[Code of Federal Regulations]
[Title 17, Volume 1]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 17CFR4.25]

[Page 189-193]
 
              TITLE 17--COMMODITY AND SECURITIES EXCHANGES
 
             CHAPTER I--COMMODITY FUTURES TRADING COMMISSION
 
PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS--Table of Contents
 
                   Subpart B--Commodity Pool Operators
 
Sec. 4.25  Performance disclosures.

    (a) General principles--(1) Capsule performance information--(i) For 
pools. Unless otherwise specified, disclosure of the past performance of 
a pool must include the following information. Amounts shown must be net 
of any fees, expenses or allocations to the commodity pool operator.
    (A) The name of the pool;
    (B) A statement as to whether the pool is:
    (1) Privately offered pursuant to section 4(2) of the Securities Act 
of 1933, as amended (15 U.S.C. 77d(2)), or pursuant to Regulation D 
thereunder (17 CFR 230.501 et seq.);
    (2) A multi-advisor pool as defined in Sec. 4.10(d)(2); and
    (3) A principal-protected pool as defined in Sec. 4.10(d)(3);
    (C) The date of inception of trading;
    (D) The aggregate gross capital subscriptions to the pool;
    (E) The pool's current net asset value;
    (F) The largest monthly draw-down during the most recent five 
calendar years and year-to-date, expressed as a percentage of the pool's 
net asset value and indicating the month and year of the draw-down (the 
capsule must include a definition of ``draw-down'' that is consistent 
with Sec. 4.10(k));
    (G) The worst peak-to-valley draw-down during the most recent five 
calendar years and year-to-date, expressed as a percentage of the pool's 
net asset value and indicating the months and year of the draw-down; and
    (H) Subject to Sec. 4.25(a)(2) for the offered pool, the annual and 
year-to-date rate of return for the pool for the most recent five 
calendar years and year-to-date, computed on a compounded monthly basis;
    (ii) For accounts. Disclosure of the past performance of an account 
required under this Sec. 4.25 must include the following capsule 
performance information:
    (A) The name of the commodity trading advisor or other person 
trading the

[[Page 190]]

account and the name of the trading program;
    (B) The date on which the commodity trading advisor or other person 
trading the account began trading client accounts and the date when 
client funds began being traded pursuant to the trading program;
    (C) The number of accounts directed by the commodity trading advisor 
or other person trading the account pursuant to the trading program 
specified, as of the date of the Disclosure Document;
    (D)(1) The total assets under the management of the commodity 
trading advisor or other person trading the account, as of the date of 
the Disclosure Document; and
    (2) The total assets traded pursuant to the trading program 
specified, as of the date of the Disclosure Document;
    (E) The largest monthly draw-down for the trading program specified 
during the most recent five calendar years and year-to-date expressed as 
a percentage of client funds, and indicating the month and year of the 
draw-down;
    (F) The worst peak-to-valley draw-down for the trading program 
specified during the most recent five calendar years and year-to-date, 
expressed as a percentage of net asset value and indicating the months 
and year of the draw-down; and
    (G) The annual and year-to-date rate-of-return for the program 
specified, computed on a compounded monthly basis.
    (2) Additional requirements with respect to the offered pool. (i) 
The performance of the offered pool must be identified as such and 
separately presented first;
    (ii) The rate of return of the offered pool must be presented on a 
monthly basis for the period specified in Sec. 4.25(a)(5), either in a 
numerical table or in a bar graph;
    (iii) A bar graph used to present monthly rates of return for the 
offered pool:
    (A) Must show percentage rate of return on the vertical axis and 
one-month increments on the horizontal axis;
    (B) Must be scaled in such a way as to clearly show month-to-month 
differences in rates of return; and
    (C) Must separately display numerical percentage annual rates of 
return for the period covered by the bar graph; and
    (iv) The pool operator must make available upon request to 
prospective and existing participants all supporting data necessary to 
calculate monthly rates of return for the offered pool as specified in 
Sec. 4.25(a)(7), for the period specified in Sec. 4.25(a)(5).
    (3) Additional requirements with respect to pools other than the 
offered pool. With respect to pools other than the offered pool for 
which past performance is required to be presented under this section:
    (i) Performance data for pools of the same class as the offered pool 
must be presented following the performance of the offered pool, on a 
pool-by-pool basis.
    (ii) Pools of a different class than the offered pool must be 
presented less prominently and, unless such presentation would be 
misleading, may be presented in composite form; Provided, however, that:
    (A) The Disclosure Document must disclose how the composite was 
developed;
    (B) Pools of different classes or pools with materially different 
rates of return may not be presented in the same composite.
    (iii) For the purpose of Sec. 4.25(a)(3)(ii), the following, without 
limitation, shall be considered pools of different classes: Pools 
privately offered pursuant to section 4(2) of the Securities Act of 
1933, as amended (15 U.S.C. 77d(2)), or pursuant to Regulation D 
thereunder (17 CFR 230.501 et seq.), and public offerings; and 
principal-protected and non-principal-protected pools. Multi-advisor 
pools as defined in Sec. 4.10(d)(2) will be presumed to have materially 
different rates of return from those of non-multi-advisor pools absent 
evidence sufficient to demonstrate otherwise.
    (iv) Material differences among the pools for which past performance 
is disclosed, including, without limitation, differences in leverage and 
use of different trading programs, must be described.

