UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
| | | |
| (Mark One) | | |
þ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | | For the fiscal year ended December 31, 2007 |
or |
o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | | For the transition period from to |
Commission file number:000-50723
Goldman Sachs Hedge Fund Partners, LLC
(Exact name of registrant as specified in its charter)
| | | |
Delaware | | 04-3638229 |
(State or Other Jurisdiction of
Incorporation or Organization) | | (I.R.S. Employer
Identification No.) |
| | | |
One New York Plaza
New York, New York
(Address of Principal Executive Offices) | | 10004
(Zip Code) |
(212) 902-1000
(Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
| | | | | |
| | | Name of Each Exchange
|
| Title of Each Class | | on Which Registered |
| |
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Liability Company Interests
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act.
| | | | | | | |
Large accelerated filer o | | Accelerated filer o | | Non-accelerated filer þ | | Smaller reporting company o |
| | | | | (Do not check if a smaller reporting company) | | |
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes o No þ
The Registrant’s Units of Limited Liability Company Interests are not traded on any market and, accordingly, have no aggregate market value. The net asset value of the Units of Limited Liability Company Interests as of June 30, 2007 held by non-affiliates was $682,524,461.
Documents Incorporated By Reference
Certain exhibits are incorporated by reference in ITEM 15 of this report
EXPLANATORY NOTE:
Goldman Sachs Hedge Fund Partners, LLC (the “Company”) is filing this Amendment No. 1 onForm 10-K/A to its Annual Report onForm 10-K for the year ended December 31, 2007 (1) to revise the conformed signature of its independent registered public accounting firm, Ernst & Young LLP, on the “Report of Ernst & Young LLP Independent Registered Public Accounting Firm” (the “EY Report”) appearing in Item 8 of Part II, by changing “Ernst & Young” to “ERNST & YOUNG LLP”, (2) to correct the EY Report so that the EY Report clarifies that Ernst & Young LLP audited the related statements of operations of the Company for each of the three years in the period ended December 31, 2007, (3) to correct the EY Report so that all references to “financial highlights” have been deleted from the EY Report and (4) to correct a typographical error in Exhibit 31.3 (refiled in this report as Exhibit 31.4) to reflect that paragraph 1 of Exhibit 31.3 refers to the Annual Report onForm 10-K for the period ended December 31, 2007, which was appropriately referenced in the certificate as actually signed.
ThisForm 10-K/A does not reflect events occurring after the filing of theForm 10-K or modify or update those disclosures affected by subsequent events. Consequently, all other information is unchanged and reflects the disclosures made at the time of the filing of theForm��10-K. Accordingly, thisForm 10-K/A should be read in conjunction with our filings made subsequent to the filing of theForm 10-K. With this Amendment No. 1, the principal executive officers and principal financial officer of the Company have also reissued their certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act.
i
Part II
| |
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
For the Company’s financial statements, see the Financial Statements beginning onpage F-1 of this Form10-K/A.
The following is a summary of unaudited quarterly results of operations of the Company for the period from January 1, 2006 to December 31, 2007.
| | | | | | | | | | | | | | | | | |
| | | Fiscal Quarter Ended | |
| | | Mar. 31,
| | | June 30,
| | | Sep. 30,
| | | Dec. 31,
| |
| | | 2006 | | | 2006 | | | 2006 | | | 2006 | |
| |
Net Trading Profit/(Loss) | | $ | 43,835,232 | | | $ | (4,725,910 | ) | | $ | 1,952,682 | | | $ | 34,958,405 | |
Total Expenses | | $ | 2,806,142 | | | $ | 2,440,102 | | | $ | 2,207,817 | | | $ | 2,472,850 | |
Net Income/(Loss) | | $ | 41,240,462 | | | $ | (7,044,975 | ) | | $ | (173,192 | ) | | $ | 32,547,350 | |
Net Income/(Loss) Available forpro rataallocation to Members | | $ | 39,178,439 | | | $ | (6,696,764 | ) | | $ | (165,319 | ) | | $ | 30,924,807 | |
| | | | | | | | | | | | | | | | | |
| | | Fiscal Quarter Ended | |
| | | Mar. 31,
| | | June 30,
| | | Sep. 30,
| | | Dec. 31,
| |
| | | 2007 | | | 2007 | | | 2007 | | | 2007 | |
| |
Net Trading Profit/(Loss) | | $ | 25,218,664 | | | $ | 33,486,055 | | | $ | (633,005 | ) | | $ | 29,804,233 | |
Total Expenses | | $ | 2,252,706 | | | $ | 2,536,562 | | | $ | 2,458,008 | | | $ | 2,560,820 | |
Net Income/(Loss) | | $ | 23,005,486 | | | $ | 31,004,318 | | | $ | (2,920,258 | ) | | $ | 27,305,035 | |
Net Income/(Loss) Available forpro rataallocation to Members | | $ | 21,855,212 | | | $ | 29,454,102 | | | $ | (2,775,795 | ) | | $ | 25,941,333 | |
1
PART IV
| |
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) Documents Filed as Part of this Annual Report:
1. Financial Statements.
| | | | | |
| | | Page
| |
| Description of Financial Statements | | Number | |
| |
| Goldman Sachs Hedge Fund Partners, LLC Financial Statements | | | | |
| Report of Ernst & Young LLP, Independent Registered Public Accounting Firm | | | F-2 | |
| Schedule of Investments as of December 31, 2007 and 2006 | | | F-3 | |
| Balance Sheet as of December 31, 2007 and 2006 | | | F-4 | |
| Statement of Operations for the years ended December 31, 2007, 2006 and 2005 | | | F-5 | |
| Statement of Changes in Members’ Equity for the years ended December 31, 2007, 2006 and 2005 | | | F-6 | |
| Statement of Cash Flows for the years ended December 31, 2007, 2006 and 2005 | | | F-7 | |
| Notes to Financial Statements | | | F-8 | |
| | |
| | 2. | Financial Statement Schedules. |
Certain schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
3. List of Exhibits.
See Index of Exhibits included onpage E-1.
