January 2023
______
kpmg.com
Illustrative
financial
statements
Hedge funds
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
The information contained in these illustrative financial statements is of a general nature related to
private investment companies only and is not intended to address the circumstances of any particular
entity.
The form and content of financial statements are the responsibility of the specific entity’s management.
These illustrative financial statements:
(a) are intended to provide general information on applying accounting principles generally accepted in the
United States of America effective as of September 30, 2022, and do not include all possible disclosures
that may be required for private investment companies; (b) are not intended to be a substitute for
management’s review of applicable law or accounting standards or for professional judgment as to the
adequacy of disclosures and fairness of presentation; and (c) are being provided with the understanding
that the information contained herein should not be construed as legal, accounting, tax, or other
professional advice or services and that no one should act on any information contained herein without the
appropriate professional advice provided in connection with the entity’s particular situation. Although we
endeavor to provide accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. Certain information
contained in these illustrative financial statements may be superseded as new guidance or interpretations
are issued. Financial statement preparers and other users of these illustrative financial statements are
therefore cautioned to stay informed of, and carefully evaluate, subsequent authoritative and
interpretative guidance.
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Contents
Domestic Fund, L.P. ......................................................................................................... 1
Statement of assets and liabilities ............................................................................. 2
Condensed schedule of investments ......................................................................... 3
Statement of operations ............................................................................................. 8
Statement of changes in partners’ capital ................................................................. 9
Statement of cash flows ...........................................................................................10
Notes to financial statements ...................................................................................12
Offshore Fund, Ltd. ........................................................................................................54
Statement of assets and liabilities ...........................................................................55
Statement of operations ...........................................................................................56
Statement of changes in net assets .........................................................................57
Statement of cash flows ...........................................................................................58
Notes to financial statements ...................................................................................60
Master Fund, L.P. ...........................................................................................................68
Statement of assets and liabilities ...........................................................................69
Statement of operations ...........................................................................................70
Statement of changes in partners’ capital ...............................................................71
Notes to financial statements ...................................................................................72
Domestic Feeder, L.P. ....................................................................................................75
Statement of assets and liabilities ...........................................................................76
Statement of operations ...........................................................................................77
Statement of changes in partners’ capital ...............................................................78
Statement of cash flows ...........................................................................................79
Notes to financial statements ...................................................................................80
Offshore Feeder, Ltd. .....................................................................................................83
Statement of assets and liabilities ...........................................................................84
Statement of operations ...........................................................................................85
Statement of changes in net assets .........................................................................86
Statement of cash flows ...........................................................................................87
Notes to financial statements ...................................................................................88
Appendices .....................................................................................................................91
Appendix A: Statement of cash flows – Net presentation ........................................92
Appendix B: Investments in private investment companies ....................................93
Appendix C: Offsetting assets and liabilities – Alternative disclosures ...................98
Appendix D: Liquidation basis of accounting .........................................................100
Appendix E: Disclosure of investments greater than 5% of net assets .................107
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
1
Domestic
Fund, L.P.
Please refer to the conditions of use on the inside cover of this publication.
References to the relevant literature are included in the left-hand margin.
The following abbreviations are used for technical references:
ASC FASB Accounting Standards Codification
ATQA AICPA Technical Questions and Answers
AAG-INV AICPA Audit and Accounting Guide, Investment Companies
CFTC Commodity Futures Trading Commission
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
2
Domestic Fund, L.P.
ASC 946-205-45-1
Statement of assets and liabilities
December 31, 20XX
Assets
$769,340,000
12,596,000
190,546,000
163,588,000
12,450,000
ASC 946-210-45-20
8,952,000
ASC-946-210-45-21
543,000
1,987,000
1,000,000
ASC 946-310-45-1
260,000
14,837,000
ASC 946-310-45-1
1,167,000
218,000
1,177,484,000
Liabilities
550,431,000
155,435,000
18,632,000
ASC 946-405-45-1
559,000
10,000,000
ASC 946-405-45-2
530,000
ASC 850-10-50-1
150,000
ASC 480-10-45-1
5,879,000
1,000,000
930,000
598,000
95,000
744,239,000
ASC 946-20-50-14
$433,245,000
(1)
See Appendix B for sample presentation of condensed schedule of investments for investments in private investment companies.
See accompanying notes to financial statements.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
3
Domestic Fund, L.P.
ASC 946-205-45-1
Condensed schedule of investments
December 31, 20XX
Securities, at fair value
Percentage of
partners’ capital
Fair value
ASC-946-210-50-6 Common stocks
United States
Banking
Public Banking Company A, 1,499,611 shares
(1)
6.9%
$29,871,000
Other 17.2 74,622,000
Manufacturing
Public Manufacturing Company A, 2,649,160 shares 7.5 32,458,000
Other 14.3 61,989,000
Consumer discretionary 20.7 89,682,000
Healthcare 18.7
81,038,000
Real estate 10.4 44,961,000
Total – United States (cost $330,510,000) 95.7 414,621,000
United Kingdom
Manufacturing
Public Manufacturing Company B,1,540,000 shares 8.9
38,571,000
Telecommunications 7.9 34,104,000
Total – United Kingdom (cost $41,345,000) 16.8 72,675,000
Total – Common stocks (cost $371,855,000)
112.5
487,296,000
Public preferred stocks
United States
Banking
Public Banking Company A, Class B, 500,590 shares 5.5 23,828,000
Other 8.5 36,858,000
Information technology
8.3
35,914,000
Private preferred stocks
Canada
Information technology (cost $16,581,000) 4.6 19,937,000
Total – Preferred stocks (cost $73,539,000)
26.9
116,537,000
Exchange-traded funds
United States
Real estate (cost $21,834,000)
4.5 19,567,000
(
1)
See Appendix E for an alternate presentation of investments that constitute more than 5% of the net assets of the Fund, separate from the
presentation of investments by category in the condensed schedule of investments.
See accompanying notes to financial statements.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
4
Domestic Fund, L.P.
Condensed schedule of investments (continued)
December 31, 20XX
Securities, at fair value (continued)
Percentage of
partners’ capital
Fair value
Corporate bonds
United States
Banking
Public Banking Company A, X.X%, due 7/15/20XX, principal
$25,000,000
5.2%
$22,662,000
Telecommunications
4.3
18,456,000
Total – United States (cost $43,381,000)
9.5
41,118,000
United Kingdom
Manufacturing (cost $17,891,000)
4.8
20,947,000
Total – Corporate bonds (cost $61,272,000)
14.3
62,065,000
Government bonds
United States
U.S. Treasury bills, X.X%, due 4/1/20XX, principal $22,500,000
(cost $22,500,000)
5.2
22,391,000
Municipal bonds
United States
Construction
Municipality A, X.X%, due 4/1/20XX, principal $25,000,000
5.2
22,592,000
Water
2.0
8,451,000
Highway
0.1
491,000
Total – Municipal bonds (cost $28,518,000)
7.3
31,534,000
Asset-backed securities
United States
Senior debt
High-yield CLO, X.X%, due 1/31/20XX, principal $12,500,000
3.0
12,941,000
Other
1.7
7,491,000
Total – Senior debt (cost $40,415,000)
4.7
20,432,000
Mezzanine debt
High-yield CLO, X.X%, due 3/31/20XX, principal $12,500,000
(cost $25,519,000)
2.2
9,518,000
Total – Asset-backed securities (cost $65,934,000)
6.9
29,950,000
Total – Securities, at fair value (cost $662,033,000)
177.6%
$769,340,000
See accompanying notes to financial statements.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
5
Domestic Fund, L.P.
Condensed schedule of investments (continued)
December 31, 20XX
Digital assets, at fair value
Percentage of
partners’ capital
Fair value
Cryptocurrencies
Digital Asset A, 1,200 units
1.2%
$5,133,800
Digital Asset B, 1,150 units
1.7
7,462,200
Total investment in digital assets (cost $11,000,000)
2.9
12,596,000
Warrants purchased
United Kingdom
Banking
7.4%
$32,209,000
Telecommunications
3.4
14,581,000
Total – Warrants purchased (cost $43,266,000)
10.8
46,790,000
Total return swaps
United States
Manufacturing
Public Manufacturing Company A, expire from 1/31/20XX to
12/31/20XX
6.5
27,954,000
Other
9.3
40,365,000
Banking
5.1
22,231,000
Total – Total return swaps
20.9
90,550,000
Swaptions
Interest rate (cost $53,000)
0.1
282,000
Option contracts purchased
Call options purchased
United States
Healthcare
Public Healthcare Company A, expire 1/31/20XX (cost
$21,839,000)
5.5%
23,807,000
Put options purchased
United States
Biotechnology (cost $3,893,000)
0.5
2,159,000
Total – Option contracts purchased (cost $25,732,000)
6.0
25,966,000
Total – Derivative contracts (assets), at fair value (cost
$69,051,000)
37.8%
$163,588,000
Securities purchased under agreements to resell, at fair value (cost $12,450,000)
United States
Banking
2.9%
$12,450,000
See accompanying notes to financial statements.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
6
Domestic Fund, L.P.
Condensed schedule of investments (continued)
December 31, 20XX
Securities sold short, at fair value
Percentage of
partners’ capital
Fair value
Common stocks
United States
Retail trade
Public Retail Company A, 851,000 shares
8.8%
$38,051,000
Other
26.5
114,981,000
Transportation
30.4
131,813,000
Telecommunications
27.1
117,415,000
Total – United States (proceeds $450,581,000)
92.8
402,260,000
United Kingdom
Manufacturing
Public Manufacturing Company C, 651,000 shares
9.3
40,451,000
Banking
7.4
31,928,000
Retail trade
5.4
23,481,000
Consumer discretionary
2.5
10,821,000
Information technology
1.5
6,293,000
Total – United Kingdom (proceeds $100,481,000)
26.1
112,974,000
Total – Common stocks (proceeds $551,062,000)
118.9
515,234,000
Corporate bonds
United Kingdom
Banking
5.8
24,918,000
Manufacturing
2.4
10,279,000
Total – Corporate bonds (proceeds $32,571,000)
8.1
35,197,000
Total – Securities sold short, at fair value (proceeds
$583,633,000)
127.0%
$550,431,000
Derivative contracts (liabilities), at fair value
Credit default swaps – Protection written
United States
Banking
Public Banking Company A, expire 3/15/20XX
5.3%
$22,851,000
Information technology
0.2
910,000
Total – United States (up-front premiums received $3,510,000)
5.5
23,761,000
Germany
Sovereign (up-front premiums received $1,318,000)
0.4
1,916,000
Total – Credit default swaps – Protection written
(up-front premiums received $4,828,000)
5.9
25,677,000
See accompanying notes to financial statements.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
7
Domestic Fund, L.P.
Condensed schedule of investments (continued)
December 31, 20XX
Derivative contracts (liabilities), at fair value
Percentage of
partners’ capital
Fair value
Total return swaps
United States
Retail trade
ATQA 6910.18
Public Retail Company A, expire from 1/31/20XX
to 12/31/20XX
4.3%
$18,704,000
Other
4.4
19,227,000
Banking
7.3
31,720,000
Total – Total return swaps
16.0
69,651,000
Contracts for differences
United Kingdom
Banking
3.1
13,419,000
Manufacturing
2.1
8,965,000
Total – Contracts for differences
5.2
22,384,000
Forward currency contracts
Purchase foreign currency/sell U.S. dollar
British pound/U.S. dollar
2.2
9,581,000
Other
0.5
2,319,000
Purchase U.S. dollar/sell foreign currency
U.S. dollar/euro
2.3
10,172,000
Total – Forward currency contracts
5.1
22,072,000
Option contracts written
Call options written
United States
Retail trade
1.3
5,419,000
Consumer staples
1.0
4,541,000
Total – Call options written (proceeds $14,481,000)
2.3
9,960,000
Put options written
United States
Retail trade
ATQA 6910.18
Public Retail Company A, expire 5/1/20XX
1.0
4,518,000
Other
0.0
172,000
Consumer discretionary
0.2
1,001,000
Total – Put options written (proceeds $4,571,000)
1.2
5,691,000
Total – Option contracts written (proceeds $19,052,000)
3.5
15,651,000
Total – Derivative contracts (liabilities), at fair value (proceeds
$19,052,000 and up-front premiums received $4,828,000)
35.6%
$155,435,000
See accompanying notes to financial statements.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
8
Domestic Fund, L.P.
ASC 946-205-45-1
Statement of operations
December 31, 20XX
Investment income
Interest
$9,039,000
ASC 946-830-45-39
Dividends (net of foreign withholding taxes of $218,000)
7,039,000
Income from securities loaned, net
12,000
Income from staking rewards
25,000
Other income
419,000
Total investment income
16,534,000
ASC 946-220-45-3
Expenses
ASC 946-20-45-4
Management fee
7,540,000
Dividends on securities sold short
10,448,000
Interest on securities sold short
1,161,000
Interest expense
(1)
59,000
Administrative fee
248,000
Professional fees and other
856,000
Total expenses
20,312,000
ASC 946-20-45-5,
ASC 946-20-50-7
Reimbursed/waived expenses
(500,000)
Net expenses
19,812,000
ASC 946-220-45-5
Net investment loss
(3,278,000)
ASC 946-220-45-6
Realized and unrealized gain (loss) from investments and foreign currency
ASC 946-220-50-2
Net realized gain from investments (including realized gain of $16,000 from distribution of
securities to limited partners)
37,269,000
ASC 946-830-45-1
Net realized gain from foreign currency transactions
(2)
165,000
Net unrealized gain from investments
61,239,000
ASC 946-830-45-1
Net unrealized loss from translation of assets and liabilities in foreign currencies
(3)
(52,000)
Net gain from investments and foreign currency
98,621,000
ASC 946-220-45-7
Net income
(4)
$95,343,000
(1)
Represents interest expense related to the Fund’s financing arrangements.
(2)
Represents net gains or losses from assets or liabilities denominated in foreign currencies. If separate reporting of foreign currency effects on
realized gains or losses from investments is elected, those amounts may be included in this caption.
(3)
Represents the net change during the period from translating assets and liabilities denominated in foreign currencies. If separate reporting of
foreign currency effects on net unrealized gains and losses on investments is elected, those amounts may be included in this caption.
(4)
Paragraph 946-220-45-7 defines the sum of net investment income or loss and net realized and unrealized gain or loss on investments and
foreign currency as net increase or decrease in net assets resulting from operations. Funds may describe this line item as net increase or
decrease in net assets resulting from operations or net income or loss.
See accompanying notes to financial statements.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
9
Domestic Fund, L.P.
ASC 946-205-45-
1, 3 and 5
Statement of changes in partners’ capital
Year ended December 31, 20XX
ASC 946-505-50-2
ASC 946-505-50-3
General Partner
Class A limited
partners
Class B limited
partners Total
Partners’ capital
, beginning of year
$35,529,000
$175,827,000
$117,218,000
$328,574,000
Capital contributions
—
27,000,000
18,000,000
45,000,000
Capital withdrawals
—
(21,559,000)
(14,373,000)
(35,932,000)
AAG-INV 4.08 Early withdrawal fees 24,000
142,000
94,000
260,000
Allocation of net income
(1)
Net investment loss (361,000)
(1,737,000)
(1,180,000)
(3,278,000)
Net realized gain from investments 4,100,000
19,752,000
13,417,000
37,269,000
Net realized gain from foreign
currency transactions
18,000
88,000
59,000
165,000
Net unrealized gain from
investments
6,736,000
32,838,000
21,665,000
61,239,000
Net unrealized loss from translation
of assets and liabilities in foreign
currencies
(6,000)
(27,000)
(19,000)
(52,000)
Net income 10,487,000
50,914,000
33,942,000
95,343,000
ASC 946-20-45-4 Incentive allocation to General
Partner
15,788,000
(10,043,000)
(5,745,000)
—
Net income after incentive allocation
to General Partner
26,275,000
40,871,000
28,197,000
95,343,000
ASC 946-505-50-3
Partners' capital
, end of year
$61,828,000
$222,281,000
$149,136,000
$433,245,000
(1)
ASC 946-205-45-5 permits nonregistered investment partnerships to combine the statement of changes in net assets with the statement of
changes in partners’ capital if the information in ASC 946-205-45-3 is presented. AAG-INV Chapter 7 states that the alternative presentation as
illustrated in the Master Fund and Domestic Feeder Fund financial statements may be used when the information in ASC 946-205-45-3 is
presented in the financial statements and it is considered more meaningful to users of the financial statements.
See accompanying notes to financial statements.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
10
Domestic Fund, L.P.
ASC 946-205-45-1
Statement of cash flows
Year ended December 31, 20XX
[See Appendix A for the alternative “net method” of presenting operating cash flows.]
Cash flows from operating activities
ASC 230-10-45-28 Net income
$95,343,000
Adjustments to reconcile net income to net cash used in operating activities:
Net realized gain from investments
(37,253,000)
Net realized gain from foreign currency transactions
(165,000)
Net realized gain from distribution of securities to limited partners
(16,000)
Net unrealized gain from investments
(61,239,000)
Net unrealized loss from translation of assets and liabilities in foreign currencies
52,000
ASC 230-10-45-7 Purchases of securities
(122,476,000)
Purchases of digital assets (13
,000,000)
Proceeds from sales of securities
165,778,000
Proceeds from sales of digital assets
2,000,000
Purchases of securities purchased under agreements to resell
(12,450,000)
Payments for derivative contracts
(24,129,000)
Proceeds from derivative contracts
104,468,000
Proceeds from securities sold short
54,678,000
Payments to cover securities sold short
(196,130,000)
Amortization and accretion of premiums and discounts on debt securities
(145,000)
Changes in operating assets and liabilities:
Dividends and interest receivable
(532,000)
Other assets
(42,000)
Payable upon return of securities loaned
30,000
Due to related parties
(50,000)
Management fee payable
120,000
Dividends and interest payable
148,000
Accrued expenses and other liabilities
39,000
Net cash used in operating activities (44
,971,000)
See accompanying notes to financial statements.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
11
Domestic Fund, L.P.
Statement of cash flows (continued)
Year ended December 31, 20XX
ASC 230-10-45-14
and 15, ASC 230-
10-45-26
Cash flows from financing activities
ASC 230-10-50-5
Proceeds from capital contributions $46,000,000
Payments for capital withdrawals (40,053,000)
Proceeds from margin borrowings 20,000,000
Repayments of margin borrowings (45,424,000)
Proceeds from securities sold under agreements to repurchase 10,000,000
Net cash used in financing activities
(9,477,000)
ASC 830-230-45-1 Effect of exchange rate changes on cash (including restricted cash) (52,000)
ASC 230-10-45-24
Net decrease in cash and cash equivalents (including restricted cash)
(54,500,000)
ASC 230-10-45-24 Cash and cash equivalents (including restricted cash), beginning of year 80,819,000
ASC 230-10-45-24 Cash and cash equivalents (including restricted cash), end of year $26,319,000
At December 31, 20XX the amounts included in cash and cash equivalents
(including restricted cash) include the following
Statement of assets and liabilities
December 31, 20XX
ASC 230-10-50-8
Cash and cash equivalents
$8,952,000
Cash denominated in foreign currencies
543,000
Due from brokers 1
,987,000
Collateral posted with counterparties for derivative contracts
14,837,000
Total cash and cash equivalents (including restricted cash)
$26,319,000
Supplemental disclosure of cash flow information:
ASC 230
-10-50-2 Cash paid during the year for interest
$54,000
ASC 230
-10-50-3 Supplemental disclosure of noncash financing activities:
Contribution of securities, at fair value (cost basis of $231,000)
$347,000
Distribution of securities, at fair value (cost basis of $638,000)
$654,000
(1)
If the requirements of ASC 230-10-45-7 through 45-9 are met, proceeds from margin borrowings and repayments of margin borrowings may
be presented on a net basis
See accompanying notes to financial statements.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
12
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
ASC 275-10-50-2
1. Organization
[This note should be tailored to the Fund’s specific nature of operations:]
Domestic Fund,
L.P. (the Fund), a Delaware investment limited partnership, commenced operations on
[Month,
Date, Year]. The Fund was organized to
[Include a description of the Fund’s investment
objectives].
The Fund is managed by General Partner, LLC (the
General Partner) and Investment Manager,
LLC (the Investment Manager). [If applicable:]
The Investment Manager is registered with the U.S.
Securities and Exchange Commission as an investment adviser under the Investment Advisers Act
of 1940.
ASC 235-10-50-1,
ASC 235-10-50-3
2. Summary of significant accounting policies
The significant accounting policies followed by the Fund are:
Basis of presentation
ASC 946-10-50-1
The financial statements have been prepared in accordance with U.S. generally accepted
accounting principles (GAAP). The Fund is an investment company and follows the accounting and
reporting guidance in the Financial Accounting Standards Board’s (FASB) Ac
counting Standards
Codification (ASC) Topic 946, Financial Services—Investment Companies.
[See Appendix D for
sample presentation and disclosures when the Fund is presented on the liquidation basis
of accounting.]
Principles of consolidation
ASC-810-10-50-1
[If applicable for consolidated financial statements: If consolidated financial statements are
presented, then financial statements should be referred to as consolidated financial
statements throughout. In addition, a fund shall present th
e applicable disclosure
requirements in Section 810-10-50 if the fund has
consolidated other entities in which the
fund has a controlling financial interest and is not required to measure those entities at fair
value in accordance with ASC Topic 946.]
The Fund consolidates variable interest entities (VIEs) for which it is the primary beneficiary,
generally as a result of having the power to direct the activities that most significantly affect the
VIE’s economic performance and holding variable interests
that convey to the Fund the obligation
to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The
Fund consolidates entities that are not VIEs when it has a controlling financial interest as a result
of majorit
y voting control. The Fund is precluded from consolidating entities that are not investment
companies when it is required to measure those entities at fair value in accordance with Topic 946.
The accompanying consolidated financial statements include the a
ccounts of the Fund and its
wholly owned and controlled subsidiary, Subsidiary A, which is not a VIE. Subsidiary A is an
investment company established for the general purpose of executing specific investment
transactions on behalf of the Fund. All signifi
cant intercompany accounts and transactions have
been eliminated in the accompanying consolidated financial statements. [If applicable:]
At
December 31, 20XX, the Fund does not hold variable interests in any VIEs for which it is the primary
beneficiary.
Use of estimates
ASC 275-10-50-4
Preparing financial statements in accordance with GAAP requires management to make estimates
and assumptions
in determining the reported amounts of assets and liabilities, including the fair
value of investments, and disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of income and expenses during t
he reporting period. Actual
results could differ from those estimates.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
13
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
2. Summary of significant accounting policies (continued)
Investment transactions and related investment income
ASC 946-320-25-1
to 25-2
Securities transactions are accounted for on a trade-date basis. Securities transactions outside
conventional channels are recorded as of the date the Fund obtains a right to demand the securities
purchased or to collect the proceeds of sale, and incurs an obligation to pay the price o
f the
securities purchased or to deliver the securities sold, respectively.
ASC 610-20-25-6 to
25-7
[As applicable include accounting policy of the fund that addresses recognition and
derecognition of cryptocurrency transactions such as:]
Cryptocurrency transactions are
recorded when the Fund has obtained control over the cryptocurrency when purchased
or has
transferred control of the cryptocurrency when sold.
In determining when control of the
cryptocurrency has been obtained or transferred, the Fund evaluates
when it or the counterparty
has the ability to direct the use of, and obtain substantially all of the benefits of the cryptocurrency.
ASC 946-320-40-1
Realized gains and losses on investment transactions are determined using cost calculated on [a
specific identification] [an average cost] basis.
ASC 946-320-35-5
S-X Rule 6-03(g)
[If applicable:] Distributions that represent returns of capital in excess of cumulative profits and
losses are credited to investment cost rather than investment income.
Dividends are recorded on
the ex-dividend date and interest is recognized on an accrual basis.
ASC 946-830-45-34
[If applicable:] Withholding taxes on foreign dividends have been provided for in accordance with
the Fund’s understanding of the applicable country’s tax rules and rates.
ASC 946-320-35-20
[If applicable:] Discounts and premiums to the face amount of debt securities are accreted and
amortized using the effective interest rate method over the lives of the respective debt securities.
[If applicable:]
Premiums to the face amount of callable debt securities that have noncontingent
call features that are callable at fixed prices
and on preset dates are amortized using the effective
interest rate method to the next call date when a call option at a specified price becomes
exercisable. If there is no remaining premium or if there are no further call dates, the Fund resets
the effective yield using the payment terms of the debt security.
ASC 946-320-17 to
19, ASC 310-10-35-
8 to 11, ASC 946-
320-30-4
[If applicable:] Interest income is no longer accrued and interest receivable is written off when
deemed uncollectible. [If applicable:] Discounts to the face amount of high-
yield debt securities
and other debt securities are not accreted to the extent that interest income
is not expected to be
realized.
Cash, cash equivalents and restricted cash
ASC 230-10-50-1
ASC 825-10-50-20
and 21
Cash, including cash denominated in foreign currencies, represents cash on hand and demand
deposits held at financial institutions. Cash equivalents include short-
term, highly liquid investments
of sufficient credit quality that are readily convertible to known amounts of cash and have original
maturities of three months or less. Cash equivalent
s are carried at cost, plus accrued interest, which
approximates fair value. Cash equivalents are held to meet short-
term liquidity requirements, rather
than for investment purposes. Cash and cash equivalents are held at major financial institutions
and ar
e subject to credit risk to the extent those balances exceed applicable Federal Deposit
Insurance Corporation (FDIC) or Securities Investor Protection Corporation (SIPC) limitations.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
14
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
ASC 230-10-50-7
2. Summary of significant accounting policies (continued)
Restricted cash is subject to a legal or contractual restriction by third parties as well as a restriction
as to withdrawal or use, including restrictions that require the funds to be used for a specified
purpose and restrictions that limit the purpose for
which the funds can be used. The Fund considers
cash pledged as collateral for securities sold short and cash collateral posted with counterparties
for derivative contracts to be restricted cash.
