US GAAP Illustrative Financial Statements 2015

Investment fundsIllustrative US GAAP fi nancial statements

December 31, 2015

www.moorestephens.com PREC ISE . PROVEN . PERFORMANCE .

Illustrative financial statements – Investment funds

i

Introduction

We present the first annual update to our well-received illustrative US GAAP financial

statements for investment funds, and we hope that they will continue to assist when

tackling the disclosure, regulatory and presentational issues which arise each year.

These US GAAP financial statements follow on from our well-received illustrative accounts

prepared under International Financial Reporting Standards. Having advised international

investment funds for many years, our professional teams at Moore Stephens understand

not only the content required by the differing accounting frameworks, but also best

practice presentation.

Regardless of where you are based globally, we would be delighted to assist with any

queries or equally delighted to hear any feedback you have to offer.

US GAAPFinancial statements for the year ended December 31, 2015

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Our team

Americas

Grand Cayman

Karl Jordan – [email protected]

New York

Barry Goodman – [email protected]

San Francisco

Matt Armanino – [email protected]

Chicago

Timothy J. Quinn – [email protected]

Europe

London

Geoff Woodhouse – [email protected]

Lorraine Bay – [email protected]

Tim West – [email protected]

Monaco

Andrew Gallagher – [email protected]

Patricia Osborne – [email protected]

Geneva

Jacques Grossen – [email protected]

Dublin

Andy Quinn – [email protected]

Cormac Reilly – [email protected]

Jersey

Phillip Callow – Partner [email protected]

Nicholas Solt – [email protected]

Luxembourg

Anna Skornik – [email protected]

Holger Stölben – [email protected]

Far East

China

Liang Chun – [email protected]

Zhou Long – [email protected]

Singapore

Mei Leng Lao – [email protected]

Mick Aw – [email protected]

Middle East

Dubai

John Adcock – [email protected]

Kuwait

Idris Atcha – [email protected]

Muscat

Prasad Inna – [email protected]


iii

Contents

US GAAP ................................................................................................................................1Statement of assets and liabilities ........................................................................................................................................................2

Statement of operations .....................................................................................................................................................................3

Statement of changes in partners’ capital1 ..........................................................................................................................................4

Statement of cash flows2 ....................................................................................................................................................................5

Condensed schedule of investments3 ..................................................................................................................................................6

Notes to the financial statements ......................................................................................................................................................11

1. Nature of organization ..................................................................................................................................................................11

2. Summary of significant accounting policies ..................................................................................................................................11

2.1 Basis of presentation .............................................................................................................................................................11

2.2 Use of estimates ...................................................................................................................................................................11

2.3 Cash and cash equivalents ....................................................................................................................................................11

2.4 Investment valuation ............................................................................................................................................................11

2.5 Foreign securities .................................................................................................................................................................11

2.6 Capital withdrawals payable .................................................................................................................................................12

2.7 Investment transactions and related income ..........................................................................................................................12

2.8 Income taxes .........................................................................................................................................................................12

3. Investment valuation and fair value measurements ........................................................................................................................13

3.1 Investments in securities and securities sold short, but not yet purchased (common,

preferred stock and exchange traded funds) .........................................................................................................................14

3.2 Corporate bonds ..................................................................................................................................................................14

3.3 Government bonds ...............................................................................................................................................................14

3.4 Derivative instruments ...........................................................................................................................................................14

3.4.1 Option contracts ..........................................................................................................................................................14

3.4.2 Futures contracts .........................................................................................................................................................14

3.4.3 Warrants ......................................................................................................................................................................15

3.4.4 Interest rate swaps .......................................................................................................................................................15

3.5 Investments in private operating companies ..........................................................................................................................15

3.6 Fair value – valuation processes .............................................................................................................................................17

4. Due from broker and custody concentrations ................................................................................................................................17

5. Securities sold, but not yet purchased ...........................................................................................................................................18

1 Supplementary information on partners’ capital account balances is not required.2 Statement of cash flows may not be required if the fund qualifies under FASB ASC 230 – Statement of Cash Flows.3 The schedule of investments can be either prepared as “condensed” or all investments may be disclosed.


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6. Derivative contracts .......................................................................................................................................................................18

6.1 Option contracts ...................................................................................................................................................................18

6.2 Warrants ...............................................................................................................................................................................19

6.3 Interest rate swaps ................................................................................................................................................................19

6.4 Futures contracts ..................................................................................................................................................................19

6.5 Volume of derivative activities: .............................................................................................................................................20

7. Partners’ capital ............................................................................................................................................................................20

7.1 Contributions .......................................................................................................................................................................20

7.2 Withdrawals .........................................................................................................................................................................20

8. Related party transactions ............................................................................................................................................................21

9. Administration .............................................................................................................................................................................21

10. New issues ..................................................................................................................................................................................21

11. Indemnification and concentration of risks ..................................................................................................................................21

12. Financial highlights .....................................................................................................................................................................22

13. Subsequent events ......................................................................................................................................................................23

About Moore Stephens .........................................................................................................24

Contents (continued)


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1

US GAAP

Investment funds Illustrative US GAAP financial statementsDecember 31, 2015

2


Statement of assets and liabilities

Reference:ASC 2104

ASC 9465

ASC 8506

Statement of assets and liabilities(Stated in US Dollars, unless otherwise indicated)

2015

Assets

Assets

946-210-45-15 Investments in securities, at fair value (cost $99,062,000) 104,875,000

Investments in private operating companies, at fair value (cost $15,000,000) 18,000,000

Due from broker 3,775,000

946-305-45-1 Cash and cash equivalents 300,000

Dividends and interest receivable 50,000

946-210-45-16 Total assets 127,000,000

Liabilities and partners’ capital

Liabilities

Securities sold, but not yet purchased, at fair value (proceeds $800,000) 1,090,000

Dividends and interest payable 35,000

Capital contributions received in advance 3,020,000

Management fee payable 50,000

850-10-50-2 Capital withdrawals payable 100,000

Accrued expenses 30,000

946-210-45-16 Total liabilities 4,325,000

946-210-45-5 Partners’ capital 122,675,000

946-210-45-16 Total liabilities and partners’ capital 127,000,000

See accompanying notes to financial statements.