2
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GOLDMAN SACHS HEDGE FUND PARTNERS, LLC
(Registrant)
By: Goldman Sachs Hedge Fund Strategies LLC
Managing Member
By:
/s/ Jennifer Barbetta
Name: Jennifer Barbetta
Title: Managing Director and Chief Financial Officer
Date: April 2, 2008
3
INDEX OF EXHIBITS
| | | | | |
Exhibit No. | | Description |
| |
| | 3 | * | | Copy of Amended and Restated Limited Liability Company Agreement of Goldman Sachs Hedge Fund Partners, LLC dated January 1, 2006 (Note: the LLC Agreement also defines the rights of the holders of Units of the Company) (filed as Exhibit 3 to theForm 8-K, filed January 6, 2006, and incorporated herein by reference). |
| | 10.1 | * | | Copy of Amended and Restated Limited Liability Company Agreement of Goldman Sachs Global Tactical Trading, LLC, dated as of January 1, 2006 (filed as Exhibit 10.1 to theForm 8-K, filed January 6, 2006, and incorporated herein by reference). |
| | 10.2 | * | | Copy of Amended and Restated Limited Liability Company Agreement of Goldman Sachs Global Equity Long/Short, LLC, dated as of January 1, 2008 (filed as Exhibit 10.2 to theForm 10-K, filed March 31, 2008, and incorporated herein by reference). |
| | 10.3 | * | | Copy of Amended and Restated Limited Liability Company Agreement of Goldman Sachs Global Relative Value, LLC, dated as of January 1, 2006 (filed as Exhibit 10.3 to theForm 8-K, filed January 6, 2006, and incorporated herein by reference). |
| | 10.4 | * | | Copy of Amended and Restated Limited Liability Company Agreement of Goldman Sachs Global Event Driven, LLC, dated as of January 1, 2006 (filed as exhibit 10.4 to theForm 8-K, filed January 6, 2006, and incorporated herein by reference). |
| | 10.5 | * | | Form of Amended and Restated Limited Liability Company Agreement of Goldman Sachs Global Fundamental Strategies, LLC, to be dated as of April 1, 2008 (filed as Exhibit 10.5 to the Form10-K, filed March 31, 2008, and incorporated herein by reference). |
| | 10.6 | * | | Copy of Limited Liability Company Agreement of Goldman Sachs HFP Opportunistic Fund, LLC, dated as of June 25, 2007 (filed as Exhibit 10.6 to theForm 10-K, filed March 31, 2008, and incorporated herein by reference). |
| | 10.7 | * | | Distribution Agreement between Goldman Sachs Hedge Fund Partners, LLC and Goldman, Sachs & Co. dated March 1, 2002 (filed as Exhibit 10.5 to the Form 10, filed April 29, 2004, and incorporated herein by reference). |
| | 10.8 | * | | Administration Agreement between Goldman Sachs Hedge Fund Partners, LLC and Goldman Sachs Hedge Fund Strategies LLC (formerly Goldman Sachs Princeton LLC) dated March 1, 2002 (filed as Exhibit 10.6 to the Form 10, filed April 29, 2004, and incorporated herein by reference). |
| | 10.9 | * | | Administration Agreement between Goldman Sachs Hedge Fund Partners, LLC and SEI Global Services, Inc. dated February 9, 2007 (filed as Exhibit 10.7 to theForm 10-K, filed April 2, 2007, and incorporated herein by reference). |
| | 14.1 | * | | Code of Ethics for Goldman Sachs Hedge Fund Partners, LLC (filed as Exhibit 14.1 to theForm 10-K, filed March 29, 2005, and incorporated herein by reference). |
| | 14.2 | * | | Amended Code of Ethics for Goldman Sachs Hedge Fund Strategies LLC (filed as Exhibit 14.2 to theForm 10-K, filed April 2, 2007, and incorporated herein by reference). |
| | 31.1 | | | Certification in the form prescribed byRule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934. |
| | 31.2 | | | Certification in the form prescribed byRule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934. |
| | 31.3 | | | Certification of Chief Financial Officer in the form prescribed byRule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 (dated April 2, 2008). |
E-1
| | | | | |
Exhibit No. | | Description |
| |
| | 31.4 | | | Certification of Chief Financial Officer in the form prescribed byRule 13a-14(a) or15(d)-14(a) under the Securities Exchange Act of 1934 (dated March 31, 2008). |
| | 32.1 | | | Certification in the form prescribed by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | 32.2 | | | Certification in the form prescribed by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | 32.3 | | | Certification of Chief Financial Officer in the form prescribed by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
E-2
INDEX OF FINANCIAL STATEMENTS
| | | |
| | | Page
|
Description of Financial Statements | | Number |
| |
| Goldman Sachs Hedge Fund Partners, LLC Financial Statements | | |
| Report of Ernst & Young LLP, Independent Registered Public Accounting Firm | | F-2 |
| Schedule of Investments as of December 31, 2007 and 2006 | | F-3 |
| Balance Sheet as of December 31, 2007 and 2006 | | F-4 |
| Statement of Operations for the years ended December 31, 2007, 2006 and 2005 | | F-5 |
| Statement of Changes in Members’ Equity for the years ended December 31, 2007, 2006 and 2005 | | F-6 |
| Statement of Cash Flows for the years ended December 31, 2007, 2006 and 2005 | | F-7 |
| Notes to Financial Statements | | F-8 |
F-1
Report of Ernst & Young LLP
Independent Registered Public Accounting Firm
The Managing Member and Members
Goldman Sachs Hedge Fund Partners, LLC
We have audited the accompanying balance sheet, including the schedule of investments, of Goldman Sachs Hedge Fund Partners, LLC (the “Company”), as of December 31, 2007 and 2006, and the related statements of operations, changes in members’ equity and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the managing member. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the managing member, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Goldman Sachs Hedge Fund Partners, LLC at December 31, 2007 and 2006, and the results of its operations, the changes in its members’ equity and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
March 31, 2008
F-2
GOLDMAN SACHS HEDGE FUND PARTNERS, LLC
Schedule of Investments
December 31, 2007 and 2006
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2007 | | | 2006 | |
| | | | | | % of
| | | % of adjusted
| | | | | | % of
| | | % of adjusted
| |
| | | Fair
| | | members’
| | | members’
| | | Fair
| | | members’
| | | members’
| |
| Investee | | value | | | equity(1) | | | equity(2) | | | value | | | equity(1) | | | equity(2) | |
| |
| Goldman Sachs Global Equity Long/Short, LLC | | $ | 225,759,808 | | | | 33.16 | % | | | 32.09 | % | | $ | 243,737,514 | | | | 36.81 | % | | | 35.54 | % |
| Goldman Sachs Global Fundamental Strategies, LLC | | | 257,594,595 | | | | 37.84 | % | | | 36.62 | % | | | 240,699,867 | | | | 36.36 | % | | | 35.10 | % |
Goldman Sachs Global Relative Value,
LLC | | | 84,319,166 | | | | 12.38 | % | | | 11.99 | % | | | 98,479,997 | | | | 14.87 | % | | | 14.36 | % |
Goldman Sachs Global Tactical Trading,
LLC | | | 97,949,282 | | | | 14.39 | % | | | 13.92 | % | | | 103,332,963 | | | | 15.61 | % | | | 15.07 | % |
| Goldman Sachs HFP Opportunistic Fund, LLC | | | 36,813,437 | | | | 5.41 | % | | | 5.23 | % | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total investments (cost $532,669,888 and $554,997,009, respectively) | | $ | 702,436,288 | | | | 103.18 | % | | | 99.85 | % | | $ | 686,250,341 | | | | 103.65 | % | | | 100.07 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Underlying investment information required to make a complete presentation of the Company’s aggregate proportionate share of the underlying investments of the Investees is not available from certain Investees at December 31, 2007 and 2006. Where such information is available, the Company’s aggregate proportionate share of any underlying investment of the Investees, which exceeds 5% of the Company’s members’ equity, would be disclosed.