[Disclose the nature of restriction on cash, cash equivalen
ts, and amounts described as
restricted cash]
Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at
the date of valuation. Transactions denominated in
foreign currencies, including purchases and
sales of investments and income and expenses, are translated into U.S. dollar amounts on the date
of those transactions. Adjustments arising from foreign currency transactions are reflected in the
statement of operations.
[Include if the Fund does not separately report foreign currency exchange effects from
realized and unrealized gains and losses from investments:]
The Fund does not isolate that portion of the results of operations arising from the effect of
changes
in foreign exchange rates on investments from fluctuations arising from changes in market prices
of investments held. Those fluctuations are included in net realized and unrealized gain or loss from
investments in the statement of operations.
Repor
ted net realized gain (loss) from foreign currency transactions arises from sales of foreign
currencies; currency gains or losses realized between the trade
and settlement dates on securities
transactions; and the difference between the amounts of dividend
s, interest, and foreign withholding
taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received
or paid. Net unrealized gain (loss) from translation of assets and liabilities in foreign currencies
arises from changes
in the fair values of assets and liabilities, other than securities, at the end of
the period resulting from changes in exchange rates.
[Include if the Fund separately reports foreign currency exchange effects from realized and
unrealized gains and losses from investments:]
ASC 946-220-50-2
The Fund isolates that portion of the results of operations arising from the effect of changes in
foreign exchange rates on inv
estments from fluctuations arising from changes in market prices of
investments held.
ASC 946-830-50-1
Reported net realized gain (loss) from foreign currency transactions arises from sales of portfolio
securities; sales and maturities of short-
term securities; sales of foreign currencies; currency gains
or losses realized between the
trade and settlement dates on securities transactions; and the
difference between the amounts of dividends, interest, and foreign withholding taxes recorded
on
the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net
un
realized gain (loss) from translation of assets and liabilities in foreign currencies arises from
changes in the fair values of assets and liabilities, including securities, at the end of the period
resulting from changes in exchange rates.
ASC 815-10-35-1
Derivative contracts
The Fund records
derivative contracts at fair value. Changes in the fair value of derivative contracts
are recorded as unrealized gains and losses. The Fund generally records a realized gain or loss on
the expiration, termination, or settlement of a derivative contract.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
15
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
2. Summary of significant accounting policies (continued)
[If applicable:]
Periodic payments for swap contracts (excluding collateral payments) received or
made at the end of each measurement period are included as realized gains or losses. Accruals
related to periodic payments for swap contracts are included in unrealized gains or losses.
[If applicable:] The Fund accounts for the payment and receipt of variation margin for
centrally
cleared derivatives and futures contracts that are characterized as settled-to-market as settlements
of those contracts and recognizes daily settlements of settled-to-market contracts as
[realized]
[unrealized] gains or losses.
[If applicable:] The Fund accounts for the payment and receipt of variation margin for central
ly
cleared derivatives and futures contracts that are characterized as collateralized-to-
market as daily
changes in collateral receivable from or payable to the clearing house. Gains or losses from
collateralized-to-market contracts are not realized until the contracts expire or are settled.
Fair value – Hierarchy of fair value
The Fund determines fair value based on assumptions that market participants would use
in pricing
an asset or liability in the principal or most advantageous market. When
considering market
participant assumptions in fair value measurements, the following fair value hierarchy distinguishes
between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1 – Unadjusted quoted prices in
active markets for identical assets or liabilities that the Fund
is able to access.
Level 2 –
Inputs, other than quoted prices included in Level 1, that are observable either directly or
indirectly. These inputs may include (a) quoted prices for similar as
sets in active markets, (b) quoted
prices for identical or similar assets in markets that are not active, (c) inputs other than quoted
prices that are observable for the asset, or (d) inputs derived principally from or corroborated by
observable market data by correlation or other means.
Level 3 – Inputs that are unobservable and significant to the entire fair value measurement.
[If applicable:]
Private investment companies measured using net asset value (NAV) as a practical
expedient are not categorized within the fair value hierarchy.
The availability of valuation techniques and observable inputs can vary from investment to
investment and are affected by a wide variety of factors, including the type of investment, whether
the investment is new and not yet
established in the marketplace, the liquidity of markets, and other
characteristics particular to the transaction. To the extent that valuation is based on models or inputs
that are less observable or unobservable in the market, determining fair value requ
ires more
judgment. Because of the inherent uncertainty of valuation, those estimated values may be
materially higher or lower than the values that would have been used had a ready market for the
investments existed. Therefore, the degree of judgment exerc
ised by the Fund in determining fair
value is greatest for investments categorized in Level 3.
In some circumstances, the inputs used to measure fair value might be categorized within different
levels of the fair value hierarchy. In those instances, the fa
ir value measurement is categorized in
its entirety in the fair value hierarchy based on the lowest-
level input that is significant to the fair
value measurement.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
16
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
ASC 820-10-50-
1(a), 820-10-50-
2(bbb)
2. Summary of significant accounting policies (continued)
Fair value – Valuation techniques and inputs
[The following includes examples of valuation techniques and inputs used by investment
companies. Certain investment types are included solely for the purpose of providing
illustrative examples of valuation techniques and inputs and are not included elsewh
ere in
the illustrative financial statements. These examples do not include all possible
investment
types or valuation techniques and inputs that may apply to a particular type of investment.
A fund’s disclosures should be tailored to describe the valuatio
n techniques and inputs
used under the specific facts and circumstances of the fund, including the extent to which
valuations are obtained from third-party pricing services or broker quotations.]
When determining fair value, the Fund uses valuation techniq
ues that maximize the use of
observable inputs and minimize the use of unobservable
inputs. The valuation techniques used by
the Fund to determine fair value are considered to be market or income approaches.
The market approach includes valuation
techniques that use prices and other relevant information
generated by market transactions involving identical or comparable assets, liabilities, or a group of
assets and liabilities.
The Fund generally uses the market approach to value [Include categories
of investments
valued using a market approach as applicable, such as the following:] exchange-
traded
securities, exchange-
traded derivatives, government bonds, restricted securities of public
companies, and physical commodities.
[Alternative language for
the market approach specific to nonmarketable or privately held
investments:]
The market approach includes valuation techniques that use observable market
data (e.g., current trading and/or acquisition multiples) of comparable companies and applying the
da
ta to key financial metrics of the investment. The comparability (as measured by size, growth
profile,and geographic concentration, among other factors) of the identified set of comparable
companies to the investment is considered in applying the market ap
proach. The Fund generally
uses the market approach to value
[Include categories of investments valued using a market
approach as applicable, such as the following:] equity securities of private operating companies.
The income approach includes valuation techniques that measure the present value of anticipated
futur
e economic benefits (i.e., net cash flows). The estimated net cash flows are forecast over the
expected remaining economic life and discounted to present value using a discount rate
commensurate with the level of risk associated with the expected cash flows. The Fund generally
uses the income approach to value
[Include categories of investments valued using an income
approach as applicable, such as the following:] over-the-counter (OTC) derivatives, fixed-
income securities, bank debt, commercial mortgage-backed securities, asset-
backed securities,
and collateralized loan obligations.
Equity securities
The Fund values equity securities that are traded on a national securities exchange at their last
reported sales price. The Fund generally values equity securi
ties traded in OTC markets and listed
securities for which no sale was reported on that date at [the price within the bid-
ask spread that
best represents fair value] [their last reported bid price if held long, and last reported ask
price if sold short]. T
o the extent that equity securities are actively traded and valuation
adjustments are not applied, they are categorized in Level 1 of the fair value hierarchy. Equity
securities traded on inactive markets or valued by reference to similar instruments are g
enerally
categorized in Level 2 of the fair value hierarchy.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
17
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
2. Summary of significant accounting policies (continued)
Corporate bonds
The [Fund values] [Fund uses an independent pricing service to value]
corporate bonds using
recently executed transactions
of the issuer or comparable issuers, market price quotations (when
observable), broker or dealer quotations, matrix pricing, or a discounted cash flow model that factors
in, where applicable, interest rate yield curves, bond spreads, or credit default swap
spreads.
Corporate bonds are generally categorized in Level 2 of the fair value hierarchy. In instances where
significant inputs are unobservable, corporate bonds are categorized in Level 3 of the fair value
hierarchy.
Government bonds
The Fund values go
vernment bonds using quoted prices when traded in active markets. When
quoted prices are not available, the
[Fund values] [Fund uses an independent pricing service
to value] government bonds based on a discounted cash flow model that uses inputs that include
interest rate yield curves; cross-
currency basis index spreads; and sovereign credit spreads similar
to the bond in terms of issuer, maturity, and seniority. Government bonds are generally categorized
in Level 2 of the fair value hierarchy.
Municipal bonds
The [Fund values] [Fund uses an independent pricing service to value]
municipal bonds using
recently executed transactions, market price quotations (when observable), broker or dealer
quotations, matrix pricing, or a discounted cash flow model that factors in, where applicable, interest
rate yield curves, bond spreads, or cr
edit default swap spreads. Municipal bonds are generally
categorized in Level 2 of the fair value hierarchy.
Option contracts
The Fund values options that are listed on a national securities exchange at their last reported price.
The Fund values options tr
aded in the OTC markets using the midpoint between the last reported
bid and ask prices. Options are generally categorized in Level 1 or 2 of the fair value hierarchy.
Futures contracts
The Fund values futures contracts that are traded on an exchange at th
eir last reported sales price.
Futures contracts are generally categorized in Level 1 of the fair value hierarchy.
Warrants
The Fund values warrants that are traded on an exchange at their last reported sales price. The
Fund values OTC warrants using the Black-
Scholes option pricing model, which takes into account
the contract terms (including the strike price and contract maturity) and multiple inputs (including
time value, volatility, equity prices, interest rates, and currency rates). Warrants that are t
raded on
an exchange in an active market are generally classified in Level 1 of the fair value hierarchy.
Warrants that are traded on the OTC market are generally classified in Level 2 or 3 of the fair value
hierarchy.
Contracts for differences
The Fund values contracts for differences by taking the difference between the quoted price of the
underlying security and the contract price. [If applicable:] The Fund also considers
counterparty
credit risk in its valuation of contracts for differences.
Contracts for differences are generally
categorized in Level 2 of the fair value hierarchy.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
18
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
2. Summary of significant accounting policies (continued)
Forward contracts
The Fund values forward contracts based on the terms of the contract (including the not
ional
amount and contract duration) and using observable inputs, such as currency exchange rates or
commodity prices. [If applicable:]
The Fund also considers counterparty credit risk in its valuation
of forward contracts. Forward contracts are generally c
ategorized in Level 2 of the fair value
hierarchy.
Interest rate swaps
The [Fund values] [Fund uses an independent pricing service to value]
interest rate swaps
using a discounted cash flow model based on the terms of the contract (including the notional
a
mount and contract maturity) and multiple inputs, including, where applicable, yield curves,
prepayment rates, and currency exchange rates. [If applicable:]
The Fund also considers
counterparty credit risk in its valuation of interest rate swaps. Interest
rate swaps are generally
categorized in Level 2 of the fair value hierarchy.
Total return swaps
The Fund values total return swaps based on the terms of the contract (including the notional
amount and contract maturity) and current market data, such as int
erest rates and changes in fair
value of the reference asset. [If applicable:]
The Fund also considers counterparty credit risk in its
valuation of total return swaps. Total return swaps are generally categorized in Level 2 or 3 of the
fair value hierarchy.
Credit default swaps
The [Fund values] [Fund uses an independent pricing service to value]
credit default swaps
using a model that considers the terms of the contract (including the notional amount and contract
maturity) and multiple inputs including yie
ld curves, recovery rates, and credit spreads. The Fund
may also use broker and dealer quotations to value its credit default swaps. [If applicable:]
The
Fund also considers counterparty credit risk in its valuation of credit default swaps. If the underlyi
ng
debt is liquid and the market for the current spread is active, credit default swaps are categorized
in Level 2 of the fair value hierarchy. If the underlying debt is illiquid and the market for the current
spread is not active, credit default swaps are categorized in Level 3 of the fair value hierarchy.
Swaptions
The [Fund values] [Fund uses an independent pricing service to value]
swaptions using a
model that considers the terms of the contract (including the notional amount, strike price, and
contract maturity) and multiple inputs, including interest rates, currency exchange rates, and
volatility.
The Fund also considers counterparty credit risk in its valuation of swaptions. Swaptions are
generally categorized in Level 2 or 3 of the fair value hierarchy.
Derivative contracts
[The following may be used as an alternative in lieu of listing valuation techniques for
individual types of derivative contracts:]
The Fund values derivatives that are traded on an exchange at their last reported sales pri
ce.
Derivative contracts that are traded on an exchange are generally classified in Level 1 of the fair
value hierarchy.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
19
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
2. Summary of significant accounting policies (continued)
The [Fund values] [Fund uses an independent pricing service to value] deriva
tive contracts
that are centrally cleared or traded on the OTC market using [Include as applicable:]
market price
quotations, counterparty quotations, broker or dealer quotations, or pricing models that take into
account the terms of the contract (includin
g the notional amount and contract maturity) and inputs
such as [Include as applicable:] interest rates, yield
curves, prepayment rates, credit spreads,
recovery rates, currency exchange rates, volatility, correlation of inputs, and changes in the fair
value of the reference asset. [If applicable:]
The Fund also considers counterparty credit risk in its
valuation
of OTC derivatives. Derivative contracts that are centrally cleared or traded on the OTC
market are generally classified in Level 2 or 3 of the fair value hierarchy.
Fixed-income securities
[The following may be used as an alternative in lieu of listing va
luation techniques for
individual types of fixed-income securities:] The
[Fund values] [Fund uses an independent
pricing service to value] fixed-
income securities (government bonds, municipal bonds, corporate
bonds) using [Include as applicable:] recently
executed transactions, market price quotations
(when observable), broker or dealer quotations, matrix pricing, or a discounted cash flow model
that factors in, where applicable, interest rate yield curves, bond spreads, or credit default swap
spreads.
Fixed-
income securities that are not traded in active markets are generally categorized in Level 2
of the fair value hierarchy. In instances where significant inputs are unobservable, fixed-
income
securities are categorized in Level 3 of the fair value hierarchy.
Bank debt
The [Fund values] [Fund uses an independent pricing service to value]
bank debt using
recently executed transactions, broker or dealer quotations, and observable credit default swap
levels.
When quotations are unobservable, proprietary valuation models and default recovery analysis
methods are employed by the [Fund] [independent pricing service].
Bank debt is generally
categorized in Level 2 or 3 of the fair value hierarchy, depending on the
use and availability of
observable inputs.
Commercial mortgage-backed securities and asset-backed securities
The [Fund values] [Fund uses an independent pricing service to value] commercial mortgage-
backed securities (CMBS) and asset-backed securities (ABS) based on prices of
comparable
securities or a discounted cash flow model that considers inputs including default rates, conditional
prepayment rates, loss severities, recovery rates, expected yields to maturity, and other inputs
specific to each security. Included in this category are certain interest-
only securities, which in the
absence of market prices are valued as a function of observable whole bond prices and cash flow
values of principal-only bonds using current market assumptions at the measurement date.
The Fund may also use broker or dealer quotations to value its CMBS and ABS. CMBS and ABS
are categorized in Level 2 of the fair value hierarchy when inputs are observable and in Level 3
when inputs are unobservable.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
20
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
2. Summary of significant accounting policies (continued)
Collateralized loan obligations
The [Fund values] [Fund uses an independent pricing service to value]
collateralized loan
obligations (CLOs) based on prices of comparable securities or a discounted cash flow mode
l that
considers inputs including default rates, conditional prepayment rates, loss severities, recovery
rates, expected yields to maturity, and other inputs specific to each security. The Fund may also
use broker or dealer quotations to value its CLOs. CL
Os are categorized in Level 2 of the fair value
hierarchy when inputs are observable and in Level 3 when inputs are unobservable.
ASC 946-325
ASC 946-325-32-
1
Cryptocurrency
[Refer to KPMG’s Executive Summary: Accounting for crypto assets –
Investment
Companies, for
an overview of accounting for crypto intangible assets by investment
companies]
Digital assets are stated at fair value and generally valued using prices as reported on
reputable and liquid exchanges and
[Include accounting policy of investment company to
determine the cut-off to value its cryptocurrency assets, for example whether th
e Fund uses
the market prices of its crypto assets at a time other than close of its reporting period such
as:]
may involve utilizing an average of bid and ask quotes using prices provided by such
exchanges at a specified time of determination on the last day of its reporting period.
When determining a principal market for cryptocurrencies, the Fund identifies
publicly available,
well established cryptocurrency exchanges that are accessible to the Fund, and considers f
actors
including the recent price activity of an exchange, liquidity, and security and stability of an exchange,
to determine which exchanges to utilize.
W
hile some digital assets are traded in active markets and are valued based on quoted prices other
digital assets may be more thinly-
traded or subject to irregular trading activity. To the extent that
digital assets are actively traded and valuation adjustments are not applied,
they are categorized in
Level 1 of the fair value hierarchy. Digital assets traded on inactive markets are generally
categorized in Level 2 of the fair value hierarchy.
Private operating companies
Investments in private operating companies may consist of common stock, preferred stock, and
debt of privately owned portfolio companies. The Fund reviews the valuation of each investment
and records adjustments as necessary to
reflect the expected exit value of the investment under
current market conditions. Ongoing reviews by the Fund’s management are based on an
assessment of the type of investment, the stage in the lifecycle of the portfolio company, and trends
in the performance and credit profile of each portfolio company as of the measurement date.
The [Fund values] [Fund uses an independent pricing service to value]
private operating
companies using an income approach or a market approach. In certain instances, the Fund ma
y
use multiple valuation approaches for a particular investment and estimate its fair value based on
a
weighted average or a selected outcome within a range of multiple valuation results. The decision
to use a valuation approach will depend on the investment type and the information available.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
21
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
2. Summary of significant accounting policies (continued)
When applying valuation techniques used to determine fair value, the Fund assumes a reasonable
period of time for estimating cash flows and considers the financial condition and operating results
of the portfolio company, the nature of the investment, restrictions on marketability, market
conditions, foreign currency exposures, and other factors. When determining the fair value of
investments, the Fund exercises significant judgment and uses the b
est information available as of
the measurement date. Due to the inherent uncertainty of valuations, the fair values reflected in the
financial statements as of the measurement date may differ materially from: (1) values that would
have been used had a rea
dily available market existed for those investments and (2) the values
that may ultimately be realized.
[Example of income approach input technique disclosures:]
Inputs used under an income
approach may include annual projected cash flows for each investme
nt through their expected
remaining economic life discounted to present value using appropriate risk-
adjusted discount rates.
These cash flow assumptions may be probability weighted to reflect the risks associated with
achieving expected performance levels
across various business scenarios. Inputs used under an
income approach may include an assessment of the credit profile of the portfolio company as of the
measurement date, the operating performance of the portfolio company, trends in the liquidity,
and
financial leverage ratios as of the measurement date and include an assessment of the portfolio
company’s business enterprise value, liquidation value, and debt repayment capacity of each
subject debt investment. In addition, inputs may include an assessme
nt of potential yield
adjustments for each debt investment based on trends in the credit profile of the portfolio company
and trends in the interest rate environment as of the measurement date.
[Example of market approach input technique disclosures:] Inpu
ts used under a market
approach may include valuation multiples applied to corresponding performance metrics such as
earnings before interest, taxes, depreciation and amortization (EBITDA); revenue; or net earnings.
The selected valuation multiples were es
timated through a comparative analysis of the performance
and characteristics of each investment within a range of comparable companies or transactions in
the observable marketplace. In addition, recent merger and acquisition transactions of comparable
com
panies may be used as a basis to develop implied valuation multiples. Investment valuations
using the market approach may also consider factors such as liquidity, credit, and market risk
factors of the portfolio company.
[Example of probability-weighted expected return method disclosures:] The probability-
weighted expected return method is based on an estimate of expected fair value as analyzed
through various liquidity scenarios. Fair value is determined for a given scenario at the time of the
future liquidity event and discounted back to the valuation date using a risk-
adjusted discount rate.
To determine fair value, the present values under each scenario are weighted based on the
expected probability of each scenario occurring.
[Example of option-pricing-model disclosures:]
The option pricing model treats a portfolio
company’s common stock and preferred stock as call options on the enterprise or equity value of
the portfolio company, with exercise or strike prices based on the characteristics of each seri
es or
class of equity in the portfolio company’s capital structure (e.g., the liquidation preference of a given
series of preferred stock). This method is sensitive to certain key assumptions, such as volatility
and time to exit, that are not observable.
Private operating companies are generally categorized in Level 3 of the fair value hierarchy.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
22
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
2. Summary of significant accounting policies (continued)
Restricted securities of public companies
Restricted securities of public companies cannot be offered for
sale to the public until the issuer
complies with certain statutory or contractual requirements. The Fund generally values restricted
securities of public companies at a discount to similar publicly traded companies when the
restriction is specific to the
security. The Fund considers the type and duration of the restriction, but
in no event does the valuation exceed the listed price on any major securities exchange.
Restricted securities of public companies are generally categorized in Level 2 of the fair
value
hierarchy. However, to the extent that significant inputs used to determine liquidity discounts are
unobservable, restricted securities in public companies may be categorized in Level 3 of the fair
value hierarchy.
Physical commodities
Physical commodities are valued using the most recent prices from established commodity
exchanges, less estimated transportation costs. Physical commodities are generally categorized in
Level 2 of the fair value hierarchy.
ASC 946-235-50-
5(b)
Private investment companies
The Fund values private investment companies using the net asset values provided by the
underlying private investment companies as a practical expedient. The Fund applies the practical
expedient to its private investment companies on an investment-by-
investment basis and
consistently with the Fund’s entire position in a particular investment, unless it is probable that the
Fund will sell a portion of an investment at an amount different from the NAV of the investment.
[See Appen
dix B for additional disclosures for investments in private investment companies
that are not valued using NAV as a practical expedient.]
Special purpose vehicles
Special purpose vehicles (SPVs) consist of [common stock, limited partnership interests, etc.]
in unconsolidated entities that invest directly or indirectly in private equity or debt securities, real
estate, or intangible property. The valuation of the Fund’s SPVs may depend on whether the SPV
is required to be accounted for as an investment company under GAAP.
If an SPV is accounted for as an investment company, the Fund generally values the investment,
as a practical expedient, using the net asset values provided by the SPV when the NAV is calculated
in a manner consistent with GAAP for investme
nt companies. The Fund applies the practical
expedient to eligible SPVs on an investment-by-investment basis and consistently with the
Fund’s
entire position in a particular investment, unless it is probable that the Fund will sell a portion of an
investment at an amount different from the NAV of the investment.
If an SPV is not accounted for as an investment company, the SPV may be valued in its entirety
using an income approach or a market approach.
[See the Private Operating Companies section
for examples of valuation techniques and inputs that may apply to SPVs.]
In certain instances,
an SPV may be valued based on the evaluation
of the net assets of the SPV, whereby the assets
and liabilities of the SPV are valued based on each underlying investment with
in the SPV,
incorporating valuations that consider the evaluation of financing and sale transactions with third
parties, expected cash flows and market-
based information including comparable transactions, and
performance multiples, among other factors.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
23
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
2. Summary of significant accounting policies (continued)
SPVs are generally categorized in Level 3 of the fair value hierarchy.
[Note: This paragraph does
not apply to SPVs valued using NAV as a practical expedient.]
Securities purchased under agreements to resell
The Fund
records securities purchased under agreements to resell at their contracted resell
amounts, which approximate fair value. Interest on these agreements is included in interest
receivable in the statement of assets and liabiliti
es. Securities purchased under agreements to
resell are generally categorized in Level 2 of the fair value hierarchy.
Contingent consideration
[If applicable:]
The Fund recognizes contingent consideration from the sale of liquidated
investments as a financial asset measured at fair value.
[Describe the valuation inputs and techniques used to measure contingent consideration
when recognized as a financial asset.]
ASC 820-10-50-2D,
ASC 820-10-35-18D
Fair value – Valuation of net risk exposures
The Fund elects to measure the fair value of its net exposure to [market risks] [and] [credit risks]
on the basis of the price that would be received to sell a net long position or paid to transfer a net
short position for a particular risk exposure in an orderly transaction between market participants
at
the measurement date under current market conditions. The Fund applies this election when the
duration and type of exposure to a particular [market risk] [and] [credit risk] for a group of
financial
assets and liabilities are substantially the same.
ASC 825-10-50-10
and 11
Fair value of financial instruments
[If the Fund is subject to the disclosure requirements under Section 825-10-
50, include
disclosures as required by paragraphs 825-10-50-
10 through 19. The following example may
be appropriate when the fair value of certain financial instruments approximates their
carrying amounts:] The fair value of certain of the Fund’s financial instruments, including
[list
specific receivables and pay
ables and the corresponding amounts if not evident elsewhere
in the financial statements],
approximates the carrying amounts presented in the statement of
assets and liabilities due to the short-term nature of these instruments.
Offsetting of assets and liabilities
[The following are examples of offsetting language that may apply to the Fund:]
ASC 210-20-50-2,
ASC 815-10-50-7
Amounts due from and to brokers are presented on a net basis, by counterparty, to the extent the
Fund has the legal right to offset the recognized amounts and intends to settle on a net basis.
[If applicable:] The Fund presents OTC derivatives that are executed w
ith the same counterparty
under the same master netting agreement on a net basis when the criteria for the right of setoff are
met.