[[Page 191]]

    (4) Additional requirements with respect to accounts. (i) Unless 
such presentation would be misleading, past performance of accounts 
required to be presented under this section may be presented in 
composite form on a program-by-program basis using the format set forth 
in Sec. 4.25(a)(1)(ii).
    (ii) Accounts that differ materially with respect to rates of return 
may not be presented in the same composite.
    (iii) The commodity pool operator must disclose all material 
differences among accounts included in a composite.
    (5) Time period for required performance. All required performance 
information must be presented for the most recent five calendar years 
and year-to-date or for the life of the pool, account or trading 
program, if less than five years.
    (6) Trading programs. If the offered pool will use any of the 
trading programs for which past performance is required to be presented, 
the Disclosure Document must so indicate.
    (7) Calculation of, and recordkeeping concerning, performance 
information. (i) All performance information presented in a Disclosure 
Document, including performance information contained in any capsule and 
performance information not specifically required by Commission rules, 
must be current as of a date not more than three months preceding the 
date of the Document, and must be supported by the following amounts, 
calculated on an accrual basis of accounting in accordance with 
generally accepted accounting principles, as specified below or by a 
method otherwise approved by the Commission.
    (A) The beginning net asset value for the period, which shall be the 
same as 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, 
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 or by a 
method otherwise approved by the Commission; and
    (G) The number of units outstanding at the end of the period, if 
applicable.
    (ii) All supporting documents necessary to substantiate the 
computation of such amounts must be maintained in accordance with 
Sec. 1.31.
    (8) Proprietary trading results. (i) Proprietary trading results may 
not be included in a Disclosure Document unless such performance is 
prominently labeled as proprietary and is set forth separately after all 
disclosures in accordance with Sec. 4.24(v), together with a discussion 
of any differences between such performance and the performance of the 
offered pool, including, but not limited to, differences in costs, 
leverage and trading methodology.
    (ii) For the purposes of Sec. 4.24(v) and this Sec. 4.25(a), 
proprietary trading results means the performance of any pool or account 
in which fifty percent or more of the beneficial interest is owned or 
controlled by:
    (A) The commodity pool operator, trading manager (if any), commodity 
trading advisor or any principal thereof
    (B) An affiliate or family member of the commodity pool operator, 
trading manager (if any) or commodity trading advisor; or
    (C) Any person providing services to the pool.
    (9) Required legend. Any past performance presentation, whether or 
not required by Commission rules, must be preceded by the following 
statement, prominently displayed:

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

    (b) Performance disclosure when the offered pool has at least a 
three-year operating history. The commodity pool operator must disclose 
the performance of the offered pool, in accordance with paragraphs 
(a)(1)(i) (A) through (H) and (a)(2) of this Sec. 4.25, where:

[[Page 192]]

    (1) The offered pool has traded commodity interests for three years 
or more; and
    (2) For at least such three-year period, seventy-five percent or 
more of the contributions to the pool were made by persons unaffiliated 
with the commodity pool operator, the trading manager (if any), the 
pool's commodity trading advisors, or the principals of any of the 
foregoing.
    (c) Performance disclosure when the offered pool has less than a 
three-year operating history--(1) Offered pool performance. (i) The 
commodity pool operator must disclose the performance of the offered 
pool, in accordance with paragraphs (a)(1)(i)(A) through (H) and (a)(2) 
of this Sec. 4.25; or
    (ii) If the offered pool has no operating history, the pool operator 
must prominently display the following statement:

THIS POOL HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY PERFORMANCE 
HISTORY.

