2005 Annual Review - National Futures Association

2005
ANNUAL
REVIEW
an
independent
voice
IN CHALLENGING TIMES

a letter
FROM THE CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
These are extraordinary times for the futures industry. Arguably, we have never before experienced such a sustained
period of dramatic growth in trading volume. Lower fees, new contracts and easier access to the markets have all
contributed to the industry’s continuing success.
These are also challenging times. Although this Annual Review highlights NFA’s accomplishments during our most
recent fiscal year (July 1, 2004 through June 30, 2005), we are going to press just as news of an accounting irregularity
involving Refco, Inc., the parent company of an FCM Member of NFA, is emerging. The investigation is in its early
stages, but the repercussions are already being felt, fueled by some inaccurate initial media coverage.
Some newspaper and magazine articles suggested that the Refco situation was a result of ineffective regulation in
the futures industry. This is simply not true. While some of Refco’s affiliates ceased operations, its business as a regulated
Futures Commission Merchant continued to meet all of its obligations. The regulatory safeguards in place in the
futures industry–segregated customer funds, daily clearing of all trades, minimum financial requirements–helped to
assure futures customers that their funds at Refco LLC were secure. In fact, these safeguards, combined with vigilant
supervision by the CFTC, the Chicago Mercantile Exchange (Refco’s designated self-regulatory organization) and NFA,
demonstrated the industry’s regulatory strengths.
The challenge the futures industry faces as a result of the events at Refco is to sustain the public’s confidence in
the futures markets by combating false or misleading information. The industry needs to say loudly and clearly that the
futures markets and the firms and individuals who work in the futures markets are held to the highest standards of
business practice.
The industry should have no problem echoing these sentiments because the principle of market integrity is
something we all agree on. Speaking with a unified voice on other issues, however, is sometimes difficult. This is an
industry with a broad spectrum of constituents. FCMs, CPOs, CTAs, IBs, the futures exchanges, the CFTC, trade
associations–all speak with voices that reflect their particular business needs and goals.
Amidst all these voices, we believe NFA’s is unique. We are an independent self-regulatory organization. We do not
operate an exchange, and we are not a lobbying organization. Regulation is all we do, and we are committed to
providing the most efficient and effective regulation possible.
This past year the industry’s voices were focused on another issue that remains unresolved as we go to press–the
CFTC’s reauthorization. This year’s reauthorization has witnessed a wide range of opinions and recommendations, especially
regarding the issue of clarifying the CFTC’s jurisdiction over the retail off-exchange foreign currency (forex) market.
When invited to speak at congressional hearings last year, we took an independent stand by proposing amendments to
the Commodity Exchange Act to ensure that off-exchange retail forex transactions–as well as other products that look like
futures, act like futures and are sold like futures–are within the CFTC’s jurisdiction. We also proposed an amendment to the
Act to prohibit unregulated persons from soliciting retail off-exchange forex transactions or managing retail forex accounts.
In addition to our testimony at congressional hearings, we met individually with congressional leaders and their
staff, as well as the President’s Working Group. We also had many discussions with industry and government
representatives to try to reach a consensus. We will continue to voice our concerns and to collaborate with others in
the industry to reach a workable solution.
Most importantly, we will use our independent voice to tell the industry and the world that self-regulation in the
futures industry has been and will continue to be successful in safeguarding market integrity and protecting investors.
Our voice will always be raised in pursuit of those goals.
Daniel J. Roth
President and CEO
Michael R. Schaefer
Chairman of the Board
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NFA
2005 ANNUAL REVIEW

INTRODUCTION
NFA’s voice has many facets:
an auditor discussing the results of an
examination with an NFA Member; an
attorney presenting an enforcement case
to the members of NFA’s Business Conduct
Committee; an Information Center
Representative answering questions from
Members and investors; a systems developer
collaborating with end users on a new
system that will increase efficiency. All of
these voices belong to skilled, experienced
employees who help NFA accomplish its
corporate mission and goals. They are
professional, knowledgeable and united
behind a common goal–market integrity
and investor protection.
A Forceful Voice 4
A Constructive Voice 4
A Pragmatic Voice 7
An Independent Voice 8
NFA Officers & Board of Directors 10
2005 Financials 12
About NFA 19
NFA Chairman of the Board Michael R. Schaefer (left) and
NFA President and CEO Daniel J. Roth.
This report highlights NFA’s Fiscal Year 2005
(July 1, 2004 through June 30, 2005)
3