[Or]
The Fund presents OTC derivatives that are executed with the same counterparty under the same
master netting agreement on a gross basis, even though the criteria for
the right of setoff may be
met.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
24
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
ASC 815-10-50-7
2. Summary of significant accounting policies (continued)
[If applicable:]
The Fund has elected not to offset fair value amounts recognized for cash collateral
receivables and payables and fair value amounts recognized for derivative positions executed
with
the same counterparty under the same master netting arrangement. See note 8 for amounts
recognized for cash collateral receivables and payables under master netting arrangements.
[Or]
ASC 815-10-50-7
The Fund has elected to offset fair value amounts recognized for cash collateral receivables and
payables and fair value amounts recognized for derivative positions executed with the same
counterparty under the same master netting arrangement. See note 8 for amounts recognized for
cash collateral receivab
les and payables that have been offset against net derivative positions and
amounts under master netting
arrangements that have not been offset against net derivative
positions.
Securities sold under agreements to repurchase
ATQA 6910.22
The Fund records securities sold under agreements to repurchase at their contracted repurchase
amounts payable. Interest on these agreements is included in interest payable in the statement of
assets and liabilities.
Securities lending transactions
ASC 860-30-25-3,
ASC 860-30-25-5
The Fund accounts for the receipt of cash collateral for securities lending transactions as a secured
borrowing whereby it records an asset for cash collateral received and a corresponding liability for the
obligation to return the collateral to the counte
rparty. The Fund also accounts for securities received
as collateral for securities lending transactions as a secured borrowing if the Fund has the ability to
sell or repledge the securities.
Staked tokens [As applicable:]
In support of the token
network community and ecosystem, the Fund ensures that certain tokens held
by the Fund are bonded by the custodian to the token network for the purposes of operating nodes
on the network. These staked tokens are restricted due to XX-day [include the lock up period] lock-
up schedule and cannot be immediately withdrawn. The amount of restricted digital assets held by
the Fund as of December 31, 20XX is $XXX,XXX,XXX.
In exchange for participating in the consensus mechanism of these networks, the Fund earns a r
eward
in the form of the native token of the network (s
taking rewards) which covers network inflation and
transaction fees. Staking rewards are recognized
using the token’s fair value as of the date the token
is earned.
[This illustrative disclosure assumes that staking is done through a
custodian and the Fund
is a delegator on the staking activity. If the Fund is a valid
ator on the staking activity, the
disclosure should be modified as appropriate to reflect the differences i
n accounting for a
validator.]
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
25
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
2. Summary of significant accounting policies (continued)
Income taxes
[The following example includes required disclosures when a Fund has incurred a liability
for
unrecognized tax benefits. A Fund may tailor its disclosures where appropriate if it has not incurred
a liability for unrecognized tax benefits.]
The Fund does not record a provision for U.S. federal, U.S. state, or local income taxes because the
partners report their share of the Fund’s income or loss on their income tax returns. [If applicable:]
However, certain U.S. dividend income and interest income may be subject to a maximum 30%
withholding tax for limited partners that are foreign entities or foreign individuals.
ASC 740-10-50-
15(e)
[If applicable:] Further, certain non-U.S. dividend income and interest income may be subject to a
tax at prevailing treaty or standard withholding rates with the applicable country or local
jurisdiction.
The Fund files an income tax return in the U.S. federal jurisdiction and may file income tax returns in
various U.S. states [If applicable:]
and foreign jurisdictions. Generally, the Fund is subject to income
tax examinations by [Federal] [list applicable states] [Foreign jurisdictions] for years after 20XX.
The Fund is required to determine whether its tax p
ositions are more likely than not to be sustained
on examination by the applicable taxing authority, based on the technical merits of the position.
Tax positions not deemed to meet a more likely than not threshold would be recorded as a tax
expense in the current year.
ASC 740-10-50-
15(d)
At December 31, 20XX, the Fund recorded a liability for unrecognized tax benefits of $XXX,000
related to its tax positions.
[Include a description of the uncertainty in tax positions; for example,
investment gains from certain foreign jurisdictions where the
Fund has elected not to file an
income tax return.]
[The following are examples that may apply to the Fund’s assessment of possible changes in
unrecognized tax benefits over the next 12 months:]
1.
The Fund has determined that it is reasonably possible that
the total amount of the unrecognized
tax benefits will [increase] [decrease] by approximately
[Include an amount or a range of the
reasonably possible changes in unrecognized tax benefits] within the next 12
months as a
result of [Describe the nature of ev
ents that can cause a significant change in unrecognized
tax benefits, including, but not limited to, settlements, expiration of statutes of limitations,
changes in tax law, and new authoritative rulings].
2.
The Fund has determined that it is reasonably poss
ible that the total amount of the unrecognized
tax benefits will [increase] [decrease] within the next 12 months as a result of
[Describe the
nature of events that can cause a significant change in unrecognized tax benefits,
including, but not
limited to, settlements, expiration of statutes of limitations, changes in
tax law, and new authoritative rulings]. Until formal resolutions are reached between the
Fund
and tax authorities, the amount of a possible ultimate settlement with respect to the
effect on
unrecognized tax benefits is not readily determinable.
3.
The Fund does not expect that its assessment related to unrecognized tax benefits will materially
change over the next 12 months. However, the Fund’s conclusions may be subject to review and
adjustment at a later date based on factors including, but not limited to, the nexus of income
among various tax jurisdictions; compliance with U.S.
federal, U.S. state, and foreign tax laws;
and changes in the administrative practices and precedents of the relevant taxing authorities.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
26
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
ASC 740-10-50-
15(c), ASC 740-
10-50-19
ASC 480-10-50-1
2. Summary of significant accounting policies (continued)
The Fund recognizes interest and penalties related to unrecognized tax benefits in interest expense
and other expenses, respectively. During the year ended December 31, 20XX, the Fund recognized
$XX,000 and $XXX,000, respectively, related to interest and p
enalties. At December 31, 20XX, the
Fund accrued $XX,000 and $XX,000, respectively, for the payment of interest and penalties.
[The Bipartisan Budget Act of 2015 (the Budget Act) provides for assessment and collection
of imputed underpayment of tax, intere
st and penalties at the partnership level. A fund that is
subject to imputed underpayments at the partnership level under the Budget Act collection
mechanism should consider appropriate disclosures of its partnership status under the tax
law (e.g., the exi
stence of the collection mechanism and the fund’s ability to elect out or make
a ‘push-
out election’) and potential partner obligations resulting from imputed
underpayments.
If a fund is able to make a push-out election, it should consider disclosing the s
tatus of tax
audits and its assessment of its partners’ potential obligations.
If a fund is unable to make the push-out election or has forfeited its right to make the election
,
the recognition and disclosure guidance under ASC Topic 450, Contingencies, would apply.]
Capital withdrawals payable
Withdrawals are recognized as liabilities when the amount requested in the withdrawal notice
becomes fixed, which generally occurs on the last day of a fiscal quarter. As a result, withdrawals paid
after the end of the year, based on partners’ capital balances at year-
end, are included in capital
withdrawals payable at December 31, 20XX. Withdrawal notices received for which the dollar amount
is not fixed remain in partners’ capital until the amount is determined.
Recently issued accounting standards
[The following are examples of recently issued
accounting standards that a fund may elect to
disclose, but is not required to do so. These examples are not inclusive of all recent
accounting standards that may apply to
a fund. In addition, the content of the disclosures may
vary between funds, depending on the effective date of adoption, the transition method applied
for a change in accounting principle, and the effects of the change on the financial
statements,
including any changes to prior-
period information as the result of retrospective application. In
addition, ASC Topic 250, Accounting Changes and Error Corrections, includes accounting and
disclosure guidance when a change in accounting princip
le is required by a newly issued
Codification update.]
In June 2022, the FASB issued ASU 2022-
03, ASC Topic 820, “Fair Value Measurement of Equity
Securities Subject to Contractual Sale Restrictions”. The amendment clarifies that contractual sale
restricti
ons should not be considered when measuring the equity security’s fair value and prohibits an
entity from recognizing a contractual sale restriction as a separate unit of account. The amendments
in this ASU are effective for the Fund beginning after December 15, 2024. Early adoption is permitted
for both interim and annual financial statements that have not yet been issued or made available for
issuance.
[If applicable:]
The Fund is currently evaluating the impact the adoption of this new accounting
standard will have on its financial statements and related disclosures.
[If applicable:]
As of December 31, 20XX, the Fund held equity securities subject to contractual sale
restrictions with a fair v
alue of $XX,XXX for which the Fund is subject to an 18 month trading
restriction. The contractual sale restriction is set to expire on June 30, 20XX.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
27
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
ASC 820-10-50-1A,
ASC 820-10-50-2B,
ASC 820-10-50-8
3. Fair value measurements
Fair value hierarchy
The Fund’s assets and liabilities recorded at fair value have been categorized based on a fair value
hierarchy as described in the Fund’s significant accounting policies in note 2.
ASC 820-10-50-2(a)
and (b)
The following table presents information about the Fund’s assets measured at fair value as of
December 31, 20XX:
(In thousands)
Level 1
Level 2
Level 3
Investments
measured at
net asset
value
Total
Securities, at fair value
Common stocks:
United States:
Banking
$104,493
$—
$—
$—
$104,493
Manufacturing
94,447
—
—
—
94,447
Consumer discretionary
87,491
2,191
—
—
89,682
Healthcare
81,038
—
—
—
81,038
Real estate
44,961
—
—
—
44,961
United Kingdom:
Manufacturing
38,571
—
—
—
38,571
Telecommunications
33,642
462
—
—
34,104
Preferred stocks
96,000
600
—
—
96,600
Exchange-traded funds
19,567
—
—
—
19,567
Private preferred stocks
—
—
19,937
—
19,937
Corporate bonds
—
59,481
2,584
—
62,065
Government bonds
22,391
—
—
—
22,391
Municipal bonds
—
31,534
—
—
31,534
Asset-backed securities:
Senior debt
—
1,273
19,159
—
20,432
Mezzanine debt
—
—
9,518
—
9,518
Total securities, at fair value
$635,197
$95,541
$51,198
$—
$769,340
Digital Assets, at fair value
Cryptocurrencies
$12,596
—
—
—
$12,596
Total digital assets, at fair value
$12,596
$—
$—
$—
$12,596
ASC 820-10-50-
6A(a)
Private investment companies, at fair value
Value
$—
$—
$—
$ 72,424
$ 72,424
Growth
—
—
—
55,100
55,100
Merger arbitrage
—
—
—
24,799
24,799
Private equity
—
—
—
33,923
33,923
Cryptocurrencies
—
—
—
4,300
4,300
Total private investment
companies, at fair value
$—
$— $—
$190,546
$190,546
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
28
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
3. Fair value measurements (continued)
(In thousands)
Level 1
Level 2
Level 3
Investments
measured at
net asset
value
Total
Derivative contracts assets, at fair
value
Warrants purchased
$—
$44,911
$1,879
$—
$46,790
Total return swaps
—
90,550
—
—
90,550
Swaptions
—
282
—
—
282
Call options
23,807
—
—
—
23,807
Put options
2,159
—
—
—
2,159
ASC 820-10-50-3
Gross total 25,966
135,743 1,879
—
163,588
Less: Effect of netting provisions
—
—
—
—
—
Total derivative contract assets,
at fair value
$25,966
$135,743 $1,879
—
$163,588
Securities purchased under
agreements to resell, at fair value
$—
$12,450 $—
—
$12,450
The following table presents information about the Fund’s liabilities measured at fair value as of December 31, 20XX:
(In thousands)
Level 1
Level 2
Level 3
Total
Securities sold short, at fair value
Common stocks:
United States
$402,260
$—
$—
$402,260
United Kingdom:
Banking
27,275
4,653
—
31,928
Other
81,046
—
—
81,046
Corporate bonds
—
35,197
—
35,197
Total securities sold short, at fair value
$510,581
$39,850
$—
$550,431
Derivative contracts liabilities, at fair value
Credit default swaps
$—
$23,839
$1,838
$25,677
Total return swaps
—
69,651
—
69,651
Contracts for differences
—
22,384
—
22,384
Forward contracts
—
22,072
—
22,072
Call options
9,960
—
—
9,960
Put options
5,691
—
—
5,691
Gross total
15,651
137,946
1,838
155,435
Less: Effect of netting provisions
—
—
—
—
Total derivative contracts liabilities, at fair value
$15,651
$137,946
$1,838
$155,435
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
29
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
3. Fair value measurements (continued)
ASC 820-10-50-
2G
The following table presents changes in assets classified in Level 3 of the fair value hierarchy during the year ended
December 31, 20XX attributable to the following:
(In thousands)
Private
preferred
securities
Asset-
backed
securities
Purchases
$20,000
$2,451
Transfers into Level 3
—
—
Transfers out of Level 3
—
—
The following table presents changes in assets classified in Level 3 of the fair value hierarchy during the year ended
December 31, 20XX attributable to the following:
(In thousands)
Credit default
swaps
Purchases
$—
Issues
—
Transfers out of Level 3
562
Transfers out of Level 3
—
[Note: For derivative instruments without any up-front payments at the inception of the contract,
funds should consider including other quantitative disclosures to indicate increases in Level 3
measurements in lieu of purchases and issues. For example, the disclosure may include the
balances of derivative assets and liabilities as of the measurement date for derivatives classified
in Level 3 that were entered into during the reporting period.]
ASC 820-10-50-
2G
Transfers into and out of Level 3 generally relate to whether significant unobservable inputs are used for
the fair value measurements. See note 2 for additional information related to the fair value hierarchy and
valuation techniques and inputs.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
30
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
3. Fair value measurements (continued)
ASC 820-10-50-
2(bbb)
Significant unobservable inputs
The following table summarizes the valuation techniques and significant unobservable inputs used for the
Fund’s investments that are categorized in Level 3 of the fair value hierarchy as of December 31, 20XX:
(In thousands)
Fair value at
December
31, 20XX
Valuation
technique
Unobservable
inputs
Range of inputs
(weighted average)*
Assets
Securities, at fair value
Private preferred stocks
$18,541
Market comparable
companies
Adjusted valuation
multiples (EBITDA)
X-X(X)
Discounts for lack
of marketability
X%-X%(X%)
Control premiums
X%-X%(X%)
Corporate bonds
2,584
Consensus pricing
Discounts for lack
of marketability
X%-X%(X%)
Asset-backed securities
28,677
Discounted cash
flow model
Loss severities
Probabilities of
default
Prepayment rates
X%-X%(X%)
X%-X%(X%)
X%-X%(X%)
Derivative contracts, at fair value
Call warrants
1,879
Black-Scholes
model
Historical volatility
X%–X% (X%)
ASC 820-10-50-
2(bbb)
[*Note: To satisfy the requirement to provide quantitative information about significant
unobservable inputs used for Level 3 fair value measurements, a fund may disclose the range of
significant unobservable inputs by class or disclose the significant unobservable inputs for each
individual Level 3 fair value measurement.]
[If a portion of Level 3 investments were not valued using internally developed
unobservable
inputs, include language to reconcile the difference such as the following if not included in
the
preceding table:]
Certain of the Fund’s Level 3 investments have been valued using unadjusted inputs
that have not been internally developed by the Fund, including third-
party transactions and indicative
broker quotations. As a result, fair value assets of approximately $1,396,000 and fair value liabilities of
approximately $1,838,000 have been excluded from the preceding table.
[Consider including the following language if not already addressed in the preceding Fair
value
– Valuation techniques and inputs section:] The
Fund’s Level 3 investments have been valued using
unadjusted inputs that have not been internally developed by the Fund, including third-party transactions
and indicative broker quotations. As a result, there were no unobservable inputs that have
been internally
developed by the Fund in determining the fair value of investments as of December 31, 20XX.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
31
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
3. Fair value measurements (continued)
Changes in valuation techniques
[Example disclosure of a change in either or both a valuation approach and a valuation
technique for measurements categorized in Level 2 and 3 of the fair value hierarchy:] During
the year ended December 31, 20XX, the Fund changed the valuation technique used to value
[Describe the class to which the change in valuation approach or valuation technique applies]
from [Describe the previous valuation approach and/or valuation technique] to [Describe
the
change in valuation approach and/or valuation technique, including the use of an additional
valuation technique]. The Fund believes the change in valuation technique and its
application
results in a measurement that is equally or more representative of the fair value in the circumstances
because of [Disclose the reasons for the change in valuation approach or valuation technique,
which may result from events such as development of new markets, new information
becoming available, information previously used becoming no longer available, improvement
of valuation techniques, or changes in market conditions]. [If the change in valuation
approach or technique affects only a portion of a class, consider presenting the amount, as
of the reporting date, of the portion affected by the change.]
4. Due from/to brokers and
(if applicable)
cryptocurrency exchanges
[Include if not presented separately on the statement of assets and liabilities:]
At December 31, 20XX, the amounts due from brokers and cryptocurrency exchanges include the
following:
(In thousands)
Description
ASC 946-310-45-1
Cash held at the broker
$X,XXX
ASC 440-10-50-1
Cash pledged as collateral for securities sold short
X,XXX
Totals
X,XXX
At December 31, 20XX, the amounts due to brokers include the following:
(In thousands)
ASC 440-10-50-1
ASC 946-310-45-1
Description
Collateral received from counterparties for derivative contracts $X,XXX
ASC 440-10-50-1
Margin borrowings X,XXX
Totals X,XXX
ASC 825-10-50-20
Amounts due from brokers may be restricted if they serve as deposits for securities sold short. In
addition, margin borrowings of $X,XXX,000 are collateralized by certain securities
and
cash balances
held by the Fund. The Fund is subject to interest on margin accounts based
on
[Describe the
provisions by which margin interest is charged to the
Fund].
In the normal course of business, substantially all of
the Fund’s securities transactions, money
balances, and security positions are transacted with the Fund’s brokers: Broker 1, LLC and Broker 2,
Ltd.
[For funds with separate clearing brokers, include the following sentence:]
Accounts with
Broker 1, LLC are
cleared by Broker 3, LLC.
The Fund is subject to credit risk to the extent a broker with which it conducts business is unable to
fulfill contractual obligations on its behalf. The Fund’s management monitors the financial condition of
those brokers and
does not anticipate losses from these counterparties.
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32
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
4. Due from/to brokers and
(if applicable)
cryptocurrency exchanges (continued)
[If applicable, for triparty collateral agreements:] The Fund entered into collateral account
control agreements with [List name of counterparty] (the Secured Party) and Prime Broker 4,
LLC (the Securities Intermediary) to mitigate the risk associated with its derivative counterparties.
On entering into derivative contracts, the Fund posts collateral to the Secured Party, which is
held in custody by the Securities Intermediary. The Fund does not have the ability to transfer the
collateral unless certain contingent events occur
. As of December 31, 20XX, approximately
$X,XXX,000 of collateral
receivables posted to the Secured Party are held by the Securities
Intermediary, which are included in due from brokers on the statement of assets and liabilities.
ASC 275-10-50-16 to
18
The Fund custodies digital asset with [include custodian of the investment company:] (the
Custodian) for which qualified custodial service is available. [If a Fund has self-
custody of the
private keys for digital asset wallets, the discl
osure should be tailored to address ASC 275
risks and uncertainties disclosures particular to self-custody of digital assets.]
The Fund
is subject to counterparty risk
with cryptocurrency exchanges and custodians with whom it enters
into cryptocurrency transactions. A significant concentration of the Fund’
s cryptocurrency assets
may be held by a single custodian or in a single location, making them vulnerable to losses due
to hacking, password loss, compromised access credentials, malware, or cyberatta
cks. While the
Custodian maintains insurance policies related to loss and theft of digital assets, the Fund is
subject to risk to the extent that losses exceed the coverage amounts.
As of December 31, 20XX,
all of the Fund’s investments in digital assets are held by the Custodian.
ASC 825-10-50-20
[If applicable] Due from cryptocurrency exchanges includes funds held at digital asset
exchanges which amounts to $X,XXX,XXX as of December 31, 20XX. Amounts
held in custody
of digital asset exchanges are not insured.
ASC-815-10-50-1A,
ASC 815-10-50-5
5. Derivative contracts
In the normal course of business, the Fund uses derivative contracts in connection with its
proprietary trading activities. Derivative contracts are subject to additional risks that can result in
a loss of all or part of an investment. The Fund’s derivative activities and
exposure to derivative
contracts are classified by the following primary underlying risks: [Include as applicable] interest
rate, credit, foreign exchange, commodity price, and equity price. In addition to its primary
underlying risks, the Fund is also su
bject to additional counterparty risk due to inability of its
counterparties to meet the terms of their contracts.
Option contracts
The Fund may purchase and write options to
[Include a description of the Fund’s objectives
for entering or holding the type of derivative contract]. An option contract provides its owner
the right, but not the obligation, to buy or sell specified amounts of a financial instrument,
commodity, or currency at a contracted price during a specified period or on a specified date.
[If applicable:]
A swaption is an option contract that provides its owner the right, but not the
obligation, to enter into a previously agreed-
upon interest rate swap on a future date or to cancel
an existing interest rate swap in the future.
For som
e OTC options, the Fund may be exposed to counterparty risk from the potential that a
seller of an option does not sell or purchase the underlying asset as agreed under the terms of
the option contract. The maximum risk of loss from counterparty risk to th
e Fund is the fair value
of the contracts and the premiums paid to purchase its open options. In these instances, the Fund
considers the credit risk of the intermediary counterparty to its option transactions in evaluating
potential credit risk. Options written by the Fund may expose the Fund to market
risk of an
unfavorable change in the financial instrument, commodity, or currency underlying the written
option.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
33
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
5. Derivative contracts (continued)
Futures contracts
The Fund may use futures to
[Include a description of the Fund’s objectives for entering or
holding the type of derivative contract]
. A futures contract represents a commitment for the
future purchase or sale of an asset or index at a specified price on a specified date.
The purchase and sale of futures requires margin deposits with a futures commission merchant
(FCM) equal to a certain percentage of the contract amount. Subsequent payments of variation
margin are made or received by the Fund each day, depending on the daily fluctuations in the
value of the contract. Futures have minimal counterparty risk because futures contracts are
exchange- traded and the exchange’s clearing house, as the counterparty to all exchange-traded
futures, guarantees the futures against default.
The Commodity Exchange Act requires an FCM to segregate all customer transactions and
assets from the FCM’s proprietary activities. A customer’s cash and other equity deposited with
an FCM are considered commingled with all other customer funds subject to the FCM’s
segregation requirements. In the event of an FCM’s insolvency, recovery may be limited to
the
Fund’s pro rata share of segregated customer funds available. It is possible that the recovery
amount could be less than the total of cash and other equity deposited.
Warrants
The Fund may purchase warrants [Include a description of the Fund’s objectives f
or entering
or holding the type of derivative contract]. Warrants provide the Fund
with exposure and
potential gains upon equity appreciation of the underlying company’s share price.
The value of a warrant has two components: time value and intrinsic value. A warrant has a limited
life and expires on a certain date. As the expiration date of a warrant approaches, the time value
of a warrant will decline. In addition, if the stock under
lying the warrant declines in price, the
intrinsic value of an in-the-
money warrant will decline. Further, if the price of the stock underlying
the warrant does not exceed the strike price of the warrant on the expiration date, the warrant will
expire worthless. As a result, the Fund could potentially lose its entire investment in a warrant.
The Fund is exposed to counterparty risk from the potential failure of an issuer of warrants to
settle its exercised warrants. The maximum risk of loss from counterpar
ty risk to the Fund is the
fair value
of the contracts. The Fund considers the effects of counterparty risk when determining
the fair value of its warrants.
Contracts for differences
The Fund enters into contracts for differences to [Include a description
of the Fund’s
objectives for entering or holding the type of derivative contract]
. Contracts for differences
involve an agreement by the Fund and a counterparty to exchange the difference between the
opening and closing price of the position underlying the
contract, which is generally an equity
security. Therefore, amounts required for the future satisfaction of the contracts for differences
may be greater or less than the amount recorded.
Risks may arise as a result of the failure of the counterparty to a
contract for differences to comply
with the terms of the contract for differences.
Forward contracts
The Fund enters into forward contracts to
[Include a description of the Fund’s objectives for
entering or holding the type of derivative contract].
Forward
contracts are agreements for delayed delivery of specific currencies and commodities in
which the seller agrees to make delivery at a specified future date of specified currencies and
commodities. Risks associated with forward contracts are the inability
of counterparties to meet
the terms of their respective contracts and movements in fair value and exchange rates.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
34
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
5. Derivative contracts (continued)
Swap contracts
The Fund enters into various swaps, including interest rate swaps, total return swaps, and cre
dit
default swaps
[Include a description of the Fund’s objectives for entering or holding the
type of derivative contract, such as the following:]
as part of its investment strategies, to
hedge against unfavorable changes in the value of investments, and to protect against adverse
movements in interest rates or credit performance with counterparties. Generally, a swap contract
is an agreement that o
bligates two parties to exchange a series of cash flows at specified intervals
based on or calculated by reference to changes in specified prices or rates for a specified notional
amount of the underlying assets. The payment flows are usually netted agains
t each other, with
the difference paid by one party to the other. Swap agreements may also be centrally cleared
through a clearing house, where initial margins
are posted and daily changes in the fair value
result in variation margin receivable or payable with the clearing house.
The fair value of open swaps reported in the statement of assets and liabilities may differ from
that which would
be realized if the Fund terminated its position in the contract. Risks may arise
as a result of the failure of the co
unterparty to the swap contract to comply with the terms of the
swap contract. The loss incurred by the failure of a counterparty is generally limited to the
aggregate fair value of swap contracts in an unrealized gain position and collateral posted with
t
he counterparty. The risk is mitigated by having a master netting arrangement between the Fund
and the counterparty and by the counterparty posting collateral to the Fund to cover the Fund’s
exposure to the counterparty. The Fund considers the creditworthi
ness of each counterparty to a
swap contract in evaluating potential credit risk. Additionally, risks may arise from unanticipated
movements in the fair value of the underlying investments.