The Companies aggregate proportionate share of the following underlying investments of the investee represented greater than 5% of the Company’s member’s equity. At December 31, 2006 none of the aggregate proportionate shares of the underlying investments exceeded 5%.
| | | | | | | | | | | | | | | | | |
| December 31, 2007 | |
| | | | | | | | | | | | % of
| |
| | | | | | Proportionate
| | | % of
| | | Adjusted
| |
| | | Underlying
| | | Share of
| | | Members’
| | | Members’
| |
| Investee | | Investment | | | Fair Value | | | Equity(1) | | | Equity(2) | |
| |
| Goldman Sachs Global Fundamental Strategies, LLC | | | Eton Park Fund, L.P. | | | $ | 38,952,802 | | | | 5.72 | % | | | 5.54 | % |
| | |
| (1) | | Members’ equity used in the calculation of the investments as a percentage of members’ equity, is reduced for member redemptions that are paid after the balance sheet date. |
| |
| (2) | | Adjusted members’ equity used in the calculation of the underlying investments as a percentage of adjusted members’ equity, represents members’ equity excluding Redemptions payable in the amount of $22,708,145 at December 31, 2007 and $23,701,199 at December 31, 2006. |
F-3
GOLDMAN SACHS HEDGE FUND PARTNERS, LLC
BALANCE SHEET
December 31, 2007 and 2006
| | | | | | | | | |
| | | 2007 | | | 2006 | |
| |
ASSETS |
| Assets: | | | | | | | | |
| Investments (cost $532,669,888 and $554,997,009, respectively) | | $ | 702,436,288 | | | $ | 686,250,341 | |
| Cash and cash equivalents | | | 3,425,673 | | | | 1,224,850 | |
| | | | | | | | | |
| Total assets | | $ | 705,861,961 | | | $ | 687,475,191 | |
| | | | | | | | | |
| |
| LIABILITIES AND MEMBERS’ EQUITY |
| Liabilities: | | | | | | | | |
| Redemptions payable | | $ | 22,708,145 | | | $ | 23,701,199 | |
| Due to managing member | | | 2,181,659 | | | | 1,415,426 | |
| Due to bank | | | 6,889 | | | | 15,592 | |
| Accounts payable and accrued liabilities | | | 181,186 | | | | 268,500 | |
| | | | | | | | | |
| Total liabilities | | | 25,077,879 | | | | 25,400,717 | |
| Members’ equity (units outstanding 4,588,504.15 and 4,928,239.53, respectively) | | | 680,784,082 | | | | 662,074,474 | |
| | | | | | | | | |
| Total liabilities and members’ equity | | $ | 705,861,961 | | | $ | 687,475,191 | |
| | | | | | | | | |
| Analysis of members’ equity: | | | | | | | | |
| Net capital contributions, accumulated net investment income/(loss) and realized profit/(loss) | | $ | 511,017,682 | | | $ | 530,821,142 | |
| Accumulated net unrealized profit/(loss) | | $ | 169,766,400 | | | $ | 131,253,332 | |
| | | | | | | | | |
See accompanying notes.
F-4
GOLDMAN SACHS HEDGE FUND PARTNERS, LLC
STATEMENT OF OPERATIONS
For the years ended December 31, 2007, 2006 and 2005
| | | | | | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| |
| Income from trading: | | | | | | | | | | | | |
| Equity in earnings of investees: | | | | | | | | | | | | |
| Realized profit/(loss) | | $ | 49,362,879 | | | $ | 119,798,202 | | | $ | 38,871,694 | |
| Changed in unrealized profit/(loss) | | | 38,513,068 | | | | (43,777,793 | ) | | | 27,944,887 | |
| | | | | | | | | | | | | |
| Net trading profit/(loss) | | | 87,875,947 | | | | 76,020,409 | | | | 66,816,581 | |
| Interest income | | | 326,730 | | | | 476,147 | | | | 161,801 | |
| Expenses: | | | | | | | | | | | | |
| Management fee | | | 8,636,414 | | | | 9,131,947 | | | | 13,560,772 | |
| Professional fees | | | 632,679 | | | | 481,551 | | | | 1,237,030 | |
| Interest expense | | | 283,897 | | | | 252,759 | | | | 37,747 | |
| Miscellaneous expenses | | | 255,106 | | | | 60,654 | | | | 1,199 | |
| | | | | | | | | | | | | |
| Total expenses | | | 9,808,096 | | | | 9,926,911 | | | | 14,836,748 | |
| | | | | | | | | | | | | |
| Net investment income/(loss) | | | (9,481,366 | ) | | | (9,450,764 | ) | | | (14,674,947 | ) |
| | | | | | | | | | | | | |
| Net income/(loss) | | | 78,394,581 | | | | 66,569,645 | | | | 52,141,634 | |
| Less: Incentive allocation to the Managing Member | | | 3,919,729 | | | | 3,328,482 | | | | 2,615,216 | |
| | | | | | | | | | | | | |
| Net income/(loss) available for pro-rata allocation to members | | $ | 74,474,852 | | | $ | 63,241,163 | | | $ | 49,526,418 | |
| | | | | | | | | | | | | |
See accompanying notes.
F-5
GOLDMAN SACHS HEDGE FUND PARTNERS, LLC
For the years ended December 31, 2007, 2006 and 2005
| | | | | | | | | | | | | | | | | |
| | | Managing
| | | | | | | | | Total
| |
| | | member’s
| | | Members’
| | | Members’
| | | members’
| |
| | | equity | | | units | | | equity | | | equity | |
| |
| Balance at December 31, 2004 | | $ | — | | | | 8,106,803.34 | | | $ | 957,455,233 | | | $ | 957,455,233 | |
| Subscriptions | | | — | | | | 2,253,291.93 | | | | 225,329,193 | | | | 225,329,193 | |
| Redemptions | | | (2,615,216 | ) | | | (3,708,281.88 | ) | | | (457,711,961 | ) | | | (460,327,177 | ) |
| Share class conversion | | | — | | | | (144,688.21 | ) | | | — | | | | — | |
| Allocations of net income/(loss): | | | | | | | | | | | | | | | | |
| Incentive allocation | | | 2,615,216 | | | | — | | | | — | | | | 2,615,216 | |
| Pro-rata allocation | | | — | | | | — | | | | 49,526,418 | | | | 49,526,418 | |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2005 | | | — | | | | 6,507,125.18 | | | | 774,598,883 | | | | 774,598,883 | |
| Subscriptions | | | — | | | | 418,830.00 | | | | 41,883,000 | | | | 41,883,000 | |
| Redemptions | | | (3,328,482 | ) | | | (1,650,633.46 | ) | | | (217,648,572 | ) | | | (220,977,054 | ) |
| Share class conversion | | | — | | | | (347,082.19 | ) | | | — | | | | — | |
| Allocations of net income/(loss): | | | | | | | | | | | | | | | | |
| Incentive allocation | | | 3,328,482 | | | | — | | | | — | | | | 3,328,482 | |
| Pro-rata allocation | | | — | | | | — | | | | 63,241,163 | | | | 63,241,163 | |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2006 | | | — | | | | 4,928,239.53 | | | | 662,074,474 | | | | 662,074,474 | |
| | | | | | | | | | | | | | | | | |
| Subscriptions | | | — | | | | 430,805.00 | | | | 43,080,500 | | | | 43,080,500 | |
| Redemptions | | | (3,919,729 | ) | | | (671,424.67 | ) | | | (98,845,744 | ) | | | (102,765,473 | ) |
| Share class conversion | | | — | | | | (99,115.71 | ) | | | — | | | | — | |
| Allocations of net income/(loss): | | | | | | | | | | | | | | | | |
| Incentive allocation | | | 3,919,729 | | | | — | | | | — | | | | 3,919,729 | |
| Pro-rata allocation | | | — | | | | — | | | | 74,474,852 | | | | 74,474,852 | |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2007 | | $ | — | | | | 4,588,504.15 | | | $ | 680,784,082 | | | $ | 680,784,082 | |
| | | | | | | | | | | | | | | | | |
See accompanying notes.
