CFTC Staff Letter 03-32: Confirmation of Exemption from Rule 4.7 Reporting for Master Fund Operation

CFTC Letter 03-32
CFTC letter No. 03-32
August 13, 2003
Exemption
Division of Clearing and Intermediary Oversight Re: Request for Confirmation of Exemption from Rule 4.7 Dear :
This is in response to your letter dated May 2, 2003, to the Division of Clearing and Intermediary Oversight (the “Division”) of the Commodity Futures Trading Commission (the “Commission”), as supplemented by telephone conversations with Division staff. By your correspondence, you request confirmation that the relief from Rule 4.7[1] that the Division previously issued to “X”, a registered commodity pool operator ("CPO") and the CPO of “Master Fund”, continues to apply notwithstanding certain changed facts.[2] Based upon the representations made in your correspondence, we understand the facts to be as follows. In addition to the Master Fund, “X” serves as the CPO of “Feeder Fund I”, and an affiliate of “X”, “Y”, with the same ownership as “X”, serves as the CPO of “Feeder Fund II”(collectively with Feeder Fund I, the “Feeder Funds”). The Feeder Funds (and other feeder funds that may be formed by “X” or “Y” at a future date for which “X” or “Y” will be the sole CPOs) were the only investors in the Master Fund at the time the original no-action relief was granted. “X” has previously claimed relief pursuant to Rule 4.7 with respect to the Master Fund and Feeder Fund I and “Y” has claimed relief with respect to Feeder Fund II pursuant to the same rule. By the 2002 Staff Letter, the Division exempted “X” from the Rules
4.21 and 4.22, which would require it to provide reports to itself in connection with its operation of the
Master Fund and Feeder Funds. That exemption was based, among other things, on the conditions that (1) “X” limits participation in the Master Fund to the Feeder Funds and any fund for which either “X” or “Y” is the CPO; and (2) that the Annual Reports of the Feeder Funds contain financial statements that include, among other information, the fees associated with the operation of the Master Fund expressed in dollars and a detailed schedule of the investments made by the Master Fund. You are now writing to advise us of certain changed facts. Due to regulatory limitations under the Employee Retirement Income Security Act of 1974 on the percentage of pension plan investors that are allowed to participate in Feeder Fund I, two related investors (the “Investors”) in Feeder Fund I transferred their investments to the Master Fund. “X” provided the disclosure and periodic and annual reports of Feeder Fund I, required by 4.7(b)(1), 4.7(b) (2) and 4.7(b)(3), to the two related shareholders during the time they were investors in Feeder Fund I. Since becoming investors in the Master Fund, “X” has provided the Investors with these same Rule 4.7 disclosures and periodic and annual financial reports for the Master Fund. “X” seeks confirmation that it may continue to rely on the 2002 Staff Letter, which granted it relief, if it continues to allow the Investors to invest in the Master Fund and it provides them with periodic and annual financial reports for file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/03letters/tm03-32.htm (1 of 3) [5/6/2010 5:38:18 PM]