Interest rate swaps
The Fund is exposed to interest rate risk when
there is an unfavorable change in the value of
investments as a result of adverse movements in market interest rates. The Fund enters into
interest rate swaps to
[Include a description of the Fund’s objectives for entering or holding
the type of derivative contract].
Interest rate swaps are contracts in which counterparties exchange different rates of interest on
a specified notional amount for a specified period of time. The payment flows are usually netted
against each other, with the difference paid by one party to the other.
Total return swaps
The Fund
is subject to equity price risk in the normal course of pursuing its investment objectives.
The Fund may enter into total return swaps to
[Include a description of the Fund’s objectives
for entering or holding the type of derivative contract].
Total return swap contracts involve the exchange by the Fund and a counterparty of their
respective commitments to pay or receive a net amount based on the change in the fair value of
a particular security or index, specified interest rates for fixed-
rate payments, and the notional
amount of the swap contract.
Credit default swaps
The Fund is subject to credit risk in the normal course of pursuing its investment objectives.
The Fund may enter into credit default swaps to [Include a description of the Fund’s objecti
ves
for entering or holding the type of derivative contract].
Credit default swap contracts involve an arrangement between the Fund and a counterparty,
which allows one party to protect against losses incurred as a result of default by a specified
reference entity. Generally, the Fund pays a premium up front and continues
to pay periodic
interest payments, while the counterparty agrees to make a payment to compensate the Fund for
losses if a specified credit event occurs (protection purchased).
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
35
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
5. Derivative contracts (continued)
[If applicable:] Alternatively, when the
Fund sells a credit default swap (protection written), it
receives premium payments in exchange for assuming the credit risk of the specified reference
entity. Generally, the counterparty pays a premium up front and continues to pay periodic interest
paym
ents while the Fund agrees to make a payment to compensate the counterparty for losses
if a specified credit event occurs.
ASC 815-10-50-
4K(a)(3)
Although contract-specific, credit events generally include bankruptcy, failure to pay,
restructuring, obligation acceleration, obligation default, or repudiation/moratorium. If a defined
credit event occurs, the difference between the value of the reference obligation and the swap’s
notional amount is recorded as realized gain (for protectio
n purchased) or loss (for protection
written) in the statement of operations.
ASC 815-10-50-4K(b)
[If applicable:] In the event that certain specified credit events occur, the maximum potential
future undiscounted payments that the Fund would be required to pay under protection written
would be approximately $XX,XXX,000. However, if the Fund was required to make payments
under protection written, it would be entitled to certain assets owned by the entities that
collateralize the reference obligations.
[Additional disclosures when a Fund engages in writing credit protection through credit
derivatives:]
At
December 31, 20XX, the open credit derivatives written by the Fund referenced to corporate
debt, sovereign debt, and asset-backed securities and are summarized as:
Single-name credit
default swaps
Credit
default
swaps
options
Credit default
swap indexes
(In thousands)
Corporate
debt
Sovereign
debt
Corporate
debt
Asset-backed
securities
Total
ASC 815-10-50-4K(c)
ASC 815-10-50-4K(b)1
Fair value
$23,761
$1,916
$
—
$
—
$25,677
Maximum potential
amount of future
undiscounted payments
120,000
20,000
—
—
140,000
ASC 815-10-50-4K(d)
Recourse provisions
with third parties
2,598
121
—
—
2,719
ASC 815-10-50-4K(e)
Cash collateral held by
the Fund or by third
parties
19,361
1,450
—
—
20,811
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36
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
5. Derivative contracts (continued)
[The following are examples of presentation methods to disclose the performance risk of
the credit derivatives written. The first table categorizes the credit derivatives written by
the external credit ratings of the reference entities underlying the credi
t derivatives. The
second table categorizes the credit derivatives written by the prevailing credit spreads of
the aforementioned reference entities.]
[Presentation 1]
The notional amounts of the credit derivatives written, classified by the
expiration ter
ms and the external credit ratings of the reference obligations underlying the
credit derivatives written at December 31, 20XX, are summarized as:
(In thousands)
Less than 1 year
1–3 years
3–5 years
Over 5 years
Total
ASC 815-10-50-4K(a)(4)
Single-name corporate
debt
Investment grade
(1)
$20,000
$—
$—
$—
$20,000
Noninvestment grade
(2)
—
100,000
—
—
100,000
Single-name sovereign
debt
Investment grade
(1)
—
—
20,000
—
20,000
Noninvestment grade
(2)
—
—
—
—
—
$20,000
$100,000
$20,000
$—
$140,000
(1) The Fund considers ratings of [include the rating threshold that the Fund uses to determine investment grade securities] or higher
as meeting the definition of investment grade.
(2) Includes nonrated credit derivative contracts
[Presentation 2]
The notional amounts of the credit
derivatives
written, classified by the
expiration terms
and
the external credit spreads
(1)
of the reference obligations underlying the
credit derivatives written at December 31, 20XX, are summarized as:
ASC 815-10-50-4K(a)(4)
(In thousands)
Less than 1 year
1–3 years
3–5 years
Over 5 years
Total
Single-name corporate debt
0–250
$—
$—
$—
$—
$—
251–500
20,000
—
—
—
20,000
501–1,000
—
—
—
—
—
1,001–1,500
—
—
—
—
—
1,501–2,000
—
100,000
—
—
100,000
$20,000
$100,000
$—
$—
$120,000
Single-name sovereign debt
0–250
$—
$—
$20,000
$—
$20,000
251–500
—
—
—
—
—
501–1,000
—
—
—
—
—
1,001–1,500
—
—
—
—
—
1,501–2,000
—
—
—
—
—
$—
$—
$20,000
$—
$20,000
(1)
Credit spreads on the underlying contracts obtained from counterparties, together with the period of expiration, indicate payment or
performance risk. The likelihood of payment or performance risk is generally greater as the credit spread on the underlying contracts
and the period of expiration increases.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
37
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
ASC 815-10-50-4H
5. Derivative contracts (continued)
Credit-risk-related contingent features
[This note should be tailored to the Fund’s specific credit-risk-related contingent
features.]
[Describe the circumstances in which credit-risk-related contingent features could be
triggered, such as the following:]
The Fund’s derivative contracts are subject to International
Swaps and Derivatives Associati
on (ISDA) master agreements, which contain provisions for
events of default that, if violated, allow the counterparty to the derivative contracts to request
immediate payment or demand additional collateral if the Fund is in a net liability position with t
he
counterparty. Additionally, the counterparty may elect to immediately terminate and settle all
outstanding derivative transactions if the Fund fails to maintain sufficient asset coverage for its
contracts or on a decline in the Fund’s net assets below s
pecified percentages or amounts. As of
December 31, 20XX, no such termination events have occurred.
The aggregate fair value of all derivative contracts with credit-risk-
related contingent features that
are in a net liability position at December 31, 20XX
is $X,XXX,000, for which the Fund has posted
$X,XXX,000 as collateral in the normal course of business. [If applicable:] If the credit-risk-
related
contingent features underlying these agreements were triggered as of December 31, 20XX, the
Fund would have
been required to post additional collateral of $X,XXX,000 to its counterparties.
[If applicable:] If the credit-risk-related contingent features underlying these agreements
were
triggered as of December 31, 20XX, the Fund would have been required to transf
er assets with a
fair value of $X,XXX,000 to its counterparties to settle the derivative contracts immediately.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
38
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
ASC 815-10-50-1A and
1B
5. Derivative contracts (continued)
Volume of derivative activities
[The following provides examples of the use of notional amounts to describe the volume
of a fund’s derivative activities. However, the appropriate disclosures of volume of
derivative activities should consider the individual facts and circumstances of the fund
and may differ from these examples:]
The Fund considers the average quarter-end notional amounts during the year, categorized by
primary underlying risk, to be representative of the volume of its derivative activities during the
year ended December 31, 20XX.
[The following alternative language may be used if representative of the volume of derivative
activities:] The Fund considers the notional amounts at December 31, 20XX, categorized by
primary underlying risk, to be representative of the volume of its derivative activities during the year
ended December 31, 20XX.
(In thousands)
Long exposure
Short exposure
Primary underlying risk
Notional amounts
(1)
Notional amounts
(1)
Interest rate risk
Interest rate swaps
$95,000
$30,000
Swaptions
25,000
—
Foreign exchange risk
Forward contracts
1,910,001
941,044
Equity price risk
Total return swaps
535,937
535,776
Futures contracts
44,900
—
Options
(2)
134,910
51,019
Warrants
(2)
241,049
—
Contracts for differences
42,190
19,831
Commodity price risk
Futures contracts
—
1,839
Credit risk
Protection written:
Credit default swaps
140,000
—
(1) [If applicable:]
Notional amounts are presented net of identical offsetting derivative contracts.
(2) Notional amounts presented for options and warrants are based on the fair value of the underlying shares as if the options and
warrants were exercised at the applicable period end.
[If applicable, for derivative types that were traded during the year and are included on the
gain/loss table but are not held at year-end:]
The Fund may use certain types of derivative
contracts from time to time to create, or hedge, exposures relative to unique circumstances in the
market. As such, the Fund has excluded these derivative types from the above table, as they are
not representative of the Fund’s regular trading activity throughout the year.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
39
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
5. Derivative contracts (continued)
[The following represents an alternative presentation of the volume of the Fund’s derivative
activities:]
(In thousands)
Primary underlying risk
Notional
amounts
Interest rate risk
Interest rate swaps – Pay fixed, receive floating
$95,000
Interest rate swaps – Pay floating, receive fixed 30,000
Swaptions – Long exposure 25,000
Foreign exchange risk
Forward contracts – Purchase foreign currency/sell U.S. dollars 1,910,001
Forward contracts – Purchase U.S. dollars/sell foreign currency 941,044
Equity price risk
Total return swaps – Long exposure
535,937
Total return swaps – Short exposure
535,776
Futures contracts – Long exposure 44,900
Purchased call options
(2)
134,910
Written call options
(2)
51,019
Warrants – Long exposure
(2)
241,049
Contracts for differences – Long exposure 42,190
Contracts for differences – Short exposure 19,831
Commodity price risk
Futures contracts – Short exposure
1,839
Credit risk
Credit default swaps – Protection written 140,000
(1) [If applicable:]
Notional amounts are presented net of identical offsetting derivative contracts.
(2) Notional amounts presented for options and warrants are based on the fair value of the underlying shares as if the options and
warrants were exercised at December 31, 20XX.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
40
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
5. Derivative contracts (continued)
ASC 815-10-50-4A,
ASC 815-10-50-4B,
ASC 815-10-50-4D,
ASC 815-10-50-4E
Effect of derivatives on the statement of assets and liabilities and statement of operations
The following table identifies the fair value amounts of derivative contracts included in the
statement of assets and liabilities, categorized by type of contract, at December 31, 20XX.
Balances are presented on a gross basis, before application of the eff
ect of counterparty and
collateral netting. Total derivative assets and liabilities are adjusted on an aggregate basis to
consider the effects of master netting arrangements and the offsetting of cash collateral
receivables and payables with the Fund’s counterparties. See note 8 for additional information on
the effects of master netting arrangements and the offsetting of cash collateral receivables and
payables with the Fund’s counterparties. The following table also identifies the realized and
unrealized gain and loss amounts included in the statement of operations, categorized by type of
contract, for the year ended December 31, 20XX.
(In thousands)
Primary underlying risk
Derivative
assets
Derivative
liabilities
Realized
gain (loss)
Unrealized
gain (loss)
Interest rate contracts
Interest rate swaps
$— $— $26,959 $—
Swaptions
282 — — 54
Foreign exchange contracts
Forward contracts
— 22,072 (7,139) (4,759)
Equity contracts
Total return swaps
90,550 69,651 — 10,003
Futures contracts
— — (3,391) —
Options
25,966 15,651 23,460 15,640
Warrants
46,790 — — 3,810
Contracts for differences
—
22,384
(21,494)
(14,330)
Commodity contracts
Futures contracts
— — (234) —
Credit contracts
Protection written:
Credit default swaps
— 25,677 (14,346) (9,564)
Gross total
163,588
155,435
3,815
854
Less: Effect of netting provisions
— — — —
Less: Cash collateral applied
— — — —
Total
$163,588
$155,435
$3,815
$854
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
41
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
ASC 275-10-50-1
6. Securities sold short
The Fund is subject to certain inherent risks arising from selling securities short. The ultimate cost
to the Fund to acquire these securities may
exceed the liability reflected in these financial
statements. The Fund is not exposed to this risk to the extent it holds offsetting long positions with
a fair value of approximately $X,XXX,000 at December 31, 20XX..
ASC 860-30-50-
1A(a)
7. Collateralized financing arrangements
Securities purchased under agreements to resell
Securities purchased under agreements to resell involve the purchase of a security from a
counterparty, with an obligation of the Fund to resell the security to the counterparty at a contracted
price on maturity. In connection with its securities purchased
under agreements to resell, it is the
Fund’s policy that its custodian, acting on behalf of the Fund, take possession of the underlying
collateral securities, the fair value of which, at all times, to be at least
[specify the percentage of
required collateral value to the contracted resell amount]
of the principal amount of the
securities purchased under agreements to resell , including accrued interest. If the counterparty
defaults under these agreements, and the fair value of the collateral declines, the
realization of the
collateral by the Fund may be delayed or limited.
ASC 860-30-50-
1A(c)
At December 31, 20XX, the Fund received the following securities as collateral for its securities
purchased under agreements to resell:
(In thousands)
Type of collateral
Contracted
resell price
Fair value
U.S. Treasury bonds $10,450 $10,560
Commercial paper 2,000 2,040
Total
$12,450
$12,600
ASC 860-30-50-
1A(c)
ASC 860-30-50-
1A(a)
ASC 860-30-50-7(c)
[If applicable:] The Fund is permitted to sell or repledge collateral received in connection with its
securities purchased under agreements to resell. At December 31, 20XX, the fair value of such
collateral was $X,XXX,000. [If applicable:] During the year ended December 31, 20XX, the Fund
had [sold] [repledged] collateral with a fair value of $X,XXX,000.
Securities sold under agreements to repurchase
[Note: Paragraph 860-30-50-7 requires certain disclosures for short-
term collateralized
financing
obtained through securities sold under agreements to repurchase, securities
lending, and similar transactions that are accounted for as secured borrowings. The
following includes examples of how those disclosures may be presented. However, the
Fund’s parti
cular disclosures should be tailored to the specific facts and circumstances of
the Fund.]
Securities sold under agreements to repurchase involve the sale of a security to a
counterparty, subject to an obligation by the Fund to repurchase the security from
the counterparty
at a contracted price on maturity.
In connection with its securities sold under agreements to repurchase, the Fund is required to
pledge collateral to its counterparties, the fair value of which, at all times, is required to be at least
[
specify the percentage of required collateral value to the contracted repurchase amount,
including accrued interest] of the excess of the amounts borrowed plus accrued interest.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
42
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
7. Collateralized financing arrangements (continued)
ASC 860-30-50-
1A(b)
If the fair value of the collateral declines, the Fund may be required to post additional collateral to
the counterparty.
To mitigate this risk, the Fund pledges financial instruments as collateral that are (1) issued by
entities that the Fund’s management believes have sufficient creditworthiness to meet their
obligations when they come due and (2) sufficiently liquid to be sold at their carrying amounts in
the ordinary course of operations.
[If applicable:] At December 31, 20XX, the Fund pledged the following securities, which are
included in securities in the statement of assets and liabilities as collateral for its securities sold
under agreements to repurchase.
(In thousands)
Type of collateral
Contracted
repurchase
price
Fair
value
Corporate bonds $7,500 $7,650
Municipal bonds 2,500 2,525
Total $10,000 $10,175
ASC 860-30-50-
1A(a)
ASC 860-30-50-7(c)
At
December 31, 20XX, the terms of the Fund’s securities sold under agreements to repurchase
included interest rates of X.X% to X.X% and maturity dates from [Month, Year] through
[Month,
Year].
Securities lending agreements
The Fund may lend securities to various financial institutions, principally to broker-
dealers. Those
transactions are secured by collateral such as cash, securities, or standby letters of credit, the fair
value of which, at all times, is required to be at least
[specify the percentage of required collateral
value to the amount of securities loaned, including accrued interest and dividends]
to the fair
value of the securities loaned plus accrued interest and dividends.
If the collateral is cash, the Fund normally earns a return by investing that cash typically in short-
term, high-
quality debt instruments. Investments of cash collateral are subject to the Fund’s
investment restrictions. A rebate for a portion of the interest earned on the cash collateral is p
aid to
the security lending agent for arranging the transaction. If the collateral is other than cash, the Fund
typically receives a fee as compensation for the securities loaned. The Fund also continues to
receive dividends and interest on the securities loaned.
The Fund has the right under its securities lending agreement to recover the securities loaned from
the counterparty on demand. If the counterparty fails to deliver the securities on a timely basis, the
Fund could experience delays or loss on
recovery. In addition, the Fund is subject to risk of loss
from investments made with cash collateral received. In the event of default, the Fund has the right
to use the collateral to offset the net amount owed by the counterparty.
ASC 860-30-50-
1A(b)
[If applicable:] At December 31, 20XX, the Fund loaned common stocks with a fair value of
$520,000 and received the following as collateral for the securities loaned.
[Note: For securities
lending transactions accounted for as a secured borrowing, cash or se
curities received as
collateral that the holder is permitted to sell or repledge are considered the amount
borrowed, and the securities loaned are considered pledged as collateral against the cash
borrowed.]
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43
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
7. Collateralized financing arrangements (continued))
(In thousands)
Type of collateral
Fair value of
securities
loaned
Fair value of
collateral
Cash $520 $530
ASC 860-30-50-7(a)
and 7(b)
Disclosures for secured borrowing arrangements
The following table provides information related to the gross liabilities from arrangements
accounted for as secured borrowings, presented by class of collateral pledged and remaining
contractual maturities of the Fund’s secured borrowings as of December 31, 20XX.
(In thousands)
Overnight
and
continuous
Up to 30
days 30–90 days
Greater than
90 days Total
Securities sold under
agreements to
repurchase
Municipal bonds $1,250 $1,250 $— $— $2,500
Corporate bonds — — 7,500 — 7,500
Total securities
sold under
agreements to
repurchase
$1,250
$1,250
$7,500
$—
$10,000
Securities lending transactions
Common stock $530 $— $— $— $530
Total secured
borrowings $1,780 $1,250 $7,500 $— $10,530
Gross recognized liabilities for securities sold
under agreements to repurchase in Note 8
$10,000
Amounts related to agreements not included
in the offsetting disclosure in Note 8
Securities sold under agreements to repurchase $—
Securities lending agreements $530
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
44
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
ASC 210-20-50-2
ASC 210-20-50-5
8. Offsetting assets and liabilities
The Fund is required to disclose the effect of
offsetting assets and liabilities presented in the
statement of assets and liabilities to enable financial statement users to evaluate the effect or
potential effect of netting arrangements on its financial position for recognized assets and liabilities.
T
hese recognized assets and liabilities include financial instruments and derivative contracts that
are either subject to an enforceable master netting arrangement or similar agreement or meet the
following right of setoff criteria: Each of the two parties
owes the other determinable amounts, the
Fund has the right to set off the amounts owed with the amounts owed by the other party, the Fund
intends to set off, and the Fund’s right of setoff is enforceable at law.
[Include a description of the rights of set
off associated with the Fund’s enforceable master
netting arrangements or similar agreements, including the nature of those rights, as
illustrated in the following example. This note should be tailored to the Fund’s specific
agreements:] The Fund is subjec
t to enforceable master netting agreements with certain
counterparties. These agreements govern the terms of certain transactions and reduce the
counterparty risk associated with relevant transactions by specifying offsetting mechanisms and
collateral post
ing arrangements at prearranged exposure levels. Because different types of
transactions have different mechanics and are sometimes traded out of different legal entities of a
particular counterparty organization, each transaction type may be covered by a
different master
netting arrangement, possibly resulting in the need for multiple agreements with a single
counterparty. Master netting agreements may not be specific to each different asset type; in those
instances, they would allow the Fund to close out
and net its total exposure to a specified
counterparty in the event of default or early termination with respect to any and all of the
transactions governed under a single agreement with the counterparty.
[For financial collateral
received or pledged, include a description of the terms of the collateral agreement.]
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45
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
8. Offsetting assets and liabilities (continued)
ASC 210-20-50-3
and 4
ASC 815-10-50-8
[The following table
represents a basic example disclosure. Consider the need to provide
additional detail when there is significant derivative activity (e.g., credit default swaps, total
return swaps). In addition, consider the level of detail presented on the statement of assets and
liabilities. See Appendix C for an alternative example disclosure.]
The following table presents the effects or potential effects of netting arrangements for derivative
contracts and securities purchased under agreements to resell
presented in the statement of assets
and liabilities as of December 31, 20XX.
Amounts not offset in the statement of
assets and liabilities
(In thousands)
Gross
amounts of
recognized
assets
Gross
amounts
offset in
the
statement
of assets
and
liabilities
Net amounts
of assets
presented
in the
statement of
assets and
liabilities
(1)
Financial
instruments
(policy
election)
(2)
Financial
instruments
(accounting
criteria not
met
)(3)
Financial
collateral
received
(4)
Net amount
Description
Derivative
contracts $90,832 $— $90,832 $(47,772) $(33,826) $— $9,234
Securities
purchased under
agreements to
resell
12,450
—
12,450
—
—
(12,450)
—
Total
$103,282
$—
$103,282
$(47,772)
$(33,826)
$(12,450)
$9,234
ASC 210-20-55-10
(1) The amounts of derivative contracts presented in the preceding table differ from the amounts reported in the statement of assets and liabili
ties
as the result of option contracts and warrants in the amount of $72,756,000, which are not subject to enforceable master netting
arrangements.
(2) Amounts related to master netting agreements (e.g., ISDA), determined by the Fund to be legally enforceable in the event of default and if
certain other criteria are met in accordance with applicable offsetting accounting guidance but were not offset due to management’s
accounting policy election.
(3) Amounts related to master netting agreements determined by the Fund to be legally enforceable in the event of default, but certain other
criteria are not met in accordance with applicable offsetting accounting guidance.
(4) Amounts related to master netting agreements and collateral agreements determined by the Fund to be legally enforceable in the event of
default, but certain other criteria are not met in accordance with applicable offsetting accounting guidance. The collateral amounts may
exceed the related net amounts of financial assets and liabilities presented in the statement of assets and liabilities, If this is the case, the
total amount reported is limited to the net amounts of financial assets and liabilities with that counterparty.
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46
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
8. Offsetting assets and liabilities (continued)
ASC 210-20-50-3
and 4
The following table presents the effects or potential effects of netting arrangements for derivative
contracts and securities sold under agreements to repurchase presented in the statement of assets
and liabilities as of December 31, 20XX:
Amounts not offset in the statement of
assets and liabilities
(In thousands)
Gross
amounts of
recognized
liabilities
Gross
amounts
offset in
the
statement
of assets
and
liabilities
Net amounts
of liabilities
presented
in the
statement of
assets and
liabilities
(1))
Financial
instruments
(policy
election)
(2)
Financial
instruments
(accounting
criteria
not met
)(3)
Financial
collateral
pledged
(4)
Net amount
Description
Derivative
contracts
$139,784
$—
$139,784
$(47,772) $(33,826)
$(10,000) $48,186
Securities sold
under agreements
to repurchase
10,000 — 10,000 — — (10,000) —
Total
$149,784
$—
$149,784
$(47,772)
$(33,826)
$(20,000)
$48,186
ASC 210-20-55-10
(1) The amounts of derivative contracts presented in the preceding table differ from the amounts reported in the statement of assets and
liabilities as the result of option contracts in the amount of $15,651,000, which are not subject to enforceable master netting arrangements.
(2) Amounts related to master netting agreements (e.g., ISDA), determined by the Fund to be legally enforceable in the event of default and if
certain other criteria are met in accordance with applicable offsetting accounting guidance, but were not offset due to management’s
accounting policy election.
(3) Amounts related to master netting agreements determined by the Fund to be legally enforceable in the event of default, but certain other
criteria are not met in accordance with applicable offsetting accounting guidance.
(4) Amounts related to master netting agreements and collateral agreements determined by the Fund to be legally enforceable in the event of
default, but certain other criteria are not met in accordance with applicable offsetting accounting guidance. The collateral amounts may
exceed the related net amounts of financial assets and liabilities presented in the statement of assets and liabilities; if this is the case, the
total amount reported is limited to the net amounts of financial assets and liabilities with that counterparty.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
47
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
ASC 460-10-50-4
ASC 450-20-50-4
ASC 460-10-50-4
ASC 946-20-50-15
ASC 946-20-50-16
9. Commitments and contingencies
[The following disclosures are examples of long-term commitments and contingencies
that may occur for an investment company. The appropriate disclosures to be included
should be tailored based on the facts and circumstances of the Fund:]
[If applicable:] The Fund is a guarantor of a loan payable entered into by a related party of
approximately $XXX,000, which matures on [Date, Year]. If the related party defaults on its loan
payments, the Fund may be required to perform under the guarantee to the extent of unpaid loan
principal and interest amounts outstanding.
[If applicable:] In the normal course of operations, the Fund enters into derivative transactions
that are cross-collateralized between related funds under common management that enter into
similar transactions with the same counterparty. In the event the related funds are unable to fulfill
their obligations with the counterparty, the Fund may be required to perform to the extent the
related funds have outstanding obligations. At December 31, 20XX, the outstanding obligations
of the related funds amounted to approximately $X,XXX,000.
[If applicable:] The Fund entered into a line of credit agreement with a financial institution that
provides for borrowings up to $X,XXX,000 and expires on [Date, Year]. The line of credit is
collateralized by certain assets of the Fund. Any outstanding line of credit balance bears interest
at the prime rate plus 1 percent. At December 31, 20XX, outstanding borrowings under the line
of credit amounted to approximately $X,XXX,000.
