In October 2014, the Chief Accountant’s Office of the Division of Investment Management of the SEC published a  Guidance Update regarding the presentation of consolidated financial statements for feeder funds, funds of funds and  business development companies (BDCs).

For feeder funds, the Guidance Update notes that the Chief Accountant’s Office generally has taken the position  that, because feeder funds are typically one of several investors in a master fund, unconsolidated financial statements  for feeder funds are the most meaningful presentation, provided that, among other things: (1) a feeder fund attaches the financial statements of the master fund to its financial statements; (2) if a master fund is organized as a partnership,  the feeder fund separately discloses on its statement of operations the net investment income, net realized gain or  loss, and net change in unrealized gain or loss allocated from the master fund; and (3) if a master fund is organized  as a partnership, the feeder fund includes the net investment income and expenses allocated from the master fund in  its net investment income and expense ratios in its financial highlights.

For funds of funds, the Guidance Update notes that the Chief Accountant’s Office has taken the position that,  because funds of funds typically invest in multiple underlying funds, unconsolidated financial statements for funds of  funds are the most meaningful presentation. The Guidance Update notes that a fund of funds should consider whether  investment in any single underlying fund is so significant to the fund of funds that its financial statements should be  presented in a manner similar to the presentation by feeder funds.

For BDCs, the Guidance Update states that a number of BDCs have wholly-owned subsidiaries, but do not  consolidate such subsidiaries even though the design and purpose of the subsidiary may be to act as an extension of  the BDC’s investment operations. The Guidance Update suggests that BDCs consolidate such subsidiaries, because  the consolidation will provide investors with the most meaningful financial statements. The Guidance Update is available at www.sec.gov/investment/im-guidance-2014-11.pdf