provide notice to NFA when the final distribution is 
completed. NFA proposed that only those CPOs that have not returned 
funds within the time frame specified in the final annual report would 
provide notice to NFA, along with an explanation of why the 
distribution has not been completed. NFA would then monitor these pools 
until all funds are returned.
    The Commission has considered carefully the comments regarding the 
timeframe within which a CPO must provide a final report for a pool 
that has ceased operation and has determined to modify the proposed 
changes to address concerns raised by the commenters, including the 
addition of an option for CPOs that are unable to complete the 
liquidation of a pool in sufficient time to prepare, distribute and 
file the pool's final report within 90 days of the permanent cessation 
of trading. Under the amended regulation, a CPO generally would be 
required to provide a liquidating pool's final report within 90 days of 
the cessation of trading. The final report may contain only the 
Statements of Operations and Changes in Net Assets; an explanation of 
the winding down of the pool's operations; written disclosure that all 
interests in, and assets of, the pool have been redeemed, distributed 
or transferred on behalf of the participants; and, if all funds have 
not been distributed at the time the report is issued, disclosure of 
the value of the assets remaining to be distributed and the expected 
timeframe for their distribution. If the CPO has not completed the 
distribution of funds within the timeframe specified in the final 
report, the CPO will be required to provide notice to NFA and the 
pool's participants containing information about the value of the 
pool's remaining assets, the expected timeframe for liquidation, any 
fees and expenses that will continue to be charged to the pool, and the 
extent to which reports will continue to be provided to participants 
pursuant to the pool's operative documents. The Commission notes that 
the latter requirement is for the purpose of disclosure, and is not 
intended to relieve CPOs of their obligation to continue to comply with 
the periodic and annual reporting requirements. In this connection, the 
Commission notes that MFA requested in its comment letter that CPOs 
that are unable to provide a final annual report within 90 days be 
permitted to provide quarterly rather than monthly periodic account 
statements to participants. Pools operating pursuant to Regulation 4.7 
currently are permitted to provide quarterly statements; CPOs that are 
required to provide monthly account statements may request relief under 
Regulation 4.12(a).
    Both NFA and MFA commented on the waiver provisions of the proposed 
requirement that CPOs be permitted to prepare unaudited final reports 
as long as the CPO obtains from all participants, and files with NFA, 
written waivers of their right to receive an audited report. NFA 
recommended that rather than filing all waivers with NFA, the CPO file 
a certification with NFA that a waiver has been received from each 
participant. The CPO would be required to make the waivers available to 
NFA on request. MFA noted that for pools with many participants, 
obtaining the waivers would be difficult and suggested that the 
Commission instead adopt a negative consent procedure. The Commission 
has determined that it is not in the public interest to permit CPOs to 
provide unaudited reports to participants who are entitled to receive 
audited reports without the affirmative consent of the participants. 
However, it will be sufficient for the CPO to certify to NFA that it 
has obtained waivers from all of the pool's participants, provided that 
the CPO maintain all the waivers and make them available to NFA or the 
Commission upon request.
    Finally, in order to accommodate the appropriate numbering of 
changes to Regulation 4.22(c), the Commission is redesignating existing 
paragraph 4.22(c)(6) as 4.22(c)(8).

E. Codifying Existing Policies Regarding Special Allocations of 
Ownership Equity, Unrealized Gains and Losses, and Investee Funds' 
Income and Expenses