A Forceful Voice
Strong rulemaking and vigilant rule
enforcement are essential to self-regulatory
success. During Fiscal Year 2005,
NFA amended existing rules and developed
new regulations to address the
needs of the industry. We also took
several disciplinary actions necessary to
maintain the integrity of the futures
markets.
Much of our rulemaking initiatives during
the past year focused on the offexchange
retail forex markets, which
continue to experience dramatic growth.
At the beginning of our fiscal year (July
1, 2004), we had registered 17 active
Forex Dealer Members holding approximately
$430 million in customer funds.
Twelve months later, we had 28 active
Forex Dealer Members holding approximately
$610 million.
Since NFA’s initial forex rules and
Interpretive Notice became effective in
December 2003, we have closely monitored
the rules’ viability and effectiveness.
Last year, we amended two
Interpretive Notices to require Forex
Dealer Members to disclose the bid-ask
spread to their customers and to clarify
that NFA’s enhanced supervisory requirements
also apply to the retail forex
activities of Members subject to NFA
Compliance Rule 2-36.
Realizing that additional regulatory
action was needed, we appointed a
Special Committee to Study Customer
Protection Issues in November 2004.
The committee, comprised of industry
and public representatives, was given the
responsibility to address a variety of
issues, beginning with retail off-exchange
forex transactions.
Under the committee’s guidance, we
developed additional rules that will
become effective in FY 2006, including a
requirement for Forex Dealer Members
to provide their customers with written
information regarding NFA’s Background
Affiliation Status Information
Center (BASIC) system when the customer
first opens an account and at least
once a year thereafter and rule amendments
designed to strengthen the capital
requirements for Forex Dealer Members.
Another developing trend in the futures
industry is the increasing number of NFA
Member firms that offer trade execution
services to customers who use computerized
trading systems. Since many of the
developers of the systems are not required
to register with the CFTC, NFA developed
an Interpretive Notice addressing
the responsibilities an NFA Member has
when conducting business with these
entities. In particular, the Notice outlines
the conditions under which an NFA
Member may be held accountable for
misleading promotional material.
We are always evaluating the effectiveness
of our rules, and when we discover
individuals or firms attempting to evade
a rule, we take action. For example, NFA
Compliance Rule 2-6 prohibits a
Member or Associate from conducting
commodity futures business with a suspended
Member or Associate during the
period of suspension unless otherwise
authorized. In the last few years, NFA
has encountered several instances where
brokers who have been barred from
NFA membership as a result of an NFA
sales practice case have continued to
work at a Member firm. When questioned,
these individuals claimed they
were not involved in the firm’s “commodity
futures business” and were therefore
not subject to the rule.
To address this issue, NFA amended Rule
2-6 to extend the prohibition to expelled
Members in addition to suspended
Members. We also developed an
Interpretive Notice, “Conducting
Commodity Futures Business with an
Expelled or Suspended Member or
Associate,” that defines “commodity
futures business” as any and all activities
performed on behalf of, and in connection
with, an NFA Member’s futures
business, including acting as employees,
consultants, independent contractors
agents or unpaid volunteers.
A Constructive Voice
Since its inception, NFA’s philosophy has
been that it is more beneficial to prevent
rule violations than to prosecute them.
During this past year NFA developed
additional materials to help our Members
meet their regulatory responsibilities.
In the last few years, Members have had
to contend with several new regulations
(anti-money laundering programs,
forex, disaster recovery, privacy and others).
Responding to feedback from
Members asking for more guidance on
these issues, NFA developed questionnaires
for anti-money laundering,
disaster recover, privacy rules and
ethics training. Firms can use these
questionnaires to help them ensure
that their procedures cover all the
required areas. Each questionnaire is
attached as an appendix to NFA’s
Self-Examination Checklist or can be
downloaded individually from NFA’s
Web site (www.nfa.futures.org).
4
NFA
2005 ANNUAL REVIEW

One of the primary ways NFA detects rule
violations is through audits of Member
firms. During FY 2005, we conducted over
650 examinations, looking at all aspects of
a firm’s business. In over 30 percent of the
examinations, we noted no concerns. In
over 60 percent, the audits revealed routine
deficiencies, which the firms corrected in a
timely manner.
In only seven percent of the examinations
did we find serious violations. Last year we
issued Complaints against 76 respondents
and issued 20 Decisions resolving charges
against 33 respondents. We ordered 10
expulsions and 9 suspensions.
An important aspect of our enforcement
efforts is the collaborative work we do
with other agencies. Several Compliance
staff testified last year in cases for the
CFTC, many of which were taken by the
CFTC as a result of our own enforcement
efforts. We also collaborated on a case
with the New Jersey U.S. Attorney’s Office
and provided expert witness testimony in
several other cases. In addition, we assisted
in several criminal prosecutions, including
the case against Philadelphia Alternative Asset
Management Co. LLC, located in Philadelphia,
and its principal, Paul M. Eustace.
A Coordinated Compliance Campaign
Throughout NFA’s history, our Business
Conduct Committee (BCC) has fined or
expelled a disproportionate number of firms
located in South Florida. Although we have
made significant strides in reducing the number
of firms that violate our sales practice
rules (customer complaints have decreased
by 70% since we began operations), South
Florida continues to be a problem area.
In FY 2005 we staged a coordinated
compliance campaign focused on firms in
South Florida. First, we surveyed 1,100
customers of the firms to help us identify
potential problems. If a customer indicated a
problem, NFA staff telephoned the customer
to conduct an in-depth interview.
Then, over a two-week period in November
2004, audit teams conducted on-site investigations
at 20 active firms. Since that time,
NFA has developed cases against nearly 50
percent of the firms we investigated and has
presented seven of the cases to the BCC.
We appointed a
Special Committee
to Study Customer
Protection Issues to
address a variety of
issues, beginning
with retail offexchange
forex
transactions.
NFA employees (from left)
Vilia Sutkus-Kiela, Todd Joseph,
William Gerlesits and
Lisa Marlow
5