    (2) Other performance of commodity pool operator. (i)(A) Except as 
provided in Sec. 4.25(a)(8), the commodity pool operator must disclose, 
for the period specified by Sec. 4.25(a)(5), the performance of each 
other pool operated by the pool operator (and by the trading manager if 
the offered pool has a trading manager) in accordance with paragraphs 
(a)(1)(i) (C) through (H) and (a)(3) of this Sec. 4.25, and the 
performance of each other account traded by the pool operator (and by 
the trading manager if the offered pool has a trading manager) in 
accordance with paragraphs (a)(1)(ii) (C) through (G) of this Sec. 4.25. 
If the trading manager has been delegated complete authority for the 
offered pool's trading, and the trading manager's performance is not 
materially different from that of the pool operator, the performance of 
the other pools operated by and accounts traded by the pool operator is 
not required to be disclosed.
    (B) In addition, if the pool operator, or if applicable, the trading 
manager, has not operated for at least three years any commodity pool in 
which seventy-five percent or more of the contributions to the pool were 
made by persons unaffiliated with the commodity pool operator, the 
trading manager, the pool's commodity trading advisors or their 
respective principals, the pool operator must also disclose the 
performance of each other pool operated by and account traded by the 
trading principals of the pool operator (and of the trading manager, as 
applicable) unless such performance does not differ in any material 
respect from the performance of the offered pool and the pool operator 
(and trading manager, if any) disclosed in the Disclosure Document.
    (ii) If neither the pool operator or trading manager (if any), nor 
any of its trading principals has operated any other pools or traded any 
other accounts, the pool operator must prominently display the following 
statement: NEITHER THIS POOL OPERATOR (TRADING MANAGER, IF APPLICABLE) 
NOR ANY OF ITS TRADING PRINCIPALS HAS PREVIOUSLY OPERATED ANY OTHER 
POOLS OR TRADED ANY OTHER ACCOUNTS. If the commodity pool operator or 
trading manager, if applicable, is a sole proprietorship, reference to 
its trading principals may be deleted from the prescribed statement.
    (3) Major commodity trading advisor performance. (i) The commodity 
pool operator must disclose the perfor- mance of any accounts (including 
pools) directed by a major commodity trading advisor in accordance with 
paragraphs (a)(1)(ii) (C) through (G) of this Sec. 4.25.
    (ii) If a major commodity trading advisor has not previously traded 
accounts, the pool operator must prominently display the following 
statement:

(name of the major commodity trading advisor), A COMMODITY TRADING 
ADVISOR THAT HAS DISCRETIONARY TRADING AUTHORITY OVER (percentage of the 
pool's funds available for commodity interest trading allocated to that 
trading advisor) PERCENT OF THE POOL'S FUTURES AND COMMODITY OPTION 
TRADING HAS NOT PREVIOUSLY DIRECTED ANY ACCOUNTS.

    (4) Major investee pool performance. (i) The commodity pool operator 
must disclose the performance of any major investee pool.
    (ii) If a major investee pool has not commenced trading, the pool 
operator must prominently display the following statement:


[[Page 193]]


(name of the major investee pool), AN INVESTEE POOL THAT IS ALLOCATED 
(percentage of the pool assets allocated to that investee pool) PERCENT 
OF THE POOL'S ASSETS HAS NOT COMMENCED TRADING.

    (5) With respect to commodity trading advisors and investee pools 
for which performance is not required to be disclosed pursuant to 
Sec. 4.25(c) (3) and (4), the pool operator must provide a summary 
description of the performance history of each of such advisors and 
pools including the following information, provided that where the pool 
operator uses a two-part document pursuant to the rules promulgated by a 
registered futures association pursuant to Section 17(j) of the Act, 
such summary description may be provided in the second part of the two-
part document:
    (i) Monthly return parameters (highs and lows);
    (ii) Historical volatility and degree of leverage; and
    (iii) Any material differences between the performance of such 
advisors and pools as compared to that of the offered pool's major 
trading advisors and major investee pools.

[60 FR 38186, July 25, 1995, as amended at 63 FR 58303, Oct. 30, 1998]