or that it intends to operate unless, on or before the date it engages in that activity, the person delivers or causes to be delivered to the prospective participant a written statement that must disclose this fact as follows: The commodity pool operator of this pool is not required to register, and has not registered, with the Commodity Futures Trading Commission. Therefore, unlike a registered commodity pool operator, this commodity pool operator is not required by the Commission to furnish a Disclosure Document, periodic Account Statements, and an Annual Report to participants in the pool." The person must describe in the statement the exemption pursuant to which it is not registered as a commodity pool operator and must manually sign the statement.

(2) Each person who is exempt from registration as a commodity pool operator under paragraph (a)(1) or (a)(2) of this section and who is not registered as such pursuant to that exemption must:

(i)(A) Promptly furnish to each participant in each pool that it operates a copy of the monthly statement for the pool that such person received from a futures commission merchant pursuant to § 1.33, and

(B) Clearly show on such statement, or on an accompanying supplemental statement, the net profit or loss on all commodity interests closed since the date of the previous statement; and

(ii)(A) Maintain all books and records prepared in connection with its activities as a commodity pool operator for a period of five years from the date of preparation, and

(B) Keep such books and records readily accessible during the first two years of the five-year period. All such books and records shall be open to inspection by any representative of the Commission or the United States Department of Justice.

(c) Each person who applies for registration as a commodity pool operator must include with its initial application the financial statements and other information required by § 4.22(c) (1) through (5) for each pool it operates when such application is made. That information must be presented and computed in accordance with gen

erally accepted accounting principles consistently applied. If the person is granted registration as a commodity pool operator, it must comply with this Part 4 with respect to each pool it operates. The provisions of this paragraph (c) shall apply even though such person was exempt from registration as a commodity pool operator pursuant to the provisions of paragraph (a) of this section at the time it applied for registration.

(d) If a person exempt from registration under the Act as a commodity pool operator under paragraph (a)(1) or (a)(2) of this section registers as a commodity pool operator, that person must comply with this Part 4 as if such person were not exempt from registration as a commodity pool operator.

(Approved by the Office of Management and Budget under control number 30380005)

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 12a, 19 and 21; 5 U.S.C. 552 and 552b))

[46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 47 FR 57011, Dec. 22, 1982]

§ 4.14 Exemption from registration as a commodity trading advisor.

(a) A person is not required to register under the Act as a commodity trading advisor if:

(1) It is a dealer, processor, broker, or seller in cash market transactions of any commodity (or product thereof) and the person's commodity trading advice is solely incidental to the conduct of its cash market business;

(2) It is a non-profit, voluntary membership, trade association or farm organization and the person's commodity trading advice is solely incidental to the conduct of its business as such association or organization;

(3) It is registered under the Act as an associated person and the person's commodity trading advice is issued solely in connection with its employment as an associated person;

(4) It is registered under the Act as a commodity pool operator and the person's commodity trading advice is directed solely to, and for the sole use

of, the pool or pools for which it is so registered;

(5) It is exempt from registration as a commodity pool operator and the person's commodity trading advice is directed solely to, and for the sole use of, the pool or pools for which it is so exempt; or

(6) It is registered under the Act as an introducing broker and the person's trading advice is solely in connection with its business as an introducing broker.

(7) It is registered under the Act as a leverage transaction merchant and the person's trading advice is solely in connection with its business as a leverage transaction merchant.

(b) For purposes of this section, "cash market transactions" shall not include transactions involving contracts for the purchase or sale of a commodity for future delivery or transactions subject to Commission regulation under section 4c or 19 of the Act.

(c) If a person exempt from registration under the Act as a commodity trading advisor under paragraph (a) of this section registers as a commodity trading advisor, that person must comply with this Part 4 as if such person were not exempt from registration as a commodity trading advisor. (Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 12a(5) and 23 (1982); 5 U.S.C. 552 and 552b)

[46 FR 26013, May 8, 1981; 46 FR 26761, May 15, 1981; 48 FR 35298, Aug. 3, 1983; 49 FR 5526, Feb. 13, 1984]

§ 4.15 Continued applicability of antifraud and reparation sections.

