as may be necessary to make the required statements not misleading.

(d) The financial statements in the Annual Report must be presented and computed in accordance with generally accepted accounting principles consistently applied and must be certified by an independent public accountant. The certification must be in accordance with § 1.16, except that the following requirements of that section shall not apply:

(1) The audit objectives of § 1.16(d)(1) concerning the periodic computation of minimum capital and property in segregation;

(2) All other references in § 1.16 to the segregation requirements; and

(3) Sections 1.16(c)(5), (d)(2), (e)(2), and (f).

(e) The Statement of Income (Loss) 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.

(f)(1) In the event the commodity pool operator finds that it cannot distribute the Annual Report for a pool that it operates within the time specified in paragraph (c) of this section without substantial undue hardship, it may file with the Commission an application for extension of time to a specified date not more than 90 calendar days after the date as of which the Annual Report was to have been distributed. The application must be made by the pool operator and must:

(i) State the name of the pool for which the application is being made; (ii) State the reasons for the requested extension;

(iii) Indicate that the inability to make a timely filing is due to circumstances beyond the control of the pool operator, if such is the case, and describe briefly the nature of such circumstances;

(iv) Contain an undertaking to file the Annual Report on or before the date specified in the application; and

(v) Be filed with the Commission prior to the date on which the Annual Report is due.

(2) The application must be accompanied by a letter from the independent public accountant answering the following questions:

(i) What specifically are the reasons for the extension request?

(ii) Do you have any indication from the part of your audit completed to date that would lead you to believe that the commodity pool operator was or is not meeting the segregation or recordkeeping requirements of this Part 4?

(3) Within ten calendar days after receipt of an application for an extension of time, the Commission shall:

(i) Notify the commodity pool operator of the grant or denial of the requested extension, or

(ii) Indicate to the pool operator that additional time is required to analyze the request, in which case the amount of time needed will be specified.

(g)(1) A commodity pool operator may initially elect any fiscal year for a pool, but the first fiscal year may not end more than one year after the pool's formation. For purposes of this section, a pool shall be deemed to be formed as of the date the pool operator first receives funds, securities or other property for the purchase of an interest in the pool.

(2) If a commodity pool operator elects a fiscal year other than the calendar year, it must give written notice of the election to all participants and must file the notice with the Commission within 90 calendar days after the date of the pool's formation. If this notice is not given, the pool operator will be deemed to have elected the calendar year as the pool's fiscal year.

(3) The commodity pool operator must continue to use the elected fiscal year for the pool unless it provides written notice of any proposed change to all participants and files such notice with the Commission at least 90 days before the change and the Commission does not disapprove the change within 30 days after the filing of the notice.

(h)(1) Each Account Statement and Annual Report must contain a signed

path or affirmation that, to the best of che knowledge and belief of the individual making the oath or affirmation, he information contained in the docunent is accurate and complete; Provided, however, That it shall be unlawful for the individual to make such path or affirmation if the individual knows or should know that any of the information in the document is not accurate and complete.

(2) There must be typed beneath the signed oath or affirmation:

(i) The name of the individual signing the document;

(ii) The capacity in which he is signing;

(iii) The name of the commodity pool operator for whom he is signing; and

(iv) The name of the commodity pool for which the document is being distributed.

(3) If the commodity pool operator is a sole proprietorship, the oath or affirmation must be made by the sole proprietor; if a partnership, by a general partner; and if a corporation, by the chief executive officer or chief financial officer.

(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]

§ 4.23 Recordkeeping.

Each commodity pool operator registered or required to be registered under the Act must make and keep the following books and records in an accurate, current and orderly manner at its main business office and in accordance with § 1.31. All books and records required by this section except those required by paragraphs (a)(3), (a)(4), (b)(1), (b)(2) and (b)(3) must be made available to participants for inspection and copying during normal business hours at the main business office of the pool operator. Upon request, copies must be sent by mail to any participant within five business days if reasonable reproduction and

distribution costs are paid by the pool participant. If the commodity pool operator's main business office is outside of the United States, its territories or possessions, then upon the request of a Commission representative, the pool operator must provide such books and records as requested at the place in the United States, its territories or possessions designated by the representative within 72 hours after the pool operator receives the request.