Helping Investors Reclaim
Some of Their Losses
NFA’s restitution service, which usually
applies to judgments awarded in CFTC cases,
helps investors receive some of the money
they have lost due to investment fraud.
Sometimes the logistics of returning the
money can be quite challenging.
In June 2003, for example, the CFTC asked
NFA to be the court-appointed monitor in a
ten-year old case. Working only with boxes of
customer account forms that did not include
customer names or addresses, a team of NFA
employees went through the arduous process
of identifying eligible customers and then
attempting to locate them.
Through our efforts we located more than
500 investors, and in November 2004 we
distributed more than $200,000 to those
individuals.
“Issues and Answers” Member meetings
have been a highly successful program for
NFA over the past three years. At these
meetings, NFA staff members discuss new
rules and regulations, describe common
audit deficiencies and how to avoid them,
and field questions from the audience.
NFA held five “Issues and Answers”
meetings in FY 2005 and will continue the
program in 2006.
“Issues and Answers”
Member meetings
have been a highly
successful program–
NFA staff members
discuss new rules and
regulations, describe
common audit deficiencies
and how to
avoid them, and
field questions.
NFA employees (from left)
Cleo Cowans, Suzanne Cech,
Cecilia Krueger and
Scott Reeves
6
NFA
2005 ANNUAL REVIEW

NFA’s education programs are also
becoming increasingly popular internationally.
Last year, NFA staff members
traveled to India to present a futures
market regulatory training program to
several groups of regulators. In addition,
representatives from the Chinese
Futures Association and the China
Securities Regulatory Commission
traveled to Chicago for a two-week
training program.
Two of NFA’s most important educational
resources—available to Members,
investors and others with an interest
in the futures industry—are our
Information Center and Web site.
Every month Information Center
Representatives receive approximately
4,500 telephone calls, and visitors to our
Web site access nearly one million
pages of information.
An important component of our Web
site is the Background Affiliation Status
Information Center (BASIC), an extensive
database of registration and disciplinary
information on futures firms and
individuals. Last year, NFA Members
and the investing public conducted more
than 600,000 BASIC searches.
We continue to expand the information
and services available on our Web site.
Last year we launched an e-mail subscription
service to allow individuals to
receive Notices to Members, Advisories
and other compliance-related information
as it is published.
Our participation in the International
Traders Expos provides many opportunities
for us to meet with individual
investors. The three-day conferences,
held in various cities around the country,
offer many educational sessions and
each Expo attracts approximately 5,000
individuals. Reflecting our increased
presence at the Expos, NFA staff has
been invited to speak at various educational
sessions offered during the event.
The services we provide investors are
not limited to education. Investors continue
to turn to NFA’s arbitration and
mediation services to resolve their
futures-related disputes. During the past
fiscal year, NFA received 169 arbitration
claims. The average turnaround
time for an arbitration case was less than
seven months.
One of the most rewarding customer
service initiatives is our restitution program.
The program, which usually
applies to judgments awarded in CFTC
cases, helps investors recover some of
the money they have lost due to investment
fraud. During Fiscal Year 2005,
NFA distributed more than $2.4 million
in restitution funds to over 3,000
investors. In addition, we collected
$151,000 in civil monetary penalties
for the CFTC.
A Pragmatic Voice
Simply put, NFA likes to solve problems,
not create them. We are always
examining issues—both internally and
externally—to determine what changes
can be made to bring more clarity and
efficiency to industry programs and
procedures.
For example, we developed a pilot
program for Commodity Pool
Operators to file their pool financial
statements electronically through our
Web-based EasyFile system. During this
voluntary program over 15% of the
2004 statements were filed through
EasyFile, and NFA received very positive
feedback from the CPOs who used the
system.
Due to the success of the pilot program,
we decided to make EasyFile mandatory
for the December 31, 2005 filings. We
have requested the CFTC make the rule
changes that will require electronic filing
and eliminate the need for manual signatures.
Not only will EasyFile simplify the
filing process for CPOs, it will also
reduce the time it takes NFA staff to
review pool financial statements.
We also redesigned the data entry modules
for the Background Affiliation
Status Information Center (BASIC) system.
NFA, the CFTC and the U.S.
futures exchanges all contribute registration
and disciplinary information to the
BASIC database. The entry of case information
by all of these contributors is
now easier, quicker and more efficient.
7