4 FASB ASC 210 – Balance Sheet.5 FASB ASC 946 – Financial Services: Investment Companies.6 FASB ASC 850 – Related policy disclosures.


3Statement of operations

Reference:ASC 2257

ASC 9468

ASC 8159

Statement of operations(Stated in US Dollars, unless otherwise indicated)

2015

Investment income

Interest 100,000

Dividends (net of withholding taxes of $6,500) 1,200,000

Total investment income 1,300,000

Expenses

Interest 35,000

Dividends on securities sold, but not yet purchased 70,000

Management fee 1,040,000

Administrative fee 50,000

Professional fees and other 75,000

Total expenses 1,270,000

946-225-45-5 Net investment income 30,000

946-225-45-6 Realized and unrealized gain on investments

815-10-45-9 Net realized gain on securities 3,295,000

Net realized gain from derivative contracts 45,000

Net change in unrealized gain on securities 142,000

Net change in unrealized gain from derivative contracts 13,000

Net change in unrealized gain on investments in private operating companies 150,000

Total realized and unrealized gain on investments 3,645,000

946-225-45-9 Net income 3,675,000


7 FASB ASC 225 – Income Statement.8 FASB ASC 946 – Financial Services: Investment Companies.9 FASB ASC 815 – Derivatives and hedging.

4


Statement of changes in partners’ capital

Reference:ASC 94610

Statement of changes in partners’ capital(Stated in US Dollars, unless otherwise indicated)

General partner

Limited partners

Total

Balance at January 1, 2015 10,000,000 90,000,000 100,000,000

946-505-50-3 – Capital contributions – 20,000,000 20,000,000

– Capital withdrawals – (1,000,000) (1,000,000)

Transfers of capital (1,000,000) 1,000,000 –

Allocation of net income

– Pro rata allocation 350,000 3,325,000 3,675,000

– Incentive reallocation 665,000 (665,000) –

Balance at December 31, 2015 10,015,000 112,660,000 122,675,000


10 FASB ASC 946 – Financial Services: Investment Companies.


5Statement of cash flows

Reference:ASC 23011

Statement of cash flows(Stated in US Dollars, unless otherwise indicated)

2015

Cash flows from operating activities

Net income 3,675,000

Adjustments to reconcile net income to net cash used in operating activities:

– Purchases of investments in securities (13,500,000)

– Proceeds from sale of investments in securities 15,755,000

– Purchases of investments in private operating companies (5,000,000)

– Proceeds from sale of investments in private operating companies 2,625,000

– Net realized gain on securities (3,295,000)

– Net realized gain from derivative contracts (45,000)

– Net change in unrealized gain on securities (142,000)

– Net change in unrealized gain from derivative contracts (13,000)

– Net change in unrealized gain on investments in private operating companies (150,000)

Changes in assets and liabilities:

– Due from broker (525,000)

– Dividends and interest receivable 10,000

– Dividends and interest payable 300,000

– Capital contributions received in advance (25,000)

– Management fee payable (120,000)

– Accrued expenses (125,000)

Net cash used in operating activities (575,000)

Cash flows from financing activities

Capital contributions 20,000,000

Capital withdrawals (19,200,000)

Net cash provided by financing activities 800,000

Net changes in cash and cash equivalents 225,000

Cash and cash equivalents at January 1, 2015 75,000

Cash and cash equivalents at December 31, 2015 300,000

230-10-50-2 Supplemental disclosure of cash flow information

230-10-50-3 Cash paid during the year for interest 35,000

Supplemental disclosures of noncash financing activities

Capital withdrawals payable 100,000


11 FASB 230 – Statement of Cash Flows Statement of cash flows is required for hedge funds given liquidity constraints of certain types of investments.

6


Condensed schedule of investments

Reference:ASC 94612

Condensed schedule of investments(Stated in US Dollars, unless otherwise indicated)

Number of shares

% of partners’ capital

Fair value

946-210-45-18 Investments in securities

946-210-50-6 Common stock

• United States

– Consumer goods 8.27 10,150,000

– Defense 5.16 6,325,000

– Distribution 4.08 5,000,000

– Energy 6.11 7,500,000

– Financial services

- ABC Financial13 1,200 12.23 15,000,000

- Other 0.08 100,000

– Health care 1.63 2,000,000

– Manufacturing 2.45 3,000,000

– Media and entertainment 2.85 3,500,000

– Miscellaneous financial 2.04 2,500,000

– Real estate 2.04 2,500,000

– Service 8.52 10,450,000

– Technology 7.77 9,529,000

Total United States (cost $77,000,000) 63.23 77,554,000

• Korea

– Consumer products 1.63 2,000,000

– Industrials 0.82 1,000,000

Total Korea (cost $2,500,000) 2.45 3,000,000

• Japan


Total Japan (cost $1,500,000) 2.04 2,500,000

Total common stocks (cost $81,000,000) 67.72 83,054,000


12 FASB ASC 946-210-50 for specific disclosure requirements.13 Individual investment accounts for greater than 5% of partners’ capital should be disclosed separately.