    The Commission proposed to codify staff interpretations regarding 
reporting in a pool's annual financial report special allocations of 
partnership equity from limited partners to the general partner or any 
other special class of partner; combining gains and losses on regulated 
futures transactions with gains and losses on non-CFTC regulated 
transactions that are part of the same trading strategy in the 
Statement of Operations; and disclosing in the notes to the financial 
statements the amounts of management and incentive fees and expenses 
indirectly incurred as a result of investing in any fund where the 
investment in the fund exceeded five percent of the pool's net asset 
value. One commenter specifically addressed the proposed requirement to 
disclose information on the amounts of income and expenses associated 
with a pool's investments in investee funds. Arthur Bell CPAs noted 
that in some cases, it may not be possible for CPOs to obtain the 
information about investee funds' fees and expenses that would be 
required under proposed Regulation 4.22(c)(5)(i), stating that some 
investee funds are not obligated to report this information, and other 
funds may not maintain records of allocations of management and 
incentive fees or indirect expenses relative to the fund of fund's 
investment. The comment letter from Arthur Bell CPAs suggested that the 
proposed regulation be revised to state that in such cases, a CPO would 
be permitted to disclose that certain information required under this 
section is not available, if the CPO has made a good faith effort to 
obtain the information.
    As noted in the proposing release, Division of Clearing and 
Intermediary Oversight (``DCIO'') staff has encouraged CPOs to disclose 
income and fee information for investee pools for many years, on the 
basis that such information is material for pool participants to 
comprehend fully the investment strategy and fee structure of a 
commodity pool. However, the illustration of investee fund disclosure 
that has been included as an attachment to DCIO's annual guidance 
letter to CPOs allows that in unusual circumstances, a CPO may state 
that it does not have information on specific fees and expenses. In 
order to address the issue noted in the comment, the Commission is 
adopting this regulation generally as proposed, with the addition of an 
option for a CPO that does not have the specific amounts of fees and 
expenses to disclose instead the percentage amounts and computational 
basis for each such fee and include a statement that the CPO is not 
able to obtain the specific fee amounts for this fund.

[[Page 57589]]

F. Use of International Financial Reporting Standards in the 
Preparation of Commodity Pool Annual Financial Reports

    Regulation 4.22(d) requires that audited and unaudited financial 
statements of commodity pools, as well as periodic account statements, 
be presented and computed in accordance with GAAP. This provision 
consistently has been interpreted by Commission staff to mean GAAP as 
established in the United States (``U.S. GAAP'').
    The Commission proposed to amend Regulation 4.22(d) to permit CPOs 
that operate commodity pools organized under the laws of a foreign 
jurisdiction to prepare financial statements for such pools using 
International Financial Reporting Standards (``IFRS'') as issued by the 
International Accounting Standards Board in lieu of U.S. GAAP. The 
proposal specified that the IFRS financial statements contain a 
condensed Schedule of Investments as set forth in Statement of 
Accounting Positions 95-2, 01-1, and 03-04 issued by the AICPA; report 
special allocations of partnership equity in accordance with Commission 
Interpretative Letter 94-3; and, in the event that IFRS would require 
that the pool consolidate its financial statements 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 the reporting pool's consolidated financial statements. 
In addition, the use of accounting standards other than U.S. GAAP must 
not conflict with any representations made in offering memoranda or 
similar documents provided to participants or potential participants in 
the pool. The proposal further required that a CPO may claim the above 
relief by filing a notice with NFA within 90 days of the end of the 
commodity pool's fiscal year.
    The NYC Bar commented on two technical aspects of the proposal. 
First, with respect to the timeframe within which a CPO that is seeking 
relief from the U.S. GAAP requirement under proposed Regulation 
4.22(d)(2)(ii), the NYC Bar stated that the proposed regulation and 
accompanying explanatory text were confusing as to when the notice must 
be filed. The NYC Bar suggested that the adopting release clarify that 
a notice claiming relief must be filed within 90 days after the end of 
the pool's fiscal year in order to be effective. The Commission has 
considered the NYC Bar's comments and has amended Regulation 
4.22(d)(2)(ii) to provide that the notice must be filed with NFA within 
90 days after the end of the pool's fiscal year.
    Second, the NYC Bar suggested that the provision in proposed 
Regulation 4.22(d)(2)(i)(C) requiring that the CPO represent that the 
use of IFRS for the preparation of the commodity pool's financial 
statements was not inconsistent with the pool's ``offering memorandum 
or similar document'' be replaced with ``offering memorandum or other 
operative document.'' This suggestion was intended to provide for a 
broader range of operating documents in which such information may be 
provided. The Commission has considered the comment and agrees that 
including the information on the accounting standards to be followed by 
the pool in any operative document that is provided or available to 
participants is consistent with the objectives of the proposed 
regulation, and therefore is adopting a final regulation that requires 
such disclosure in the pool's offering memorandum or any other 
operative document that is made available to participants or 
prospective participants.
    In addition, in developing these final regulations, the Commission 
has noted that the use of IFRS for preparing pool financial statements 
generally would extend to the computations that form the basis for the 
information reported in periodic account statements required by 
Regulations 4.22(a) and 4.7(b)(2). Therefore, the Commission is 
adopting changes to Regulations 4.22(a) and 4.7(b)(2) to permit CPOs 
that have claimed the relief available in Regulation 4.22(d), as 
amended, to present the pool's periodic account statements on the same 
basis as they are computing and presenting the pool's financial 
statements.