[If applicable:] In the normal course of business, the Fund has been named as a defendant in
various matters. Management of the Fund, after consultation with legal counsel, believes that
the resolution of these matters will not have a material adverse effect on the financial condition,
results of operations or cash flows of the Fund.
[If applicable:] The Fund has provided general indemnifications to the General Partner, any
affiliate of the General Partner, and any person acting on behalf of the General Partner or that
affiliate when they act, in good faith, in the best interest of the Fund. The Fund is unable to
develop an estimate of the maximum potential amount of future payments that could potentially
result from a hypothetical future claim but expects the risk of having to make payments under
these general business indemnifications to be remote.
[If applicable:] The Fund provides financial support to its investees
[Note: Examples of
financial support to investees may include loans, capital commitments, and guarantees;
this can also include situations in which the Fund assisted an investee in obtaining
financial support] in the normal course of executing its investment strategies. The following
tables summarize financial support provided to the Fund’s investees during the year ended
December 31, 20XX.
Financial support the Fund was contractually required to provide:
Amounts provided in the current period
Type
Amounts
contractually
required
Amounts not
contractually
required
Amounts
contractually required
but not yet provided
Reasons for
providing support
[Describe the type
of financial
support]
$— $— $—
[Describe the primary
reasons for providing
financial support]
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48
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
ASC 505-10-50-3
ASC 946-20-25-8
ASC 946-20-25-8
ASC 946-20-25-7
ASC 946-20-25-8
ASC 946-20-25-8
10. Partners’ capital
[The following disclosures are examples of the pertinent rights and privileges of the
Fund’s capital structure. These disclosures should be tailored to reflect the provisions in
the Fund’s legal documents:]
Contributions
The minimum initial investment in the Fund is currently $X,XXX,000, and the minimum additional
subscription is $X,XXX,000. The General Partner, in its sole discretion, may accept investments
of a lesser amount. The Fund may accept those amounts as of the first business day of any
calendar month or other times as the General Partner may permit.
[If applicable:] Advance capital contributions represent amounts received from limited partners
for contributions with an effective date after December 31, 20XX.
[If applicable:] The Fund may, at its sole discretion, accept securities, digital assets and other
non-monetary assets as an “in-kind contribution” in lieu of, or in addition to, cash. Both the asset
received and the contribution of equity are recorded at [Describe if in-kind contributions are
recorded based on the fair value as of the date of the contribution or at a different amount
as permitted by the Limited Partnership Agreement and agreed upon between the limited
partner and the Fund, and if applicable, describe the accou
nting for any differences
between the fair value of the in-kind distribution and the amount recorded as the capital
contribution from the limited partner]. [If applicable:] For the year ended December 31,
20XX, the Fund accepted in-kind contributions of $X,XXX,000 in the form of [Describe type of
in-kind consideration received, such as securities or digital assets].
Withdrawals
Class A limited partners may generally withdraw all or part of their limited partner interest in the
Fund at the end of each calendar quarter following at least a 45-day prior written notice to the
Fund (or other times as the General Partner, in its sole discretion, may permit), following a 36-
month lockup period on initial investments. [If applicable:]
The Fund charges an early
withdrawal fee of X.X% of the withdrawal amount to Class A limited partners withdrawing capital
prior to the expiration of the lockup period.
Class B limited partners may generally withdraw all or part of their limited partner interest in the
Fund at the end of each calendar quarter following at least a 45-day prior written notice to the
Fund (or other times as the General Partner, in its sole discretion, may permit), following a 24-
month lockup period on initial investments. [If applicable:]
The Fund charges an early
withdrawal fee of X.X% of the withdrawal amount to Class B limited partners withdrawing capital
prior to the expiration of the lockup period.
[If applicable:] Early withdrawal fees are allocated on a pro rata basis to the remaining partners.
[If applicable:] The General Partner may limit aggregate withdrawals of interests invested in the
Fund to a maximum of 25% of the Fund’s net assets immediately before effecting those
withdrawals. If withdrawal requests exceed the amount of withdrawals to be processed for any
withdrawal date, each partner that submitted a timely request will receive a pro rata portion of
the requested withdrawal. Unsatisfied withdrawals will remain invested in the Fund and will have
equal priority at each subsequent withdrawal date with other partners wishing to withdraw their
interests at that time.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
49
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
ASC 505-10-50-3
ASC 946-205-50-
25
ASC 850-10-50-1
ASC 850-10-50-1
through 3
10. Partners’ capital (continued)
[If applicable:] The General Partner may also suspend, in whole or in part, withdrawal rights,
the payment of withdrawal proceeds, or determining the Fund’s NAV in certain extraordinary
circumstances including, without limitation, if a state of affairs as a result of which, in the General
Partner’s opinion, disposal of a portion or all of the Fund’s net assets would not be reasonably
practicable or where permitting withdrawals would, in the General Partner’s opinion, be
prejudicial to the nonwithdrawing partners.
Allocations of profits and losses
Profits and losses of the Fund are allocated to partners at the end of each month in proportion
to their capital accounts as of the beginning of the month. To the extent the Fund receives gains
or losses with respect to equity securities in initial public offerings, those gains or losses will be
allocated solely to the capital accounts of those partners of the Fund that are not prohibited from
participating in those allocations under Rule 5130 of the Financial Industry Regulatory Authority.
[If applicable:] Profits or losses attributable to a side-pocket account are allocated only to those
partners participating in the side-
pocket account in proportion to the total partners’ capital
designated as side-pocket accounts at the time the side-pocket accounts were created.
[Other disclosures – include if applicable:]
Capital commitments
[If applicable:] At December 31, 20XX, the Fund has total capital commitments of $XX,XXX,000,
of which $XX,XXX,000 is from the limited partners with respect to their partnership interests in
the aggregate of $XX,XXX,000. The General Partner may make capital calls up to the amount
of unfunded capital commitments to enable the Fund to make inve
stments, pay fees and
expenses, or provide reserves. No limited partner is required to fund an amount in excess of
their unfunded capital commitments. At December 31, 20XX, the Fund’s unfunded limited partner
capital commitments amounted to $XX,XXX,000, of which $XX,XXX,000 is unfunded from the
limited partners. The ratio of total contributed capital to total committed capital is XX.X%.
[If applicable:] Limited partners have committed capital to the Fund. If capital calls are not timely
funded, the Fund may be unable to successfully carry out its investment operations.
Side-pocket capital accounts
[If applicable:] The General Partner, in its sole discretion, may designate certain investments
that lack a readily available market value or are not freely transferable as special investments.
At the discretion of the General Partner, a portion of a limited partner’s share of a special
investment may be transferred to a side-pocket capital account, which is not redeemable until
those special investments are sold or deemed to be freely transferable. Only the partners who
are invested in the Fund at the time special investments are designated will participate in the
special investments. At December 31, 20XX, the Fund had special investments of approximately
$XX,XXX,000.
[If applicable:] Transfers of capital presented in the statement of changes in partners’ capital
represent transfers of capital balances between the General Partner’s capital account and limited
partner accounts affiliated with the General Partner.
[If applicable:] The Fund had [number] limited partners who individually owned greater than
XX% of the Fund’s net asset value as of December 31, 20XX. Withdrawals of capital in full or in
part for these limited partners interests in the Fund could impact the Fund’s ability to carry out
its investment objectives and operations, cause the Fund to liquidate assets under forced sale
conditions to satisfy withdrawal requests, or cause the Fund to enter into a plan of liquidation in
order to settle the distribution of net assets to limited partners in an orderly manner.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
50
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
ASC 946-20-50-5
ASC 946-20-50-5
11. Related-party transactions
The Fund considers the General Partner and the Investment Manager, their principal owners,
members of management, and members of their immediate families, as well as entities under
common control, to be related parties to the Fund. Amounts due from and due to related parties
are generally settled in the normal course of business without formal payment terms.
The Fund pays the Investment Manager a management fee, calculated and payable [monthly]
[quarterly] in advance, to be paid at an annual rate of X.XX% of the capital account balances of
Class A limited partners and X.XX% of the capital account balances of Class B limited partners,
determined as of the beginning of each [month] [quarter].
The General Partner is entitled to receive an annual incentive allocation equal to XX% for Class
A limited partners and XX% for Class B limited partners of the net profits, if any, allocated to
each limited partner’s capital account f
or the current period, subject to a loss carryforward
provision.
[If applicable:]
Due to related parties reported in the statement of assets and liabilities
represents amounts payable to the General Partner for expenses paid on behalf of the Fund.
[If applicable:] Certain limited partners are related parties of the General Partner. [Describe
the nature of special management fee arrangements, incentive allocation arrangements,
withdrawal rights or other terms associated with related-party capital accounts] The
aggregate value of limited partners’ capital owned by related parties at December 31, 20XX is
approximately $X,XXX,000. During the year ended December 31, 20XX, the Fund accepted
capital contributions of $XXX,000 and had capital withdrawals of $XXX,000 (of which, $XXX,000
is included in capital withdrawals payable as of December 31, 20XX) with those related parties.
[If applicable:] Certain members of the General Partner serve as members of the boards of
directors of certain investments aggregating approximately XX% of total capital in which the Fund
holds investment positions.
[If applicable:] The General Partner generally allocates investments between the Fund and
other entities for which it serves as the General Partner on a pro rata basis based on assets
under management. To maintain pro rata allocations, the Fund may sell securities to, or purchase
securities from, these other entities. These transactions are generally executed at the closing
price on the date prior to the trade date, or for restricted yet tradable securities, at fair value as
determined by the General Partner.
[If applicable:] During 20XX, the Fund entered into purchase and sale transactions with an
affiliated entity also managed by the General Partner. Total purchases and sales at fair value of
approximately $X,XXX,000 and $X,XXX,000, respectively, were made with this related party.
Transactions with related parties resulted in net gains (losses) of $XX,000 and are included in
net realized gain (loss) from investments and derivatives in the statement of operations. The
value of these transactions was determined using the Fund’s normal investment valuation
policies.
[If applicable:] Additionally, the Fund may coinvest with other entities with the same General
Partner as the Fund. [If applicable:] At December 31, 20XX, the Fund held an investment with
a fair value of $X,XXX,000 that was coinvested with affiliated funds. [If applicable:] At
December 31, 20XX, the Fund had no investments that were coinvested with affiliated funds
Reimbursed expenses
In the event that the Fund’s ordinary operating expenses and organizational expenses exceed
X.XX% per annum of the Fund’s net assets with respect to the life-to-date ordinary operating
expenses of the Fund, the General Partner intends to pay the excess expenses out of its assets
on behalf of the Fund.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
51
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
12. Administrative services
Administrator Fund Services Ltd. (the Administrator) serves as the Fund’s administrator and
performs certain administrative and accounting services on behalf of the Fund. [If applicable:]
The Administrator is also affiliated with a broker through which the Fund transacts operations. At
December 31, 20XX, there is a balance of approximately $X,XXX,000 due from/to this broker.
[If applicable:] At December 31, 20XX, cash balances in the amo
unt of approximately
$X,XXX,000 are held by an affiliate of the Administrator.
13. Significant risks and uncertainties
[The following disclosures are examples of significant risks and uncertainties resulting
from certain significant estimates or vulnerability from certain concentrations that may
be considered for an investment company if not already disclosed elsewhere in the
financial statements. The appropriate disclosure should be tailored based on the facts
and circumstances of the Fund:]
The ICE Benchmark Administration (“IBA”) ceased publication of one-week and two-month USD
London Interbank Offered Rate (“LIBOR”) settings after December 31, 2021 and intends to cease
publishing the remaining USD LIBOR settings after June 30, 2023.
The Alternative Reference Rate Committee (“ARRC”), a group of diverse private-market
participants assembled by the Federal Reserve Board and the Federal Reserve Bank of New
York, was tasked with identifying alternative reference rates to replace LIBOR.
The Secured Overnight Fina
nce Rate (“SOFR”) has emerged as the ARRC’s preferred
alternative rate for LIBOR. SOFR is a broad measure of the cost of borrowing cash overnight
collateralized by Treasury securities in the securities purchased under agreements to resell
market. At this time, it is not possible to predict how markets will respond to SOFR or other
alternative reference rates.
It is expected that a number of banks currently reporting information used to set LIBOR will stop
doing so when their reporting commitments end. This will either end the publication of LIBOR
immediately or degrade its quality such that it would no longer be a relevant metric to the Fund.
Change in LIBOR could affect the interest rates of the Fund’s LIBOR based investments and
revolving credit facility. If LIBOR is no longer available, the Fund will pursue alternative interest
rate calculations in its LIBOR based investments and revolving credit facility.
[If applicable:] As of December 31, 20XX, the potential effect of no longer using the LIBOR rate
component to the Fund’s interest rates is not expected to have a material effect on the Fund’s
financial statements. [If applicable:] As of December 31, 20XX, The Fund holds LIBOR based
investments with a fair value of approximately $X,XXX,000. [Consider additional disclosures
of the potential impact of a permanent cessation of LIBOR to the Fund’s investments,
financing arrangements and other contractual arrangements, and the Fund’s plans to
address the potential impacts.]
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
52
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
13. Significant risks and uncertainties (continued)
[If applicable:]
The Russia-Ukraine war caused severe disruptions of the global supply chain, putting significant
pressure on inflation. The recent commencement of war in Ukraine had an impact on
international financial markets, leading to a significant rise in the price o
f oil and gas. The
unpredictable outcome of this conflict could inflict on
the world economy significant and/or
prolonged harm. Recent Russian military actions in Ukraine have prompted and might prompt
further sanctions on Russia from the United States, the European Union, and other nations.
Despite the fact that the Fund has no direct exposure to Russia or the surrounding regions, the
military incursion by Russia and the sanctions that follow could have a negative impact on the
world's energy and financial markets, which could then have an impact on the investments of the
Fund. The extent and duration of the military action, sanctions and resulting market disruptions
are impossible to predict, but could be substantial. Any such disruptions caused by Russian
military action or resulting sanctions may magnify the impact of other risks of the Fund.
14. Financial highlights
Financial highlights for the year ended December 31, 20XX, are:
ASC 946-205-50-18
ASC 946-205-50- 22
ASC 946-205-50-10
and 12 through 14
ASC 946-20-45-5,
ASC 946-20-50-7
Class A limited
partners
Class B limited
partners
Total return:
Total return before incentive allocation to General
Partner
27.0%
27.4%
Incentive allocation to General Partner (5.4) (4.6)
Total return after incentive allocation to General
Partner
21.6%
22.8%
Ratios to average limited partners’ capital:
Expenses (including interest and dividends)
5.7%
5.2%
Reimbursed/waived expenses
(0.1)
(0.1)
Incentive allocation to General Partner 5.2 4.3
Expenses and incentive allocation to General Partner
10.8%
9.4%
Net investment loss
(1.4)%
(0.9)%
ASC 946-205-50-4
ASC 946-205-50-15
ASC 946-205-50-13
ASC 946-205-50-16
ASC-946-205-50-10
ASC 946-205-50-13
Financial
highlights are calculated for each limited partner class taken as a whole. An individual
limited partner’s return and ratios may vary based on participation in new issues, private
investments, different incentive allocation and/or management fee arrangemen
ts, and the timing
of capital transactions. The net investment loss ratios do not reflect the effects of the incentive
allocation to the General Partner.
[If applicable, for private investment companies:]
The expense and net investment loss ratios
do not reflect the income and expenses incurred by the underlying private investment companies.
[For periods less than one year:]
The ratios, excluding nonrecurring expenses and the incentive
allocation to the General Partner, have been annualized. Total return has not been annualized.
© 2023 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
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53
Domestic Fund, L.P.
Notes to financial statements
December 31, 20XX
ASC 855-10-50-1
and 2
15. Subsequent events
[If applicable:] From January 1, 20XX through [Month, Date, Year],
the Fund accepted
additional capital contributions of approximately $X,XXX,000 (of which approximately
$X,XXX,000 is included in advance capital contributions as of December 31, 20XX) and had
additional capital withdrawals of approximately $X,XXX,000.
[If applicable:] As of [Month, Date, Year], the Fund received limited partner withdrawal requests
that are anticipated to be effective on June 30, 20XX. The limited partner interests for these
requests were approximately XX% of the partners’ capital of the Fund as of December 31, 20XX.
The ultimate amounts withdrawn for these requests may vary based on the performance of the
Fund and the amount of withdrawals declared effective by the Fund and its limited partners.
These financial statements were approved by
management and available for issuance on
[Month, Date, Year]. Subsequent events have been evaluated through this date.
[Consider if disclosure of subsequent events would be necessary to keep the financial
statements from being misleading. Management should consider all events that have
occurred subsequent to year end and if they are material or of importance to users of
the financial statements.]
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
54
Offshore
Fund, Ltd.
Please refer to the conditions of use on the inside cover of this publication.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
55
Offshore Fund, Ltd.
See Domestic
Fund, L.P. for
general references
Statement of assets and liabilities
(U.S. dollars)
Assets
Securities, at fair value (cost $662,033,000)
$769,340,000
Digital assets, at fair value (cost 11,000,000)
12,596,000
Private investment companies, at fair value (cost $184,491,000)
(1)
190,546,000
Derivative contracts, at fair value (cost $69,051,000)
163,588,000
Securities purchased under agreements to resell, at fair value (cost $12,450,000)
12,450,000
Cash and cash equivalents
8,952,000
Cash denominated in foreign currencies (cost $592,000)
543,000
Due from brokers
26,692,000
Due from cryptocurrency exchanges
2,000,000
Receivable for pending investment transactions
260,000
Collateral posted with counterparties for derivative contracts
14,837,000
Dividends and interest receivable
1,167,000
Other assets
155,000
Total assets
1,203,126,000
Liabilities
Securities sold short, at fair value (proceeds $583,633,000)
550,431,000
Derivative contracts, at fair value (proceeds $19,052,000 and up-front premiums
received $4,828,000)
155,435,000
Due to brokers
45,115,000
Payable for pending investment transactions
559,000
Securities sold under agreements to repurchase
10,000,000
Payable upon return of securities loaned
530,000
Due to related parties
150,000
Redemptions payable
5,879,000
Advance subscriptions
1,000,000
Performance fee payable
18,239,000
Management fee payable
930,000
Dividends and interest payable
598,000
Accrued expenses and other liabilities
95,000
Total liabilities
788,961,000
Net Assets
$414,165,000
(1)
See Appendix B for sample presentation of a condensed schedule of investments for private investment companies.
[See Domestic Fund, L.P. for an illustrative example of the condensed schedule of investments.
References to partners’ capital should be replaced with net assets where applicable.]
See accompanying notes to financial statements.
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56
Offshore Fund, Ltd.
See Domestic
Fund, L.P. for
general references
Statement of operations
December 31, 20XX
(U.S. dollars)
Investment income
Interest
$9,039,000
Dividends (net of foreign withholding taxes of $218,000)
7,039,000
Income from securities loaned, net
12,000
Income from staking rewards
25,000
Other income
419,000
Total investment income
16,534,000
Expenses
Management fee
7,540,000
Dividends on securities sold short
15,789,000
Interest on securities sold short
1,161,000
Interest expense
(1)
59,000
Performance fee
18,239,000
Administrative fee
248,000
Professional fees and other
856,000
Total expenses
43,852,000
Reimbursed/waived expenses
(500,000)
Net expenses
43,392,000
Net investment loss
(26,858,000)
Realized and unrealized gain (loss) from investments and foreign currency
Net realized gain from investments (including realized gain of $16,000 from
distribution of securities to shareholders)
36,573,000
Net realized gain from foreign currency transactions
(2)
165,000
Net unrealized gain from investments
66,448,000
Net unrealized loss from translation of assets and liabilities in foreign currencies
(3)
(65,000)
Net gain from investments and foreign currency
103,121,000
Net increase in net assets resulting from operations
(4)
$76,263,000
(1)
See corresponding footnotes on the Domestic Fund.
(2)
See corresponding footnotes on the Domestic Fund.
(3)
See corresponding footnotes on the Domestic Fund.
(4)
See corresponding footnotes on the Domestic Fund.
See accompanying notes to financial statements.
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57
Offshore Fund, Ltd.
See Domestic Fund,
L.P. for general
references
Statement of changes in net assets
Year ended December 31, 20XX
(U.S. dollars)
Operations
Net investment loss
$(26,858,000)
Net realized gain from investments
36,573,000
Net realized gain from foreign currency transactions
165,000
Net unrealized gain from investments
66,448,000
Net unrealized loss from translation of assets and liabilities in foreign currencies
(65,000)
Net increase in net assets resulting from operations
76,263,000
Capital share transactions
Issuance of shares
45,000,000
Redemption of shares
(35,872,000)
Early redemption fees
200,000
Net increase in net assets resulting from capital share transactions
9,328,000
Net increase in net assets
85,591,000
Net assets, beginning of year
328,574,000
Net assets, end of year $414,165,000
See accompanying notes to financial statements.
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58
Offshore Fund, Ltd.
See Domestic
Fund, L.P. for
general references
Statement of cash flows
Year ended December 31, 20XX
[See Appendix A for the alternative net method of presenting operating cash flows.]
Cash flows from operating activities
Net increase in net assets resulting from operations
$76,263,000
Adjustments to reconcile net increase in net assets resulting from operations to net
cash used in operating activities:
Net realized gain from investments
(36,557,000)
Net realized gain from foreign currency transactions
(165,000)
Net realized gain from distribution of securities to shareholders
(16,000)
Net unrealized gain from investments
(66,448,000)
Net unrealized loss from translation of assets and liabilities in foreign currencies
65,000
Purchases of securities
(111,785,000)
Purchases of digital assets
(13,000,000)
Proceeds from sales of securities
145,169,000
Proceeds from sales of digital assets
2,000,000
Purchases of securities purchased under agreements to resell
(12,450,000)
Payments for derivative contracts
(25,129,000)
Proceeds from derivative contracts
102,886,000
Proceeds from securities sold short
54,678,000
Payments to cover securities sold short
(159,685,000)
Amortization and accretion of premiums and discounts on debt securities
(145,000)
Changes in operating assets and liabilities:
Dividends and interest receivable
(532,000)
Other assets
(42,000)
Payable upon return of securities loaned
230,000
Due to related parties
100,000
Performance fee payable
18,000,000
Management fee payable
359,000
Dividends and interest payable
148,000
Accrued expenses and other liabilities
39,000
Net cash used in operating activities
(26,017,000)
See accompanying notes to financial statements.
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59
Offshore Fund, Ltd.
See Domestic
Fund, L.P. for
general
references
Statement of cash flows (continued)
December 31, 20XX
Cash flows from financing activities
Proceeds from issuance of shares, net of change in advance subscriptions
$46,000,000
Payments for redemption of shares, net of change in redemptions payable
(39,793,000)
Proceeds from margin borrowings
1
21,483,000
Repayment of margin borrowings
1
(10,000,000)
Proceeds from securities sold under agreements to repurchase
10,000,000
Net cash provided by financing activities
27,690,000
Effect of exchange rate changes on cash (including restricted cash)
35,000
Net increase in cash and cash equivalents (including restricted cash)
3,708,000
Cash and cash equivalents (including restricted cash), beginning of year
49,316,000
Cash and cash equivalents (including restricted cash), end of year $51,024,000
At December 31, 20XX the amounts included in cash and cash equivalents (including
restricted cash) include the following
Statement of assets and liabilities
December 31, 20XX
ASC 230-10-
50-8
Cash and cash equivalents
$8,952,000
Cash denominated in foreign currencies
543,000
Due from brokers
26,692,000
Collateral posted with counterparties for derivative contracts
14,837,000
Total cash and cash equivalents (including restricted cash)
$51,024,000
Supplemental disclosure of cash flow information:
Cash paid during the year for interest
$54,000
Supplemental disclosure of noncash financing activities:
Contribution of securities, at fair value (cost basis of $231,000)
$347,000
Distribution of securities, at fair value (cost basis of $638,000)
$645,000
1 If the requirements of ASC 230-10-45-7 through 45-9 are met, proceeds from margin borrowings and repayments of margin borrowings may be
presented on a net basis.
See accompanying notes to financial statements.
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60
Offshore Fund, Ltd.
Notes to financial statements
December 31, 20XX
See Domestic
Fund, L.P. for
general
references
1. Organization.
[This note should be tailored to the Fund’s specific nature of operations:]
Offshore Fund,
Ltd. (the Fund) is an exempt investment company formed under the laws of the Cayman Islands
on [Month, Date, Year]. The Fund was organized to
[Include a description of the Fund’s
investment objectives]
. Pursuant to an investment management agreement, the Fund is
managed by Investment Manager, LLC (the Investment Manager). [If applicable:]
The Investment
Manager is registered with the U.S. Secur
ities and Exchange Commission as an investment
adviser under the Investment Advisers Act of 1940.
2. Summary of significant accounting policies
The significant accounting policies followed by the Fund are:
Basis of presentation
The financial statements are ex
pressed in U.S. dollars and have been prepared in accordance
with U.S. generally accepted accounting principles (GAAP). The Fund is an investment company
and follows the accounting and reporting guidance in the Financial Accounting Standards Board’s
Accounting Standards Codification (ASC) Topic 946, Financial Services—Investment Companies.
[See Domestic Fund, L.P. for examples of the following significant accounting policies:]
Principles of consolidation
Use of estimates
Investment transactions and related investment income
Cash and cash equivalents
Foreign currency translation
Derivative contracts
Fair value – Hierarchy of fair value
Fair value – Valuation techniques and inputs
Fair value – Valuation of net risk exposures
Fair value of financial instruments
Offsetting of assets and liabilities
Securities sold under agreements to repurchase
Securities lending transactions
Staked tokens
Income taxes
Recently adopted accounting standards
Income taxes
[The following example includes required disclosures when a fund has
incurred a liability
for unrecognized tax benefits. A fund may tailor its disclosures where appropriate if it has
not incurred a liability for unrecognized tax benefits.]