As we reported earlier in this publication,
our restitution service helps
investors recover money from judgments
awarded in CFTC cases. Last year we
automated most of the processes relating
to the administration of restitution
orders. The Restitution Processing
System provides an efficient method of
maintaining addresses and contact information
for all parties involved in the
case and provides tools for calculating
the amount of restitution each harmed
investor will receive whenever a distribution
is made.
In 2002 we launched our Online
Registration System (ORS) to increase
registration efficiencies and reduce the
amount of paper files that NFA and
Member firms were required to maintain.
Last year we developed a quality
assurance program in which we review
information entered into ORS for
erroneous, inaccurate or problematic
information. In addition, we made
several enhancements to ORS as a result
of feedback from our Members. Most
notably, we developed a new feature to
allow ORS security managers at
Member firms to reset their passwords
by providing answers to questions
entered into the system when they
enrolled.
The issues NFA addresses are not limited
to internal policies and work processes.
For example, we led an industrywide
effort to harmonize the use of Customer
Transaction Indicator codes among
the various exchanges. The result of
this collaboration provided Futures
Commission Merchants with a clearer
understanding of the situations in which
each type of code should be utilized,
allowing for better tracking of trading
activity across all exchanges.
Compliance staff also met with NASD
staff to coordinate joint audits of those
firms that are dually registered on both
the futures and securities sides and
reduce the regulatory burden on our
Members. In addition, NFA Compliance
An Independent Voice
Throughout NFA’s most recent fiscal
year, the CFTC conducted a review of
self-regulation in the futures industry.
Although the CFTC has not yet published
the results of its review, we are
certain it will underline the importance of
an SRO’s unbiased disciplinary processes,
free of any hint of conflict of interest.
NFA has always had safeguards in place
to ensure that our disciplinary process is
fair and impartial. Our rules state that
no committee or panel member can participate
in a disciplinary matter if the
member, or any person with which the
member is connected, has a financial, personal
or other direct interest in the matter.
Traditionally, NFA has also ensured that
both the Business Conduct Committee
and the Hearing Committee include individuals
who are not NFA Members or
Associates.
In FY 2005, we amended our Bylaws to
codify our current practice by requiring
that at least two-thirds of both committees
be non-Member representatives and
by including employees of NFA
Members as Member representatives.
We have also applied these same safeguards
to the registration and membership
process. We divide our Membership
Committee into three-person Designated
Subcommittees to conduct hearings and
consider settlement offers. To ensure uniformity
in treatment of similarly situated
applicants, the Membership Committee
meets quarterly to review the activities of
these Designated Subcommittees. In
addition, we amended Bylaw 701 to
require at least one-third of the
Membership Committee to be non-
Members and amended Registration
Rule 501 to require at least one member
of each Designated Subcommittee to be a
non-Member.
In the years ahead, we will continue to
take whatever actions are necessary to
ensure our unbiased, independent
stature. It is a contributing factor in the
public’s ongoing confidence in the
futures markets, and it is crucial to NFA’s
continued success.
8
NFA
2005 ANNUAL REVIEW

staff is currently leading a coordinated
effort between the Joint Audit Committee
and Joint Compliance Committee to
research regulatory issues relating to trading
arcades and proprietary accounts.
Last year we developed
a quality assurance
program in which we
review information
entered into ORS for
erroneous, inaccurate
or problematic
information.
Portal Technology Enhances
Information Sharing
During the past year NFA implemented
a portal technology that has helped staff
members share information and reduce
workflow inefficiencies. Each department
developed its own portal which can then be
accessed by every NFA employee. The portal
sites enable staff to communicate more
easily and increase productivity.
For example, the Information Systems
department uses its portal site for project
development, capacity planning and problem
tracking. The Compliance department
archives audit reports directly to the portal
and tracks audit team activity more efficiently.
Communications and Education’s News
Center portal centralized the publication of
many NFA information resources, reducing
the number of emails sent to staff.
During the coming year we will adopt additional
enhancements to the portal system to
develop a workflow architecture which joins
documents, emails and applications in an
easily manageable environment.
NFA employees (from left)
Kim Heitzman, John Brodersen,
Darlene Chappell, Kristin Leigel and
David McKenzie
9

Officers & Board of Directors
Officers
Directors
As of June 30, 2005
Daniel J. Roth*
President & CEO
Daniel A. Driscoll
Exec. Vice-President
Chief Operating Officer
Michael R. Schaefer*
Chairman of the Board
Managing Director
Citigroup Global Markets, Inc.
Douglas O. Kitchen*
Vice-Chairman of the Board
Managing Director
Rosenthal Collins Group LLC
Kenneth F. Haase
Sr. Vice-President
Information Systems
Karen K. Wuertz
Sr. Vice-President
Strategic Planning
and Communications
Commodity Pool Operator and
Commodity Trading Advisor
Representatives
Bruce L. Cleland*
President & CEO
Campbell & Company
George E. Crapple*
Co-Chairman & Co-CEO
The Millburn Corp.
David Hawrysz
Vice-President
Treasurer
Gregory C. Prusik
Vice-President
Registration
James R. Klingler
Senior Vice-President
Eclipse Capital
Management, Inc.
Robert E. Murray
Chief Operating Officer
Graham Capital
Management LP
Thomas Sexton III
Vice-President
General Counsel
& Secretary
Regina Thoele
Vice-President
Compliance
Introducing Broker Representatives
Robert K. Wilmouth
Special Policy Advisor
Paul J. Georgy
President
Allendale, Inc.
John A. Vassallo
President
Coquest, Inc.
10
NFA
2005 ANNUAL REVIEW
* Member of the Executive Committee