The provisions of sections 40 and 14 of the Act shall apply to any person even though such person is exempt from registration under this Part 4, and it shall continue to be unlawful for any such person to violate section 40 of the Act.

§ 4.16 Prohibited representations.

It shall be unlawful for any commodity pool operator, commodity trading advisor, principal thereof or person who solicits therefor to represent or imply in any manner whatsoever that such commodity pool operator or commodity trading advisor has

been sponsored, recommended or approved, or that its abilities or qualifications have in any respect been passed upon, by the Commission, the Federal government or any agency thereof.

Subpart B-Commodity Pool
Operators

§ 4.20 Prohibited activities.

(a)(1) Except as provided in paragraph (a)(2) of this section, a commodity pool operator must operate its pool as an entity cognizable as a legal entity separate from that of the pool operator.

(2) The Commission may exempt a corporation from the requirements of paragraph (a)(1) of this section if;

(i) The corporation represents in writing to the Commission that each participant in its pool will be issued stock or other evidences of ownership in the corporation for all funds, securities or other property that the participant contributes for the purchase of an ownership interest in the pool;

(ii) The corporation demonstrates to the satisfaction of the Commission that it has estabilshed procedures adequate to assure compliance with paragraphs (b) and (c) of this section; and (iii) The Commission finds that the exemption is not contrary to the public interest and to the purposes of the provision from which the exemption is sought.

(b) All funds, securities or other property received by a commodity pool operator from an existing or prospective pool participant for the purchase of an interest or as an assessment (whether voluntary or involuntary) on an interest in a pool that it operates or that it intends to operate must be received in the pool's name.

(c) No commodity pool operator may commingle the property of any pool that it operates or that it intends to operate with the property of any other person.

(Approved by the Office of Management and Budget under control number 30380005)

[46 FR 26013, May 8, 1981, as amended at 46 FR 34311, July 1, 1981; 46 FR 63035, Dec. 30, 1981]

53-047 0-85--5

§ 4.21 Disclosure to prospective pool par

ticipants.

(a) No commodity pool operator registered or required to be registered under the Act may, directly or indirectly, solicit, accept or receive funds, securities or other property from a prospective participant in a pool that it operates or that it intends to operate unless, on or before the date it engages in that activity, the commodity pool operator delivers or causes to be delivered to the prospective participant a Disclosure Document for the pool, in such form as the Commission may prescribe, containing the following information:

(1)(i) The name, address of the main business office, main business telephone number and form of organization of the pool. If the address of the main business office is a post office box number, the pool operator must state where the pool's books and records will be kept;

(ii) The name, address of the main business office, main business telephone number and form of organization of the commodity pool operator. If the address of the main business office is a post office box number, the pool operator must state where its books and records will be kept;

(iii) The name of each principal of the pool operator;

(iv) The name of the pool's commodity trading advisor;

(v) The name of each principal of the trading advisor;

(vi) The name of the person who will make the trading decisions for the pool;

(vii) If known, the name of the futures commission merchant through which the pool will execute its trades and, if applicable, the introducing broker through which the pool will introduce its trades to the futures commission merchant; and

(viii) The types of commodity interests the commodity pool operator intends that the pool will trade, with a description of any restrictions or limitations on such trading established by the commodity pool operator.

(2) The business background, for the five years preceding the date of the Document, of:

(i) The commodity pool operator;

(ii) Each principal of the pool operator;

(iii) The pool's commodity trading advisor; and

(iv) Each principal of the pool's commodity trading advisor.

The pool operator must include in the description of the business background of each such person the name and main business of that person's employers, business associations or business ventures and the nature of the person's duties performed for the employers or in connection with the associations or ventures.

(3)(i) Any actual or potential conflict of interest regarding any aspect of the pool on the part of:

(A) The commodity pool operator; (B) Any principal of the pool operator;

(C) The pool's commodity trading advisor;

(D) Any principal of the trading advisor;

(E) Any futures commission merchant through which the pool's trades will be executed;

(F) Any principal of the futures commission merchant;

(G) Any introducing broker through which the pool will introduce its trades to the futures commission merchant; or

(H) Any principal of the introducing broker.