Under the laws of the Cayman Islands, the Fund is generally not subject to income tax
es. However,
certain U.S. dividend income and interest income may be subject to a maximum 30% withholding
tax. [If applicable:] Further, certain non-
U.S. dividend income and interest income may be subject
to a tax at prevailing treaty or standard withholdi
ng rates with the applicable country or local
jurisdiction.
Generally, the Fund is subject to income tax examinations by
[Federal] [list applicable states]
[Foreign jurisdictions] for the years after 20XX.
[See Domestic Fund, L.P. for additional income tax disclosures.]
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61
Offshore Fund, Ltd.
Notes to financial statements
December 31, 20XX
ASC 480-10-
50-1
2. Summary of significant accounting policies
Redemptions payable
Redemptions are recognized as liabilities when the amount requested in the redemption notices
becomes fixed, which generally occurs on the last day of a fiscal quarter. As a result, redemptions
paid after the end of the year, based on the NAV of the Fund at year-
end, are included in
redemptions payable at December
31, 20XX. Redemption notices received for which the dollar
amount is not fixed remain in net assets until the net asset values used to determine the
redemption and share amounts are determined.
[See Domestic Fund, L.P. for the following
disclosure examples. References to limited
partners and partners’ capital should be changed to shareholders and net assets where
applicable:]
Fair value measurements
Due from/to brokers and [if applicable] cryptocurrency exchanges
Derivative contracts
Securities sold short
Collateralized financing arrangements
Offsetting assets and liabilities
Commitments and contingencies
3. Capital share transactions
[The
following disclosures are examples of the pertinent rights and privileges of the Fund’s
capital structure. These disclosures should be tailored to reflect the provisions in the
Fund’s legal documents:]
As of December 31, 20XX, there are XXX,XXX redeemable
shares of $0.01 par value authorized.
There are two classes of shares: Class A and Class B. Shareholders who may be restricted from
receiving certain types of income are issued Class B shares. All other shareholders are issued
Class A shares. For purposes
of accounting for the performance fee, shares issued at different
times are issued in series, a different series being issued on each subscription date. Series 1
shares within each class are issued on the first subscription date in each calendar year and
the
remaining series are issued on other subscription dates during the calendar year. After the close
of each calendar year, all series are converted into Series 1 of that class unless a loss carryforward
attributable to the other series or to Series 1 of that class remains outstanding.
Subscriptions
The minimum initial subscription in the Fund is currently $X,XXX,000 and the minimum additional
subscription is $XXX,000. The [Investment Manager] [Board of Directors]
, in its sole discretion,
may accept subscr
iptions of a lesser amount. The Fund may accept those amounts as of the first
business day of any calendar month or other times as the [Investment Manager]
[Board of
Directors] may permit.
[If applicable:] Advance subscriptions
represent amounts received from shareholders for
subscriptions with an effective date after December 31, 20XX.
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62
Offshore Fund, Ltd.
Notes to financial statements
December 31, 20XX
3. Capital share transactions (continued)
Redemptions
Class A shareholders may generally redeem all or part of their shares in the Fund at the end of each
calendar quarter following at least a 45-
day prior written notice to the Fund (or at other times as the
[Investment Manager] [Board of Directors], in its sole discretion, may permit), following a 36-
month lockup period on initial subscriptions.
[If applicable:]
The Fund charges an early redemption fee of X.X% of the redemption amount to
Class A shareholders redeeming shares prior to the expiration of the lockup period.
Class B shareholders may generally redeem all or part of their shares in the Fund at the end of each
calendar quarter following at least a 45-
day prior written notice to the Fund (or at other times as the
[Investment Manager] [Board of Directors], in its sole discretion, may permit), following a 24-
month lockup period on initial subscriptions. [If applicable:]
The Fund charges an early redemption
fee of X.X% of the redemption amount to Class B shareholders redeeming shares prior to the
expiration of the lockup period.
[If applicable:]
Early redemption fees are allocated on a pro rata basis to the remaining
shareholders.
[If applicable:] The [Investment Manager] [Board of Directors]
may limit aggregate redemptions
of interests invested in the Fun
d to a maximum of 25% of the Fund’s net assets immediately before
effecting those redemptions. If redemption requests exceed the amount of redemptions to be
processed for any redemption date, each shareholder that has submitted a timely request will
receiv
e a pro rata portion of the requested redemption. Unsatisfied redemptions will remain invested
in the Fund and will have equal priority at each subsequent redemption date with other shareholders
wishing to redeem their interests at that time.
[If applicable:] The [Investment Manager] [Board of Directors]
may also suspend, in whole or
in part, redemption rights, the payment of redemption proceeds, or determining the Fund’s NAV in
certain extraordinary circumstances, including, without limitation, if a state
of affairs as a result of
which, in the [Investment Manager’s] [Board of Directors’,]
opinion, disposal of a portion or all
of the Fund’s net assets would not be reasonably practicable, or where permitting redemptions
would, in the [Investment Manager’s] [Board of Directors’,]
opinion, be prejudicial to the
nonredeeming shareholders.
Allocations of profits and losses
Profits and losses of the Fund are allocated to each series of shares at the end of each month in
proportion
to its net assets relative to the Fund as a whole as of the beginning of the month. To the
extent the Fund receives gains or losses with respect to equity securities in initial public offerings,
those gains or losses will be allocated solely to the share
classes of the Fund that are not prohibited
from participating in those allocations under Rule 5130 of the Financial Industry Regulatory
Authority. [If applicable:] Profits or losses attributable to a side-
pocket share class are allocated
only to those shareholders participating in the side-
pocket share class in proportion to the total net
assets designated as a side-pocket share classes at the time the side-
pocket share classes were
created.
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63
Offshore Fund, Ltd.
Notes to financial statements
December 31, 20XX
3. Capital share transactions (continued)
[Other disclosures – Include if applicable:]
Capital commitments
[If applicable:] At December 31, 20XX, the Fund has total capital commitments of $XX,XXX
,000,
of which $XX,XXX,000 is from the shareholders with respect to their net assets in the aggregate of
$XX,XXX,000. The Investment Manager may make capital calls up to the amount of unfunded
capital commitments to enable the Fund to make investments, pay
fees and expenses, or provide
reserves. No shareholder is required to fund an amount in excess of their unfunded capital
commitments.
[If applicable:] Shareholders have committed capital to the Fund.
If capital calls are not timely
funded, the Fund may be unable to successfully carry out its operations.
At December 31, 20XX, the Fund’s unfunded shareholder capital commitments amounted to
$XX,XXX,000. The ratio of total contributed capital to total committed capital is XX.X%.
Side-pocket share classes
[If applicable:]
The Investment Manager, in its sole discretion, may designate certain investments
that lack a readily available market value or are not freely transferable as special investments.
At the discretion of the Investment Manager, a portion of a shar
eholder’s net assets attributed to a
special investment may be converted to shares in a side-
pocket share class, which is not
redeemable until those special investments are sold or deemed to be freely transferable. Only the
shareholders who are invested in
the Fund at the time special investments are designated will
participate in the Special Investments. At December 31, 20XX, the Fund had special investments
of approximately $XX,XXX,000.
[If applicable:] The Fund had [number] shareholders who
individually owned greater than XX% of
the Fund’s net asset value as of December 31, 20XX. Redemptions of capital in full or in
part for
these shareholders’ interest in the Fund could impact the Fund’s
ability to carry out its investment
objectives and operations.
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64
Offshore Fund, Ltd.
Notes to financial statements
December 31, 20XX
3. Capital share transactions (continued)
[Note: The following is generally applicable to all unitized funds:]
Transactions in capital shares during the period as well as the shares
outstanding and the NAV
per share as of December 31, 20XX, for each class and series of shares are:
ASC 946
-505-50-
2
(In thousands)
Beginning
shares
Transfers/
conversion
of shares
Shares
issued
Shares
redeemed
Ending
shares
Class A
Series 1 125,000.00 134,036.55 — (28,663.70) 230,372.85
Series 2 75,000.00 (75,000.00) 10,000.00 — 10,000.00
Series 3 56,000.00 (56,000.00) 5,000.00 — 5,000.00
Class B
Series 1 65,000.00 — — (4,593.65) 60,406.35
Series 2 — — 25,000.00 — 25,000.00
Series 3 — — 5,000.00 — 5,000.00
ASC 946
-505-50-
2
(In thousands)
Beginning
net assets
Transfers/
conversion
of shares
Amounts
issued
Amounts
redeemed
Ending
net assets
Class A
Series 1 $127,804 $137,043 $— $(30,318) $287,390
Series 2 78,460 (78,460) 10,000 — 12,481
Series 3 58,583 (58,583) 5,000 — 5,939
Class B
Series 1 63,727 — — (5,354) 72,491
Series 2 — — 25,000 — 29,345
Series 3 — — 5,000 — 6,519
$328,574
$—
$45,000
$(35,672)
$414,165
ASC 946
-505-50-1
Ending NAV
per share
Class A
Series 1 $1,247.50
Series 2 1,248.10
Series 3 1,187.80
Class B
Series 1 1,200.06
Series 2 1,173.80
Series 3 1,303.80
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65
Offshore Fund, Ltd.
Notes to financial statements
December 31, 20XX
4. Related-party transactions
The Fund considers the Investment Manager, its principal owners, members of management, and
members of their immediate families, as well as entities under common control, to be related
parties
to the Fund. Amounts due from and due to related parties are ge
nerally settled in the normal course
of business without formal payment terms.
The Fund pays the Investment Manager a management fee, calculated and payable
[quarterly]
[monthly]
in advance, to be paid at an annual rate of X.XX% of the NAV of Class A shares and
X.XX% of the NAV of Class B shares, determined as of the beginning of each calendar
[quarter]
[month].
The Investment Manager is also entitled to a performance fee, payable
on an annual basis, which
will generally be equal to XX% for Class A shareholders and XX% for Class B shareholders, of the
amount by which the NAV per share on the last day of each year for each series exceeds the higher
of the original issue price or highest NAV of those shares as of the close of any prior year.
[If applicable:] One of the directors of the Fund is a member of the Investment Manager.
[See Domestic Fund, L.P. for other examples of related-party transaction disclosures.]
5.
Administrative services
Administrator Fund Services Ltd. (Cayman
Islands) (the Administrator) serves as the Fund’s
administrator and performs certain administrative and accounting services on behalf of the Fund.
[If
applicable:] The Administrator is also affiliated with a broker through which the Fund
transacts
operations. At December 31, 20XX, there is a balance of approximately $X,XXX,000 due from/to this
broker. [If applicable:] At December 31, 20XX, cash balances in the amount of
approximately
$X,XXX,000 are held by an affiliate of the Administrator.
[See Domestic Fund, L.P. for examples of risk factor disclosures.]
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66
Offshore Fund, Ltd.
Notes to financial statements
December 31, 20XX
6.
Financial highlights
Financial highlights for the year ended December 31, 20XX, are:
ASC 946-205-50-8
Class A shares
Series 1
Class B shares
Series 1
Per-share operating performance:
ASC 946-205-50-7(a)
Net asset value, beginning of year
$1,022.43
$980.41
Income from investment operations:
ASC 946-205-50-7(b)
Net investment loss
(56.86)
(51.45)
ASC 946-205-50-7(c)
Net gain from investments and foreign currency
281.93
271.10
ASC 946-205-50-7(d)
Total from investment operations
225.07
219.65
ASC 946-205-50-7(f)
Early redemption fees
—
—
Redemptions
—
—
ASC 946-205-50-7(h)
Net asset value, end of year
$1,247.50
$1,200.06
See Domestic Fund,
L.P. for general
references
Total return:
Total return before performance fee
27.5%
27.3%
Performance fee
(5.5)
(4.9)
Total return after performance fee
22.0%
22.4%
Ratios to average net assets:
Expenses other than performance fee
7.0%
6.8%
Reimbursed/waived expenses
(0.1)
(0.1)
Performance fee
5.4
5.0
Total expenses
12.3%
11.7%
Net investment loss
(7.4)%
(7.2)%
Financial highlights are calculated for each permanent, nonmanaging class or series of
common shares. An individual shareholder’s financial highlights may vary based on
participation in new issues, private investments, different performance fee and/or
management fee arrangements, and the timing of capital share transactions. [If
applicable, for private investment companies:] The expense and net investment loss
ratios do not reflect the income and expenses incurred by the underlying private
investment companies.
[For periods less than one year:] The ratios, excluding nonrecurring expenses and the
performance fee, have been annualized. Total return has not been annualized.
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Offshore Fund, Ltd.
Notes to financial statements
December 31, 20XX
7. Subsequent events
[If applicable:] From January 1, 20XX through [Month, Date, Year], the Fund accepted
additional subscriptions of approximately $X,XXX,000 (of which approximately
$X,XXX,000 is included in advance subscriptions as of December 31, 20
XX) and had
additional redemptions of approximately $X,XXX,000.
[If applicable:] As of [Month, Date, Year]
, the Fund received shareholder redemption
requests that are anticipated to be effective on June 30, 20XX. The shareholder
interests for these requests
were approximately XX% of the net assets of the Fund as
of December 31, 20XX. The ultimate amounts redee
med for these requests may vary
based on the performance of the Fund and the amount of redemptions declared
effective by the Fund and its shareholders.
These financial statements were approved by management and available for issuance
on [Month, Date, Year]. Subsequent events have been evaluated through this date.
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Master
Fund, L.P.
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Master Fund, L.P.
See Domestic Fund,
L.P. for general
references
Statement of assets and liabilities
December 31, 20XX (U.S. dollars)
Assets
Securities, at fair value (cost $662,033,000)
$769,340,000
Digital assets, at fair value (cost 11,000,000)
12,596,000
Private investment companies, at fair value (cost $184,491,000)
(1)
190,546,000
Derivative contracts, at fair value (cost $69,051,000)
163,588,000
Securities purchased under agreements to resell, at fair value
(cost $12,450,000)
12,450,000
Cash and cash equivalents
8,952,000
Cash denominated in foreign currencies (cost $592,000)
543,000
Due from brokers
1,987,000
Due from cryptocurrency exchanges
1,000,000
Receivable for pending investment transactions
260,000
Collateral posted with counterparties for derivative contracts
14,837,000
Dividends and interest receivable
1,167,000
Other assets
218,000
Total assets
1,177,484,000
Liabilities
Securities sold short, at fair value (proceeds $583,633,000)
550,431,000
Derivative contracts, at fair value (proceeds $19,052,000 and up-
front premiums received $4,828,000)
155,435,000
Due to brokers
18,632,000
Payable for pending investment transactions
559,000
Securities sold under agreements to repurchase
10,000,000
Payable upon return of securities loaned
530,000
Due to related parties
150,000
Capital withdrawals payable
5,879,000
Advance capital contributions
1,000,000
Management fee payable
930,000
Dividends and interest payable
598,000
Accrued expenses and other liabilities
95,000
Total liabilities
744,239,000
Partners’ capital
$433,245,000
(1)
See Appendix B for sample presentation of condensed schedule of investments for private investment companies.
[See Domestic Fund, L.P. for illustrative examples of the condensed schedule of
investments and statement of cash flows.]
See accompanying notes to financial statements.
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Master Fund, L.P.
See Domestic Fund,
L.P. for general
references
Statement of operations
Year ended December 31, 20XX (U.S. dollars)
Investment income
Interest $9,039,000
Dividends (net of foreign withholding taxes of $218,000) 7,039,000
Income from securities loaned, net 12,000
Income from staking rewards
25,000
Other income
419,000
Total investment income
16,534,000
Expenses
Management fee 7,540,000
Dividends on securities sold short 10,448,000
Interest on securities sold short 1,161,000
Interest expense
(1)
59,000
Administrative fee
248,000
Professional fees and other 356,000
Total expenses
19,812,000
Net investment loss
(3,278,000)
Realized and unrealized gain (loss) from investments and foreign currency
Net realized gain from investments (including realized gain of
$16,000 from distribution of securities to shareholders)
37,269,000
Net realized gain from foreign currency transactions
(2)
165,000
Net unrealized gain from investments 61,239,000
Net unrealized loss from translation of assets and liabilities in
foreign currencies
(3)
(52,000)
Net gain from investments and foreign currency
98,621,000
Net income
(4)
95,343,000
(1)
See corresponding footnotes in the Domestic Fund.
(2)
See corresponding footnotes in the Domestic Fund.
(3)
See corresponding footnotes in the Domestic Fund.
(4)
See corresponding footnotes in the Domestic Fund.
See accompanying notes to financial statements.
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Master Fund, L.P.
See Domestic Fund,
L.P. for general
references
Statement of changes in partners’ capital
Year ended December 31, 20XX (U.S. dollars)
General
partner
Domestic
feeder
Offshore
feeder
Total
Partners’ capital,
beginning of year
$5,879,000
$108,135,000
$219,614,000
$333,628,000
Capital contributions —
22,500,000
23,325,000
45,825,000
Capital withdrawals (5,879,000)
(22,628,000)
(13,044,000)
(41,551,000)
Allocation of net
income:
(1)
Pro rata allocation
—
39,672,000
55,671,000
95,343,000
Incentive allocation to
general partner
16,612,000
(6,026,000)
(10,586,000)
—
16,612,000
33,646,000
45,085,000
95,343,000
Partners' capital,
end of year
$16,612,000
$141,653,000
$274,980,000
$433,245,000
1 ASC 946-205-45-5 permits nonregistered investment partnerships to combine the statement of changes in net assets with the
statement of changes in partners’ capital if the information in ASC 946-205-45-3 is presented. AAG-INV Chapter 7 states that this
alternative presentation may be used when the information in ASC 946-205-45-3 is presented in the financial statements and it is
considered more meaningful to users of the financial statements.
See accompanying notes to financial statements.
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72
Master Fund, L.P.
See Domestic Fund,
L.P. for general
references
Notes to financial statements
Year ended December 31, 20XX
1. Organization.
[Note: For master funds organized as offshore corporations, see Offshore Fund, Ltd.
for additional
presentation and disclosure considerations when preparing the
financial statements of the Master Fund.]
[This note should be tailored to the Master Fund’s specific nature of operations:]
Master Fund, L.P. (the Master Fund) is an investment partnership for
med under the laws of
the Cayman Islands and commenced operations on [Month, Date, Year]
. The Master Fund
was organized to [Include a description of the Master Fund’s investment objectives].
The Master Fund has two limited partners: Domestic Feeder, L.P. (
the Domestic Feeder
Fund), a U.S. investment limited partnership, and Offshore Feeder, Ltd. (the Offshore Feeder
Fund), a Cayman Islands exempt investment company (collectively, the Feeder Funds). The
Feeder Funds invest substantially all of their assets i
n the Master Fund. The Master Fund is
managed by General Partner, LLC (the General Partner) and
Investment Manager, LLC (the
Investment Manager). As of December 31, 20XX, the Domestic Feeder Fund and Offshore
Feeder Fund own XX.XX% and XX.XX%, respectively, of the Master Fund.
[If applicable:]
The Investment Manager is registered with the U.S. Securities and Exchange Commission
as an investment adviser under the Investment Advisers Act of 1940.
2. Summary of significant accounting policies
The significant accounting policies followed by the Master Fund are:
Basis of presentation
The financial statements are expressed in U.S. dollars and have been prepared in
accordance with
U.S. generally accepted accounting principles (GAAP). The Master Fund is
an investment company and follows the accounting and reporting guidance in the Financial
Accounting Standards Board’s Accounting Standards Codification (ASC) Topic 946,
Financial Services—Investment Companies.
[See Domestic Fund, L.P. for examples of the following significant accounting
policies. References to Fund should be changed to Master Fund where applicable:]
Principles of consolidation
Use of estimates
Investment transactions and related investment income
Cash and cash equivalents
Foreign currency translation
Derivative contracts
Fair value – Hierarchy of fair value
Fair value – Valuation techniques and inputs
Fair value – Valuation of net risk exposures
Fair value of financial instruments
Offsetting of assets and liabilities
Securities sold under agreements to repurchase
Securities lending transactions
Staked tokens
Income taxes
Capital withdrawals payable
Recently adopted accounting pronouncements
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73
Master Fund, L.P.
See Domestic Fund,
L.P. for general
references
Notes to financial statements
Year ended December 31, 20XX
2. Summary of significant accounting policies (continued)
[See Domestic Fund, L.P. for the following disclosure examples. References to Fund
should be changed to Master Fund where applicable:]
Fair value measurements
Due from/to brokers [if applicable] cryptocurrency exchanges
Derivative contracts
Securities sold short
Collateralized financing arrangements
Offsetting assets and liabilities
Commitments and contingencies
Administrative services
3. Partners’ capital
[See Domestic Fund, L.P. or Offshore Fund, Ltd. for example disclosures of the
pertinent rights and privileges of the Master Fund’s capital structure:]
Profits and losses of the Master Fund are
allocated to the General Partner and Feeder Funds
according to their respective interests in the Master Fund.
[If applicable:]
Advance capital contributions represent amounts received from the Feeder
Funds for contributions with an effective date after December 31, 20XX.
[Note: For master funds organized as offshore corporations, see Offshore Fund, Ltd.
for example disclosures of required capital share transactions.]
4. Related-party transactions
The Master Fund considers the General Partner and Investment Manager, their
principal
owners, members of
management, members of their immediate families, and entities under
common control to be related parties to the Master Fund. Amounts due from and due to
related parties are generally settled in the normal course of
business without formal payment
terms.
[If applicable:]
The Master Fund pays the Investment Manager a management fee,
calculated and payable [quarterly] [monthly]
in advance, at annual rates ranging from
X.XX% to X.XX% based on the net asset values at the
respective Feeder Fund level,
determined as of the beginning of each calendar [month] [quarter].
See the financial
statements of the Feeder Funds for additional information.
[If applicable:] The General Partner is entitled to receive an annual incentive al
location
ranging from XX% to XX% of the net profits, if any, at the respective Feeder Fund level,
subject to a loss carryforward provision. See the financial statements of the Feeder Funds
for additional information.
[See Domestic Fund, L.P. or Offshore Fund, Ltd. for other examples of related-
party
transaction disclosures.]
[See Domestic Fund, L.P. for examples of risk factor disclosures.]
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74
Master Fund, L.P.
See Domestic Fund,
L.P. for general
references
Notes to financial statements
Year ended December 31, 20XX
5. Financial highlights
[Note: For master funds organized as
offshore corporations, see Offshore Fund, Ltd.
for an example presentation of financial highlights of a unitized entity.]
[Note: The below presentation was prepared based on the assumption that the
incentive allocation is charged at the master fund level:]
Financial highlights for the year ended December 31, 20XX, are:
Domestic
feeder
Offshore
feeder
Total return:
Total return before incentive allocation to General
Partner
27.2%
26.8%
Incentive allocation to General Partner
(4.1)
(5.1)
Total return after incentive allocation to General
Partner
23.1%
21.7%
Ratios to average limited partners’ capital:
Expenses (including interest and dividends)
5.1%
5.4%
Incentive allocation to General Partner
4.3
4.9
Expenses and incentive allocation to General Partner
9.4%
10.3%
Net investment loss
(0.6)%
(0.9)%
Financial highlights are calculated for the limited partner class taken as a whole. An individual
limited partner’s return and ratios may vary based on
participation in new issues, private
investments, different incentive allocation and/or management fee arrangements, and the
timing of capital transactions. The net investment loss ratios do not reflect the effects of the
incentive allocation to the General Partner.
[If applicable, for private investment companies:]
The expense and net investment loss
ratios do not reflect
the income and expenses incurred by the underlying private investment
companies.
[For periods less than one year:] The ratios, excludi
ng nonrecurring expenses and the
incentive allocation to the General Partner, have been annualized. Total return has not been
annualized.
6.
Subsequent events
[Note: For master funds organized as offshore corporations, references to “limited
partners” and “partners’ capital” should be changed to “shareholders” and “net
assets,” respectively, where applicable.]
[If applicable:] From January 1, 20XX through [Month, Date, Year],
the Master Fund
accepted additional capital contributions of appro
ximately $XX,000,000 (of which
approximately $X,XXX,000 is included in advance capital contributions as of December 31,
20XX) and had additional capital withdrawals of approximately $XX,XXX,000.
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75
Domestic
Feeder, L.P.
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76
Domestic Feeder, L.P.
See Domestic Fund,
L.P. for general
references
Statement of assets and liabilities
December 31, 20XX (U.S. dollars)
Assets
ASC 946-210-45-6
Investment in Master Fund, L.P. $141,653,000
Cash and cash equivalents
7,042,000
Withdrawals receivable from Master Fund, L.P. 2,628,000
Other assets 38,000
Total assets
151,361,000
Liabilities
Advance capital contributions 1,150,000
Due to related parties 56,000
Capital withdrawals payable 2,628,000
Accrued expenses and other liabilities 45,000
Total liabilities
3,879,000
Partners’ capital
$147,482,000
See accompanying notes to financial statements.
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77
Domestic Feeder, L.P.
See Domestic Fund,
L.P. for general
references
Statement of operations
Year ended December 31, 20XX
Investment income and expenses allocated from Master Fund,
L.P.
Interest income
$3,238,000
Dividend income (net of foreign withholding taxes of $68,000)
2,592,000
Income from securities loaned, net
4,000
Income from staking rewards
12,500
Other income
147,500
Management fee
(2,714,000)
Dividends on securities sold short
(3,803,000)
Interest on securities sold short
(402,000)
Interest
expense
(1)
(21,000)
Administrative fee
(96,000)
Professional fees and other
(138,000)
ASC 946-205-50-17
Incentive allocation to the General Partner of Master Fund, L.P.