7Condensed schedule of investments

Reference:ASC 94612

Condensed schedule of investments(Stated in US Dollars, unless otherwise indicated)

Principal amount/shares


Fair value

Investments in securities

Corporate bonds

• United States

– Banking

- Banking Company 10.25%, 7/15/203112 12,000,000 11.41 14,000,000

- Other 0.16 200,000

– Manufacturing 0.49 600,000

Total United States (cost $12,000,000) 12.06 14,800,000

• United Kingdom


– Industrials 1.35 1,650,000

Total United Kingdom (cost $5,715,000) 5.43 6,650,000

Total corporate bonds (cost $17,715,000) 17.49 21,450,000

Government bonds

• United States

– US Treasury Bills, 4.75%, 4/1/2015 (cost $40,000) 0.04 50,000

Total government bonds (cost $40,000) 0.04 50,000

Preferred stocks

• United States

– Banking (cost $10,000) 0.01 13,000

Total preferred stocks (cost $10,000) 0.01 13,000

Exchange traded funds

• United States

– Real estate (cost $12,000) 0.01 8,000

Total exchange traded funds (cost $12,000) 0.01 8,000


8


Condensed schedule of investments

Reference: Condensed schedule of investments(Stated in US Dollars, unless otherwise indicated)

Expiration dates

Number of contracts


Fair value


Derivative contracts – assets

• Interest rate swaps

– United States

- Floating/fixed 0.02 25,000

- Fixed/floating 0.06 75,000

Total interest rate swaps (cost $95,000) 0.08 100,000

• Warrants purchased

– United States

- Financial 0.01 15,000

- Telecommunications 0.03 35,000

Total warrants purchased (cost $48,000) 0.04 50,000

• Futures contracts

– United States

- Indices

- S&P 500 Mar-May 2018 2,000 0.01 15,000

- Telecommunications 0.03 35,000

Total futures contracts (cost $48,000) 0.04 50,000

Option contracts purchased

• Call options purchased

– United States

- Healthcare 0.01 15,000

- Financial 0.03 35,000

Total call options purchased (cost $47,000) 0.04 50,000

• Put options purchased

– United States

- Healthcare 0.01 15,000

- Financial 0.03 35,000

Total put options purchased (cost $47,000) 0.04 50,000

Total option contracts purchased (cost $94,000) 1.00 100,000

Total derivative contracts – assets (cost $285,000) 3.00 300,000

Total investments in securities (cost $99,062,000) 85.51 104,875,000



9Condensed schedule of investments


Number of shares


Fair value

Investments in private operating companies

United States

• Financial

– ABC Company – Series A Preferred Stock 3,000,000 8.15 10,000,000

– Other 0.16 200,000

Total financial (cost $10,000,000) 8.31 10,200,000

• Technology

– DEF Company – Common Stock 500,000 5.95 7,300,000

– Other 0.41 500,000

Total technology (cost $5,000,000) 6.36 7,800,000

Total investments in private operating companies (cost $15,000,000)

14.67 18,000,000



10 Condensed schedule of investments


Number of shares


Fair value

Securities sold, but not yet purchased

Common stocks

• United States

– Consumer goods 0.07 80,000

– Defense 0.08 100,000

– Distribution 0.05 60,000

– Energy 0.03 40,000

– Health care 0.02 23,000

– Manufacturing 0.05 66,000

– Media and entertainment 0.07 84,000

– Miscellaneous financial 0.05 57,000

– Real estate 0.10 121,000

– Service 0.11 132,000

– Technology 0.03 33,000

Total United States (proceeds $600,000) 0.66 796,000

• Korea

– Consumer products 0.05 65,000

– Industrials 0.07 88,000

Total Korea (proceeds $100,000) 0.12 153,000

• Japan

– Consumer products 0.06 75,000

Total Japan (proceeds $50,000) 0.06 75,000

Total common stocks (proceeds $750,000) 0.84 1,024,000

Preferred stock

• United Kingdom

– Consumer goods 0.02 26,000

– Defense 0.03 40,000

Total preferred stocks (proceeds $50,000) 0.05 66,000

Total securities sold, not yet purchased, (proceeds $800,000) 0.89 1,090,000



11Notes to the financial statements

Reference: Notes to the financial statements(Stated in US Dollars, unless otherwise indicated)

ASC 27214

1. Nature of organizationFund L.P. (the “Partnership”), was organized in the State of Delaware as a limited partnership for the purpose of

trading and investing in securities. The Partnership shall continue until December 31, 2018 unless sooner

terminated or extended as provided for in the Partnership Agreement (the “Agreement”).

The investment objective of the Partnership is to seek appreciation over the long term, principally through long

or short positions in equity and equity-related securities and other financial instruments. Management L.P. (the

“General Partner”), a Delaware limited liability partnership, serves as the general partner of the Partnership and

has overall responsibility for the affairs of the Partnership. The Partnership’s investing activity is the responsibility

of Advisers LLC (the “Investment Manager”), a Delaware limited liability company, which is a registered

investment adviser. The General Partner and the Investment Manager are controlled by the same principals.

Custodial Brokers LLC (the “Prime Broker”) is the prime broker and custodian. The administration of the

Partnership is delegated to Fund Admin Limited (the “Administrator”).

ASC 23515

ASC 275

946-305-45-1

2. Summary of significant accounting policies 2.1 Basis of presentationThe financial statements have been prepared in conformity with accounting principles generally accepted in the

United States of America (“US GAAP”).

2.2 Use of estimatesThe preparation of financial statements in conformity with US GAAP requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets

and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during

the reporting period. Actual results could differ from these estimates and these differences could be material.

2.3 Cash and cash equivalentsCash and cash equivalents include short-term, highly liquid investments, such as certificates of deposit or money

market funds that are readily convertible to known amounts of cash and have original maturities of three

months or less. All cash balances are held by major banking and broker institutions.

2.4 Investment valuation As more fully described elsewhere in the notes to the financial statements, all investments are recorded at their

estimated fair value.

2.5 Foreign securities The values of securities and cash and cash equivalents which are denominated in currencies other than the U.S.

Dollar are stated using the exchange rate in effect as of the reporting date.

14 FASB ASC 272-10-50-3 requires limited liability companies to disclose the following:

– a description of any limitation of its members’ liability;

– difference classes of members’ interest and respective rights; and

– if the limited liability company has a finite life/date cease to exist.15 FASB ASC 235 – Notes to Financial Statements.