Included in the description of such conflict shall be any arrangement whereby the commodity pool operator, commodity trading advisor, or the principals thereof may benefit, directly or indirectly, from the maintenance of the pool's account with the futures commission merchant or from the introduction of the pool's account to a futures commission merchant by an introducing broker.

(ii) If there is any such actual or potential conflict of interest, the pool operator must fully describe the nature of the conflict.

(iii) If there is no such actual or potential conflict of interest on the part of any of the foregoing persons, the pool operator must make a statement to that effect with respect to each such person.

(4) The actual performance record of the commodity pool operator and of each of its principals as specified below; Provided, however, That nothng in this § 4.21(a)(4) shall be construed to prohibit a commodity pool Operator from disclosing additional information on such performance record so long as the pool operator complies with each of the specified requirements of this § 4.21(a)(4).

(i) The commodity pool operator must comply with this § 4.21(a)(4) as follows: If commodity interests have been traded by the pool for which the commodity pool operator is soliciting participants, the pool operator must comply with paragraph (a)(4)(i)(A) of this section if that trading has been for 12 months or more preceding the date of the Disclosure Document, or with paragraph (a)(4)(i)(B) of this section if that trading has been for less than 12 months preceding the date of the Document. If commodity interests have not been traded by the pool for which the commodity pool operator is soliciting participants, the pool operator must comply with paragraph (a)(4)(i)(C) of this section.

(A) If the pool for which the commodity pool operator is soliciting participants has traded commodity interests for 12 months or more preceding the date of the Document, the pool operator must disclose the actual performance of the pool for its entire operating history; Provided, however, That if the pool has traded commodity interests for more than three years preceding the date of the Document, the pool operator need only disclose the actual performance for such preceding three years.

(B) If the pool for which the commodity pool operator is soliciting participants has traded commodity interests for less than 12 months preceding the date of the Document, the pool operator must disclose the actual performance of the pool for its entire operating history and also must present the actual performance for the three years preceding the date of the Document of each other pool operated by it and by each of its principals; Provided, however, That if the pool operator and its principals previously have not operated any other pool, the pool operator

must disclose these facts with a prominent statement as follows:

"THE COMMODITY FUTURES TRADING COMMISSION REQUIRES THE OPERATOR OF A POOL THAT HAS TRADED COMMODITY INTERESTS FOR LESS THAN 12 MONTHS TO DISCLOSE THE ACTUAL PERFORMANCE RECORD OF THE POOL FOR ITS ENTIRE OPERATING HISTORY AND THE ACTUAL PERFORMANCE RECORD OF EACH OTHER POOL OPERATED BY THE POOL OPERATOR AND ITS PRINCIPALS. YOU SHOULD NOTE THAT THE ACTUAL PERFORMANCE RECORD OF THIS POOL REPRESENTS ITS ENTIRE OPERATING HISTORY, A PERIOD OF ONLY MONTHS. YOU ALSO SHOULD NOTE THAT THIS POOL OPERATOR AND ITS PRINCIPALS PREVIOUSLY HAVE NOT OPERATED ANY OTHER COMMODITY POOL.”

If the commodity pool operator is a sole proprietorship, reference to its principals may be deleted from the prescribed statement.

(C) If the pool for which the commodity pool operator is soliciting participants has not commenced trading commodity interests, the pool operator must disclose this fact with a prominent statement as follows:

NOT

"THE COMMODITY FUTURES TRADING COMMISSION REQUIRES A COMMODITY POOL OPERATOR TO DISCLOSE TO PROSPECTIVE POOL PARTICIPANTS THE ACTUAL PERFORMANCE RECORD OF THE POOL FOR WHICH THE OPERATOR IS SOLICITING PARTICIPANTS. YOU SHOULD NOTE THAT THIS POOL HAS BEGUN TRADING AND DOES NOT HAVE ANY PERFORMANCE HISTORY." The pool operator also must present the actual performance for the three years preceding the date of the Document of each other pool operated by it and by each of its principals; Provided, however, That if the pool operator and its principals previously have not operated any other pool, the pool operator must disclose this fact with a prominent statement as follows:

“WHERE THE POOL FOR WHICH THE POOL OPERATOR IS SOLICITING PARTICIPANTS HAS NOT BEGUN TRADING, THE COMMISSION REQUIRES THE POOL OPERATOR TO DISCLOSE TO PROSPECTIVE PARTICIPANTS THE ACTUAL PERFORMANCE RECORD OF EACH OTHER POOL OPERATED BY THE POOL OPERATOR AND ITS PRIN

CIPALS. YOU ALSO SHOULD NOTE THAT THIS POOL OPERATOR AND ITS PRINCIPALS PREVIOUSLY HAVE NOT OPERATED A COMMODITY POOL."

If the commodity pool operator is a sole proprietorship, reference to its principals may be deleted from the prescribed statement.

(ii) The presentation of actual performance must be displayed in a table showing at least quarterly the following information, current as of a date not more than three months preceding the date of the Document:

(A) The beginning net asset value for the period, which shall represent the previous period's ending net asset value;

(B) All additions, whether voluntary or involuntary, during the period;

(C) All withdrawals and redemptions, whether voluntary or involuntary, during the period;

(D) The net performance for the period, which shall represent the change in the net asset value net of additions, withdrawals and redemptions;

(E) The ending net asset value for the period, which shall represent the beginning net asset value plus or minus additions, withdrawals and redemptions, and net performance;

(F) The rate of return for the period, which shall be calculated by dividing the net performance by the beginning net asset value; and

(G) The number of units outstanding at the end of the period.

(iii) The commodity pool operator must describe the material differences among the pools for which past performance is disclosed pursuant to paragraph (a)(4)(i) of this section.

(iv) The commodity pool operator may present the actual performance of the pools operated by each such person for whom such performance is disclosed pursuant to paragraph (a)(4)(i) of this section on an individual basis or on a composite basis; Provided, however, That if the commodity pool operator presents that performance on a composite basis, it must:

(A) Separately disclose the actual performance of the pool for which it is soliciting participants;

(B) Present in a composite separate and apart from any other composite the actual performance of all other

pools operated by the commodity pool operator and directed by the pool's commodity trading advisor and by any principals of the trading advisor; and

(C) Describe how each composite was developed and disclose material information from which the composite was drawn.

(5) The actual performance record of the pool's commodity trading advisor and of each of its principals as specified below; Provided, however, That nothing in paragraph (a)(5) of this section shall be construed to prohibit a commodity pool operator from disclosing additional information on such performance record so long as the pool operator complies with each of the specified requirements of this paragraph (a)(5).

(i) The commodity pool operator must disclose the actual performance for the three years preceding the date of the Document of all accounts other than the pool directed by the pool's commodity trading advisor and by each of its principals; Provided, however, That if the pool for which the pool operator is soliciting participants has not commenced trading commodity interests and the pool's trading advisor and its principals previously have not directed an account, the pool operator must disclose this fact with a prominent statement as follows:

"THE COMMISSION ALSO REQUIRES THE POOL OPERATOR TO DISCLOSE THE ACTUAL PERFORMANCE RECORD OF ALL ACCOUNTS FOR WHICH THE POOL'S TRADING ADVISOR AND ITS PRINCIPALS HAVE HAD THE AUTHORITY TO CAUSE TRANSACTIONS TO BE EFFECTED WITHOUT CLIENTS' SPECIFIC AUTHORIZATION. YOU ALSO SHOULD NOTE THAT THIS POOL'S TRADING ADVISOR AND ITS PRINCIPALS PREVIOUSLY HAVE NOT HAD SUCH AUTHORITY."

If the pool's commodity trading advisor is a sole proprietorship, reference to its principals may be deleted from the prescribed statement.

(ii) The presentation of actual performance must be displayed in a table showing at least quarterly the information required under paragraphs (a)(4)(ii) (A) through (F) of this section, current as of a date not more