F-6
GOLDMAN SACHS HEDGE FUND PARTNERS, LLC
For the years ended December 31, 2007, 2006 and 2005
| | | | | | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| |
Cash flows from operating activities | | | | | | | | | | | | |
| Net income/(loss) | | $ | 78,394,581 | | | $ | 66,569,645 | | | $ | 52,141,634 | |
Adjustments to reconcile net income/(loss) to net cash from operating activities: | | | | | | | | | | | | |
| Purchases of investments | | | (100,310,000 | ) | | | (92,900,000 | ) | | | (192,640,000 | ) |
| Proceeds from sales of investments | | | 172,000,000 | | | | 607,000,001 | | | | 228,080,000 | |
| Realized profit/(loss) from sales of Investments | | | (49,362,879 | ) | | | (119,798,202 | ) | | | (38,871,694 | ) |
| Change in unrealized profit/(loss) | | | (38,513,068 | ) | | | 43,777,793 | | | | (27,944,887 | ) |
(Increase)/decrease in operating assets: | | | | | | | | | | | | |
| Other assets | | | — | | | | — | | | | — | |
Increase/(decrease) in operating liabilities | | | | | | | | | | | | |
| Due to managing member | | | 766,233 | | | | (905,688 | ) | | | (926,660 | ) |
| Accounts payable and accrued liabilities | | | (87,314 | ) | | | (314,540 | ) | | | (339,466 | ) |
| | | | | | | | | | | | | |
| Net cash from operating activities | | | 62,887,553 | | | | 503,429,009 | | | | 19,498,927 | |
| | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | |
| Subscriptions | | | 43,080,500 | | | | 41,883,000 | | | | 225,329,193 | |
| Redemptions | | | (103,758,527 | ) | | | (544,799,451 | ) | | | (241,350,217 | ) |
| Proceeds from loan | | | 20,283,897 | | | | 79,732,020 | | | | 13,448,144 | |
| Repayments of loan | | | (20,292,600 | ) | | | (79,726,540 | ) | | | (16,438,032 | ) |
| | | | | | | | | | | | | |
| Net cash from financing activities | | | (60,686,730 | ) | | | (502,910,971 | ) | | | (19,010,912 | ) |
| | | | | | | | | | | | | |
| Net change in cash and cash equivalents | | | 2,200,823 | | | | 518,038 | | | | 488,015 | |
| Cash and cash equivalents at beginning of year | | | 1,224,850 | | | | 706,812 | | | | 218,797 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents at end of year | | $ | 3,425,673 | | | $ | 1,224,850 | | | $ | 706,812 | |
| | | | | | | | | | | | | |
Supplemental disclosure of cash flow information | | | | | | | | | | | | |
| Cash paid by the Company during the year for interest | | $ | 292,600 | | | $ | 247,279 | | | $ | 27,635 | |
| | | | | | | | | | | | | |
See accompanying notes.
F-7
GOLDMAN SACHS HEDGE FUND PARTNERS, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
| |
| Note 1 – | Significant accounting policies |
Organization and basis of financial statements
Goldman Sachs Hedge Fund Partners, LLC (the “Company”) was organized as a limited liability company, pursuant to the laws of the State of Delaware and commenced operations on April 1, 2002 for the principal purpose of investing in the equity long/short, event driven, relative value, and tactical trading hedge fund sectors (the “Investment Sectors”) through investments in Goldman Sachs Global Equity Long/Short, LLC (“GELS”), Goldman Sachs Global Fundamental Strategies, LLC (“GFS”) (formerly known as Goldman Sachs Global Event Driven, LLC), Goldman Sachs Global Relative Value, LLC (“GRV”) and Goldman Sachs Global Tactical Trading, LLC (“GTT”) and, as of July 1, 2007, Goldman Sachs HFP Opportunistic Fund, LLC (“HFPO”) (collectively, the “Investees”). Each of these Investees invests directly through trading advisors, or indirectly through investment vehicles managed by such trading advisors (together, the “Advisors”). Goldman Sachs Hedge Fund Strategies LLC (“GS HFS”), a wholly-owned subsidiary of The Goldman Sachs Group, Inc. (the “Managing Member”), is the managing member, administrator and commodity pool operator of the Company. During the year ended December 31, 2006, the Company changed its exemption status with the Commodity Futures Trading Commission from Section 4.7 to Section 4.13(a)(4).
The financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), which require the Managing Member to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. The financial statements are expressed in U.S. dollars. Certain reclassifications have been made to previously reported amounts to conform to current year presentation.
The Company is an investment company for financial reporting purposes and accordingly carries its assets and liabilities at fair value. Net asset value (“NAV”) per unit is determined by dividing the net assets attributable to each series by that series’ respective number of units outstanding. The fair value of the Company’s assets and liabilities that qualify as financial instruments under Statement of Financial Accounting Standards No. 107, “Disclosures About Fair Value of Financial Instruments”, approximates the carrying amounts presented in the statement of financial condition.
Consolidation
During the years ended December 31, 2007 and 2006, the Company’s ownership percentage of certain Investees may have exceeded 50%. This ownership percentage will fluctuate as a result of the Company’s investment strategy and investor subscriptions and redemptions at the Company and Investee level. The Company does not consolidate the results of the Investees in its financial statements because the Company does not invest in such Investees for purposes of exercising control; ownership in excess of 50% may be temporary; and the consolidation of these balances would not enhance the usefulness or understandability of information to the members. The Company may, but normally does not intend to, exercise control over majority owned Investees.