Futures Commission Merchant Representatives
Special Advisor
Scott A. Cordes
President
Country Hedging, Inc.
Kevin R. Davis
Chairman & CEO
Man Financial, Inc.
James Davison
Chief Executive Officer
Refco Investment Services
W. Robert Felker*
Chairman
JPMorgan Futures, Inc.
Leo Melamed
Permanent Special Advisor to the
Board & Executive Committee
Christopher K. Hehmeyer
Co-Chairman
Goldenberg Hehmeyer & Co.
Douglas O. Kitchen*
Managing Director
Rosenthal Collins Group LLC
Bonnie Litt*
Managing Director &
Associate General Counsel
Goldman Sachs & Co.
Michael R. Schaefer*
Managing Director
Citigroup Global Markets, Inc.
Public Representatives
Alan J. Dixon
Attorney
Bryan Cave
Thomas W. Ewing
Attorney
Davis & Harman LLP
Silas Keehn
Past President
Federal Reserve Bank
of Chicago
Todd E. Petzel*
Managing Director
Azimuth Trust
Company, LLC
Susan M. Phillips
Dean
School of Business
The George Washington University
Exchange Representatives
Mark G. Bagan
President & CEO
Minneapolis Grain
Exchange
Jeffrey C. Borchardt
President & CEO
Kansas City Board
of Trade
Bernard W. Dan*
President & CEO
Chicago Board of Trade
James E. Newsome*
President
New York Mercantile
Exchange
Joseph J. O’Neill
Sr. Exec. Vice-President
New York Board
of Trade
John F. Sandner
Special Policy Advisor
Chicago Mercantile
Exchange
11

2005 F I N A N C I A L S
Independent Auditors’ Report
To the Board of Directors of
National Futures Association:
We have audited the accompanying statements of financial position of National Futures Association
(the “Association”) as of June 30, 2005 and 2004, and the related statements of unrestricted revenues,
expenses and changes in unrestricted net assets, and cash flows for the years then ended. These financial
statements are the responsibility of the Association’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Association’s internal control over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial
position of National Futures Association as of June 30, 2005 and 2004, and the changes in its net assets
and its cash flows for the years then ended in conformity with accounting principles generally accepted
in the United States of America.
August 2, 2005
12
NFA
2005 ANNUAL REVIEW

STATEMENTS OF
FINANCIAL POSITION
Years ended June 30, 2005 and 2004
Assets
Current Assets:
Cash and cash equivalents, including $8,614,066 and$12,766,270
of interest-bearing deposits in 2005 and 2004, respectively
Short-term investments
Accrued interest
Assessments receivable
Other current assets
Total current assets
2005
$ 10,014,066
6,272,504
270,269
2,308,295
993,376
19,858,510
2004
$ 13,366,270
3,568,185
210,368
2,865,903
903,132
20,913,858
Long-Term Investments
Furniture, Fixtures, Equipment, Leasehold Improvements
and Software–
At cost–less accumulated depreciation and amortization
Other Assets
Total assets
21,834,573
5,273,233
2,402,028
$ 49,368,344
19,721,656
6,100,318
2,416,474
$ 49,152,306
Liabilities and Net Assets
Current Liabilities:
Unearned dues and fees
Accounts payable, accrued expenses and other current liabilities
Total current liabilities
Deferred Rent Credit
Other Long-Term Liabilities
Total liabilities
Unrestricted Net Assets
Total Liabilities and Net Assets
$ 550,368
2,686,751
3,237,119
705,925
3,495,343
7,438,387
41,929,957
$ 49,368,344
$ 1,189,491
2,090,797
3,280,288
918,158
3,439,965
7,638,411
41,513,895
$ 49,152,306
SEE NOTES TO FINANCIAL STATEMENTS.
13

STATEMENTS OF UNRESTRICTED REVENUES,
EXPENSES AND CHANGES IN UNRESTRICTED NET ASSETS
Years ended June 30, 2005 and 2004
2005
2004
Unrestricted Revenues:
Assessments
Membership dues
Registration and other fees
Regulatory services outsourcing
Investment income
Total unrestricted revenues
$ 23,589,516
4,245,592
2,745,733
1,538,819
760,638
32,880,298
$ 21,887,247
4,822,094
2,862,467
696,909
323,360
30,592,077
Unrestricted Expenses:
Salaries, wages and employee benefits
Space rental and related expenses
Travel and meetings
Computer expenditures
Depreciation and amortization
Outside consulting fees and services
Supplies, postage and telephone
Outside printing and publications
Board and committee fees and expenses
Insurance, recruiting, education, dues and other
21,190,052
2,517,681
2,170,000
583,855
2,585,707
959,541
384,660
173,965
532,520
1,366,255
19,884,843
2,716,309
2,041,592
529,674
2,828,812
1,035,724
384,402
177,112
343,348
1,285,825
Total unrestricted expenses
32,464,236
31,227,641
Increase (Decrease) In Unrestricted Net Assets
416,062
(635,564)
Unrestricted Net Assets – Beginning of year
41,513,895
42,149,459
Unrestricted Net Assets – End of year
$ 41,929,957
$ 41,513,895
SEE NOTES TO FINANCIAL STATEMENTS.
14
NFA
2005 ANNUAL REVIEW