G. GAAP Requirements in Regulation 4.13

    Regulation 4.13 provides an exemption from registration for CPOs 
that operate only one pool at a time, for which no advertising is done 
and no compensation is received; or that operate pools that include no 
more than 15 participants each, and the aggregate subscriptions to all 
pools do not exceed $400,000. Regulation 4.13 further provides an 
exemption from registration for CPOs of pools whose participants are 
SEC ``accredited investors'' \6\ and that limit the pool's trading of 
commodity interests to a de minimis amount, or that limit participation 
in the pool to certain highly sophisticated investors. Regulation 
4.13(c) specifies that, if a CPO that has claimed an exemption from 
registration under Regulation 4.13 distributes an annual report to pool 
participants, the annual report must be presented and computed in 
accordance with GAAP and, if audited by an independent public 
accountant, certified in accordance with Regulation 1.16.
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    \6\ 17 CFR 230.501(a) (2009).
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    The Commission proposed to amend Regulation 4.13(c) to delete the 
requirement that the annual reports for pools for which the CPO has 
claimed exemption from registration under Regulation 4.13 must be 
presented and computed in accordance with GAAP and, if audited by an 
independent public accountant, certified in accordance with Regulation 
1.16. As noted in the Proposed Part 4 Amendments, the annual reports 
are not required by Commission regulations to be prepared, distributed, 
or filed, and therefore the Commission does not need to prescribe the 
form of such reports.
    The Commission did not receive any comments regarding the proposed 
amendments to Regulation 4.13(c). The Commission has determined to 
adopt the amendments as proposed.

H. Updating References to Financial Schedules

    The Commission proposed to update both the periodic and annual 
reporting provisions of Part 4 to conform with current accounting 
practices with respect to the references to various financial 
schedules. No comments were received on this proposal. Therefore, the 
Commission is adopting amendments to delete references to the Statement 
of Changes in Financial Position, which no longer exists; rename the 
Statement of Income (Loss) as the Statement of Operations; and rename 
the Statement of Changes in Net Asset Value as the Statement of Changes 
in Net Assets.

IV. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq., 
requires that agencies, in proposing rules, consider the impact of 
those rules on small businesses. The Commission has determined 
previously that registered CPOs are not small entities for the purpose 
of the RFA.\7\ The proposed amendments to Regulation 4.7 and Regulation 
4.22 would apply only to registered CPOs. With respect to CPOs exempt 
from registration, the Commission has previously determined that a CPO 
is a small entity if it meets the criteria for exemption from 
registration under current Regulation 4.13(a)(2). The proposed 
amendment to

[[Page 57590]]

Regulation 4.13 would remove an existing requirement and does not 
impose any significant burdens. The Commission's proposal solicited 
public comment on this analysis.\8\ No comments were received. 
Accordingly, the Chairman, on behalf of the Commission, hereby 
certifies, pursuant to 5 U.S.C. 605(b), that the action it is taking 
herein will not have a significant economic impact on a substantial 
number of small entities.
---------------------------------------------------------------------------

