S3 - 1.6

Question 1

What are Commodity Pools?

Answer 1

Various persons, investors, fund a common Pool to trade futures and futures options

Question 2

Who sets up a Commodity Pool?

Answer 2

a CPO (Commodities Pool Operator)

Question 3

Who manages the pool’s funds?

Answer 3

By a CTA (Commodities trading Advisor)

Question 4

Are Commodity Pools the same thing as ETFs or MFs?

Answer 4

Not at all

Question 5

What do CPOs do?

Answer 5

1) set up and operate Commodity Pools (CP)

2) Accept funds for investment in a CP

Question 6

Are CPOs regulated at all?

Answer 6

CPOs are heavily regulated

Question 7

What kind of info do registered CPOs need to furnish to their clients?

Answer 7

1) Disclosure agreement
2) Periodic account statements (mthly or qtly)
3) Certified annual reports, including: Statement of financial condition, Profit and Loss statement
4) a statement of the changes in the NAV of the pool

Question 8

How long must a CPO maintain records and record ?

Answer 8

5 years

Question 9

When must the Pool deliver the Annual Report?

Answer 9

Within 90 days off the pool’s fiscal-year end

Question 10

Which books and records does a registered CPO need to keep for 5 years?

Answer 10

1) Daily purchase/sell record
2) Daily cash record
3) Acknowledgements signed and dated of participants saying they received a Disclosure document

Question 11

When does a Registered CPO have to give Disclosure documents to prospective clients?

Answer 11

Before on the day client adds funds t the pool

Question 12

Who must check the Disclosure document before it can be used with clients?

Answer 12

NFA must approve disclosure documents in writing

Question 13

How current do disclosure agreements need to be?

Answer 13

No older then 9 months

Question 14

How many months old can disclosure documents concerning the pool’s performance?

Answer 14

No more than 3 months old

Question 15

What is in the Disclosure doc given to clients?

Answer 15

1) Name, address, phone, firm’s and pool operator’s structure, name of CTA
2) Types of commodity interests (products that can be traded in the pool)
3) Detail of fees and expenses, including those for management, trade advice, trade commissions, for last fiscal year
4) CTA trade compensation / incentive
5) minimum funds needed to start-up the pool
6) Restrictions on transferability of client’s interests in the pool
7) Extend to which client may be liable past the funds contributed to the pool
8) Legal motions involving the pool in last 5 years
9) Solicitation fees (who is pool paying to bring in more clients and funds)
10) Statement saying pool will provide monthly or quarterly statements on condition of the pool
11) Permission or not to check on CPO’s proprietary trades

Question 16

What goes on the cover of the Disclosure statement?

Answer 16

Risk Disclosure

Question 17

What is the content of the Risk Disclosure?

Answer 17

1) how are margin requirements satisfied?
2) CPO and CTA business background for last 5 years (detailed work history)
3) Have the pool’s principals any pool experience?
4) Last 5 year pool performance to be presented on a quarterly basis
6) BEP Analysis

Question 18

How many years of history must the Risk Disclosure cover?

Answer 18

5 years or full 3 years if pool is not older

Question 19

Who prepares the pool’s Breakeven analysis?

Answer 19

CPO

Question 20

What must the breakeven analysis consider?

Answer 20

1) all fees and expenses (except for incentives)

2) preliminary gross income before incentive fees (subtract interest income)

Question 21

Where does the CPO need to show the Breakeven analysis?

Answer 21

In the Disclosure document

Question 22

Do Pools NOT registered with the SEC need to present a Breakeven analysis?

Answer 22

Yes

Question 23

Do Pools YES registered with the SEC need to present a Breakeven analysis?

Answer 23

Yes

Question 24

If foreign futures are traded in the pool, is it necessary to Disclose?

Answer 24

Yes - with a specific Disclosure

Question 25

Who can say they are qualified or approved by CTFC or any other regulatory agency?

Answer 25

NO ONE

Question 26

Are the Pool and the CPO the same thing in terms of receiving funds or pool ownership?

Answer 26

NO - funding goes to the pool, not the CPO; the pool’s contents are not to be mixed up with the CPO’s own

Question 27

Can a CPO act as CTA and vice versa?

Answer 27

Yes, but a separate registration is required

Question 28

What does CTA need to disclose regarding up-front fees?

Answer 28

1) How up-front fees affect initial investment
2) impact of up-front fees on pool performance (as deducted from performance)
3) Must be disclosed in Disclosure cover
4) dilution table must show on disclosure cover as well

Question 29

Can Commodity pools be set up as Limited Partnerships?

Answer 29

Yes, and must register with the SEC (and CFTC)

Question 30

Pools of which value need distribute monthly account statements?

Answer 30

Pools with net assets under 500k

Question 31

Do all CPOs need register?

Answer 31

If funds of pool < 400k and participants les than 15 - NO

Question 32

What is the CPO wants to participate in the fund as an investor?

Answer 32

CPO has to disclose to pool investors

Question 33

What are 3 legal ways a Pool can be structured?

Answer 33

1) Corporation
2) LIMITED LIABILITY
3) limited partnership

Question 34

When is a CPO exempt from registration?

Answer 34

1) operates family, club or small pool
2) puts limits to futures activity
3) pool participation is limited to qualified eligible persons

Question 35

What could become a conflict of interest in a pool?

Answer 35

CPO/CTA wanting higher fees Vs clients wanting to pay lower fees