STATEMENTS OF
CASH FLOWS
Years ended June 30, 2005 and 2004
2005
2004
Cash Flows from Operating Activities:
Increase (decrease) in unrestricted net assets
Adjustments to reconcile increase (decrease) in unrestricted
net assets to net cash provided by operating activities:
Net change in unrealized loss on investments
Net realized loss on investments
Depreciation and amortization
Changes in assets and liabilities:
Assessments receivable
Accrued interest
Other assets
Unearned dues and fees
Accounts payable, accrued expenses and other liabilities
Deferred rent credit
Net cash provided by operating activities
$ 416,062
35,576
271,340
2,585,707
557,608
(59,901)
(75,798)
(639,123)
651,332
(212,233)
3,530,570
$ (635,564)
819,504
127,730
2,828,812
(550,004)
22,460
106,150
106,823
(70,179)
(185,428)
2,570,304
Cash Flows from Investing Activities:
Purchases of fixed assets and software
Purchases of securities
Sale of securities
Maturities of U.S. Treasury securities
(1,758,622)
(58,371,407)
31,141,335
22,105,920
(1,475,963)
(20,631,829)
15,692,272
9,425,000
Net cash (used in) provided by investing activities
(6,882,774)
3,009,480
Net (Decrease) Increase In Cash and Cash Equivalents
(3,352,204)
5,579,784
Cash and Cash Equivalents – Beginning of year
13,366,270
7,786,486
Cash and Cash Equivalents – End of year
$10,014,066
$13,366,270
SEE NOTES TO FINANCIAL STATEMENTS.
15

NOTES TO FINANCIAL STATEMENTS Years ended June 30, 2005 and 2004
1. Organization
The Commodity Futures Trading Commission has designated
National Futures Association (the “Association”) as a registered
futures association. Among the Association’s activities are
qualification screening and registration, financial and trade
practice surveillance, enforcement of customer protection rules
and uniform business standards, arbitration of disputes and
educational activities. The Association is financed through
the payment of assessments and dues by its members and
registration fees by registrants.
2. Summary of Significant Accounting Policies
Use of Estimates The financial statements of the Association
have been prepared, using the accrual basis of accounting, in
conformity with accounting principles generally accepted in
the United States of America. The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to use estimates and assumptions
that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from the estimates.
Federal Income Taxes The Association is exempt from
federal income taxes under Section 501(c)(6) of the U.S.
Internal Revenue Code. The Internal Revenue Service has
issued a determination letter to that effect.
Assessments Assessments are reported monthly and are due
within 30 days. They are recognized as revenue in the month to
which they apply.
Investments Investments are carried at fair market value based
on quoted market prices. Changes in market values are
included in investment income.
Membership Dues Membership dues are nonrefundable and
are recognized as revenue on a pro rata basis over the members’
membership year.
Registration Renewal Fees Registration renewal fees are nonrefundable
and are recognized as revenue on a pro rata basis
over the registrants’ renewal period.
Regulatory Services Outsourcing Regulatory services outsourcing
revenue relates to the Association’s market and trade
practice surveillance services. This revenue consists of one-time
nonrefundable fees and monthly fees for ongoing services for
each customer. One-time fees are used by the Association to
purchase hardware and software necessary to perform surveillance
services for a given customer and are recognized as
revenue when paid by the customer. Monthly fees and a
transaction fee for ongoing surveillance and other regulatory
services are recognized as revenue on a monthly basis as services
are performed.
Depreciation and Amortization Fixed assets and leasehold
improvements are depreciated over three to seven years or the
term of the lease, if applicable, on a straight-line basis. The
Association uses the half-year convention so that the first and
last years of depreciation and amortization are one-half the
straight line amount and all middle years are in direct proportion
to the useful life of the capitalized item.
Purchased Software Purchased software is included in fixed
assets, and is capitalized and amortized over three years on a
straight-line basis using the half-year convention.
Software Design and Development Costs Software design
and development costs consist of salaries and benefits of the
Association’s personnel involved in projects to develop software
for internal use. Software design and development costs
incurred in the preliminary stage of a project, as well as
training and maintenance costs, are expensed as incurred.
Software design and development costs associated with the
application development stage of software projects are capitalized
until such time that the software is substantially complete
and ready for its intended use. Capitalized software design and
development costs are amortized over three years on a straightline
basis using the half-year convention.
Deferred Rent Credit Due to the terms of the Association’s
primary office space leases, a deferred rent credit was generated.
The deferred rent credit is amortized over the remaining terms
of the respective leases, which range from three to seven years.
The Association computed an average monthly rental for the
entire term of each lease and charged this amount to rental
expense each month. The difference between the average
monthly rental and the actual monthly rental payment is
accounted for as either an increase or reduction of the deferred
rent credit.
Allowance for Doubtful Accounts The allowance for doubtful
accounts is maintained at a level that in management’s judgment
is adequate to provide for estimated probable losses related to
receivables. At June 30, 2005 and 2004, the allowance for
doubtful accounts is $354,970 and $145,125, respectively,
and is included in other current assets on the statements of
financial position.
Statement of Cash Flows For the purpose of this statement,
cash and cash equivalents include cash and money market
funds.
3. Investments:
The Association’s investment portfolio is classified on the
statements of financial position as short-term and long-term
investments. Short-term investments consist of securities with
maturity dates of one year or less. Long-term investments
consist of securities with maturity dates greater than one year.
Expected maturities will differ from contractual maturities
because borrowers may have a right to call or prepay obligations
with or without call or prepayment penalties.
Management of a portion of the Association’s investable funds
has been outsourced to a professional money manager. As of
June 30, 2005 and 2004, approximately 78% and 80%, respectively,
of the total carrying value of investments and money market
funds was outsourced.
16
NFA
2005 ANNUAL REVIEW