F-8
The following table summarizes the Company’s ownership in the Investees at December 31, 2007 and 2006:
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2007 | |
| | | | | | | | | % owned
| | | Adjusted
| | | Adjusted%
| |
| | | Company
| | | Investee
| | | by the
| | | Investee
| | | owned by the
| |
| | | investment | | | equity(1) | | | Company(1) | | | equity(2) | | | Company(2) | |
| |
| GELS | | $ | 225,759,808 | | | $ | 766,588,143 | | | | 29.45% | | | $ | 843,755,327 | | | | 26.76% | |
| GFS | | | 257,594,595 | | | | 972,766,382 | | | | 26.48% | | | | 1,060,284,572 | | | | 24.29% | |
| GRV | | | 84,319,166 | | | | 252,699,023 | | | | 33.37% | | | | 319,010,784 | | | | 26.43% | |
| GTT | | | 97,949,282 | | | | 204,678,528 | | | | 47.86% | | | | 239,742,530 | | | | 40.86% | |
| HFPO | | | 36,813,437 | | | | 93,157,724 | | | | 39.52% | | | | 93,157,724 | | | | 39.52% | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 702,436,288 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2006 | |
| | | | | | | | | % owned
| | | Adjusted
| | | Adjusted %
| |
| | | Company
| | | Investee
| | | by the
| | | Investee
| | | owned by the
| |
| | | investment | | | equity(1) | | | Company(1) | | | equity(2) | | | Company(2) | |
| |
| GELS | | $ | 243,737,514 | | | $ | 834,038,536 | | | | 29.22 | % | | $ | 885,765,989 | | | | 27.52 | % |
| GFS | | | 240,699,867 | | | | 917,260,045 | | | | 26.24 | % | | | 958,045,903 | | | | 25.12 | % |
| GRV | | | 98,479,997 | | | | 314,304,435 | | | | 31.33 | % | | | 340,185,617 | | | | 28.95 | % |
| GTT | | | 103,332,963 | | | | 244,658,889 | | | | 42.24 | % | | | 287,382,985 | | | | 35.96 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 686,250,341 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | |
| (1) | | The Investees’ equity used in the calculation of the percentage owned by the Company is reduced for member redemptions from the Investees that are paid after the balance sheet date. |
| |
| (2) | | The Adjusted Investees’ Equity used in the calculation of the percentage owned by the Company represents Investees’ equity excluding Redemptions payable at December 31, 2006 and December 31, 2007. |
Equity in earnings of investees
Equity in earnings of investees includes the change in fair value of each Investee. Fair values are determined utilizing NAV information supplied by each individual Investee, which includes realized and unrealized gains/losses on investments as well as the Advisor’s management, incentive and administration fees and all other income/expenses. See Note 2 — Investments for further information.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of less than 90 days at the time of purchase, which are not held for resale to be cash equivalents. Cash equivalents are carried at cost plus accrued interest, which approximates fair value.
Allocation of net income/(loss)
Net income/(loss) is allocated monthly to the capital account of each member in the ratio that the balance of each such member’s capital account bears to the total balance of all members’ capital accounts. The Managing Member receives an annual incentive allocation equal to 5.0% of any new appreciation in the NAV of each series, as defined. Any depreciation in the NAV of a series must be recouped prior to the Managing Member receiving an incentive allocation.
Subscriptions and redemptions
Subscriptions to the Company can be made as of the first day of each calendar quarter or at the sole discretion of the Managing Member. Redemptions from the Company can be made quarterly after a twelve-month holding period or at such other times as determined in the sole discretion of the Managing Member, as provided for in the Company’s limited liability company agreement.
F-9
Income taxes
The Company is taxed as a partnership for U.S. federal income tax purposes. The members include their distributive share of the Company’s taxable income or loss on their respective income tax returns. Accordingly, no income tax liability or expense has been recorded in the financial statements of the Company.
Indemnifications
The Company enters into contracts that contain a variety of indemnification arrangements. The indemnification arrangements the Company has entered into with service providers include provisions for the Company to indemnify and hold harmless such service providers for certain liabilities. These indemnification arrangements typically cover liabilities incurred by service providers in connection with the services provided under the contractual arrangements with the Company and are generally entered into as part of a negotiated contractual arrangement stipulating the furnishing of the delineated services. However, under the terms of such contractual arrangements, the Company will not be required to indemnify service providers in certain situations to the extent that the liabilities incurred by the service providers were caused by the gross negligence, willful misconduct, bad faith, reckless disregard of duties, or similar conduct on the part of the service provider. The Company’s maximum exposure under these arrangements is unknown. It is not possible to estimate the maximum potential exposure under these agreements, because the indemnification arrangements relate to unforeseeable liabilities suffered as a result of the conduct of the Company or other parties which is presently unknown or unforeseeable. However, the Company has not had prior claims or losses pursuant to these indemnification arrangements and expects the risk of material loss therefrom to be remote.
The Investees seek capital appreciation over time by investing in the Investment Sectors. The Company’s investments in Investees are subject to terms and conditions of the respective operating agreements. The investments are carried at fair value as determined by the Company’s attributable share of the net assets of the respective Investees. Fair values are determined utilizing NAV information supplied by each individual Investee net of each Advisor’s management and incentive fees. These fees are included in Equity in earnings of investees on the Statement of Operations. Realized gains/(losses) on the sale of investments in Investees are calculated using the specified identified cost method. Because of the inherent uncertainty of valuation, estimated fair values may differ, at times significantly, from the values that would have been used had a ready market existed. GS HFS is the Managing Member for each of the Investees. GS HFS does not charge the Company any management fee or incentive allocation at the Investee level.
The Managing Member generally has limited access, if at all, to specific information regarding the Advisors’ portfolios and relies on valuations provided by the Advisors. Generally, the valuations provided by the Advisors are only audited on an annual basis and are not subject to independent third party verification. Typically, audited financial statements are not received before issuance of the Company’s financial statements. GS HFS, in its capacity as Managing Member of the Company, may perform additional procedures including Advisor due diligence reviews and analytical procedures with respect to the valuations provided by the Advisors and to ensure conformity with U.S. GAAP. Valuations provided by the Advisors may differ from the audited values received subsequent to the date of the Company’s NAV determination. In such cases, the Company will evaluate the materiality of any such differences.
Certain of the Investees’ investments in the Advisors are subject to variouslock-up provisions. Additionally, the Advisors of the investments held by the Investees may, at their discretion, transfer a portion of the Investees’ investment into side pocket share classes where liquidity terms are directed by the Advisor in accordance with the respective investment’s prospectus. These side pockets may have restricted liquidity and prohibit the Investees from fully liquidating its investment without delay.