12 Notes to the financial statements

ASC 48016

The Partnership does not isolate that portion of the results of operations resulting from foreign exchange gains

or losses arising from holding or selling foreign currencies, currency gains or losses realized between the trade

and settlement dates on securities transactions, and the difference between the amount of foreign dividends,

interest, and withholding taxes recorded on the Partnership’s books and the U.S. Dollar equivalent of the

amount actually received or paid. Nor does the Partnership isolate unrealized or realized foreign exchange gains

or losses arising from change in the fair values of assets and liabilities including investments. All such foreign

exchange gains and losses are included in the net realized and net change in unrealized gains and losses on

securities and derivative contracts in the statement of operations.

2.6 Capital withdrawals payableWithdrawals are recognized as liabilities, net of expenses and performance allocation, if applicable, when the

amount requested in the withdrawal notice becomes fixed or determinable. This generally may occur either at

the time of the receipt of the notice, or on the last day of a fiscal period, depending on the nature of the

request. As a result, withdrawals paid after the end of the year, but based upon year-end capital balances, are

reflected as capital withdrawals payable as of December 31, 2015. Capital withdrawals payable may be treated

as capital for purposes of allocations of gains and losses until the close of business on the effective withdrawal

date, pursuant to the Agreement.

ASC 60517 2.7 Investment transactions and related incomeInvestment transactions are accounted for on a trade date basis. Realized gains and losses and movements in

unrealized gains and losses are recognized in the statement of operations and determined on a first-in, first-out

basis. Movements in fair values are recorded in the statement of operations at each valuation date. Dividend

income is recognized on the ex-dividend date and is presented net of withholding taxes. Dividends declared on

short positions held on the ex-dividend date are recorded as dividend expense. Interest income and expense are

recognized on an accrual basis except for securities in default for which interest is recognized on a cash basis.

Premiums and discounts on debt securities are amortized using the effective interest method. Withholding taxes

on foreign dividends have been provided for in accordance with the Partnership’s understanding of the

applicable country’s tax rules and rates.

ASC 74018

2.8 Income taxesNo provision for federal, state and local income taxes has been made in the accompanying financial statements,

as individual partners are responsible for their proportionate share of the Partnership’s taxable income. Interest,

dividends and other income realized by the Partnership from non-US sources and capital gains realized on the

sale of securities of non-US issuers may be subject to withholding and other taxes levied by the jurisdiction in

which the income is sourced.

16 FASB ASC 480-10-25 – liabilities should be recognized when withdrawal requests have been approved by the General Partner.17 FASB ASC 605 – Revenue Recognition.18 FASB ASC 740 – Income Taxes.



The Partnership recognizes a tax benefit from an uncertain position only if it is more likely than not the position

is sustainable, based solely on its technical merits and consideration of the relevant taxing authority’s widely

understood administrative practices and precedents. If this threshold is met, the Partnership measures the tax

benefit as the largest amount of benefit that is greater than fifty percent likely being realized upon ultimate

settlement. The Partnership is subject to potential examination by taxing authorities in various jurisdictions. The

tax years that remain subject to examination by taxing authorities are 2010, 2011 and 2012. The Partnership

recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the

statement of operations. The Partnership determined that there are no uncertain tax positions which would

require adjustments or disclosures in the financial statements.

ASC 82019

3. Investment valuation and fair value measurementsThe Partnership utilizes various methods to measure the fair value of its investments on a recurring basis. US

GAAP establishes a hierarchy that prioritizes the inputs to valuation methods. The three levels of input are:

Level 1

Inputs are based on unadjusted quoted prices in active markets that the Partnership has the ability to access for

identical assets or liabilities.

Level 2

Observable inputs other than quoted prices in active markets included in Level 1 that are observable for the

similar asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical

instrument in an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk,

yield curves, default rates and similar data.

Level 3

Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available

representing the Partnership’s own assumptions about the assumptions a market participant would use in

valuing the asset or liability, based on the best information available.

In determining fair value, the Partnership uses various valuation approaches. Inputs that are used in determining

fair value of an instrument may include price information; quotations received from market makers, brokers,

dealers and/or counterparties (when available and considered reliable); credit data; volatility statistics and other

factors. Inputs, including price information, may be provided by independent pricing services or derived from

market data. Inputs can either be observable or unobservable.

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors,

including, for example, 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 the

valuation is based on models or inputs that are less observable or unobservable in the market, the determination

of fair value requires 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. Accordingly, the degree of judgment exercised by the Partnership in determining fair value

is greatest for instruments categorized in Level 3 of the fair value hierarchy.

19 FASB ASC 820 – Fair Value Measurements and Disclosures.



The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for

disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its

entirety, is determined based on the lowest level input that is significant to the fair value measurement.

Transfers between levels are recognized at the end of the reporting period.

A description of the valuation techniques applied to the Partnership’s major categories of assets and liabilities

measured at fair value on a recurring basis are as follows:

3.1 Investments in securities and securities sold short, but not yet purchased (common, preferred stock and exchange traded funds) Investments in securities and securities sold, but not yet purchased which are traded on national securities

exchanges are valued at the last reported sales price as of the valuation date. Investments in securities and

securities sold, but not yet purchased which are traded in the over-the-counter (“OTC”) market are valued at the

last reported bid and asked prices, respectively. To the extent these securities are actively traded and valuation

adjustments are not applied, they are categorized in Level 1 of the fair value hierarchy. Securities traded in

inactive markets or valued by reference to similar instruments are generally categorized in Level 2 of the fair

value hierarchy.

3.2 Corporate bonds The fair value of corporate bonds is estimated using recently executed transactions, market price quotations

(where observable), bond spreads, or credit default swap spreads. The spread data used is for the same maturity

as the bond. If the spread data does not reference the issuer, then data that references a comparable issuer is

used. When observable price quotations are not available, fair value is determined based on cash flow models

using yield curves, bond or single name credit default swap spreads, and recovery rates based on collateral

values as key inputs. Corporate bonds are generally categorized in Level 2 of the fair value hierarchy. In instances

where significant inputs are unobservable, they are categorized in Level 3 of the fair value hierarchy.