    \7\ 47 FR 18618, 18619 (April 30, 1982).
    \8\ 74 FR 8225 (February 24, 2009).
---------------------------------------------------------------------------

B. Paperwork Reduction Act

    This rulemaking modifies existing regulatory requirements by 
clarifying information that must be included in required periodic and 
annual reports, increasing slightly the burden for this collection of 
information due to including specific fee and expense information in 
annual reports for funds of funds. The proposing release included an 
estimate of the impact of these changes on the paperwork burden under 
existing information collection 3038-0005, and also corrected a 
previous calculation error with respect to the total number of 
respondents. As required by the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)), the Commission submitted a copy of this section to the 
Office of Management and Budget (``OMB'') for its review. No comments 
were received in response to the Commission's invitation in the notice 
of proposed rulemaking \9\ to comment on any change in the potential 
paperwork burden associated with these rule amendments. The information 
collection burdens created by the Commission's proposed rules, which 
were discussed in detail in the proposing release, are identical to the 
information collection burdens of the final rules.
---------------------------------------------------------------------------

    \9\ Id.
---------------------------------------------------------------------------

List of Subjects in 17 CFR Part 4

    Advertising, Brokers, Commodity futures, Commodity pool operators, 
Commodity trading advisors, Consumer protection, Reporting and 
recordkeeping requirements.

0
Accordingly, 17 CFR Chapter I is amended as follows:

PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS

0
1. The authority citation for part 4 continues to read as follows:

    Authority:  7 U.S.C. 1a, 2, 4, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 
12a, and 23.


0
2. In Sec.  4.7:
0
a. Add paragraphs (b)(2)(iii)(A) and (B) and (b)(2)(iv) and (v);
0
b. Revise paragraphs (b)(3)(i) introductory text and (b)(3)(i)(B) and 
(C);
0
c. Add paragraph (b)(3)(i)(D); and
0
d. Revise paragraph (b)(3)(ii).
    The additions and revisions read as follows:


Sec.  4.7  Exemption from certain part 4 requirements for commodity 
pool operators with respect to offerings to qualified eligible persons 
and for commodity trading advisors with respect to advising qualified 
eligible persons.

* * * * *
    (b) * * *
    (2) * * *
    (iii)(A) Either the net asset value per outstanding participation 
unit in the exempt pool as of the end of the reporting period, or
    (B) The total value of the participant's interest or share in the 
exempt pool as of the end of the reporting period.
    (iv) Where the pool is comprised of more than one ownership class 
or series, the net asset value of the series or class on which the 
account statement is reporting, and the net asset value per unit or 
value of the participant's share, also must be included in the 
statement required by this paragraph (b)(2); except that, for a pool 
that is a series fund structured with a limitation on liability among 
the different series, the account statement required by this paragraph 
(b)(2) is not required to include the consolidated net asset value of 
all series of the pool.
    (v) A commodity pool operator of a pool that meets the conditions 
specified in Sec.  4.22(d)(2)(i) of this part to present and compute 
the commodity pool's financial statements contained in the Annual 
Report in accordance with International Financial Reporting Standards 
issued by the International Accounting Standards Board and has filed 
notice pursuant to Sec.  4.22(d)(2)(ii) of this part also may use such 
International Financial Reporting Standards in the computation and 
presentation of the account statement.
    (3) Annual report relief. (i) Exemption from the specific 
requirements of Sec.  4.22(c) and (d) of this part; Provided, That 
within 90 calendar days after the end of the exempt pool's fiscal year 
or the permanent cessation of trading, whichever is earlier, the 
commodity pool operator electronically files with the National Futures 
Association and distributes to each participant in lieu of the 
financial information and statements specified by those sections, an 
annual report for the exempt pool, affirmed in accordance with Sec.  
4.22(h) which contains, at a minimum:
* * * * *
    (B) A Statement of Operations for that year;
    (C) Appropriate footnote disclosure and such further material 
information as may be necessary to make the required statements not 
misleading. For a pool that invests in other funds, this information 
must include, but is not limited to, separately disclosing the amounts 
of income, management and incentive fees associated with each 
investment in an investee fund that exceeds five percent of the pool's 
net assets. The income, management and incentive fees associated with 
an investment in an investee fund that is less than five percent of the 
pool's net assets may be combined and reported in the aggregate with 
the income, management and incentive fees of other investee funds that, 
individually, represent an investment of less than five percent of the 
pool's net assets. If the commodity pool operator is not able to obtain 
the specific amounts of management and incentive fees charged by an 
investee fund, the commodity pool operator must disclose the percentage 
amounts and computational basis for each such fee and include a 
statement that the CPO is not able to obtain the specific fee amounts 
for this fund;
    (D) Where the pool is comprised of more than one ownership class or 
series, information for the series or class on which the financial 
statements are reporting should be presented in addition to the 
information presented for the pool as a whole; except that, for a pool 
that is a series fund structured with a limitation on liability among 
the different series, the financial statements are not required to 
include consolidated information for all series.
    (ii) Except as provided in Sec.  4.22(d)(2) of this part, such 
annual report must be presented and computed in accordance with 
generally accepted accounting principles consistently applied and, if 
certified by an independent public accountant, so certified in 
accordance with Sec.  1.16 of this chapter as applicable.
* * * * *