F-10
The following table summarizes the Company’s Equity in earnings of investees for the year ended December 31, 2007, 2006 and 2005:
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| Investee | | Liquidity | | | 2007 | | | 2006 | | | 2005 | |
| | |
| |
| GELS | | | (1 | ) | | $ | 26,022,295 | | | $ | 27,640,603 | | | $ | 25,751,277 | |
| GFS | | | (2 | ) | | | 45,144,727 | | | | 33,856,614 | | | | 20,855,652 | |
| GRV | | | (3 | ) | | | 4,339,169 | | | | 8,751,105 | | | | 12,266,713 | |
| GTT | | | (4 | ) | | | 14,366,319 | | | | 5,772,087 | | | | 7,942,939 | |
| HFPO | | | (5 | ) | | | (1,996,563 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total | | | | | | $ | 87,875,947 | | | $ | 76,020,409 | | | $ | 66,816,581 | |
| | | | | | | | | | | | | | | | | |
| | |
| (1) | | Effective January 1, 2008, redemptions can be made quarterly with 61 days notice, or at the sole discretion of the Managing Member. Prior to January 1, 2008, redemptions could be made quarterly with 45 days notice, or at the sole discretion of the Managing Member. |
| |
| (2) | | Effective January 1, 2008, redemptions can be made quarterly on or after the first anniversary of the initial purchase of the units with 91 days notice, or at the sole discretion of the Managing Member. Prior to January 1, 2008, redemptions could be made quarterly with 91 days notice, or at the sole discretion of the Managing Member. |
| |
| (3) | | Redemptions can be made quarterly with 91 days notice, or at the sole discretion of the Managing Member. |
| |
| (4) | | Redemptions can be made quarterly with 60 days notice, or at the sole discretion of the Managing Member. |
| |
| (5) | | Redemptions can be made quarterly on or after the first anniversary of the initial purchase of the units with at least 91 days notice or at the sole discretion of the Managing Member. |
Goldman Sachs Global Equity Long/Short, LLC
Goldman Sachs Global Equity Long/Short, LLC seeks risk-adjusted absolute returns with volatility lower than the broad equity markets, primarily through long and short investment opportunities in the global equity markets. Strategies generally involve making long and short equity investments, often based on the Advisor’s assessment of fundamental value compared to market price, although Advisors employ a wide range of styles.
Goldman Sachs Global Fundamental Strategies, LLC
Goldman Sachs Global Fundamental Strategies, LLC seeks risk-adjusted absolute returns with volatility and correlation lower than the broad equity markets by allocating assets to Advisors that operate primarily in the global event driven sector. Event driven strategies seek to identify security price changes resulting from corporate events such as restructurings, mergers, takeovers, spin-offs, and other special situations. Corporate event arbitrageurs generally choose their investments based on their perceptions of the likelihood that the event or transaction will occur, the amount of time that the process will take, and the perceived ratio of return to risk. Strategies that may be utilized in the event driven sector include risk arbitrage/special situations, credit opportunities/distressed securities and multi-strategy investing. Other strategies may be employed as well.
Goldman Sachs Global Relative Value, LLC
Goldman Sachs Global Relative Value, LLC seeks risk-adjusted absolute returns with volatility and correlation lower than the broad equity markets by allocating assets to Advisors that operate primarily in the global relative value sector. Relative value strategies seek to profit from the mispricing of financial instruments, capturing spreads between related securities that deviate from their fair value or historical norms. Directional and market exposure is generally held to a minimum or completely hedged. Strategies that may be utilized in the relative value sector include convertible arbitrage, equity arbitrage and fixed-income arbitrage. Other strategies may be employed as well.
F-11
Goldman Sachs Global Tactical Trading, LLC
Goldman Sachs Global Tactical Trading, LLC seeks long-term risk-adjusted returns by allocating its assets to Advisors that employ strategies primarily within the tactical trading sector. Tactical trading strategies are directional trading strategies that generally fall into one of the following two categories: managed futures strategies and global macro strategies. Managed futures strategies involve trading in the global futures and currencies markets, generally using systematic or discretionary approaches. Global macro strategies generally utilize analysis of macroeconomic, geopolitical, and financial conditions to develop views on country, regional or broader economic themes and then seek to capitalize on such views by trading in securities, commodities, interest rates, currencies and various financial instruments.
Goldman Sachs HFP Opportunistic Fund, LLC
On July 1, 2007, the Company made an investment in HFPO whose investment objective is to make opportunistic investments in underlying Advisors in order to (a) increase the weighting of a particular Advisor which had a low weighting in the Company due to a lower target weight in one of the other Investees or (b) add an Advisor that is not currently represented in any of the other Investees.
Information regarding the actual management and incentive fees charged by the Advisors for the period was not available for all Advisors. The following table reflects the weighted average Advisors’ management fee and incentive fee rates at the Investee level at December 31, 2007, 2006 and 2005. The weighted average is based on the period-end market values of each Advisor’s investment in proportion to the Investee’s total investments. The fee rates used are the actual rates charged by each Advisor.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | Management
| | | Incentive
| | | Management
| | | Incentive
| | | Management
| | | Incentive
| |
Investee | | fees | | | fee | | | fees | | | fee | | | fees | | | fee | |
| |
| GELS | | | 1.49 | % | | | 20.22 | % | | | 1.60 | % | | | 19.91 | % | | | 1.50 | % | | | 19.94 | % |
| GFS | | | 1.51 | % | | | 19.77 | % | | | 1.51 | % | | | 19.91 | % | | | 1.47 | % | | | 19.92 | % |
| GRV | | | 1.51 | % | | | 20.91 | % | | | 1.64 | % | | | 20.98 | % | | | 1.65 | % | | | 20.88 | % |
| GTT | | | 2.09 | % | | | 22.70 | % | | | 2.11 | % | | | 21.71 | % | | | 2.02 | % | | | 20.63 | % |
| HFPO | | | 1.56 | % | | | 20.18 | % | | | n/a | | | | n/a | | | | n/a | | | | n/a | |
The Advisors’ management and incentive fees are not paid to the Managing Member.
The following table summarizes the cost of the Company’s investments in the Investees at December 31, 2007 and 2006:
| | | | | | | | | |
Investee | | 12/31/2007 | | | 12/31/2006 | |
| |
| GELS | | $ | 168,574,601 | | | $ | 193,158,402 | |
| GFS | | | 171,521,192 | | | | 178,904,875 | |
| GRV | | | 76,051,896 | | | | 90,318,077 | |
| GTT | | | 77,712,199 | | | | 92,615,655 | |
| HFPO | | | 38,810,000 | | | | — | |
| | | | | | | | | |
| Total | | $ | 532,669,888 | | | $ | 554,997,009 | |
The Company pays a monthly management fee accruing daily to GS HFS equal to 1.25% per annum of the net assets of the Company as of each month-end, as defined.
During the year ended December 31, 2007, the Company paid a monthly administration fee to SEI Global Services, Inc. (“SEI”) in the range between 0.04% and 0.06% per annum of the net assets at the Investee level, but such rate may be exceeded under certain circumstances, subject to a maximum of approximately 0.20%. During the year ended December 31, 2006, the Company paid a monthly administration fee to SEI in the range of 0.06% to 0.09%. During the year ended December 31, 2005, the Company paid a monthly administration fee to SEI in the range of 0.07% to 0.10%. The administration fee is charged at the Investee level and is included in Equity in earnings of
F-12
investees on the Statement of Operations. For the year ended December 31, 2007, 2006 and 2005, the administration fee charged at the Investee level totaled $324,928, $511,676 and $713,242, respectively.
Prior to February 9, 2007, the Managing Member served as the administrator of the Company. The Managing Member (in its capacity as administrator of the Company) and the Company entered into an agreement with SEI, as of March 1, 2004, pursuant to which SEI served as the sub-administrator of the Company. Effective as of February 9, 2007, the Managing Member ceased to serve as the administrator of the Company and the Company entered into an administration agreement with SEI pursuant to which SEI became the administrator of the Company.