3.3 Government bondsThe fair value of sovereign government bonds is generally based on quoted prices in active markets. When

quoted prices are not available, fair value is determined based on a valuation 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. Sovereign government bonds are generally categorized in Level 1 or Level

2 of the fair value hierarchy.

3.4 Derivative instruments3.4.1 Option contracts

The fair value of options which are listed on major securities exchanges are valued at their last reported sales

price as of the valuation date or based on the midpoint of the bid/asked spread at the close of business.

Depending on the frequency of trading, options are generally categorized in Level 1 or Level 2 of the fair value

hierarchy.

3.4.2 Futures contracts

Futures contracts which are listed on major securities exchanges are valued at their last reported sales price as of

the valuation date. Listed futures contracts are generally categorized in Level 1 of the fair value hierarchy.



3.4.3 Warrants

Warrants which are listed on major securities exchanges are valued at their last reported sales price as of the

valuation date. The fair value of OTC warrants is valued using the Black-Scholes option pricing model, a

valuation technique that follows the income approach. This pricing model takes into account the contract terms

(including maturity) as well as multiple inputs, including, time value, implied volatility, equity prices, interest rates

and currency rates. Warrants are generally categorized in Level 2 or Level 3 of the fair value hierarchy.

3.4.4 Interest rate swaps

Interest rate swaps that are traded on major securities exchanges are valued at their last reported sales price as

of the valuation date. These listed interest rate swaps are generally categorized in Level 1 or Level 2 of the fair

value hierarchy. Interest rate swaps are also traded on the OTC market. The fair value for interest rate swaps is

derived using a pricing model that is widely accepted by marketplace participants. The pricing model takes into

account the contract terms (including maturity) as well as multiple inputs, including, where applicable, interest

rates, prepayment speeds and currency rates. Many inputs into the model do not require material subjectivity as

they are observable in the OTC market. Interest rate swaps are generally categorized in Level 2 of the fair value

hierarchy.

3.5 Investments in private operating companiesInvestments in private operating companies consist of direct private common and preferred stock investments.

The transaction price, excluding transaction costs, is typically the Partnership’s best estimate of fair value at

inception. When evidence supports a change to the carrying value from the transaction price, adjustments are

made to reflect expected exit values in the investment’s principal market under current market conditions.

Ongoing reviews by the Partnership’s management are based on an assessment of trends in the performance of

each underlying investment from the inception date through the most recent valuation date.

These assessments typically incorporate valuation techniques using the income approach or the market

approach. The income approach measures the present worth of anticipated future economic benefits (i.e. net

cash flows). The net cash flows is forecast over the expected remaining economic life and discounted to present

value using an appropriate risk-adjusted discount rate. The market approach includes an analysis of valuation

metrics of comparable public companies and recent merger and acquisition transactions for the development of

multiples used in valuations. In certain instances, the Partnership may use multiple valuation techniques 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. These investments in private operating companies are categorized in Level 3

of the fair value hierarchy.

Inputs relied upon by the income approach include annual projected cash flows for each investment through their

respective investment horizons. These cash flow assumptions may be probability-weighted to reflect the risks

associated with achieving expected performance levels across various business scenarios. Investments valued

using a market approach utilized valuation multiples times the annual earnings before interest, taxes, depreciation

and amortization (“EBITDA”), or another performance metric such as revenues or net earnings. The selected

valuation multiples were estimated through a comparative analysis of the performance and characteristics of each

investment within a range of comparable companies or transactions in the observable marketplace.



The following table summarizes the inputs used to value the Partnership’s assets and liabilities measured at fair

value as of December 31, 2015:

Level 1 Level 2 Level 3 Total

Assets

Description

• Common stocks 83,054,000 – 8,000,000 91,054,000

• Corporate bonds – 21,450,000 – 21,450,000

• Government bonds – 50,000 – 50,000

• Preferred stocks 13,000 – 10,000,000 10,013,000

• Exchange traded funds 8,000 – – 8,000

• Interest rate swaps – 100,000 – 100,000

• Options – 100,000 – 100,000

• Warrants – 50,000 – 50,000

• Futures 50,000 – – 50,000

Total assets 83,125,000 21,750,000 18,000,000 122,875,000

Level 1 Level 2 Level 3 Total

Liabilities

Description

• Common stocks 1,024,000 – – 1,024,000

• Preferred stocks 66,000 – – 66,000

Total liabilities 1,090,000 – – 1,090,000

The following is a reconciliation of the Partnership’s Level 3 investments for which significant unobservable

inputs were used to determine fair value.

Opening balance

January 1, 2015

Total gain or loss

(realized & unrealized)

Purchases SalesTransfers

into level 3

Transfers out of level 3

Closing balance

December 31, 2015

• Common stock

7,475,000 150,000 3,000,000 (2,625,000) – – 8,000,000

• Preferred stock

8,000,000 – 2,000,000 – – – 10,000,000

Total 15,475,000 150,000 5,000,000 (2,625,000) – – 18,000,000

The amount of gains/losses included in income attributable to the change in unrealized gains/losses

relating to assets still held at December 31, 2015

Common Stock 150,000



3.6 Fair value – valuation processesThe Partnership establishes valuation processes and procedures to ensure that the valuation techniques for

investments that are categorized within Level 3 of the fair value hierarchy are fair, consistent, and verifiable. The

Partnership designates a Valuation Committee (the “Committee”) to oversee the entire valuation process of the

Partnership’s Level 3 investments. The Committee comprises various Partnership personnel who are separate

from the Partnership’s portfolio management and trading functions, and the Committee reports to the

Partnership’s management. The Committee is responsible for developing the Partnership’s written valuation

processes and procedures, conducting periodic reviews of the valuation policies, and evaluating the overall

fairness and consistent application of the valuation policies.

The Committee meets on a monthly basis, or more frequently as needed, to determine the valuations of the

Partnership’s Level 3 investments. Valuations determined by the Committee are required to be supported by

market data, third-party pricing sources, industry accepted pricing models, counterparty prices, or other

methods the Committee deems to be appropriate, including the use of internal proprietary pricing models.

