ed an official seal (the "Seal"), the description of which is as follows:

(a) An American bald eagle in black and white holding the scales of balanced interests over a black and white wheel of commerce and a farmer's plow, also in black and white. These symbols are enclosed with an inner red octagon and a blue outer octagon representing traditional futures contract trading pits. Around the outside of the octagons are the words "Commodity Futures Trading Commission" separated by two stars from the year "1975," the first year of the Commission's existence.

(b) The Seal of the Commodity Futures Trading Commission is illustrated as follows:

TRADING

FUTURES

COMMODITY

1975✩

§ 2.2 Authority to affix seal.

(a) The following officials of the Commodity Futures Trading Commission are authorized to affix the Seal to appropriate documents and other materials of the Commission for all purposes including those authorized by 28 U.S.C. 1733(b) (relating to authenticated copies of agency documents used as evidence): The Chairman and all Commissioners, the General Counsel, the Executive Director, the Directors of Divisions, and the Secretariat.

(b) The officials, named in paragraph (a) of this section, except the Secretariat, may redelegate, and authorize redelegation of this authority.

§2.3 Prohibitions against misuse of seal.

(a) Fraudulently or wrongfully affixing or impressing the Seal to or upon any certificate, instrument, document or paper or with knowledge of its fraudulent character, or with wrongful or fraudulent intent, using, buying, procuring, selling or transferring to another any such paper is punishable under Section 1017 of Title 18, United States Code.

(b) Falsely making, forging, counterfeiting, mutilating, or altering the Seal, or knowingly using a fraudulent or altered Seal or possessing any such Seal knowingly is punishable under Section 506 of Title 18, United States Code.

PART 4-COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS

Sec.

Subpart A-Definitions and Exemptions

4.10 Definitions.

4.11 Exemption from section 4n(3)(B). 4.12 Exemption from provisions of Part 4. 4.13 Exemption from registration; continued applicability of antifraud and reparation sections.

4.20

Subpart B-Commodity Pool Operators
[Reserved]

4.21 Disclosure to prospective pool participants.

4.22 Reporting to pool participants.

4.23 Record-keeping.

4.24 Segregation of property.

Subpart C-Commodity Trading Advisors

4.30 [Reserved]

4.31 Disclosure to prospective clients. 4.32 Record-keeping.

AUTHORITY: Secs. 2(a)(1), 4b, 4c, 41, 4m, 4n, 40, 8a and 19 of the Commodity Exchange Act, 7 U.S.C. 2 et seq., as amended, 92 Stat. 865 et seq.

SOURCE: 44 FR 1924, Jan. 8, 1979, unless otherwise noted.

Subpart A-Definitions and Exemptions

§ 4.10 Definitions.

For purposes of this part:

(a) "Commodity interest" means

(1) Any contract for the purchase or sale of a commodity for future delivery; and

(2) Any contract, agreement or transaction subject to Commission regulation under sections 4c or 19 of the Act.

(b) "Net asset value" means total assets minus total liabilities, with each position in a commodity interest marked to the market or accounted for at fair market value, in accord with generally accepted accounting principles.

(c) "Participant" means any person that has any direct financial interest in a pool (e.g., a limited partner).

(d) "Pool" means any investment trust, syndicate or similar form of enterprise that trades commodity interests.

(e) "Principal," when referring to a person that is a principal of a particular entity, means any general partner or director or officer (or person performing similar functions) of the entity, or any owner of more than 10 percent of the equity interest of the entity. "Equity interest" means any financial interest that permits the owner thereof to exercise direct or indirect control of the entity in which the interest is held. "Owner" includes not only the holder of record of the equity interest but also any person that has control over the equity interest.

§ 4.11 Exemption from section 4n(3)(B).

The provisions of section 4n(3)(B) of the Act shall not apply to any commodity pool operator or commodity trading advisor that is registered under the Act as such or that is exempt from such registration.

§ 4.12 Exemptions from provisions of Part 4.

The Commission may exempt any person or any class or classes of persons from any provision of this part if it finds that the exemption is not contrary to the public interest and the purposes of the provision from which the exemption is sought. The Commission may grant the exemption subject to such terms and conditions as it may find appropriate.

§ 4.13 Exemption from registration; continued applicability of antifraud and reparations sections.