Sec.  4.13  [Amended]

0
3. Amend Sec.  4.13 by removing paragraph (c)(2) and redesignating 
paragraph (c)(3) as (c)(2).

0
4. In Sec.  4.22:
0
a. Revise paragraphs (a) introductory text, (a)(1) introductory text, 
and (a)(2) introductory text;
0
b. Add paragraphs (a)(5) and (6);

[[Page 57591]]

0
c. Revise paragraphs (c) introductory text, (c)(4), and (c)(5);
0
d. Redesignate paragraph (c)(6) as paragraph (c)(8), and add new 
paragraphs (c)(6) and (7); and
0
e. Revise paragraphs (d), (e) and (f)(2).
    The revisons and additions read as follows:


Sec.  4.22  Reporting to pool participants.

    (a) Except as provided in paragraph (a)(4) or (a)(6) of this 
section, each commodity pool operator registered or required to be 
registered under the Act must periodically distribute to each 
participant in each pool that it operates, within 30 calendar days 
after the last date of the reporting period prescribed in paragraph (b) 
of this section, an Account Statement, which shall be presented in the 
form of a Statement of Operations and a Statement of Changes in Net 
Assets, for the prescribed period. These financial statements must be 
presented and computed in accordance with generally accepted accounting 
principles consistently applied. The Account Statement must be signed 
in accordance with paragraph (h) of this section.
    (1) The portion of the Account Statement which must be presented in 
the form of a Statement of Operations must separately itemize the 
following information:
* * * * *
    (2) The portion of the Account Statement that must be presented in 
the form of a Statement of Changes in Net Assets must separately 
itemize the following information:
* * * * *
    (5) Where the pool is comprised of more than one ownership class or 
series, information for the series or class on which the account 
statement is reporting should be presented in addition to the 
information presented for the pool as a whole; except that, for a pool 
that is a series fund structured with a limitation on liability among 
the different series, the account statement is not required to include 
consolidated information for all series.
    (6) A commodity pool operator of a pool that meets the conditions 
specified in paragraph (d)(2)(i) of this section and has filed notice 
pursuant to paragraph (d)(2)(ii) of this section may elect to follow 
the same accounting treatment with respect to the computation and 
presentation of the account statement.
* * * * *
    (c) Except as provided in paragraph (c)(7) or (c)(8) of this 
section, each commodity pool operator registered or required to be 
registered under the Act must distribute an Annual Report to each 
participant in each pool that it operates, and must electronically 
submit a copy of the Report and key financial balances from the Report 
to the National Futures Association pursuant to the electronic filing 
procedures of the National Futures Association, within 90 calendar days 
after the end of the pool's fiscal year or the permanent cessation of 
trading, whichever is earlier; Provided, however, that if during any 
calendar year the commodity pool operator did not operate a commodity 
pool, the pool operator must so notify the National Futures Association 
within 30 calendar days after the end of such calendar year. The Annual 
Report must be affirmed pursuant to paragraph (h) of this section and 
must contain the following:
* * * * *
    (4) Statements of Operations, and Changes in Net Assets, for the 
period between--
    (i) The later of:
    (A) The date of the most recent Statement of Financial Condition 
delivered to the National Futures Association pursuant to this 
paragraph (c); or
    (B) The date of the formation of the pool; and
    (ii) The close of the pool's fiscal year, together with Statements 