The Partnership periodically tests its valuations of Level 3 investments through performing back testing of the

sales of such investments by comparing the amounts realized against the most recent fair values reported, and if

necessary, uses the findings to recalibrate its valuation procedures. On an annual basis, the Partnership engages

the services of a nationally recognized third-party valuation firm to perform an independent review of the

valuation of the Partnership’s Level 3 investments, and may adjust its valuations based on the recommendations

from the valuation firm.

The following table summarizes the valuation techniques and significant unobservable inputs used for the

Partnership’s investments that are categorized within Level 3 of the fair value hierarchy as of December 31, 2015:

Fair value December 31,

2015

Valuation technique

Unobservable inputs

Range of inputs (weighted average)

Assets


• Common stock $8,000,000Market

comparable companies

EBITDA multiples 6x-10x (8x)

• Preferred stock $10,000,000Market

comparable companies

EBITDA multiples 8x-10x (9x)

ASC 82520

4. Due from broker and custody concentrationsThe amount due from broker in the statement of assets and liabilities includes cash held at the clearing broker

and collateral balances. Securities and cash held by the broker serve as collateral for securities sold short, but not

yet purchased.

20 FASB ASC 825-10-50-21 requires disclosure of the maximum amount of loss due to credit risks, based on the gross fair value of the financial instruments, that the entity would incur if the parties to the financial instruments that make up the concentration failed completely to perform, according to the terms of the contracts and the collateral or other security, if any, for the amount due proved to be of no value to the entity.



In the normal course of business, the Partnership maintains its cash balances in financial institutions, which at

times may exceed federally insured limits. The Partnership is subject to credit risk to the extent any financial

institution with which it conducts business is unable to fulfill contractual obligations on its behalf. Management

monitors the financial condition of such financial institutions and does not participate any losses from these

counterparties.

5. Securities sold, but not yet purchasedThe Partnership sells securities that it does not own and it will therefore be obligated to purchase such securities

at a future date. The value of the open short position is recorded as a liability, and the Partnership recorded an

unrealized gain or loss to the extent of the difference between the proceeds received and the value of the open

short position. The Partnership records a realized gain or loss when a short position is closed out. By entering

into short sales, the Partnership bears the market risk of increases in the value of the security sold short in excess

of the proceeds received. Possible losses from short sales differ from losses that could be incurred from

purchases of securities because losses from short sales may be unlimited whereas losses from purchases cannot

exceed the total amount invested.

815-10-50-521

6. Derivative contractsIn the normal course of business, the Partnership enters into derivative contracts for investment purposes.

Typically, derivative instruments serve as components of the Partnership’s investment strategies and are utilized

primarily to structure the portfolio to economically match the investment strategies of the Partnership. These

instruments are subject to various risks, similar to non-derivative instruments, including market, credit, liquidity

and operational risks. The Partnership manages these risks on an aggregate basis along with the risks associated

with its investing activities as part of its overall risk management policy.

The Partnership’s derivative trading activities are primarily the purchase of futures contracts, warrants, options

and swaps. All derivatives are reported at fair value in the statement of assets and liabilities and changes in fair

value are reflected in the statement of operations. The amounts representing the fair value of derivative

contracts appearing on the condensed schedule of investments are shown based on whether the derivative is in

a net gain or loss position. These amounts are gross by product type and do not represent the credit risk of the

Partnership’s outstanding credit exposure.

The Partnership traded in the following types of derivative instruments during the year ended December 31, 2015:

6.1 Option contractsThe Partnership may buy or sell short put and call options through listed exchanges and OTC markets. The buyer

has the right to purchase (in the case of a call option) or sell (in the case of a put option) a specified quantity of

a specific security or other underlying asset at a specified price prior to or on a specified expiration date. In

connection with selling options short, the Partnership is exposed to the risk of loss if the market price of the

underlying asset declines (in the case of a put option) or increases (in the case of a call option). The market and

credit risk associated with purchasing put and call options is limited to the amount originally paid.

Amounts paid on purchasing options are recorded as assets while proceeds received from selling options short

are recorded as liabilities on the statement of assets and liabilities, which are both subsequently adjusted to fair

value. The difference between the fair value of an option and the amount paid or proceeds received is treated as

unrealized gain/loss on investment, net.

21 FASB ASC 815 – Derivatives and Hedging.



6.2 WarrantsThe Partnership may receive warrants in connection with its investment in the debt or equity of certain

companies or may purchase warrants on the open market. A warrant is a security that entitles the holder to buy

stock of the company that issued it at a specified price with a pre-determined time period. The warrants provide

the Partnership with exposure and potential gains upon equity appreciation of the portfolio company’s share

price.

6.3 Interest rate swapsThe Partnership is exposed to interest rate risk when there is an unfavorable change in the value of investments

as a result of adverse movement in the market interest rates. The Partnership enters into interest rate swaps to

protect against such adverse movements in the interest rates. Interest rate swaps are contracts whereby

counterparties exchange different rates of interest on a specified notional amount netted against each other,

with the difference being paid by one party to the other. The differential to be paid or received on the interest

rate swap is recognized over the term of the agreement as a realized gain or loss with the payments made or

received on a net basis on the stated payment dates. Unrealized gains are reported as an asset and unrealized

losses are recorded as a liability in the statement of assets and liabilities.

6.4 Futures contractsThe Partnership may use futures to gain exposure to, or hedge against, changes in the value of equities and

commodities, interest rates or foreign currencies. A futures contract represents a commitment for the future

purchase or sale of an asset at a specified price on a specified date. Initial margin deposits, in either cash or

securities, are required to trade in the futures market. Futures contracts are marked to market daily and an

appropriate payable or receivable for the change in value (“variation margin”) is recorded by the Partnership.