(a) A person is not required to register with the Commission as a commodity pool operator if—

(1) (i) It does not receive any compensation or other payment, directly or indirectly, for operating the pool, except reimbursement for the ordinary administrative expenses of operating the pool; (ii) it operates only one commodity pool at any time; (iii) it is not otherwise required to register with the Commission and has no business affiliation with any person required to register with the Commission; and (iv) neither the person nor any other person involved with the pool does any advertising in connection with the pool (for purposes of this section, advertising includes the systematic solicitation of prospective participants by the telephone or seminar presentation); or

(2) (i) The net asset value of the pool it operates (or, if it operates more than one pool, the combined net asset values of the pools it operates) does not exceed $50,000 at the beginning of the pool's fiscal year, and (ii) none of the pools operated by it has more than 15 participants (excluding the pool's operator and trading advisor(s)) at any time during the pool's fiscal year.

(b) A person is not required to register with the Commission 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; or

(4) It is registered under the Act as a commodity pool operator and the person's commodity trading advice is di

rected solely to, and for the sole use of, the pool or pools for which it has so registered.

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

(d) The provisions of sections 40 and 14 of the Act shall apply to any person exempted by this section and it shall continue to be unlawful for that person to violate section 40 of the Act.

Subpart B-Commodity Pool Operators

§ 4.20 [Reserved]

§ 4.21 Disclosure to prospective participants.

(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 any prospective pool participant 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 containing the following information:

(1) The name and main business address of the pool's operator and the name of each principal thereof.

(2) The business background, for the five years preceding the date of the Document, of the pool's operator and the pool's commodity trading advisor(s) and of each principal thereof.

(3) Any actual or potential conflict of interest on the part of the operator, commodity trading advisor or futures commission merchant of the pool, or

the principals of those entities, regarding any aspect of the pool.

(4) The actual performance for the preceding three years of the pool and each pool operated or advised within the twelve months preceding the date of the Document by the pool's operator, commodity trading advisor(s), or the principals thereof.

(i)(A) The presentation of actual performance must include prominent disclosure of a table showing for the entire period the monthly or quarterly net asset value of one pool participation unit and the monthly or quarterly sum of the distributions and assessments per unit, if any. If a pool is required by § 4.22(b) to issue Account Statements monthly, the table of net asset values must be on a monthly basis.

(B) The presentation of actual performance must also include prominent disclosure of the annual rate of return (compounded annually) rounded to the nearest tenth of one percent of one pool participation unit for the entire period. The annual rate of return (compounded annually) should be computed on the assumption that all distributions, if any, are reinvested (outside the pool) and all assessments, if any, are discounted at the same rate, i.e., at the annual rate of return (compounded annually) and that all distributions and assessments that are paid during a monthly time period are made at the end of the monthly time period.

(C) The annual rate of return (compounded annually) is calculated by first computing the monthly internal rate of return compounded monthly to the nearest hundredth of one percent and then converting the monthly rate with monthly compounding into an annual rate with annual compounding. The following formula should be used for calculating the monthly internal rate of return compounded monthly ("i"):

Where:

INV=amount of the initial investment (total cost including commissions and fees to the investor for one pool participation unit),

cf the sum of the distribution(s) (positive sign) and assessment(s) (negative sign) made per unit during each monthly time period, NAV=net asset value (less redemption costs,

if any) of one pool participation unit at the end of the performance period, and n=the number of monthly time periods. The following formula should be used to convert the monthly internal rate of return compounded monthly into the annual rate of return (compounded annually) (“R”):

Where:

R=(1+Mo.IRR) 12-1

Mo.IRR=monthly internal rate of return compounded monthly expressed as a decimal.

(ii) If a pool whose actual performance must be disclosed does not have a full three-year record, the actual performance for the entire period of its operation must be disclosed with a prominent statement as follows: "The Commodity Futures Trading Commission requires commodity pool operators to disclose to prospective participants the actual performance record of each of their pools for at least the previous three years. You should note that the annual rate of return (compounded annually) of percent for

this pool's participation units is for the pool's entire operating history, a period of only months." If the pool for which the commodity pool operator is soliciting participants has not commenced commodity interest trading, this fact must be disclosed with a prominent statement as follows: "The Commodity Futures Trading Commission requires commodity pool operators to disclose to prospective pool participants the actual performance record of each of their pools for at least the previous three years. You should note that this pool has not begun trading and does not have any performance history."

(iii) If a pool discloses, in addition, its performance for other time periods, it must prominently present the table of net asset values and the annual rate

of return (compounded annually) in accord with paragraph (a)(4)(i) of this section for each of those periods.

