Fair Value Measurements Accounting Standards Update 2009-12

1. Fair Value MeasurementsAccounting Standards Update 2009-12 Presenter: Ross Ellberg

2. Fair Value Measurements ASU 2009-12 • Guidance for fair value measurement for investment in other “Funds” • Provides clarification on previous area of relative uncertainty regarding fair value measurement since FAS 157 became effective • Requires additional disclosure April 22, 2010 National Futures Association’s CPO/CTA Regulatory Seminar

3. Fair Value Measurements ASU 2009-12 • Classification within the fair value hierarchy of an investment in another Fund measured at net asset value per share (or its equivalent, for example ownership interests in partnership capital) requires judgment based on several factors • If investor has ability to redeem at the NAV at balance sheet date, it should be classified as a Level 2 fair value measurement • If investor will never have the ability to redeem at NAV (e.g., private equity) it should be classified as a Level 3 fair value measurement April 22, 2010 National Futures Association’s CPO/CTA Regulatory Seminar

4. Fair Value Measurements ASU 2009-12 • If investor cannot redeem at NAV at the balance sheet date but may redeem at NAV in the future (e.g., due to a gate or lock-up), it should consider the length of time until investment becomes redeemable in determining Level 2 or Level 3 fair value hierarchy categorization • Investor is permitted, as a practical expedient, to estimate the fair value of an investment in another Fund at NAV • If the NAV of the investment in another Fund is not as of the balance sheet date or if the NAV is not calculated consistent with the measurement principles of investment companies (i.e., fair value accounting), the investor should consider whether an adjustment to the most recent valuation is necessary April 22, 2010 National Futures Association’s CPO/CTA Regulatory Seminar

5. Fair Value Measurements ASU 2009-12 • If it is probable at the balance sheet date that a portion or all of an investment will be sold at an amount different from the NAV, the fair value estimate of the portion to be sold should be valued according to the other provisions of the Codification,Topic 820, Fair Value Measurements and Disclosures • Criteria for a sale being considered probable April 22, 2010 National Futures Association’s CPO/CTA Regulatory Seminar

6. Fair Value Measurements ASU 2009-12 New Disclosure Requirements: • Disclose the fair value of investments in other Funds in the major category and a description of the investment strategies in the major category • For each major category for which investments can never be redeemed, but the investor receives distributions through the liquidation of the underlying assets, disclose the estimate of the period of time over which the underlying assets are to be liquidated by the other Funds. • Disclose the investors’ unfunded commitments related to investments in each major category. • Disclose a general description of the terms and conditions upon which the investor may redeem investments in each major category. April 22, 2010 National Futures Association’s CPO/CTA Regulatory Seminar

7. Fair Value Measurements ASU 2009-12 New Disclosure Requirements (continued): • The circumstances in which an otherwise redeemable investment in the major category may not be redeemable (e.g., gates or lock-ups) • For otherwise redeemable investments that are restricted from redemption at the balance sheet date, disclose the estimate of when the restriction from redemption might lapse. If an estimate cannot be made, disclose that fact and how long the restriction has been in effect • Any other restrictions on the ability to sell investments in the major category at the balance sheet date April 22, 2010 National Futures Association’s CPO/CTA Regulatory Seminar

8. Fair Value Measurements ASU 2009-12 • If it is probable that it will sell an investment in another Fund for an amount different from NAV, disclose the total fair value of all such investments and remaining actions required to complete the sale • If a group of Funds are planned on being sold at a value different from NAV, but the individual investments to be sold have not been identified, so the investments continue to qualify for the practical expedient of measuring their value at NAV, disclose its plans to sell the investments and any remaining actions required to complete the sale(s) April 22, 2010 National Futures Association’s CPO/CTA Regulatory Seminar

9. Derivatives DisclosureFAS 161 Presenter: Ross Ellberg

10. FAS 161 – General Disclosure Requirements Its objectives for holding/issuing those instruments The context needed to understand those objectives The strategies for achieving those objectives Information about derivatives should be disclosed in the context of each instrument’s primary underlying risk exposure (e.g., interest rate, credit risk, etc.) Derivatives should be distinguished between those used for risk management purposes and those used for other purposes (e.g., trading) April 22, 2010 National Futures Association’s CPO/CTA Regulatory Seminar

11. FAS 161 – General Disclosure Requirements The location and fair value amounts of derivatives reported in the balance sheet The location and amounts of gains and losses reported in the income statement Disclosures should be made in tabular format April 22, 2010 National Futures Association’s CPO/CTA Regulatory Seminar

12. FAS 161 – Balance Sheet Disclosure Requirements The disclosure regarding the location and fair value amounts of derivatives as reported in the balance sheet should address the following: The fair value of derivatives should be presented on a gross basis (even if they are subject to master netting arrangements and qualify for net presentation under FIN 39) Fair value amounts should be presented as separate asset and liability values,presented separately by type of derivatives contracts (e.g., interest rate contracts, commodity contracts, equity contracts, etc.) The disclosure should identify the line item(s) in the balance sheet in which the fair value amounts for these categories of derivatives are included April 22, 2010 National Futures Association’s CPO/CTA Regulatory Seminar

13. FAS 161 – Income Statement Disclosure Requirements The required information must be presented separately by type of derivative contract (e.g., interest rate contracts, commodity contracts, etc.) and must identify the line item(s) in the income statement in which the gains and losses for these categories of derivatives are included. April 22, 2010 National Futures Association’s CPO/CTA Regulatory Seminar

14. FAS 161 – Volume Disclosure Requirements Information must be disclosed that would enable users of the financial statements to understand the volume of an entity’s derivative activities Entities should select the format and the specifics of disclosures relating to their volume of derivative activity that are most relevant and practicable for their individual facts and circumstances April 22, 2010 National Futures Association’s CPO/CTA Regulatory Seminar

15. FAS 161 – Additional Disclosures Additional disclosures include: Credit risk related contingent feature disclosure Significant concentrations of credit risk Group concentrations of credit risk Entity’s policy for requiring collateral Entity’s policy of entering into master netting arrangements April 22, 2010 National Futures Association’s CPO/CTA Regulatory Seminar

16. Summary – FAS 161 Requirements Requires additional disclosures describing the volume of derivatives activities Requires two sets of disclosure tables – balance sheet and income statement focus, by primary underlying risk exposure Expands credit-risk-related contingent disclosures Amends credit risk disclosures Either requires all required disclosures in one note or appropriate cross-referencing between multiple notes April 22, 2010 National Futures Association’s CPO/CTA Regulatory Seminar