(6,026,000)
ASC 946-220-45-11
Total net investment loss allocated from
Master Fund, L.P.
(7,206,000)
Fund expenses
Administrative fee
125,000
Professional fees and other
261,000
ASC 946-220-45-12
Total expenses
386,000
Reimbursed/waived expenses
(10,000)
Net fund expense
376,000
Net investment loss
(
7,582,000)
ASC 946-220-45-12
Realized and unrealized gain (loss) from investments and foreign
currency allocated from Master Fund, L.P.
Net realized gain from investments
13,566,000
Net realized gain from foreign currency transactions
(2)
58,000
Net unrealized gain from investments
27,251,000
Net unrealized loss from translation of assets and liabilities in
foreign currencies
(3)
(23
,000)
Net gain from investments and foreign currency allocated from
Master Fund, L.P.
40,852,000
Net income
(4)
$33,270,000
(1)
See corresponding footnotes in the Domestic Fund.
(2)
See corresponding footnotes in the Domestic Fund.
(3)
See corresponding footnotes in the Domestic Fund.
(4)
See corresponding footnotes in the Domestic Fund.
See accompanying notes to financial statements.
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78
Domestic Feeder, L.P.
See Domestic Fund,
L.P. for general
references
Statement of changes in partners’ capital
Year ended December 31, 20XX
General
partner
Class A
limited
partners
Class B
limited
partners
Total
Partners’ capital, beginning
of year
$—
$80,038,000
$34,302,000
$114,340,000
Capital contributions
— 15,000,000 7,500,000 22,500,000
Capital withdrawals
— (16,971,000) (5,657,000) (22,628,000)
Allocation of net income:
(1)
— 21,958,000 11,312,000 33,270,000
Partners' capital
, end of year
$—
$100,025,000
$47,457,000
$147,482,000
1 ASC 946-205-45-5 permits nonregistered investment partnerships to combine the statement of changes in net assets with the statement of
changes in partners’ capital if the information in ASC 946-205-45-3 is presented. AAG-INV Chapter 7 states that this alternative presentation
may be used when the information in ASC 946-205-45-3 is presented in the financial statements and it is considered more meaningful to users
of the financial statements.
See accompanying notes to financial statements.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
79
Domestic Feeder, L.P.
See Domestic Fund, L.P.
for general references
Statement of cash flows
Year ended December 31, 20XX
Cash flows from operating activities
Net income $33,270,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Net income allocated from Master Fund, L.P. (33,646,000)
Contributions to Master Fund, L.P. (22,500,000)
Withdrawals from Master Fund, L.P. 22,628,000
Changes in operating assets and liabilities:
Withdrawals receivable from Master Fund, L.P. 3,572,000
Other assets 16,000
Due to related parties 96,000
Accrued expenses and other liabilities 13,000
Net cash provided by operating activities 3,449,000
Cash flows from financing activities
Proceeds from capital contributions, net of change in advance
capital contributions
23,650,000
Payments for capital withdrawals, net of change in capital
withdrawals payable
(24,990,000)
Net cash used in financing activities
(1,340,000)
Net increase in cash and cash equivalents
2,109,000
Cash and cash equivalents, beginning of year
4,933,000
Cash and cash equivalents, end of year
$7,042,000
See accompanying notes to financial statements.
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80
Domestic Feeder, L.P.
Notes to financial statements
Year ended December 31, 20XX
1. Organization.
[This note should be tailored to the Fund’s specific nature of operations:] Domestic
Feeder, L.P. (the Fund), a Delaware investment limited partnership, commenced operations
on [Month, Date, Year]. The Fund was organized to [Include a description of the Fund’s
investment objectives]
. The Fund is managed by General Partner, LLC (the General
Partner) and Investment Manager, LLC (the Investment Manager). [If applicable:] The
Investment Manager is registered with the U.S. Securities and Exchange Commission as an
investment adviser under the Investment Advisers Act of 1940.
ASC 946-235-50-
3(a) through (c)
ASC 946-205-45-
6
The Fund invests substantially all of its assets through a master–feeder structure in Master
Fund, L.P. (the Master Fund), an investment company that has the same investment
objectives as the Fund. The financial statements of the Master Fund, including the condensed
schedule of investments, w
hich are attached, are an integral part of these financial
statements and should be read in conjunction with the Fund’s financial statements. The Fund
owns approximately XX.X% of the Master Fund as of December 31, 20XX.
2. Significant accounting policies
The significant accounting policies followed by the Fund are:
Basis of presentation
The financial statements have been prepared in accordance with U.S. generally accepted
accounting principles (GAAP). The Fund is an investment company and follows the
accountin
g and reporting guidance in the Financial Accounting Standards Board’s
Accounting Standards Codification (ASC) Topic 946, Financial Services—Investment
Companies.
ASC 946-235-50-
3(d)
Valuation of investment in Master Fund, L.P.
The Fund records its investment in the Master Fund
based on its proportionate share of the
net assets of the Master Fund. Valuation of investments held by the Master Fund, including
but not limited to, the valuation techniques used and categorization within the fair value
hierarchy of investments are discussed in the notes to the Master Fund’s financial statements.
Investment income and expenses
The Fund records its
proportionate share of the Master Fund’s income, expenses, and
realized and unrealized gains and losses. [If applicable:]
In addition, the Fund incurs and
accrues its own expenses.
[See Domestic Fund, L.P. for examples of the following significant accounting
policies:]
Principles of consolidation
Use of estimates
Cash and cash equivalents
Income taxes
Capital withdrawals payable
Recently adopted accounting pronouncements
[See Domestic Fund, L.P. for the following disclosure examples:]
Commitments and contingencies
Partners’ capital
Administrative services
Risk Factors
See Domestic Fund, L.P.
for general references
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81
Domestic Feeder, L.P.
Notes to financial statements
Year ended December 31, 20XX
Subsequent events
3. Related-party transactions
The Fund considers the Investment Manager, its principal owners, members of management,
and members of their immediate families, as well as entities under common control, to be
related parties to
the Fund. Amounts due from and due to related parties are generally settled
in the normal course of business without formal payment terms.
[Include the following if fees are charged at the master fund level. See Domestic Fund,
L.P. for example language when fees are charged at the feeder fund level.]
The Master Fund pays the Investment Manager a management fee, calculated and payable
[quarterly] [monthly]
in advance, to be paid at an annual rate of X.XX% of the Fund’s capital
account balances of Class A lim
ited partners and X.XX% of the Fund’s capital account
balances of Class B limited partners, determined as of the beginning of each calendar
[quarter] [month]
. To the extent that management fees are charged at the Master Fund level,
no management fees will be charged at the Fund level.
The General Partner of the Master Fund is entitled to receive an incentive allocation, payable
on an annual basis, which will generally be equal to XX% for Class A limited partners and
XX% for Class B limited partners of the F
und’s net profits, if any, allocated to each limited
partner’s capital account
for the current period, subject to a loss carryforward provision. To
the extent the incentive allocation
is charged at the Master Fund level, no incentive allocation
will be charged at the Fund level.
[See Domestic Fund, L.P. for other examples of related-party transaction
disclosures.]
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ASC 946-205-50-17
Financial highlights are calculated for each limited partner class taken as a whole. An individual
limited partner’s return and ratios may vary based on participation in new issues, private
investments, different incentive allocation and/or management fee arrangements, and the
timing of capital transactions. The expense and net investment los
s ratios include the
proportionate share of the income and expenses of the Master Fund.
[For periods less than one year:]
The ratios, excluding nonrecurring expenses and the
incentive allocation to the General Partner, have been annualized. Total return has not been
annualized.
Domestic Feeder, L.P.
Notes to financial statements
Year ended December 31, 20XX
4. Financial highlights
[Note: The below presentation was prepared based on the assumption that the incentive allocation is
charged at the master fund level. See Domestic Fund, L.P. for presentation considerations when the
incentive allocation is charged at the feeder fund level:]
Financial highlights for the year ended December 31, 20XX, are:
See Domestic Fund, L.P. for
general references
Class A
limited partners
Class B
limited partners
Total return:
Total return before incentive allocation to General Partner
of the Master Fund
27.1%
26.9%
Incentive allocation to General Partner of the Master Fund (4.5) (4.0)
Total return after incentive allocation to General Partner of
the Master Fund
22.6%
22.9%
Ratios to average limited partners' capital:
Expenses other than incentive allocation to General Partner
of the Master Fund
5.4%
5.0%
Reimbursed/waived expense (0.1) (0.1)
ASC 946-205-50-17
Incentive allocation to General Partner of the Master Fund 4.6 4.1
Total expenses
9.9%
9.0%
Net investment loss
(5.2)%
(4.6)%
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
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Offshore
Feeder, Ltd.
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
84
Offshore Feeder, Ltd.
See Domestic Fund, L.P. and
Offshore Fund, Ltd. for general
references
Statement of assets and liabilities
December 31, 20XX (U.S. Dollars)
Assets
ASC 946-210-45-6
Investment in Master Fund, L.P. $274,980,000
Cash and cash equivalents 10,427,000
Withdrawals receivable from Master Fund, L.P. 3,251,000
Other assets 42,000
Total assets
288,700,000
Liabilities
Advance subscriptions 11,151,000
Redemptions payable 3,251,000
Due to related parties
81,000
Accrued expenses and other liabilities 74,000
Total liabilities
14,557,000
Net assets
$274,143,000
See accompanying notes to financial statements.
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85
Offshore Feeder, Ltd.
See Domestic Fund, L.P.
and Offshore Fund, Ltd.
for general references
Statement of operations
Year ended December 31, 20XX (U.S. Dollars)
Investment income and expenses allocated from Master Fund, L.P.
Interest income
$5,801,000
Dividend income (net of foreign withholding taxes of $150,000)
4,447,000
Income from securities loaned, net
8,000
Income from staking rewards
12,500
Other income
271,500
Management fee
(4,826,000)
Dividends on securities sold short
(7,395,000)
Interest on securities sold short
(759,000)
Interest expense
(1)
(38,000)
Administrative fee
(152,000)
Professional fees and other
(218,000)
ASC 946-205-50-17
Incentive allocation to the General Partner of Master Fund, L.P.
(10,586,000)
ASC 946-220-45-11
Total net investment loss allocated from Master Fund, L.P.
(13,434,000)
Fund expenses
Administrative fee
123,000
Professional fees and other
168,000
ASC 946-220-45-12
Total expenses
291,000
Reimbursed/waived expenses
(20,000)
Net fund expense
271,000
Net investment loss
(13,705,000)
ASC 946-220-45-12
Realized and unrealized gain (loss) from investments and foreign
currency allocated from Master Fund, L.P.
Net realized gain from investments
23,703,000
Net realized gain from foreign currency transactions
(2)
107,000
Net unrealized gain from investments
33,988,000
Net unrealized loss from translation of assets and liabilities in foreign
currencies
(3)
(29,000)
Net gain from investments and foreign currency allocated from
Master Fund, L.P.
57,769,000
Net increase in net assets resulting from operations
(4)
$44,064,000
(1)
See corresponding footnotes in the Domestic Fund.
(2)
See corresponding footnotes in the Domestic Fund.
(3)
See corresponding footnotes in the Domestic Fund.
(4)
See corresponding footnotes in the Domestic Fund.
See accompanying notes to financial statements.
Offshore Feeder, Ltd.
See Domestic Fund, L.P.
and Offshore Fund, Ltd. for
general references
Statement of changes in net assets
Year ended December 31, 20XX
(US Dollars)
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86
Operations
Net investment loss
$(13,705,000)
Net realized gain from investments
23,703,000
Net realized gain from foreign currency transactions
107,000
Net unrealized gain from investments
33,988,000
Net unrealized loss from translation of assets and liabilities in
foreign currencies
(29,000)
Net increase in net assets resulting from operations
44,064,000
Capital share transactions
Issuance of shares
31,244,000
Redemption of shares
(13,044,000)
Net increase in net assets resulting from capital share
transactions
18,200,000
Net increase in net assets
62,264,000
Net assets, beginning of year
211,879,000
Net assets, end of year
$274,143,000
See accompanying notes to financial statements.
Offshore Feeder, Ltd.
See Domestic Fund, L.P.
and Offshore Fund, Ltd. for
general references
Statement of cash flows
Year ended December 31, 20XX (US Dollars)
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
87
Cash flows from operating activities
Net increase in net assets resulting from operations
$44,064,000
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
Net income allocated from Master Fund, L.P.
(45,085,000)
Contributions to Master Fund, L.P.
(23,325,000)
Withdrawals from Master Fund, L.P.
13,044,000
Changes in operating assets and liabilities:
Withdrawals receivable from Master Fund, L.P.
549,000
Other assets
14,000
Due to related parties
7,000
Accrued expenses and other liabilities
18,000
Net cash provided by operating activities
(10,714,000)
Cash flows from financing activities
Proceeds from capital contributions, net of change in
advance capital contributions
29,237,000
Payments for capital withdrawals, net of change in capital
withdrawals payable
(13,593,000)
Net cash used in financing activities
15,644,000
Net increase in cash and cash equivalents
4,930,000
Cash and cash equivalents, beginning of year
5,497,000
Cash and cash equivalents, end of year
$10,427,000
See accompanying notes to financial statements.
Offshore Feeder, Ltd.
Notes to financial statements
December 31, 20XX
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International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
88
See Domestic Fund, L.P.
and Offshore Fund, Ltd.
for general references
1. Organization.
[This note should be tailored to the Fund’s specific nature of operations:] Offshore
Feeder, Ltd.
(the Fund) is an exempt investment company that formed under the laws of
the Cayman Islands on [Month, Date, Year]. The Fund was organized to [Include a
description of the Fund’s investment objectives].
Pursuant to an investment
management agreement, the F
und is managed by Investment Manager, LLC (the
Investment Manager). [If applicable:]
The Investment Manager is registered with the
U.S. Securities and Exchange Commission as an investment adviser under
the
Investment Advisers Act of 1940
.
ASC 946-235-50-3(a)
through (c)
ASC 946-205-45-6
The Fund invests substantially all of its assets through a master–feeder structure in
Master Fund, L.P. (Master Fund), an investment company that has the same investment
objectives as the Fund. The financi
al statements of the Master Fund, including the
condensed schedule of investments, which are attached, are an integral part of these
financial statements and should be read in conjunction with the Fund’s financial
statements. The Fund owns approximately XX
.X% of the Master Fund as of
December 31, 20XX.
2. Significant accounting policies
The significant accounting policies followed by the Fund are:
Basis of presentation
The financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (GAAP). The Fund is an investment company and
follows the accounting and reporting guidance in the Financial Accounting Standards
Board’s Accounting Standards Codification (ASC) Topic 946, Financial Services—
Investment Companies.
ASC 946-235-50-3(d)
Valuation of investment in Master Fund, L.P.
The Fund records its investment in the Master Fund based on its proportionate share of
the net assets of the Master Fund. Valuation of investments held by the Master Fund,
including,
but not limited to, the valuation techniques used and categorization within the
fair value hierarchy of investments, are discussed in the notes to the Master Fund’s
financial statements.
Investment income and expenses
The Fund records its
proportionate share of the Master Fund’s income, expenses, and
realized and unrealized gains and losses. [If applicable:]
In addition, the Fund incurs
and accrues its own expenses.
[See Domestic Fund, L.P. or Offshore Fund, Ltd. for examples of the followi
ng
significant accounting policies:]
Principles of consolidation
Use of estimates
Cash and cash equivalents
Income taxes
Redemptions payable
Offshore Feeder, Ltd.
Notes to financial statements
December 31, 20XX
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2. Significant accounting policies (continued)
[See Domestic Fund, L.P. or Offshore Fund, Ltd. for the
following disclosure
examples:]
Commitments and contingencies
Capital share transactions
Administrative services
Risk Factors
Subsequent events
3. Related-party transactions
The Fund considers the Investment Manager, its principal owners, members of
management, members of their immediate families, and entities under common control
to be related parties to the Fund. Amounts due from and due to related parties are
generally settled in the normal course of business without formal payment terms.
[Include
the following if fees are charged at the master fund level. See Offshore
Fund, Ltd. for example language when fees are charged at the feeder fund level.]
The Master Fund pays the Investment Manager a management fee calculated and
payable [quarterly] [monthly]
in advance, to be paid at an annual rate of X.XX% of the
Fund’s NAV of Class A shares and X.XX% of the Fund’s NAV of Class B shares,
determined as of the beginning of each calendar [quarter] [month]
. To the extent that
management fees are charged at
the Master Fund level, no management fees will be
charged at the Fund level.
The General Partner of the Master Fund is entitled to receive an incentive allocation,
payable on an annual basis, which will generally be equal to XX% for Class A
shareholders an
d XX% for Class B shareholders of the amount by which the Fund’s NAV
per share on the last day of each year for each series exceeds the higher of the original
issue price or highest NAV of those shares as of the close of any prior year. To the extent
the i
ncentive allocation is charged at the Master Fund level, no performance fee will be
charged at the Fund level.
[See Domestic Fund, L.P. and Offshore Fund, Ltd. for other examples of related-
party transaction disclosures.]
Offshore Feeder, Ltd.
Notes to financial statements
December 31, 20XX
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4. Financial highlights
[Note: The below presentation was prepared based on the assumption that the
incentive allocation is charged at the Master Fund level. See Offshore Fund, Ltd.
for presentation
considerations when a performance fee is charged at the Feeder
Fund level:]
Financial highlights for the year ended December 31, 20XX, are:
Class A shares
series 1
Class B shares
series 1
Per-share operating performance:
Net asset value, beginning of year
$1,040.45
$1,049.61
Income from investment operations:
Net investment loss
(64.42)
(74.15)
Net gain from investments and foreign currency
284.88
310.31
Total from investment operations
220.46
236.16
Net asset value, end of year
$1,260.91
$1,285.77
Total return:
Total return before incentive allocation to General
Partner of the Master Fund
26.5%
27.3%
Incentive allocation to General Partner of the
Master Fund
(5.3)
(4.8)
Total return after incentive allocation to
General Partner of the Master Fund
21.2%
22.5%
Ratios to average net assets:
Expenses other than incentive allocation to
General Partner of the Master Fund
5.8%
5.3%
Reimbursed/waived expenses
(0.1)
(0.1)
Incentive allocation to General Partner of the
Master Fund
5.1%
4.7
Total expenses
10.8%
9.9%
Net investment loss
(6.4)%
(5.6)%
ASC 946-205-50-17
Financial highlights are calculated for each permanent, nonmanaging class or series of
common shares. An individual shareholder’s financial highlights may vary based on
participation in new issues, private investments, different performance and/or
manageme
nt fee arrangements, and the timing of capital share transactions. The
expense and net investment loss ratios include the proportionate share of the income and
expenses of the Master Fund.
[For periods less than one year:] The ratios, excluding nonrecurri
ng expenses and the
incentive allocation to the General Partner of the Master Fund, have been annualized.
Total return has not been annualized.
Appendix A
See Domestic Fund, L.P. for
general references
Statement of cash flows – Net presentation
Year ended December 31, 20XX
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91
Appendices
Appendix A
See Domestic Fund, L.P. for
general references
Statement of cash flows – Net presentation
Year ended December 31, 20XX
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KPMG International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
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[The following net presentation of purchases and sales of the cash flows from operating
activities is permitted if the Fund’s trading style and investment objectives are principally to sell in
the near term. See AICPA Technical Questions and Answers Section 6910.26 and AAG-INV
paragraph 7.167 for additional guidance.]
Cash flows from operating activities
Net income $95,343,000
Adjustments to reconcile net income to net cash used in
operating activities:
Net realized gain from investments
(37,253,000)
Net realized gain from foreign currency transactions (165,000)
Net realized gain from distribution of securities to limited partners (16,000)
Net unrealized gain from investments (61,239,000)
Net unrealized loss from translation of assets and liabilities in foreign
currencies
52,000
Net sales of securities
43,302,000
Net payments of digital assets (11,000,000)
ASC 230-10-45-7 to 9,
Net payments for securities purchased under agreements to resell (12,450,000)
ATQA 6910.20
Net proceeds from derivative contracts 80,339,000
Net payments for securities sold short (141,452,000)
Amortization and accretion of premiums and discounts on debt securities (145,000)
Changes in operating assets and liabilities:
Dividends and interest receivable (532,000)
Other assets (42,000)
Payable on return of securities loaned 30,000
Due to related parties
(50,000)
Management fee payable 120,000
Dividends and interest payable 148,000
Accrued expenses and other liabilities 39,000
Net cash used in operating activities
(44,971,000)
See accompanying notes to financial statements.
Appendix B
See Domestic Fund, L.P.
for general references
Investments in private investment companies
Schedule of investments
December 31, 20XX
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KPMG International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
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ASC 820-10-50-6A(c)
Percentage of
[partners’ capital]
[net assets]
Fair value
Unfunded
commitments
Private investment companies, at fair value
United States domiciled
Value
ABC Fund, L.P.
(1)(4)
11.6%
$50,424,000
Growth
JKL Partners, L.P.
(2)(5)
12.4
53,909,000
Other
0.3
1,191,000
Merger arbitrage
DEF Partners, LLC
(3)(6)
5.4
23,339,000
Other
0.4
1,460,000
Digital Assets
(8)
5.1
22,000,000
Total United States domiciled
(cost $142,172,000)
35.2
152,323,000
Cayman Islands domiciled
Private equity – Technology sector
MNO Fund Ltd., Class A, 30,000
shares owned
(3)(7)
8.3
35,920,000
$5,000,000
Other
0.5
2,303,000
9,000,000
Total Cayman Islands domiciled (cost
$42,319,000)
8.8
38,223,000
14,000,000
Total private investment companies,
at fair value (cost $184,491,000)
44.0%
$190,546,000
$14,000,000
ASC 946-210-50-9
ASC 946-210-50-10
ASC 946-210-50-6(g)
(1)
See the following page for disclosure of the Fund’s proportionate interest in underlying investments that exceeded 5% of
the Fund’s [partners’ capital] [net assets] at December 31, 20XX.
(2)
[The following is an alternative presentation of the Fund’s proportionate interest in underlying investments that
exceed 5% of the Fund’s [partners’ capital] [net assets] at December 31, 20XX:] JKL
Partners, L.P. holds an
investment in XYZ Corporation common stock with a fair value of $XX,XXX,000. XYZ is a U.S. company in the banking
industry. The Fund’s proportionate share of this investment is valued at $XX,XXX,000 as of December 31, 20XX.
(3)
Information about the investee fund’s portfolio is not available.
(4)
The investment objective is to invest in companies whose stock the manager feels is undervalued because the company
is experiencing legal or management difficulties or is in an industry tha
t is out of favor with the broader investment
community or that has not yet been discovered or fully understood.
(5)
The investment objective is to obtain capital appreciation over the medium to long term by investing in both well-
established
companies with above average growth potential and/or in fast-growing industries, such as technology and healthcare
(6)
The investment objective is to achieve positive absolute returns, regardless of market conditions, over the long term
by investing primarily in
securities of companies that are involved in publicly announced mergers and other corporate
reorganizations.
(7)
The investment objective is to obtain returns by investing primarily in distressed companies
undergoing
restructurings, reorganizations, or other unusual circumstances.
(8)
The investment objective is capital appreciation, which it generally seeks to achie
ve by investing in blockchain based
assets including cryptoassets, cryptocurrencies, decentralized application tokens, protocol tokens, smart contracts,
security tokens, and other cryptofinance and digital assets (collectively “Digital Assets”)
See accompanying notes to financial statements.
Appendix B
Investments in private investment companies
Schedule of investments (continued)
December 31, 20XX
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KPMG International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
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ASC 946-210-50-9
The following discloses the Fund’s proportionate interest in underlying investments of ABC Fund, L.P.
that exceeded 5% of the Fund’s December 31, 20XX
[partners’ capital] [net assets]
.
ABC Fund, L.P.
fair value
Fund’s
proportionate
share
Securities, at fair value
Common stocks
United States
Healthcare
Health Group, Inc. 3,490,910 shares
$195,491,000
$20,106,000
XYZ Corporation, 4,484,523 shares
178,484,000
27,487,000
Total common stocks
373,975,000
47,593,000
Government debt
United States
U.S. Treasury bills, X.X%, 10/15/20XX,
principal $146,000,000
145,491,000
22,406,000
Securities sold short, at fair value
Common stocks
United States
Healthcare
Health Group
180,999,000
27,874,000
XYZ Corporation
148,491,000
22,867,000
Total common stocks
329,490,000
50,741,000
See accompanying notes to financial statements.
Appendix B
Investments in private investment companies (continued)
December 31, 20XX
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KPMG International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
95
ASC 946-235-50-5(a)
ASC 820-10-5-2(bbb),
ASC 946-235-50-5(b)
ASC 850-10-50-1
1. Organization
[This note may be used to describe the structure of a fund of funds:]
Fund of Funds, L.P.
(the Fund), a Delaware investment limited partnership, commenced operations on
[Month,
Date,
Year]
. The Fund was organized with the objective of
obtaining
capital appreciation
primarily through investments in other private investment companies allocated among
diverse investment strategies. The Fund is managed by General Partner, LLC (the General
Partner) and Investment Manager, LLC (the Investment Manager).
[If applicable:]
The
Investment Manager is registered with the U.S. Securities and Exchange Commission as
an investment adviser under the Investment Advisers Act of 1940.
[Include the following paragraph to the Private Investment Companies section of
“Valuation techniques and inputs” in note 2 if the Fund has investments that were
not valued using the practical expedient:]
The Fund values investments in private investment companies that do not qualify for the
practical expedient based on the Fund’s estimates of secondary market transactions for
those investments. Those estimates are typically based on adjustments to the NAV
per
share (or its equivalent) using inputs such as transactions in principal-to-
principal or
brokered markets; benchmarks, indexes, expected returns, and historical returns of
comparable funds; features of the investment; expected discounted future cash fl
ows; and
overall market conditions. Investments in private investment companies that are not valued
using the practical expedient are typically classified in Level 3 of the fair value hierarchy.