Unrealized appreciation or depreciation on futures contracts is recognized to reflect the fair value of the

contracts and is included as a component of the net change in unrealized appreciation (depreciation) on

derivatives on the Partnership’s statement of operations. Variation margin is received or paid, depending on

whether unrealized appreciation or depreciation is incurred. When the contract is terminated, the Partnership

recognizes a realized gain or loss equal to the difference between the value of the contract at the time it was

entered into and the time it was closed.

The following tables summarize the fair value of derivative instruments on the statement of assets and liabilities

and the effect of derivative instruments on the statement of operations:

Asset derivative

Derivative Classification Fair value

Options Investments in Securities 100,000

Warrants Investments in Securities 50,000

Futures Investments in Securities 50,000

Interest Rate Swaps Investments in Securities 100,000

Total 300,000

For additional detail on the above derivative instruments, see the accompanying condensed schedule of

investments.

Effect of trading activities on the statement of operations for the year ended December 31, 2015

Type of instrument Classification Trading revenue

Options Net realized gain 45,000

Warrants Net change in unrealized gain 13,000



6.5 Volume of derivative activities: At December 31, 2015, the volume of the Partnership’s derivative activities based on their notional amounts and

number of contracts, categorized by derivative, are as follows:

Long exposure

Derivative type Notional amounts (a) Number of contracts

• Equity price:

– Futures contracts 2,300,000 2,700

– Options contracts 1,500,000 675

– Equity swaps 500,000 575

– Warrants 1,000,000 725

• Interest rate:

– Interest rate swaps 5,000,000 1,000

Total 10,300,000

(a) Notional amounts are presented net of identical offsetting derivative contracts.

The Partnership frequently trades options throughout the year as an important part of their trading strategy. The

Partnership entered into $75,000 long and $30,000 short contracts during the year.

ASC 50522

7. Partners’ capitalIn accordance with the Agreement, profits and losses of the Partnership are allocated to partners according to

their respective interests in the Partnership. Subject to certain limitations, generally 20% of the net income

allocated to the limited partners is reallocated to the General Partner at the end of each calendar year. As

discussed in the Agreement, if there is a loss for an accounting period, the additional allocation will not apply to

future periods until the loss has been recovered.

Limited partners have redemption rights which contain certain restrictions with respect to rights of withdrawal

from the Partnership as specified in the Agreement. The early redemption fee represents the amount charged to

limited partners withdrawing capital prior to expiration of their agreed upon lock-up period. Refer to the

Agreement for more information.

7.1 Contributions Capital contributions to the Partnership may be accepted on the first day of each calendar quarter or on such

other days that the General Partner approves in advance in its sole discretion.

7.2 WithdrawalsA limited partner may, upon at least 30 calendar days’ prior written notice, withdraw all or any part of the

capital in its capital account on the last business day of each calendar quarter. Any limited partner who

withdraws capital prior to the first anniversary of the investment of such capital in the Partnership may, in the

discretion of the General Partner, be assessed a withdrawal fee up to 3% on such withdrawn amount, payable

to the Partnership. For the year ended December 31, 2015, there were no withdrawal fees assessed.

22 FASB ASC 505 – Equity.



The General Partner may suspend or restrict the rights of limited partners to make withdrawals under certain

circumstances. In particular, if withdrawal requests are received for any withdrawal date aggregating more than

25% of the value of the capital accounts of the limited partners as of such date, the General Partner may, in its

sole discretion, reduce all such withdrawal requests pro rata in accordance with the respective values of the

withdrawing limited partners’ capital accounts so that only 25% of the value of the capital accounts of the

limited partners of the Partnership is withdrawn as of such date.

Capital withdrawals payable represent amounts due to partners based on withdrawals effective through

December 31, 2015. Capital withdrawals payable was $100,000 at December 31, 2015.

850-10-50-123

8. Related party transactions Under the terms of the Agreement, the Partnership pays the General Partner a management fee at a rate of

0.25% of the net asset value of the limited partners’ capital at the end of each quarter (1% per annum). The

General Partner may waive or reduce the management fee for certain limited partners. For the year ended

December 31, 2015, the General Partner earned a management fee of $1,040,000, of which $50,000 remained

payable at December 31, 2015.

9. Administration The Partnership has entered into an Administration Agreement with Administrator Inc (the “Administrator”).

Under this agreement, the Administrator is responsible for various administrative, registrar, and transfer agency

services, including calculation of the partners’ capital balances of the Partnership and the processing of

contributions, withdrawals, and transfers of the Partnership’s capital.

FINRA

Rule 5130

10. New issuesParticipation by partners in investments in “new issues” (defined, in part, as equity securities which are the

subject of a public distribution) are allocated to non-restricted partners and to the extent allowed, to restricted

partners in accordance with the Conduct Rules of the Financial Industry Regulatory Authority.

11. Indemnification and concentration of risksIn the normal course of business, the Partnership enters into contracts that contain a variety of representations

and warranties and which provide general indemnifications. The Partnership’s maximum exposure to these

arrangements is unknown as this would involve future claims that may be made against the Partnership that

have not yet occurred. However, based on experience, the Partnership expects the risk to be remote.

The General Partner seeks to manage the Partnership’s market risk on a continuous basis within a rigorous risk

management framework by shorting securities to offset long positions, by investing in markets that have

traditionally not been highly correlated to each other, by limiting the Partnership’s exposure to each country and

issuer, and by utilizing other hedging strategies. Details of the Partnership’s investment portfolio at December

31, 2015 are disclosed in the condensed schedule of investments. Each separate investment exceeding 5% of

net assets is disclosed separately.

The Partnership maintains its cash and cash equivalents at one institution which is insured by the Federal Deposit

Insurance Corporation. The Partnership is subject to credit risk to the extent any financial institution which it

conducts business is unable to fulfil contractual obligation on its behalf.

23 FASB ASC 850 – Related Party Disclosures.



Counterparty credit risk is generally the risk of counterparty default. Counterparty credit risk is generally higher

when a non-exchanged-traded financial instrument, such as an OTC derivative, is involved because the

counterparties for non-exchange-traded financial instruments are not backed by an exchange clearing house.