In the ordinary course of business, GS HFS, in its capacity as Managing Member of the Company and the Investees, attempts to manage a variety of risks, including market, credit and operational risk. GS HFS, in its capacity as Managing Member of the Company and the Investees, attempts to identify, measure and monitor risk through various mechanisms including risk management strategies and credit policies. These include monitoring risk guidelines and diversifying exposures across a variety of instruments, markets and counterparties.
Market risk is the risk of potential significant adverse changes in the value of financial instruments because of changes in market conditions such as interest and currency rate movements and volatility in commodity or security prices. GS HFS, in its capacity as Managing Member of the Company and the Investees, monitors its exposure to market risk through various analytical techniques.
The Company invests in the Investees, and may from time to time redeem its membership units of the Investees. The Investees, in turn, maintain relationships with counterparties that include the Advisors. These relationships could result in concentrations of credit risk. Credit risk arises from the potential inability of counterparties to perform their obligations under the terms of the contract. GS HFS, in its capacity as Managing Member of the Investees, has formal credit-review policies to monitor counterparty risk.
Operational risk is the potential for loss caused by a deficiency in information, communication, transaction processing and settlement and accounting systems. GS HFS, in its capacity as Managing Member of the Company and the Investees, maintains controls and procedures for the purpose of mitigating operational risk.
The Due to managing member liability on the Balance Sheet represents management fees due to GS HFS at December 31, 2007 and 2006.
Included in the Redemptions payable on the Balance Sheet at December 31, 2007 and 2006 were redemptions due to the Managing Member of $3,885,293 and $2,888,230, respectively.
Goldman, Sachs & Co. (“GS & Co.”), an affiliate of the Managing Member, is one of several prime brokers for certain Advisors. GS & Co. charges fees at prevailing market rates.
Directors and Executive Officers of the Managing Member owned less than 1% of the Company’s equity at December 31, 2007, 2006 and 2005.
| |
| Note 6 – | Borrowing facility |
On June 30, 2006, the existing credit facility, which was entered into on November 24, 2004, was terminated, and the Company entered into a credit facility (as amended, the “Credit Facility”) with Barclays Bank PLC (the “Facility Counterparty”). The Credit Facility was extended, prior to its maturity, an additional 90 days to September 30, 2007. On September 19, 2007, the Company further extended the maturity date of the Credit Facility to an additional364-day period from September 19, 2007. In addition, the Company amended certain terms of the Credit Facility. Pursuant to the Credit Facility, the Company may borrow up to an amount equal to the lesser of (i) $32,000,000, which amount may be subsequently increased to $100,000,000 subject to the approval of the financial institution, and (ii) 15.0% of the Company’s NAV from time to time. The effective interest rate on borrowings outstanding is equal to (i) with respect to advances provided on less than three business days’ notice, the overnight London Interbank Offered Rate (“LIBOR”), for the initial day of such advance and one-week LIBOR
F-13
thereafter, and (ii) with respect to all other advances, one-week LIBOR, plus in each case 0.65% per annum. The Company also pays a monthly commitment fee to the Facility Counterparty at the rate of 0.25% per annum of the average daily aggregate unused portion of the commitment. The commitment fees and the interest related to borrowing are included in Interest expense on the Statement of Operations. The Company had no outstanding borrowings at December 31, 2007 and 2006.
On November 24, 2004, the Company entered into a five year credit facility with a major financial institution. From January 3, 2006 through June 29, 2006, the Company could have requested to borrow up to $80,000,000, at the discretion of the financial institution. Prior to January 3, 2006, the Company could request to borrow up to $40,000,000, at the discretion of the financial institution. Prior to September 1, 2005, the Company could request to borrow up to $45,000,000, at the discretion of the financial institution. At the time of any borrowing, the aggregate amounts borrowed could not exceed 10% of the Company’s NAV and at all other times the aggregate amount borrowed could not exceed 15% of the Company’s NAV. The effective interest rate on borrowed amounts equaled LIBOR plus 0.85%. The Company also paid an administration and structuring fee calculated as 0.10% per annum on the aggregate amount of $80,000,000. The administration and structuring fee and the interest related to borrowing are included in Interest expense on the Statement of Operations.
| |
| Note 7 – | New accounting pronouncements |
In June 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions have met a “more-likely-than-not” threshold of being sustained by the applicable tax authority. Tax positions that meet the more-likely-than-not recognition threshold would be measured to determine the amount of benefit to recognize in the current year. If the more-likely-than-not threshold is not met, tax positions would be measured to determine if a tax expense is required for the current year. For public companies, adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Based on its analysis, the Managing Member has determined that the adoption of FIN 48 did not have a material impact on the Company’s financial statements. However, the Managing Member’s determination regarding FIN 48 may be subject to review and adjustment at a later date based upon factors including, but not limited to, further implementation guidance expected from the FASB, and ongoing analysis of tax laws, regulations and interpretations thereof.
In September, 2006, the FASB released Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”), which provides enhanced guidance for using fair value to measure assets and liabilities. FAS 157 requires companies to provide expanded information about the assets and liabilities measured at fair value and the potential effect of these fair valuations of an entity’s financial performance. FAS 157 does not expand the use of fair value in any new circumstances, but provides clarification on acceptable fair valuation methods and applications. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods with those fiscal years. As of December 31, 2007, management does not believe the adoption of FAS 157 will materially impact the amounts reported in the Financial Statements, however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain of the measurements reported in the Statement of Operations for a fiscal period.