of Operations, and Changes in Net Assets for the corresponding period 
of the previous fiscal year.
    (5) Appropriate footnote disclosure and such further material 
information as may be necessary to make the required statements not 
misleading. For a pool that invests in other funds, this information 
must include, but is not limited to, separately disclosing the amounts 
of income, management and incentive fees associated with each 
investment in an investee fund that exceeds five percent of the pool's 
net assets. The management and incentive fees associated with an 
investment in an investee fund that is less than five percent of the 
pool's net assets may be combined and reported in the aggregate with 
the income, management and incentive fees of other investee funds that, 
individually, represent an investment of less than five percent of the 
pool's net assets. If the commodity pool operator is not able to obtain 
the specific amounts of management and incentive fees charged by an 
investee fund, the commodity pool operator must disclose the percentage 
amounts and computational basis for each such fee and include a 
statement that the CPO is not able to obtain the specific fee amounts 
for this fund;
    (6) Where the pool is comprised of more than one ownership class or 
series, information for the series or class on which the financial 
statements are reporting should be presented in addition to the 
information presented for the pool as a whole; except that, for a pool 
that is a series fund structured with a limitation on liability among 
the different series, the financial statements are not required to 
include consolidated information for all series.
    (7) For a pool that has ceased operation prior to, or as of, the 
end of the fiscal year, the commodity pool operator may provide the 
following, within 90 days of the permanent cessation of trading, in 
lieu of the annual report that would otherwise be required by Sec.  
4.22(c) or Sec.  4.7(b)(3):
    (i) Statements of Operations and Changes in Net Assets for the 
period between--
    (A) The later of:
    (1) The date of the most recent Statement of Financial Condition 
filed with the National Futures Association pursuant to this paragraph 
(c); or
    (2) The date of the formation of the pool; and
    (B) The close of the pool's fiscal year or the date of the 
cessation of trading, whichever is earlier; and
    (ii)(A) An explanation of the winding down of the pool's operations 
and written disclosure that all interests in, and assets of, the pool 
have been redeemed, distributed or transferred on behalf of the 
participants;
    (B) If all funds have not been distributed or transferred to 
participants by the time that the final report is issued, disclosure of 
the value of assets remaining to be distributed and an approximate 
timeframe of when the distribution will occur. If the commodity pool 
operator does not distribute the remaining pool assets within the 
timeframe specified, the commodity pool operator must provide written 
notice to each participant and to the National Futures Association that 
the distribution of the remaining assets of the pool has not been 
completed, the value of assets remaining to be distributed, and a time 
frame of when the final distribution will occur.
    (C) If the commodity pool operator will not be able to liquidate 
the pool's assets in sufficient time to prepare, file and distribute 
the final annual report for the pool within 90 days of the permanent 
cessation of trading, the commodity pool operator must provide written 
notice to each participant and to National Futures Association 
disclosing:
    (1) The value of investments remaining to be liquidated, the 
timeframe within which liquidation is expected to occur, any 
impediments to liquidation, and the nature and amount