[Include the following paragraph to related-party disclosures
if the Fund is invested
in another investment company that is affiliated through common management
and/or control.]
The Fund had an investment in Related Fund, L.P. an affiliated investment company,
of
approximately $X,XXX,000, as of December 31, 20XX.
[I
nclude a description of any
liquidity
provisions of the related-party fund, such as the following example:] The Fund may
redeem
its investment in Related Fund, L.P. on a quarterly basis following a 30-
day notice
period. The management agreement of the affiliated investment company provides for
compensation to the manager in the form of fees of X.X% annually of net assets and
incentive allocation or fees of XX%
of net profits earned (subject to a loss carryforward).
For the year ended December 31, 20XX, the Fund was charged management and
incentive fees of $XXX,000 and $XXX,000, respectively.
Appendix B
Investments in private investment companies (continued)
December 31, 20XX
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KPMG International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
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ASC 946-210-50-8
and 9
The following table summarizes the Fund’s investments in other private investment companies as
of December 31, 20XX. Other private investment companies in which the Fund invested 5% or
more of its net assets, as disclosed in the condensed schedule of investments, are individually
identified, while smaller investments are aggregated. The Fund’s investments in private
investment companies have certain redemption and liquidity restrictions that are described in the
following table:
ASC 820-10-50-6A(d),
ASC 946-210-50-6(g)(2)
ASC 820-10-50-6A(e)
CFTC Regulation 4.22
Investment strategy
Income
(loss)
(a)
Fees/allocations
(a)
Redemption
notice period
(b)
Redemptions
permitted
(b)
Liquidity
restrictions
(b)
Management Incentive
Value
ABC Fund, L.P.
$3,331,000
$1,376,000
$519,000
45 days
Quarterly
None
(1)
Growth
JKL Partners, L.P.
(3,193,000)
969,000
—
30 days
Semiannually
Lockup until April
XX, 20XX
(2)
Other
87,000
24,000
15,000
30 days
Quarterly
None
Merger arbitrage
DEF Partners, LLC
(3,922,000)
466,000
—
30 days
Semiannually
Lockup until
September XX,
20XX
(3)
Other
234,000
31,000
58,000
30 days
Semiannually
None
Private equity
MNO Fund Ltd.
(2,931,000)
760,000
—
N/A
N/A
See below
(4)
Other
(2,191,000)
64,000
—
N/A
N/A
See below
(5)
Total
$(8,585,000)
$3,690,000
$592,000
ASC 820-10-50-6A(e)
ASC 820-10-50-6A(b)
1
Approximately 20% of this private investment company has been placed in a side pocket. It is anticipated that distributions will be made
in two to three years.
2
The private investment company has instituted a gate provision because requests for redemptions for the fourth quarter in 20XX in the
aggregate exceeded 20% of the net assets of the underlying fund. The Fund anticipates distributions in [Month, Year]. [Note: The
disclosure of the period of time over which the underlying assets are expected to be liquidated by investees is required only if
the investee has communicated the timing to the Fund or announced the timing publicly. If the timing is unknown, the Fund shall
disclose that fact and how long the restriction has been in effect.]
3
The private investment company can institute a gate provision if requests for redemptions would cause a decline in assets under
management of 10% or greater. Investors would have to resubmit redemption requests each quarter until the intended payout is achieved.
4
It is estimated that the underlying assets of the funds would be liquidated over five to eight years. [Note: The disclosure of the period of
time over which the underlying assets are expected to be liquidated by investees is required only if the investee has
communicated the timing to the Fund or announced the timing publicly. If the timing is unknown, the Fund shall disclose that
fact.]
5
It is estimated that the underlying assets of the funds would be liquidated over three to five years.
a.
This disclosure is required for commodity pools.
b.
This disclosure is required for all funds either in the footnotes or the schedule of investments.
Appendix B
Investments in private investment companies (continued)
December 31, 20XX
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KPMG International Limited, a private English company limited by guarantee. All rights reserved. NDP416049-1A
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ASC 820-10-50-6A
ASC 820-10-50-
6A(h)
[The following represents example disclosures to summarize the overall risks and
concentration exposures in the aggregate of the investee(s) by geographic regions,
industries, and types of securities. This will need to be customized for each fund of funds
specifically:]
The North America value group disclosed in the preceding table invests solely in the healthcare
industry.
The North America merger arbitrage group disclosed in the preceding table consists of hedge
funds that invest approximately 60% in equities concentrated in technology and 40% in bonds
concentrated in economic, political, and government-driven events.
The private equity categories disclosed in the preceding table invest pri
marily in foreign
technology companies. These investments cannot be voluntarily redeemed. Instead, these
investments make distributions as the underlying assets of the funds are liquidated.
The Fund is subject to credit risk to the extent that the investment managers of the underlying
private investment companies are unable to fulfill their obligations according to their
organizational documents. The Fund, through its private investment companies, is subject to
risk inherent when investing in securities an
d private investments. In connection with its
investments, the Fund is subject to the market and credit risk of those investments held or sold
short by the private investment companies. Due to the nature of the Fund’s investments, the risks
described above are limited to the Fund’s investment balances and unfunded commitments to
private investment companies.
[If applicable:] At December 31, 20XX, certain private investment companies were managed by
the same underlying investment manager, representing approximately XX% of the Fund’s
[partners’ capital] [net assets].
[If applicable, additional disclosure is required if a reporting entity determines it is probable
that it will sell a group of investments, but if the individual investments have not been
identified (e.g., if a reporting entity decides to sell 20% of its private equity funds but the
individual investments to be sold have not been identified), the reporting entity is required
to disclose its plans to sell and remaining actions required to complete the sale(s).]
Appendix C
See Domestic Fund, L.P.
for general references
Offsetting assets and liabilities – Alternative disclosures
The following tables present the effects or potential effects of netting arrangements for derivative
contracts and securities purchased under
agreements to resell presented in the statement of
assets and liabilities as of December 31, 20XX
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[The example alternative offsetting tables below may be presented by Funds with
multiple counterparties:]
ASC 210-20-50-3
(In thousands)
Gross amounts
of recognized
assets
Gross
amounts
offset in the
statement
of assets
Net amounts of
assets presented
in the statement of
assets and
liabilities
(1)
Total return swaps
$90,550
$—
$90,550
Swaptions
282
—
282
Securities purchased under
agreements to resell 12,450 — 12,450
Total
$103,282
$—
$103,282
Gross amounts not offset in the statement of assets and liabilities
ASC 210
-20-55-16
(In thousands)
Counterparty
Net amounts
of assets
presented in
the statement
of assets and
liabilities
(1)
Financial
instruments
(policy
election)
(2)
Financial
instruments
(accounting
criteria not
met)
(3)
Financial
collateral
received
(4)
Net
amount
Counterparty A
$33,826
$—
$(33,826)
$
—
$—
Counterparty B
57,006
(47,772)
—
—
9,234
Other
12,450
—
—
(12,450)
—
Total
$103,282
$(47,772)
$(33,826)
$(12,450)
$9,234
ASC 210-20-55-10
(1)
The amounts of derivative contracts presented in the preceding table differ from the amounts reported in the statement of ass
ets and
liabilities as the result of option contracts and warrants in the
amount of $72,756,000, which are not subject to enforceable master netting
arrangements.
(2)
Amounts related to master netting agreements (e.g., ISDA) determined by the Fund to be legally enforceable in the event of de
fault and
where certain other criteria are met in accordance with applicable offsetting accounting guidance, but were not offset du
e to management’s
accounting policy election.
(3)
Amounts related to master netting agreements determined by the Fund to be legally enforceable in the event of default but whe
re certain
other criteria are not met in accordance with applicable offsetting accounting guidance.
(4)
Amounts related to master netting agreements and collateral agreements determined by the Fund to be legally enforceable in th
e event of
default but where certain other criteria are not met in accordance with applicable offsetting acc
ounting guidance. The collateral amounts
may exceed the related net amounts of financial assets and liabilities presented in the statement of assets and liabilities.
Where this is the
case, the total amount reported is limited to the net amounts of financial assets and liabilities with that counterparty.
[Alternatively, the following language may be used if the Fund’s derivatives are not subject to an enforceable
master netting arrangement or similar agreement and, therefore, are excluded from the tabular disclosures:]
As of December 31, 20XX, the Fund’s derivative contracts are not subject to a master netting
arrangement.
Appendix C
Offsetting assets and liabilities – Alternative disclosures (continued)
The following tables present the effects or potential effects of netting arrangements for derivative
contracts and securities sold under agreements to repurchase presented in the statement of assets
and liabilities as of December 31, 20XX
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ASC 210-20-50-3
(In thousands)
Description
Gross amounts
of recognized
liabilities
Gross amounts
offset in the
statement of
assets and
liabilities
Net amounts of
liabilities
presented in the
statement of
assets and
liabilities(1)
Credit default swaps $25,677
$—
$25,677
Total return swaps 69,651
69,651
Contracts for differences 22,384
—
22,384
Forward contracts 22,072
—
22,072
Securities sold under agreements to
repurchase
10,000
—
10,000
Total
$149,784
$—
$149,784
Gross amounts not offset in the statement of assets and liabilities
ASC 210-20-55-16
(In thousands)
Counterparty
Net amounts of
liabilities
presented in
the statement
of assets and
liabilities
(1)
Financial
instruments
(policy
election)
(2)
Financial
instruments
(accounting
criteria
not met)
(3)
Financial
collateral
received
(4)
Net amount
Counterparty A
$92,012
$—
$(33,826)
$(10,000)
$48,186
Counterparty B
47,772
(47,772)
—
—
—
Other
10,000
—
—
(10,000)
—
Total
$149,784
$(47,772)
$(33,826)
$(20,000)
$48,186
ASC 210-20-55-10
(1)
The amounts of derivative contracts presented in the preceding table differ from the amounts reported in the statement of assets and
liabilities as the result of option contracts in the amount of $15,651,000, which are not subject to enforceable master netting arrangements.
(2)
Amounts related to master netting agreements (e.g., ISDA) determined by the Fund to be legally enforceable in the event of de
fault and
where certain other criteria are met in accordance with applicable offsetting accounting guidance but were not offset due
to management’s
accounting policy election.
(3)
Amounts related to master netting agreements determined by the Fund to be legally enforceable in the event of default but whe
re certain
other criteria are not met in accordance with applicable offsetting accounting guidance.
(4)
Amounts related to master netting agreements and collateral agreements determined by the Fund to be legally enforceable in th
e event
of default but where certain other criteria are not met in accordance with applicable offsetting ac
counting guidance. The collateral amounts
may exceed the related net amounts of financial assets and liabilities presented in the statement of assets and liabilities.
Where this is
the case, the total amount reported is limited to the net amounts of financial assets and liabilities with that counterparty.
Appendix D
Liquidation basis of accounting
Statement of net assets in liquidation
December 31, 20XX
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ASC 205-30-45-1,
ASC 205-30-50-1 Assets
Securities, at liquidation value (cost $82,714,000)
$85,267,000
Derivative contracts, at liquidation value (cost $3,312,000)
3,369,000
Receivable for investment securities sold
5,670,000
Cash and cash equivalents
17,449,000
Dividends and interest receivable
562,000
Total assets
112,317,000
Liabilities
Securities sold short, at liquidation value (proceeds $16,859,000)
24,485,000
Derivative contracts, at liquidation value
5,078,000
Dividends and interest payable
670,000
Accrued estimated disposal costs
1,924,000
Accrued estimated management fees
332,000
Accrued estimated liquidation costs
285,000
Total liabilities
32,774,000
Net assets in liquidation
$79,543,000
See accompanying notes to financial statements.
Appendix D
Liquidation basis of accounting
Condensed schedule of investments – liquidation basis
December 31, 20XX
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ASC 205-30-50-1
Percentage of
net assets
in liquidation
Liquidation
value
Securities, at liquidation value
Common stocks
United States
Banking
Public Banking Company A, 1,499,611 shares
50.7%
$40,343,000
Consumer discretionary
Public Consumer Company A, 600 shares
34.0
27,014,000
Other
8.5
6,753,000
Healthcare
7.2
5,762,000
Real estate
6.8
5,395,000
Total – securities, at liquidation value (cost $82,714,000)
107.2%
$85,267,000
Derivative contracts (assets), at liquidation value
Warrants purchased
United Kingdom
Banking
4.2%
$3,369,000
Total – derivative contracts (assets), at liquidation value
(cost $3,312,000)
4.2%
$3,369,000
See accompanying notes to financial statements.
Appendix D
Liquidation basis of accounting
Condensed schedule of investments – liquidation basis (continued)
December 31, 20XX
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ASC 205-30-50-1
Percentage of
net assets
in liquidation
Liquidation
value
Securities sold short, at liquidation value
Common stocks
United Kingdom
Banking
Public Banking Company B, 374,055 shares 16.9%
$13,466,000
Other 6.2 4,897,000
Manufacturing 7.7 6,122,000
Total – Securities sold short, at liquidation value
(proceeds $16,859,000)
30.8%
$24,485,000
Derivative contracts (liabilities)
, at liquidation value
Total return swaps
United States
Banking 4.4%
$3,450,000
Manufacturing 2.0 1,628,000
Total – Derivative contracts (liabilities), at liquidation value 6.4%
$5,078,000
See accompanying notes to financial statements.
Appendix D
Liquidation basis of accounting
Statement of changes in net assets in liquidation
December 31, 20XX
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103
ASC 205-30-45-1,
[Partners’ capital] [Net assets]
at
[Month, Date, Year]
$433,245,000
ASC 205-30-50-1
Cumulative-effect adjustment for change in basis of accounting
(45,042,000)
Net assets in liquidation, beginning of period
$388,203,000
Net realized gain from investments 127,764,000
Net unrealized loss from investments
(103,752,000)
Net decrease in estimated liquidation value of other assets
(11,000)
Net decrease in estimated interest income
(77,000)
Net increase in estimated interest and dividend expense
(290,000)
Net decrease in estimated disposal costs 267,000
Net decrease in estimated management fees 116,000
Net decrease in estimated liquidation costs 17,000
Distributions to
[partners] [shareholders]
(332,694,000)
Net decrease in net assets in liquidation
(308,660,000)
Net assets in liquidation,
end of period
$79,543,000
[If applicable:] The following is a condensed presentation of changes in net assets in liquidation
between the General Partner and the Limited Partner classes for the period [Month, Date, Year]
to December 31, 20XX.
General
partner
Limited
partners
Total
Net assets in liquidation,
beginning of period
$56,251,000
$331,952,000
$388,203,000
Net increase in net assets in liquidation,
excluding distributions to partners
3,483,000 20,551,000 24,034,000
Incentive allocation to General Partner 4,110,000 (4,110,000) —
Distributions to partners
(48,207,000)
(284,487,000)
(332,694,000)
Net assets in liquidation, end of period
$15,637,000
$63,906,000
$79,543,000
See accompanying notes to financial statements.
Appendix D
Liquidation basis of accounting
Notes to financial statements
December 31, 20XX
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ASC 205-30-50-2(a)
ASC 205-30-50-2(a)
ASC 205-30-50-2(b)
ASC 205-30-50-2(c),
ASC 205-30-30-1
Note: ASC paragraph 205-30-50-1 requires an entity preparing financial statements under the
liquidation basis of accounting to make all disclosures required by other FASB ASC Topics that are
relevant to understanding the statement of net assets in liquidation and the statement of changes in
net assets in liquidation. The financial statement disclosures should also convey information
about the estimated amount of cash or other consideration the entity expects to collect and the
estimated amount the entity is obligated to pay during the course of liquidation. The appropriate
disclosures to meet these objectives should be tailored to the entity’s individual circumstances and
may vary from entity to entity. See Domestic Fund, L.P. and Offshore Fund, Ltd. for examples of other
disclosures that may be used to meet these objectives.
1. Summary of significant accounting policies
The significant accounting policies followed by the Fund are:
Basis of presentation
The financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles (GAAP). The Fund is an investment company and follows the accounting
and reporting guidance in the Financial Accounting Standards Board’s Accounting Standards
Codification (ASC) Topic 946, Financial Services—Investment Companies, including liquidation-
basis adjustments required by Subtopic 205-30, Liquidation Basis of Accounting.
[The following disclosures should be tailored to the Fund’s specific circumstances and
should include a description of the facts and circumstances surrounding the plan of
liquidation and the manner by which the Fund plans to dispose of its assets and settle its
liabilities:]
[Include a description of the facts and circumstances surrounding the adoption of
the
liquidation basis of accounting, such as the example described in the following:] Due to the
number of redemption requests received by the Fund, the [General Partner] [Investment
Manager] [Board of Directors] decided to cease operations of the Fund, return the capital
balances
of the Fund’s outside investors, and convert its operations to a family office. On
[Month, Date,
Year], the [General Partner] [Investment Manager] [Board of Directors] approved a plan
to
liquidate the Fund in an orderly manner. As a result, liquidation became imminent, and the Fund
adopted the liquidation basis of accounting, whereby assets are measured at the estimated amount
of cash or other consideration that the Fund expects to collect in settling or disposing of
those
assets, and liabilities are measured at their estimated settlement amounts, including costs the Fund
expects to incur through the end of its liquidation (liquidation value). These estimated a
mounts are
undiscounted and are recorded to the extent the Fund has a reasonable basis for estimation.
Under the plan of liquidation, the Fund plans to (1) sell its remaining investments, (2) collect
receivables as they become due, (3) use
available cash to settle the Fund’s obligations, and (4)
pay out distributions to the [partners] [shareholders] of the Fund. The [General Partner]
[Investment Manager] [Board of Directors] anticipates that the liquidation of the Fund will be
completed on or about [Include the estimated period the Fund expects to complete its liquidation
or a range of estimated periods] and has determined that the likelihood that the Fund will return
from liquidation is remote.
For certain
investments, securities sold short, and derivatives, fair value may approximate their
liquidation values. In addition, the Fund may use other valuation techniques that include
assumptions of forced or distressed sales, or when assumptions of exit
price conditions are not
consistent with market participant assumptions. [If applicable, see Domestic Fund, L.P. for
examples of fair value accounting policy language to include when fair value approximates
liquidation values.]
Appendix D
Liquidation basis of accounting
Notes to financial statements (continued)
Year ended December 31, 20XX
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ASC 205-30-25-5,
ASC 205-30-30-2,
and ASC 205-30-25-
6
ASC 250-10-45-5
1. Summary of significant accounting policies (continued)
Liabilities are generally recognized in accordance with the measurement and recognition
provisions of GAAP applicable for going-
concern entities. In addition, liabilities include estimated
costs to dispose of assets or other items the Fund expects to sell during the course of liquidation.
[If the adoption of liquidation basis of accounting is material, the following section may be
included if it is not included on the statement of changes in net assets in liquidation:]
On
adoption of the liquidation basis o
f accounting, the Fund recorded the following cumulative effect
adjustments to net assets in liquidation as of the date of adoption:
(In thousands)
Adjustments of investments and derivatives to liquidation value $(37,363)
Adjustments of other assets to liquidation value (209)
Accrual of estimated interest income 923
Accrual of estimated disposal costs (6,647)
Accrual of estimated management fees (1,444)
Accrual of estimated liquidation costs (302)
Cumulative effect adjustments for change in basis of accounting $(45,042)
ASC 205-30-50-2(c)
[If the adoption of liquidation basis of accounting is not material, the following sentence may
be included:] The adoption of the liquidation basis of
accounting did not have a material effect on
the carrying values of the Fund’s assets and liabilities as of the date of adoption.
[If applicable:]
The Fund’s management determined that presentation of financial highlights is not
relevant and useful in understanding the liquidation-
basis financial statements. As a result, the
Fund elected to exclude the presentation of financial highlights for the period
[Enter beginning
date of liquidation financial statements] to December 31, 20XX.
Use of estimates
The preparation of financial statements in accordance with GAAP requires management to make
estimates and assumptions in determining the reported amounts
of assets and liabilities, including
the estimated liquidation values of assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of changes in net assets
in liquidation during the reporting period. Actual results could differ from those estimates.
2. Valuation of other investments
At December
31, 20XX, the Fund had securities of $XX,XXX,000, which were measured using
other valuation inputs and techniques when fair value did not approximate the liquidation value for
those assets. [Include a description of other valuation techniques and inputs used to measure
assets when fair value does not approximate the amounts expected to be collected for
disposing of investments. Examples of valuation techniques and inputs may
include
discounts to fair value measurements, a description of methods and significant
assumptions
used to develop those discounts, and the estimated period in which investments are
expected of be realized.]
Appendix D
Liquidation basis of accounting
Notes to financial statements (continued)
Year ended December 31, 20XX
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[When fair value is used to approximate the liquidation values of investments, fair value
disclosures in accordance with ASC Topic 820 should be included. See Domestic Fund, L.P.
for
examples of fair value disclosures.]
ASC 205-30-50-2(c)
and 2(d)
3. Estimated liquidation income and costs
[This note should describe the type and amounts of costs and income accrued in the
statement of net assets in liquidation and the period in which those costs are
expected to
be paid or income to be earned. The following are examples of disclosures of estimated
costs and income; however, the disclosures should be tailored to the specific facts and
circumstances of the Fund:]
At December 31, 20XX, the Fund accrued estimated interest income of $XXX,000. The
Fund’s
estimates of interest income were based on expected coupon payments on interest-
bearing
securities and an expected duration for holding the securities through
[Specify the period in which
costs are expected to be incurred or income expected to be earned]
. The Fund accrued
dividend income from equity securities on the ex-dividend date.
At December 31, 20XX, the Fund accrued estimated disposal costs of $XXX,000, which include
brokerage commissions and other cost
s expected to be incurred to dispose of assets during
liquidation. The Fund estimated its disposal costs based on a range of X%–
X% of the reported
amounts for securities and securities sold short as of December 31, 20XX.
At December 31, 20XX,
the Fund accrued estimated liquidation costs expected to be incurred through
[Specify the period
in which costs are expected to be incurred.] as follows:
(In thousands)
Administrative fees $136
Professional fees 112
Other liquidation expenses 37
Accrued estimated liquidation costs $285
ASC 205-30-50-2(b)
The estimated liquidation costs were based on prior historical information, expected future events,
specified contractual obligations, and the estimated time to complete the plan of
liquidation. Other
costs of liquidation will be recognized when a reasonable basis of estimation becomes
determinable.
[If applicable, include a description of subsequent adjustments to previous accruals of
estimated income or costs expected to be
incurred in liquidation resulting from changes in
the methods and assumptions used for previous estimates.]
4. Partners’ capital/capital share transactions
[See either Domestic Fund, L.P. or Offshore Fund, Ltd. for examples of disclosures of the
pertinent rights and privileges of the Fund’s capital structure. The disclosures should be
tailored to reflect the provisions in the Fund’s legal documents.]
[If applicable:] The Fund has elected to suspend redemptions as of [Month, Date, Year].
Distributi
ons after this date are based on proceeds received from the sale of investments and
allocated to [partners] [shareholders]
according to their respective interests in the Fund as of the
date the distributions are declared by the Fund.
Appendix E
See Domestic Fund, L.P.
for general references
Disclosure of investments greater than 5% of net assets
Year ended December 31, 20XX
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107
[Note: The following example is an alternate presentation of investments that constitute
more than 5% of the net assets of the Fund, separate from the presentation of
investments by category in the condensed schedule of investments.]
The Fund’s investments that exceeded 5% of the Fund’s
[partners’ capital] [net assets]
at
December 31, 20XX are:
Type
Principal
amount/
number of
shares
Percentage
of
[partners’
capital]
[net assets]
Fair value
Securities and derivative contracts (assets)
Public Banking Company A Common stocks
1,499,611
9.8% $42,467,000
Public Banking Company A, Class B Preferred stocks
500,590
5.5 23,828,000
Public Banking Company A, X.X%,
due 7/15/20XX
Corporate bonds
$25,000,000
5.2 22,662,000
Public Manufacturing Company A Common stocks
2,649,160
7.5 32,458,000
Public Manufacturing Company A,
expire from 1/31/20XX to 12/31/XX
Total return
swaps
—
6.5 27,954,000
Public Manufacturing Company B Common stocks
1,540,000
8.9 38,571,000
U.S. Treasury Bills, X.X%,
due 4/1/20XX
Government
bonds
$22,500,000
5.2 22,391,000
Municipality A, X.X%,
due 4/1/20XX Municipal bonds
$25,000,000
5.2 22,592,000
High Yield CLO, X.X%,
due 1/31/20XX
Asset-backed
securities –
Senior debt
$12,500,000
3.0 12,941,000
High Yield CLO, X.X%,
due 3/31/20XX
Asset-backed
securities –
Mezzanine debt
$12,500,000
2.2 9,518,000
Public Health Care Company A,
expire 1/31/20XX Option contracts
—
5.5% $23,807,000
Appendix E
Disclosure of investments greater than 5% of net assets (continued)
Year ended December 31, 20XX
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Type
Principal
amount/
number of
shares
Percentage of
[partners’
capital]
[net assets]
Fair value
Securities sold short and derivative contracts (liabilities)
Public Retail Company A Common stocks
851,000
8.8%
$38,051,000
ATQA 6910.18
Public Retail Company A,
expire 5/1/20XX
Put options written
—
1.0 4,518,000
ATQA 6910.18
Public Retail Company A, expire
from 1/31/20XX to 12/31/20XX
Total return swaps
—
4.3 18,704,000
Public Manufacturing Company C Common stocks
651,000
9.3 40,451,000
Public Banking Company A,
expire 3/15/20XX
Credit default
swaps –
Protection written
—
5.3 $22,851,000
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide
accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No
one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.
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