The Audit Guide and ASC 946-205-50 require that financial highlights for the latest period be presented consisting of per share operating performance, net investment income and expense ratios and total return for all unitized investment partnerships. For investment partnerships not using unitized net asset value, financial highlights should be presented and consist of net investment income and expense ratios to average net assets and total return.

When comparative financial statements are presented, comparative financial highlights should also be presented consistent with the concept of presenting comparative financial information as discussed in ASC 205-10-45.

The Audit Guide and ASC 946-205-50-4 require the financial highlights to be presented by class of investment interest for all non-managing investors. In addition, expense ratios and total return should be presented before and after the effect of any incentive fee or allocation.

The Audit Guide provides guidance on the calculation of the net investment income and expense ratios and total return for investment partnerships. The Audit Guide and ASC 946-205-50-23 indicate that certain limited-life investment partnerships should report and disclose an internal rate of return (IRR) since inception as of the beginning and end of the period, rather than total return for the period, and that the effect of incentive allocations and fees should not be separately reported. The methodology utilized to calculate the ratios and total return should be disclosed in the financial statements.

The Audit Guide and ASC 946-205-50-8 indicate that only the classes of interest related to the non-managing investors (that is, classes of investors that are not comprised exclusively of managing investor interests) require financial highlight disclosure. Each class of investor would generally have certain rights as governed by underlying legal documents and local law.

Some unitized nonregistered funds issue a separate series of shares to each individual investor in the fund, which remains outstanding so long as the investor maintains its investment in the fund and is not closed until the investor fully redeems. These series may be issued within multiple classes of shares with each series within a class bearing the same economic characteristics. TIS Section 6910.28 clarifies that the financial highlights should be presented at the aggregate level for the entire permanent series of shares from which the individual series of shares has been issued. Because the fund operates like a partnership, the financial highlights should include only those financial highlights applicable to a partnership, which are the ratios to average net assets and total return, but not per share data.

The determination of expenses for computing these ratios should follow the presentation in the investment partnership’s statement of operations. To the extent that the investment partnership invests in second tier investment partnerships (i.e., the investment partnership is considered a "fund of funds"), the ratios should be computed based on the net investment income and expense items at the fund of funds level only. Adequate disclosure should be made so that it is clear to the reader that the ratios do not reflect the fund of funds’ proportionate share of income and expenses of the underlying investee funds. In a master-feeder structure the feeder should include its proportionate share of the income and expenses of the master when computing the ratios at the feeder level.

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.