[[Page 57592]]

of any fees and expenses that will be charged to the pool prior to the 
final distribution of the pool's funds;
    (2) Which financial reports the commodity pool operator will 
continue to provide to pool participants from the time that trading 
ceased until the final annual report is distributed, and the frequency 
with which such reports will be provided, pursuant to the pool's 
operative documents; and
    (3) The timeframe within which the commodity pool operator will 
provide the final report.
    (iii) A report filed pursuant to this paragraph (c)(7) that would 
otherwise be required by this paragraph (c) is not required to be 
audited in accordance with paragraph (d) of this section if the 
commodity pool operator obtains from all participants written waivers 
of their rights to receive an audited Annual Report, and at the time of 
filing the Annual Report with National Futures Association, certifies 
that it has received waivers from all participants. The commodity pool 
operator must maintain the waivers in accordance with Sec.  1.31 of 
this chapter and must make the waivers available to the Commission or 
National Futures Association upon request.
* * * * *
    (d)(1) The financial statements in the Annual Report must be 
presented and computed in accordance with generally accepted accounting 
principles consistently applied and must be audited by an independent 
public accountant. The requirements of Sec.  1.16(g) of this chapter 
shall apply with respect to the engagement of such independent public 
accountants, except that any related notifications to be made may be 
made solely to the National Futures Association, and the certification 
must be in accordance with Sec.  1.16 of this chapter, except that the 
following requirements of that section shall not apply:
    (i) The audit objectives of Sec.  1.16(d)(1) concerning the 
periodic computation of minimum capital and property in segregation;
    (ii) All other references in Sec.  1.16 to the segregation 
requirements; and
    (iii) Section 1.16(c)(5), (d)(2), (e)(2), and (f).
    (2)(i) The financial statements in the Annual Report required by 
this section or by Sec.  4.7(b)(3) may be presented and computed in 
accordance with International Financial Reporting Standards issued by 
the International Accounting Standards Board if the following 
conditions are met:
    (A) The pool is organized under the laws of a foreign jurisdiction;
    (B) The Annual Report will include a condensed schedule of 
investments, or, if required by the alternate accounting standards, a 
full schedule of investments;
    (C) The preparation of the pool's financial statements under 
International Financial Reporting Standards is not inconsistent with 
representations set forth in the pool's offering memorandum or other 
operative document that is made available to participants;
    (D) Special allocations of ownership equity will be reported in 
accordance with Sec.  4.22(e)(2); and
    (E) In the event that the International Financial Reporting 
Standards require consolidated financial statements for the pool, such 
as a feeder fund consolidating with its master fund, all applicable 
disclosures required by generally accepted accounting principles for 
the feeder fund must be presented with the reporting pool's 
consolidated financial statements.
    (ii) The commodity pool operator of a pool that meets the 
conditions specified in this paragraph (d)(2) may claim relief from the 
requirement in paragraph (d)(1) of this section by filing a notice with 
the National Futures Association, within 90 calendar days after the end 
of the pool's fiscal year.
    (A) The notice must contain the name, main business address, main 
telephone number and the National Futures Association registration 
identification number of the commodity pool operator, and name and the 
identification number of the commodity pool.
    (B) The notice must include representations regarding the pool's 
compliance with each of the conditions specified in Sec.  4.22(d)(2)(A) 
through (D), and, if applicable, (E); and
    (C) The notice must be signed by the commodity pool operator in 
accordance with paragraph (h) of this section.
    (e)(1) The Statement of Operations required by this section must 
itemize brokerage commissions, management fees, advisory fees, 
incentive fees, interest income and expense, total realized net gain or 
loss from commodity interest trading, and change in unrealized net gain 
or loss on commodity interest positions during the pool's fiscal year. 
Gains and losses on commodity interests need not be itemized by 
commodity or by specific delivery or expiration date.
    (2)(i) Any share of a pool's profits or transfer of a pool's equity 
which exceeds the general partner's or any other class's share of 
profits computed on the general partner's or other class's pro rata 
capital contribution are ``special allocations.'' Special allocations 
of partnership equity or other interests must be recognized in the 
pool's Statement of Operations in the same period as the net income, 
interest income, or other basis of computation of the special 
allocation is recognized. Special allocations must be recognized and 
classified either as an expense of the pool or, if not recognized as an 
expense of the pool, presented in the Statement of Operations as a 
separate, itemized allocation of the pool's net income to arrive at net 
income available for pro rata distribution to all partners.
    (ii) Special allocations of ownership interest also must be 
reported separately in the Statement of Partners' Equity, in addition 
to the pro-rata allocations of net income, as to each class of 
ownership interest.
    (3) Realized gains or losses on regulated commodities transactions 
presented in the Statement of Operations of a commodity pool may be 
combined with realized gains or losses from trading in non-commodity 
interest transactions, provided that the gains or losses to be combined 
are part of a related trading strategy. Unrealized gains or losses on 
open regulated commodity positions presented in the Statement of 
Operations of a commodity pool may be combined with unrealized gains or 
losses from open positions in non-commodity positions, provided that 
the gains or losses to be combined are part of a related trading 
strategy.
    (f) * * *
    (2) In the event a commodity pool operator finds that it cannot 
obtain information necessary to prepare annual financial statements for 
a pool that it operates within the time specified in either paragraph 
(c) of this section or Sec.  4.7(b)(3)(i), as a result of the pool 
investing in another collective investment vehicle, it may claim an 
extension of time under the following conditions:
    (i) The commodity pool operator must, within 90 calendar days of 
the end of the pool's fiscal year, file a notice with the National 
Futures Association, except as provided in paragraph (f)(2)(v) of this 
section.
    (ii) The notice must contain the name, main business address, main 
telephone number and the National Futures Association registration 
identification number of the commodity pool operator, and name and the 
identification number of the commodity pool.
    (iii) The notice must state the date by which the Annual Report 
will be distributed and filed (the ``Extended Date''), which must be no 
more than 180 calendar days after the end of the pool's fiscal year. 
The Annual Report must be distributed and filed by the Extended Date.

