The SEC’s Division of Investment Management recently released new guidance for mutual funds in its October 2014 IM Guidance Update. The guidance provides information regarding fund financial statements.
Funds may present financial statements in a consolidated our unconsolidated format depending upon the fund structure and relationships with affiliates. Regulation S-X governs the specific form and content of financial statements for registered investment companies (RICs) and business development companies (BDCs).
In summary, the new guidance issued provides that:
- Registered feeder funds within a master-feeder fund structure should present financial statements in an unconsolidated format if:
- Master fund financials are attached.
- For master funds that are partnerships, the feeder fund Statement of Operations shows net investment income, net realized gain/loss, and net change in unrealized gain/loss from the master fund.
- For master funds that are partnerships, the feeder fund includes net investment income and expenses allocated from the master fund within the net investment income and expense ratios described in the financial highlights.
- Registered fund of funds should also show financial statements in an unconsolidated format since the controlling interests in the underlying funds may change over time. Those funds that have only one single underlying fund should consider producing financial statements similar to a master-feeder fund.
- BDCs that have wholly-owned subsidiaries should consolidate financial statements with the subsidiaries, if the subsidiaries serve as an extension of the BDC to facilitate operations and investments.
Investment companies with questions on financial statements may contact the Chief Accountants Office at 202-551-6918 or imoca@sec.gov.