However, counterparty credit risk exists whenever another entity has possession and/or use of assets belonging

to the Partnership. The amount of exposure to credit risk is represented by the carrying amount of the assets on

the statement of assets, liabilities and partners’ capital and the possible inability to replicate these contracts at

market price. Substantially all financial instruments are cleared through or held in custody by the Prime Broker.

When the Partnership uses non-exchange-traded derivative instruments, the Partnership is exposed to the

counterparty’s credit risk: the risk that derivative counterparties may not perform in accordance with the

contractual provisions. This risk is offset by the value of collateral received from the counterparty, if any. The

Partnership’s exposure to credit risk associated with counterparty non-performance at any point in time is

generally limited to the unrealized gains, inherent in such transactions, at such time that they are recognized in

the statement of assets, liabilities and partners’ capital, plus the amount of any collateral pledged by the

Partnership to the counterparty to support these transactions. The Partnership seeks to minimize its credit and

counterparty risk through continuous monitoring of the credit rating of the different issues. The Partnership will

seek to minimize downside risk and protect principal by maintaining a diversified portfolio with respect to

industry and the size of individual holdings and actively monitoring the risk of each of the investments and risk

of portfolio correlation among assets.

The Partnership may borrow funds in order to increase the amount of capital available for investment. The use

of leverage can substantially improve the return on invested capital; however, such use may also increase the

adverse impact to which the portfolio of the Partnership may be subject. Borrowings will usually be from

securities brokers and dealers and will typically be secured by the Partnership’s securities and other assets. Under

certain circumstances, such a broker-dealer may demand an increase in the collateral that secures the

Partnerships obligations and if the Partnership were unable to provide additional collateral, the broker-dealer

could liquidate assets held in the account to satisfy the Partnership’s obligations to the broker-dealer. Liquidation

in this manner could have extremely adverse consequences. In addition, the amount of the Partnership’s

borrowings and the interest rates on those borrowings which will fluctuate, could have a significant effect on

the Partnership’s profitability.

ASC 94624

12. Financial highlightsFinancial highlights for the year ended December 31, 2015 are as follows:

Ratio of expenses to average limited partners’ capital %

• Expenses 1.34

• Performance reallocation 0.70

Total expenses and performance reallocation 2.04

Net investment income 0.03

• Total return before performance reallocation 4.08

• Performance reallocation (0.70)

Total return 3.38

24 FASB ASC 946-205-50 – Non-Registered Investment Partnership – Financial Highlights.



The expense and performance reallocation ratios, the net investment income ratio, and the total return

percentage are calculated for the limited partners taken as a whole. The computation of such ratios and return

based on the amount of expenses charged to, and performance fee reallocated from, any specific limited

partner may vary from the overall ratios presented in the financial statements as a result of such items as

differing management fee and performance reallocation arrangements, loss carryforwards, eligibility for new

issue income, and the timing of capital contributions and withdrawals. The net investment income ratio does

not reflect the effects of any performance reallocations.

ASC 85525

13. Subsequent eventsFrom January 1, 2016 to February 25, 2016, the Partnership accepted capital contributions of $20,000,000 and

has had capital withdrawals of $5,000,000. The Partnership has evaluated all events or transactions that

occurred after December 31, 2015 through the date of these financial statements, which is the date that the

financial statements were available to be issued. Management has determined that there are no material events

that would require adjustment to or disclosure in the Partnership’s financial statements.

25 FASB ASC 855 – Subsequent events. Disclose significant capital transactions occurring subsequent to year end.


24

About Moore Stephens

Moore StephensMoore Stephens International Limited is

one of the world’s leading accounting

and consulting networks, generating

worldwide revenues of US$2.7 billion.

With 626 offices of independent member

and correspondent firms in 103 countries,

clients can be confident that we have

access to the resources and capabilities to

meet their needs.

Our philosophy has been to develop the

firm to be large enough to cater for our

clients’ needs wherever required, but not to

grow for the sake of size alone.

Our objective is to service our clients’

needs in the most effective and cost-

efficient way by retaining a high level of

expertise and providing a wide range of

services. A consistently high standard of

work is ensured by training, regular quality

control reviews and frequent contact and

meetings with clients.

The essence of the Moore Stephens

operation is to provide each client with full

partner contact through a client liaison

partner who will co-ordinate, control and

ensure the quality of services provided.

They are supported by partners and staff

appropriate to the specific tasks that we are

asked to undertake.

Investment fundsOur Funds Group is one of the fastest

growing and dynamic departments within

the London office of Moore Stephens. Our

clients come not only from funds that need

regulatory-focused expertise that smaller

non-specialist firms cannot provide, but also

from clients of the Big Four looking for a

partner-led, proactive and responsive service

and value for money.

At the heart of our success is a team with

niche expertise and knowledge, gained

from working closely with leading financial

businesses and key people within the

industry. Since we advise many regulated

clients, we understand that maintenance of

robust systems, compliance with regulations

and hitting deadlines are crucial to avoiding

costly fines. This knowledge is used to

ensure that our clients can spend their time

building their business rather than ensuring

that they comply with the numerous rules

and regulations.

We believe the information in this report to be correct at the time of going to press but we cannot accept any responsibility for any loss occasioned to any person acting or refraining from acting as a result of any item herein. The information contained in this report is the property of Moore Stephens LLP, and may not be reproduced in any format by anyone without prior written approval from Moore Stephens LLP. Printed and published by © Moore Stephens LLP, a member firm of Moore Stephens International Limited, a worldwide network of independent firms. MSIL and its member firms are legally distinct and separate entities. Moore Stephens LLP is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Authorised and regulated by the Financial Conduct Authority for investment business. DPS29426 October 2015

Moore Stephens International Limited150 Aldersgate StreetLondon EC1A 4ABUnited Kingdom

T +44 (0)20 7334 9191F +44 (0)20 7651 1217

www.moorestephens.com

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US GAAP Illustrative Financial Statements 2015

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