[[Page 57593]]

    (iv) The notice must include representations by the commodity pool 
operator that:
    (A) The pool for which the Annual Report is being prepared has 
investments in one or more collective investment vehicles (the 
``Investments'');
    (B) For all reports prepared under paragraph (c) of this section 
and for reports prepared under Sec.  4.7(b)(3)(i) that are audited by 
an independent public accountant, the commodity pool operator has been 
informed by the independent public accountant engaged to audit the 
commodity pool's financial statements that specified information 
required to complete the pool's annual report is necessary in order for 
the accountant to render an opinion on the commodity pool's financial 
statements. The notice must include the name, main business address, 
main telephone number, and contact person of the accountant; and
    (C) The information specified by the accountant cannot be obtained 
in sufficient time for the Annual Report to be prepared, audited, and 
distributed before the Extended Date.
    (D) For unaudited reports prepared under Sec.  4.7(b)(3)(i), the 
commodity pool operator has been informed by the operators of the 
Investments that specified information required to complete the pool's 
annual report cannot be obtained in sufficient time for the Annual 
Report to be prepared and distributed before the Extended Date.
    (v) For each fiscal year following the filing of the notice 
described in paragraph (f)(2)(i) of this section, for a particular 
pool, it shall be presumed that the particular pool continues to invest 
in another collective investment vehicle and the commodity pool 
operator may claim the extension of time; Provided, however, that if 
the particular pool is no longer investing in another collective 
investment vehicle, then the commodity pool operator must file 
electronically with the National Futures Association an Annual Report 
within 90 days after the pool's fiscal year-end accompanied by a notice 
indicating the change in the pool's status.
    (vi) Any notice or statement filed pursuant to this paragraph 
(f)(2) must be signed by the commodity pool operator in accordance with 
paragraph (h) of this section.
* * * * *

    Issued in Washington, DC, on November 2, 2009, by the 
Commission.
David Stawick,
Secretary of the Commission.
[FR Doc. E9-26789 Filed 11-6-09; 8:45 am]
BILLING CODE P