The Audit Guide and ASC 946-205-50 require that registered and non-registered investment companies present financial highlights for the most recent fiscal year, including per share operating performance, net investment income and expense ratios and total return. However, per share operating performance would not be required where a non-registered fund has a partnership-like (non-unitized) capital structure and "per share" information is not meaningful. For such funds, disclosure of the portfolio turnover rate of the fund and net assets at the end of the period is not required for compliance with US GAAP. See ARM 9652.672

In June 2008, the AICPA issued TIS Section 6910.28, that addresses how a nonregistered investment fund with a unitized structure that issues a separate series of shares to each individual investor should present the financial highlights (per share data, ratios, and total return), and how share transactions for each series of shares should be disclosed in the financial statements.

A nonregistered investment fund organized in a unitized structure may issue, in accordance with its governing documents, a separate series of shares unique to each individual investor, which are not periodically 'rolled up' into a single series or class of shares. In such cases, each investor's series of shares remains outstanding until that investor fully redeems those shares. As a result, each investor has a NAV per share that may be different from other series in the same class, but each series of shares may have the same allocation and participation rights as other series in the same class. This method of recording share transactions is functionally similar to partnership accounting.

The issuance of a separate series of shares unique to each individual investor permits a nonregistered investment fund to allocate net investment income and realized and unrealized appreciation or depreciation to each investor similar to the allocation to an individual partner's capital account in a limited partnership. The Audit Guide requires that each permanent series of a class of shares should be separately presented in the financial highlights. If each investor has a separate series of shares with a unique NAV, reporting the financial highlights for each outstanding series of shares could result in financial highlights being presented for every investor in the fund. The AICPA concluded that the financial highlights should be presented in the aggregate for the entire permanent series of shares. Additionally, the financial highlights should be similar to the financial highlights applicable to a nonregistered investment partnership. As a result, the ratios to average net assets and total return would be presented, but per share data would not be included.

The TPA also states that it is acceptable for such a nonregistered unitized fund to present supplemental financial highlights for a single series of shares that management determines to be "representative" for its class. If a representative series of shares is used, management should select a series that has been outstanding the entire year, and that has a fee arrangement that is similar to the majority of the investors in that class of shares. The basis of calculation and presentation of the financial highlights, including the criteria used to select the representative series of shares, should be disclosed in the financial highlights.

ASC 946-205-50 requires disclosure of the type, par value, authorized shares, NAV per share and total shares outstanding for each class of shares. The Guide also requires disclosure for each permanent class of shares of the number and value of shares issued and redeemed, shares issued in reinvestment of distributions, shares reacquired by the fund, and the net change in shares outstanding. For funds which issue a separate series of shares to each individual investor, these share transactions and amounts should be disclosed on an aggregate level for each permanent class of shares from which the individual series of shares have been issued.

Since the financial highlights are calculated for a representative series or for all series within a class, each individual investor's results will likely vary based on a variety of factors, such as different fee arrangement and the timing of capital transactions. Consideration should be given to disclosing this as a note to the financial statements.

In addition, expense ratios and total return should be presented before and after the effect of any incentive fee or allocation.

Another issue periodically arises when share classes are issued in different currencies (e.g., a US dollar class, a Euro class, and a Japanese yen class within the same fund). We believe that the overall financial statements (i.e., statements of assets and liabilities, operations and changes in net assets) may only be presented on the basis of a single "functional currency" consistent with ASC 830, Foreign Currency Matters. However, per unit data may be translated and presented using the individual currencies in which the share classes issue and redeem their shares.

Ratios of expenses and net investment income to average net assets are generally annualized for periods less than a year. The financial statements should clearly state whether or not such ratios are annualized.

The financial highlights are an important element of the financial statements and, therefore, their omission, either in whole or in part, may result in a modified report. We expect these situations to be rare. If a client refuses to include the required financial highlights, this would be considered a departure from US GAAP and should be assessed as an error as opposed to as an omitted disclosure.