The aggregate carrying amount of investments by major type as
of June 30, 2005 and 2004 is as follows:
2005 2004
Short-term:
U.S. Treasury securities $ 3,599,592 $ --
U.S. Government Agency
securities 299,814 1,005,630
Corporate debt obligations 2,373,098 2,562,555
Total short-term 6,272,504 3,568,185
Long-term:
U.S. Treasury securities 3,634,950 6,639,011
U.S. Government Agency
securities 6,067,105 3,146,814
Corporate debt obligations 8,810,479 5,444,375
Asset-backed securities 2,765,968 3,943,009
Mortgage-backed securities 556,071 548,447
Total long-term 21,834,573 19,721,656
Total $28,107,077 $23,289,841
Corporate debt obligations are rated at least A and assetbacked
and mortgage-backed securities at least AA or Aa by
Standard & Poor’s or Moody’s. There are no concentrations
greater than 5% of total investments with one issuer associated
with the investments in corporate debt obligations and assetbacked
and mortgage-backed securities. As of June 30, 2005
and 2004, the average effective duration of the Association’s
professionally managed portfolio was approximately 1.53
years and 1.63 years, respectively.
The composition of investment income for the years ended June
30, 2005 and 2004 is as follows:
2005 2004
Interest income $1,067,554 $1,270,594
Net realized (loss) gain (271,340) (127,730)
Net change in
unrealized loss (35,576) (819,504)
Total $ 760,638 $ 323,360
4. Furniture, Fixtures, Equipment,
Leasehold Improvements and Software:
Fixed assets consist of the following as of June 30, 2005 and 2004:
2005 2004
Furniture and fixtures $ 2,360,844 $ 2,421,103
Equipment 2,286,939 1,965,460
Leasehold improvements 5,763,847 5,681,369
Software 2,869,430 3,660,951
13,281,060 13,728,883
Less accumulated
depreciation and
amortization 8,007,827 7,628,565
Total $ 5,273,233 $ 6,100,318
5. Commitments and Contingencies:
The Association leases office space in Chicago and New York.
The Chicago lease expires in 2008 and negotiations are currently
in process for a new lease. In addition, the Association has
entered into a 36-month contract with a disaster recovery
service provider. The following is a schedule of future payments
under both the operating leases and the disaster recovery contract
that have remaining noncancellable payment terms in
excess of one year as of June 30, 2005:
2006 $ 1,676,977
2007 1,775,690
2008 1,419,017
2009 705,953
2010 673,113
Future years 897,484
Total $ 7,148,234
In the normal course of business, the Association is, at times,
involved in pending legal proceedings. Management, after consultation
with outside legal counsel, believes that the resolution
of current proceedings will not have a material effect on the
Association’s net assets.
6. Employee Benefit Plans:
The Association sponsors an Employee Retirement Savings
Plan (the “Savings Plan”). Contributions to the Savings Plan of
up to 100% of employees’ compensation can be made through
payroll deductions. The Association will match, dollar for
dollar, employee contributions up to 6% of the employee’s
eligible compensation. The Association may also contribute to
the Savings Plan an additional, profitsharing contribution
expressed as a percent of the calendar year’s compensation of
participants who are employed on the last day of the calendar
year. A profit-sharing contribution for 2004 of $692,236 was
made in 2005. A profit-sharing contribution for 2003 of
$605,604 was made in 2004. Employees are eligible to
participate in the Savings Plan upon their date of hire.
Employee contributions and any vested employer contributions
are payable upon termination or retirement as stipulated in
the Savings Plan.
The Association also sponsors the Retiree Medical Benefits
Plan (the “Plan”), which covers substantially all retirees and
their dependents. Effective December 31, 1993, employees who
retire from the Association on or after attaining age 55 and
who have at least 10 years of full-time service with the
Association are entitled to receive benefits from the Plan.
Individuals who attained age 65 on or before December 31,
1993, who have been employed by the Association on a fulltime
basis for at least five years, and who retired after July 1,
1993, were grandfathered under the Plan. The Plan pays a stated
percentage of the cost of medical coverage for employees who
retire prior to age 65. Coverage for employees who have retired
and have reached age 65 is provided under a Medicare
Supplemental Plan. Under the Medicare Supplemental Plan, the
Association pays a stated percentage of the supplemental costs.
17