(a) Concerning the commodity pool: (1) An itemized daily record of each commodity interest transaction of the pool, showing the transaction date, quantity, commodity interest, and, as applicable, price or premium, delivery month or expiration date, whether a put or a call, strike price, underlying contract for future delivery or underlying physical, the futures commission merchant carrying the account and the introducing broker, if any, whether the commodity interest was purchased, sold, exercised, or expired, and the gain or loss realized.

(2) A journal of original entry or other equivalent record showing all receipts and disbursements of money, securities and other property.

(3) The acknowledgement specified in § 4.21(d) for each participant in the pool.

(4) A subsidiary ledger or other equivalent record for each participant in the pool showing the participant's name and address and all funds, securities and other property that the pool received from or distributed to the participant.

(5) Adjusting entries and any other records of original entry or their equivalent forming the basis of entries in any ledger.

(6) A general ledger or other equivalent record containing details of all asset, liability, capital, income and expense accounts.

(7) Copies of each confirmation of a commodity interest transaction of the pool, each purchase and sale statement and each monthly statement for the pool received from a futures commission merchant.

(8) Cancelled checks, bank statements, journals, ledgers, invoices, computer generated records, and all other records, data and memoranda pre

pared or received in connection with the operation of the pool.

(9) The original or a copy of each report, letter, circular, memorandum, publication, writing, advertisement or other literature or advice (including the texts of standardized oral presentations and of radio, television, seminar or similar mass media presentations) distributed or caused to be distributed by the commodity pool operator to any existing or prospective pool participant or received by the pool operator from any commodity trading advisor of the pool, showing the first date of distribution or receipt if not otherwise shown on the document.

(10) A Statement of Financial Condition as of the close of (i) each regular monthly period if the pool had net assets of $500,000 or more at the beginning of the pool's fiscal year, or (ii) each regular quarterly period for all other pools. The Statement must be completed within 30 days after the end of that period.

(11) A Statement of Income (Loss) for the period between (i) the later of: (A) the date of the most recent Statement of Financial Condition furnished to the Commission pursuant to § 4.22(c), (B) April 1, 1979 or (C) the formation of the pool, and (ii) the date of the Statement of Financial Condition required by paragraph (a)(10) of this section. The Statement must be completed within 30 days after the end of that period.

(b) Concerning the commodity pool operator:

(1) An itemized daily record of each commodity interest transaction of the commodity pool operator and each principal thereof, showing the transaction date, quantity, commodity interest, and, as applicable, price or premium, delivery month or expiration date, whether a put or a call, strike price, underlying contract for future delivery or underlying physical, the futures commission merchant carrying the account and the introducing broker, if any whether the commodity interest was purchased, sold, exercised, or expired, and the gain or loss realized.

(2) Each confirmation of a commodity interest transaction, each purchase and sale statement and each monthly statement furnished by a futures com

mission merchant to (i) the commodity pool operator relating to a personal account of the pool operator, and (ii) each principal of the pool operator relating to a personal account of such principal.

(3) Books and records of all other transactions in all other activities in which the pool operator engages. Those books and records must include cancelled checks, bank statements, journals, ledgers, invoices, computer generated records and all other records, data and memoranda which have been prepared in the course of engaging in those activities.

(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; 48 FR 35299, Aug. 3, 1983]

Subpart C-Commodity Trading Advisors

§4.30 Prohibited activities.

No commodity trading advisor may solicit, accept or receive from an existing or prospective client funds, securities or other property in the trading advisor's name (or extend credit in lieu thereof) to purchase, margin, guarantee or secure any commodity interest of the client; Provided, however, That this section shall not apply to a future commission merchant that is registered as such under the Act or to a leverage transaction merchant that is registered as a commodity trading advisor under the Act.

(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)) [47 FR 57011, Dec. 22, 1982]

§ 4.31 Disclosure to prospective clients.