(5) Whether the pool's operator or commodity trading advisor(s), or the principals thereof, have controlled commodity interest accounts of customers other than pools within the twelve months preceding the date of the Document and, if so, whether the performance of those accounts will be made available to the participants. If made available, the performance of commodity interest accounts must include a presentation in the manner described in § 4.21(a)(4).

(6) The extent of any beneficial interest in the pool of the pool's operator or commodity trading advisor(s), or the principals thereof.

(7) A complete description of each kind of expense that has been and is expected to be incurred by the pool, expressed both as a dollar amount and as a percentage of average net asset value for the preceding and current fiscal years, including fees for management, trading advice, legal advice, accounting services and organizational services.

(8) The manner in which the pool will fulfill its margin requirements.

(9) The manner in which pool funds not deposited as margin will be used.

(10) Any restrictions upon the transferability or redeemability of interests in the pool.

(11) The extent to which a participant may be held liable for obligations of the pool in excess of the funds initially contributed by the participant to the pool.

(12) The pool's policies with respect to the payment of distributions from profits or capital and the federal income tax effects of such payments for participants.

(13) Any material administrative, civil or criminal action against the pool's operator, commodity trading advisor(s), or the principals thereof within the five years preceding the date of the Document.

(14) Any commission or other fee that is paid or may be paid, directly or indirectly, by the pool's operator, com

40-038 0-79——6

modity trading advisor(s), or the principals thereof to any person in connection with the solicitation of funds, securities or other property for the pool.

(15) Whether the pool's operator, commodity trading advisor(s), or the principals thereof, trade or intend to trade commodity interests for their own accounts and, if so, whether participants will be permitted to inspect the records of those trades.

(16) A statement that the pool's operator must provide all participants with monthly or quarterly (whichever applies) statements of account and a certified or uncertified (whichever applies) annual report of financial condition.

(17) The following Risk Disclosure Statement (to be prominently displayed as the first page of the Disclosure Document):

RISK DISCLOsure StatemeENT

You should carefully consider whether your financial condition permits you to participate in a commodity pool. You may lose a substantial portion or even all of the money you place in the pool.

In considering whether to participate in a commodity pool, you should be aware that trading commodity contracts can quickly lead to large losses as well as gains. Such trading losses can sharply reduce the net asset value of a pool and consequently the value of your interest in the pool.

Under certain market conditions, a pool may find it difficult or impossible to liquidate a position. This can occur, for example, when the market makes a "limit move.' Placing contingent orders, such as a "stoploss" or "stop-limit" order, will not necessarily limit the pool's losses to the intended amounts, since market conditions may make it impossible to execute such orders.

This brief statement cannot, of course, disclose all the risks and other significant aspects of participating in a commodity pool. You should therefore carefully study this Disclosure Document and commodity trading before you decide to participate in a commodity pool.

The Commodity Futures Trading Commission has not reviewed this Disclosure Document and has not determined whether it is accurate or complete.

(18) The following cautionary statement (to be prominently displayed on the cover page of the Document): "The Commodity Futures Trading Commission has not reviewed this Disclosure Document and has not deter

mined whether it is accurate or complete."

(b) A copy of the Disclosure Document and all subsequent amendments must be delivered to the Commission at its Washington, D.C. office (Att.: Office of the Chief Counsel, Division of Trading and Markets, C.F.T.C., 2033 K Street, NW., Washington, D.C. 20581) within seven business days after the date it is first given to a prospective participant.

(c) If the commodity pool operator knows or has reason to know that the Disclosure Document is materially inaccurate or incomplete in any respect, it must amend the Document to correct that defect and must furnish the amendment or a corrected Document to all participants and all prospective participants within five business days of the date upon which the commodity pool operator first knows or has reason to know of the defect.

(d) This section does not relieve a commodity pool operator from any obligation under the Act or the regulations thereunder, including the obligation to disclose all material information to existing or prospective pool participants even if the information is not specifically required by this section.

[44 FR 1925, Jan. 8, 1979; 44 FR 3706, Jan. 18, 1979]

§ 4.22 Reporting to pool participants.

(a) 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 days of the end of the reporting period, an Account Statement showing the following information as of the end of the period prescribed in § 4.22(b):

(1) The net asset value of the pool. (2)(i) The net asset value per outstanding participation unit in the pool,

or

(ii) The total value of the participant's interest or share in the pool.

(3) The total amount of all management and advisory fees and all other expenses (exclusive of the brokerage commissions and fees described in § 4.22(a)(4) below) incurred or accrued by the pool during that reporting