NOTES TO FINANCIAL STATEMENTS Years ended June 30, 2005 and 2004
On July 1, 2003, the Plan’s eligibility requirement and costsharing
schedule was amended. Prior to July 1, 2003, an
employee with at least 10 years of full-time service and who
was at least 55 at retirement was eligible for benefits.
Employees began earning years of service upon employment.
Subsequent to July 1, 2003, the eligibility requirement was
amended to reflect that employees can retire at age 55 or older
but must have at least 10 years of service since their 45th birthday.
All employees will retire having at least 10 years of service
preceding their retirement.
Prior to July 1, 2003, the cost-sharing schedule was based on
age at retirement and years of service. Subsequent to July 1,
2003, the new structure is based on age at retirement. The
following shows the change both prior to and subsequent to the
Plan amendment:
Prior to July 1, 2003
Based on age at retirement and years of service:
Retiree’s Share
Age + Service Pre-65 Post-65
65-69 90% 50%
70-74 80% 40%
75-79 70% 30%
80-84 60% 20%
85+ 50% 10%
Subsequent to July 1, 2003
Based on age at retirement:
Retiree’s Share
Age Pre-65 Post-65
55-59 70% 40%
60-64 60% 30%
65+ 50% 20%
Any employee who retired before August 15, 2003 was given the
choice to convert to the new amendment or be grandfathered
into the pre-amended requirements.
For the years ended June 30, 2005 and 2004, the net periodic
postretirement benefit cost and benefits paid for the Plan are as
the follows:
2005 2004
Net periodic postretirement
benefit cost $ 62,219 $ 461,944
Benefits paid 11,101 11,247
The June 30, 2005 and 2004 accumulated postretirement
benefit obligation was determined using an assumed weighted
average discount rate of 5.0% and 6.25%, respectively. The
rate of increase in the gross cost of covered healthcare benefits
was assumed to be 8.0% and 9.0% for fiscal years 2005 and
2004, respectively. The rate of increase is assumed to decline
by 1.00% for each year after 2005 to 5.00% in 2008 and
thereafter.
The Association also participates in the purchase of life insurance
on behalf of certain executive officers as part of the
National Futures Association Split Dollar Life Insurance Plan
(the “Split Dollar Plan”). The purpose of the Split Dollar Plan
is to provide participating executive officers with an insured
death benefit during employment and after retirement. The
insurance policy also allows for capital accumulation through
the buildup of cash value. As of June 30, 2005 and 2004, the
cash surrender value is $2,265,511 and $1,990,228, respectively,
and is classified in other assets on the statements of financial
position. The increase in cash surrender value approximately
equals the premiums paid, and approximately all premiums
paid increase the buildup of the cash surrender value.
7. Deferred Rent Credit:
Effective November 2001, the Association executed a 10-year
operating lease for office premises in New York. Also, effective
February 1996, the Association executed a 12-year operating
lease for office premises in Chicago. The leases include rent
incentives, and, accordingly, the Association is recognizing such
abatement as a reduction of rent expense over the terms of the
lease on the straight-line basis. The total deferred rent credit at
June 30, 2005 and 2004 was $929,912 and $1,112,904,
respectively, of which $223,987 and $194,746, respectively, are
included in accounts payable, accrued expenses and other
current liabilities on the statements of financial position. For
the years ended June 30, 2005 and 2004, cash payments for
rent were approximately $2,431,000 and $2,593,000, respectively.
The Association offset these cash payments with deferred
rent credits of $183,000 and $153,000 in 2005 and 2004,
respectively, resulting in rent expense of approximately
$2,248,000 and $2,440,000 in 2005 and 2004, respectively.
8. Assessment Fee Revenue
The assessment fee rate for the period January 1, 2005 to
June 30, 2005 was $.02 per side. The assessment fee rate for
the period January 1, 2003 to December 31, 2004 was $.03
per side. These rates were identical for both futures and
options contracts.
At June 30, 2005 and 2004, the actuarial and recorded liabilities
for the Plan, none of which has been funded, are:
2005 2004
Accumulated postretirement
benefit obligation $2,063,049 $1,465,244
Accrued postretirement
benefit cost 3,488,848 3,437,675
18
NFA
2005 ANNUAL REVIEW

National Futures Association has been
designated by the Commodity Futures
Trading Commission (CFTC) as a registered
futures association. NFA is the premier
independent provider of innovative and
efficient regulatory programs that safeguard
the integrity of the derivatives markets.
Regulatory Programs and Services
Registration
All firms and individuals who seek to conduct
business with the public in connection with
futures trading must be registered with the CFTC
and be Members of NFA.
Compliance
NFA monitors all Member firms and individuals to
assure they are in compliance with NFA and CFTC
approved rules.
Arbitration
NFA provides inexpensive, prompt methods for
customers and Members to resolve futures-related
disputes.
Education
Member Services: NFA provides print and electronic
resources to assist Members in understanding and
meeting their regulatory responsibilities.
Investor Services: NFA develops and disseminates
information to help investors and prospective
investors acquire a better understanding of futures
investments.
Trade Practice/Market Surveillance
NFA provides a variety of tools and programs to
electronic exchanges to ensure the fair treatment of
customers and to maintain orderly markets.
Accountability and Organization
Policy Development
25-member Board of Directors
• 14 FCM, IB, CPO, and CTA representatives
• 6 exchange representatives
• 5 public representatives
Policy Supervision
10-member Executive Committee
• NFA President
• NFA Chairman of the Board
• 3 directors/FCM or IB representatives
• 2 directors/exchange representatives
• 2 directors/CPO or CTA representatives
• 1 public representative
Policy Implementation
NFA officers and staff
Funding
NFA is totally self-financed with funds derived
from membership dues and fees and from assessments
paid by Members and users of the futures
markets.
Total Employees (As of June 30, 2005)
246
19

Information Center
1-800-621-3570
Disciplinary Information Access Line (DIAL):
1-800-676-4NFA
World Wide Web
http://www.nfa.futures.org
Offices
CHICAGO HEADQUARTERS
200 West Madison Street, Suite 1600
Chicago, IL 60606-3447
312-781-1410
NEW YORK
120 Broadway, Suite 1125
New York, NY 10271-0085
212-608-8660
© 2005 National Futures Association