(a) No commodity trading advisor registered or required to be registered under the Act may solicit or enter into an agreement with a prospective client to direct the client's commodity interest account or to guide the client's

or

commodity interest trading by means of a systematic program that recommends specific transactions, unless the commodity trading advisor, at before the time it engages in the solicitation or enters into the agreement (whichever is earlier), delivers or causes to be delivered to the prospective client a Disclosure Document for the trading program pursuant to which the trading advisor seeks to direct the client's account or to guide the client's trading, 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 commodity trading advisor. If the address of the main business office is a post office box number, the trading advisor must state where its books and records will be kept;

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

(iii) A description of the trading program;

(iv)(A) The name of the futures commission merchant with which the commodity trading advisor will require the client to maintain its account or, if the client is free to choose the futures commission merchant with which it will maintain its account, the commodity trading advisor must make a statement to that effect; and

(B) The name of the introducing broker through which the commodity trading advisor will require the client to introduce its account or, if the client is free to choose the introducing broker through which it will introduce its account, the commodity trading advisor must make a statement to that effect; and

(v) The types of commodity interests the commodity trading advisor intends to trade, with a description of any restrictions or limitations on such trading established by the commodity trading advisor.

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

(i) The commodity trading advisor; and

(ii) Each principal of the trading advisor.

The trading advisor 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) The actual performance record of the commodity trading advisor and of each of its principals as specified below; Provided, however, That nothing in this paragraph (a)(3) shall be construed to prohibit a commodity trading advisor from disclosing additional information on such performance record so long as the trading advisor complies with each of the specified requirements of this paragraph (a)(3).

(i) The commodity trading advisor must disclose the actual performance for the three years preceding the date of the Document of all accounts directed by the commodity trading advisor and by each of its principals; Provided, however, That if the trading advisor and its principals previously have not directed an account, the trading advisor must disclose this fact with a prominent statement as follows:

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

If the 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 § 4.21(a)(4)(ii) (A) through (F), current as of a date not more than three months preceding the date of the Document.

(iii) In presenting actual performance the commodity trading, advisor may present the performance of the

accounts directed by each such person for whom such performance is disclosed pursuant to paragraph (a)(3)(i) of this section on an individual basis or on a composite basis.

(A) The commodity trading advisor must describe the material differences among those accounts, and

(B) If that performance is presented on a composite basis, the trading advisor must describe how each composite was developed and must disclose material information from which the composite was drawn.

(4) A complete description of each fee which the commodity trading advisor will charge the client.

(i) Wherever possible, the trading advisor must specify the dollar amount of each such fee.

(ii) Where any fee is determined by reference to a base amount term including, but not limited to, "net assets," "gross profits," "net profits" or “net gains," the trading advisor must specifically define each such term.

(iii) Where any fee is based on an increase in the value of the client's commodity interest account, the trading advisor must specify how that increase is calculated, the period of time during which the increase is calculated, the fee to be charged at the end of that period and the value of the account at which payment of the fee commences.

(5)(i) Any actual or potential conflict of interest regarding any aspect of the trading program on the part of:

(A) The commodity trading advisor; (B) Any principal of the trading advisor;

(C) Any futures commission merchant with which the client will be required to maintain its commodity interest account and any principal of the futures commission merchant; or

(D) Any introducing broker through which the client will be required to introduce its account to a futures commission merchant and any principal of the introducing broker.

Included in the description of such conflict shall be any arrangement whereby the trading advisor or any principal thereof may benefit, directly or indirectly, from the maintenance of the client's commodity interest account with a futures commission mer

chant or the introduction of that ac count through an introducing broker.

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

(iii) If any of the foregoing persons does not have any such actual or potential conflict of interest, the trading advisor must make a statement to that effect with respect to each such person.

(6)(i) A statement whether trading in commodity interests will be done or is intended to be done for its own ac count by:

or

(A) The commodity trading advisor,

(B) Any principal of the trading advisor.

(ii) If any of the foregoing persons I will trade or intends to trade for its own account, for each such person the commodity trading advisor must fur ther disclose whether clients will be permitted to inspect the records of that person's trades.

(iii) If any of the foregoing persons will not trade or does not intend to trade in commodity interests for its own account, the trading advisor must make a statement to that effect with respect to each such person.

(7)(i) Any material administrative civil or criminal action within the five years preceding the date of the Docu ment against:

(A) The commodity trading advisor, (B) Any principal of the trading advisor;

(C) The futures commission merchant with which the client will be required to maintain its commodity in terest account;

(D) Any principal of the futures commission merchant;

(E) The introducing broker through which the client will be required to introduce its account to the futures com mission merchant; and

(F) Any principal of the introducing broker.

(ii) If there has been no such action against any of the foregoing persons, the trading advisor must make a statement to that effect with respect to each such person.

(8)(i) The following Risk Disclosure Statement to be prominently disclosed