At December 31, 2007 and 2006, the Company had Class A Units outstanding. Each series of Class A Units is identical in every regard except with respect to its individualized incentive allocation base. Effective January 1, 2007, Class A Series 21 through 32 units were converted into Class A Series 1 units and effective January 1, 2006, Class A Series 9 through Class A Series 20 units were converted into Class A Series 1 units. Transactions in units for
F-14
non-managing members for the year ended December 31, 2007, 2006 and 2005 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2007 | | | Year ended December 31, 2006 | | | Year ended December 31, 2005 | |
| | | Units | | | Amount | | | Units | | | Amount | | | Units | | | Amount | |
| |
| Share Class | | | | | | | | | | | | | | | | | | | | | | | | |
| Conversion | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A | | | | | | | | | | | | | | | | | | | | | | | | |
| Series 1 | | | 319,714.29 | | | $ | 43,832,922 | | | | 1,747,528.47 | | | $ | 219,744,215 | | | | 911,205.28 | | | $ | 109,573,710 | |
| Series 2 | | | — | | | | — | | | | — | | | | — | | | | (687.41 | ) | | | (71,818 | ) |
| Series 3 | | | — | | | | — | | | | — | | | | — | | | | (83,221.74 | ) | | | (8,734,155 | ) |
| Series 4 | | | — | | | | — | | | | — | | | | — | | | | (12,734.34 | ) | | | (1,346,355 | ) |
| Series 5 | | | — | | | | — | | | | — | | | | — | | | | (17,500.00 | ) | | | (1,850,110 | ) |
| Series 6 | | | — | | | | — | | | | — | | | | — | | | | (298,400.00 | ) | | | (31,325,187 | ) |
| Series 7 | | | — | | | | — | | | | — | | | | — | | | | (412,100.00 | ) | | | (42,863,013 | ) |
| Series 8 | | | — | | | | — | | | | — | | | | — | | | | (231,250.00 | ) | | | (23,383,072 | ) |
| Series 9 | | | — | | | | — | | | | (210,475.70 | ) | | | (22,009,240 | ) | | | — | | | | — | |
| Series 10 | | | — | | | | — | | | | (494,654.82 | ) | | | (52,022,308 | ) | | | — | | | | — | |
| Series 11 | | | — | | | | — | | | | (303,250.00 | ) | | | (31,573,596 | ) | | | — | | | | — | |
| Series 12 | | | — | | | | — | | | | (263,000.00 | ) | | | (27,533,177 | ) | | | — | | | | — | |
| Series 13 | | | — | | | | — | | | | (279,367.65 | ) | | | (29,690,733 | ) | | | — | | | | — | |
| Series 14 | | | — | | | | — | | | | (276,499.99 | ) | | | (29,272,927 | ) | | | — | | | | — | |
| Series 15 | | | — | | | | — | | | | (128,500.00 | ) | | | (13,455,578 | ) | | | — | | | | — | |
| Series 16 | | | — | | | | — | | | | (52,500.00 | ) | | | (5,421,351 | ) | | | — | | | | — | |
| Series 17 | | | — | | | | — | | | | (10,000.00 | ) | | | (1,023,103 | ) | | | — | | | | — | |
| Series 18 | | | — | | | | — | | | | (51,262.50 | ) | | | (5,179,803 | ) | | | — | | | | — | |
| Series 19 | | | — | | | | — | | | | (12,000.00 | ) | | | (1,233,270 | ) | | | — | | | | — | |
| Series 20 | | | — | | | | — | | | | (13,100.00 | ) | | | (1,329,129 | ) | | | — | | | | — | |
| Series 21 | | | (20,000.00 | ) | | | (2,180,597 | ) | | | — | | | | — | | | | — | | | | — | |
| Series 22 | | | (126,060.00 | ) | | | (13,362,621 | ) | | | — | | | | — | | | | — | | | | — | |
| Series 23 | | | (17,500.00 | ) | | | (1,846,363 | ) | | | — | | | | — | | | | — | | | | — | |
| Series 24 | | | (16,500.00 | ) | | | (1,713,051 | ) | | | — | | | | — | | | | — | | | | — | |
| Series 25 | | | (26,000.00 | ) | | | (2,660,197 | ) | | | — | | | | — | | | | — | | | | — | |
| Series 26 | | | (5,000.00 | ) | | | (521,404 | ) | | | — | | | | — | | | | — | | | | — | |
| Series 27 | | | (19,000.00 | ) | | | (1,990,075 | ) | | | — | | | | — | | | | — | | | | — | |
| Series 28 | | | (79,750.00 | ) | | | (8,361,171 | ) | | | — | | | | — | | | | — | | | | — | |
| Series 29 | | | (20,000.00 | ) | | | (2,081,244 | ) | | | — | | | | — | | | | — | | | | — | |
| Series 30 | | | (6,020.00 | ) | | | (630,689 | ) | | | — | | | | — | | | | — | | | | — | |
| Series 31 | | | (39,000.00 | ) | | | (4,025,172 | ) | | | — | | | | — | | | | — | | | | — | |
| Series 32 | | | (44,000.00 | ) | | | (4,460,338 | ) | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | (99,115.71 | ) | | $ | — | | | | (347,082.19 | ) | | $ | — | | | | (144,688.21 | ) | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-15
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2007 | | | Year ended December 31, 2006 | | | Year ended December 31, 2005 | |
| | | Units | | | Amount | | | Units | | | Amount | | | Units | | | Amount | |
| |
| Subscriptions Class A | | | | | | | | | | | | | | | | | | | | | | | | |
| Series 9 | | | — | | | $ | — | | | | — | | | $ | — | | | | 244,566.36 | | | $ | 24,456,636 | |
| Series 10 | | | — | | | | — | | | | — | | | | — | | | | 546,895.41 | | | | 54,689,541 | |
| Series 11 | | | — | | | | — | | | | — | | | | — | | | | 313,250.00 | | | | 31,325,000 | |
| Series 12 | | | — | | | | — | | | | — | | | | — | | | | 282,000.00 | | | | 28,200,000 | |
| Series 13 | | | — | | | | — | | | | — | | | | — | | | | 305,217.66 | | | | 30,521,766 | |
| Series 14 | | | — | | | | — | | | | — | | | | — | | | | 294,000.00 | | | | 29,400,000 | |
| Series 15 | | | — | | | | — | | | | — | | | | — | | | | 128,500.00 | | | | 12,850,000 | |
| Series 16 | | | — | | | | — | | | | — | | | | — | | | | 52,500.00 | | | | 5,250,000 | |
| Series 17 | | | — | | | | — | | | | — | | | | — | | | | 10,000.00 | | | | 1,000,000 | |
| Series 18 | | | — | | | | — | | | | — | | | | — | | | | 51,262.50 | | | | 5,126,250 | |
| Series 19 | | | — | | | | — | | | | — | | | | — | | | | 12,000.00 | | | | 1,200,000 | |
| Series 20 | | | — | | | | — | | | | — | | | | — | | | | 13,100.00 | | | | 1,310,000 | |
| Series 21 | | | — | | | | — | | | | 20,000.00 | | | | 2,000,000 | | | | — | | | | — | |
| Series 22 | | | — | | | | — | | | | 126,060.00 | | | | 12,606,000 | | | | — | | | | — | |
| Series 23 | | | — | | | | — | | | | 17,500.00 | | | | 1,750,000 | | | | — | | | | — | |
| Series 24 | | | — | | | | — | | | | 16,500.00 | | | | 1,650,000 | | | | — | | | | — | |
| Series 25 | | | — | | | | — | | | | 26,000.00 | | | | 2,600,000 | | | | — | | | | — | |
| Series 26 | | | — | | | | — | | | | 5,000.00 | | | | 500,000 | | | | — | | | | — | |
| Series 27 | | | — | | | | — | | | | 19,000.00 | | | | 1,900,000 | | | | — | | | | — | |
| Series 28 | | | — | | | | — | | | | 79,750.00 | | | | 7,975,000 | | | | — | | | | — | |
| Series 29 | | | — | | | | — | | | | 20,000.00 | | | | 2,000,000 | | | | — | | | | — | |
| Series 30 | | | — | | | | — | | | | 6,020.00 | | | | 602,000 | | | | — | | | | — | |
| Series 31 | | | — | | | | — | | | | 39,000.00 | | | | 3,900,000 | | | | — | | | | — | |
| Series 32 | | | — | | | | — | | | | 44,000.00 | | | | 4,400,000 | | | | — | | | | — | |
| Series 33 | | | 10,000.00 | | | | 1,000,000 | | | | — | | | | — | | | | — | | | | — | |
| Series 34 | | | 10,010.00 | | | | 1,001,000 | | | | — | | | | — | | | | — | | | | — | |
| Series 35 | | | 27,595.00 | | | | 2,759,500 | | | | — | | | | — | | | | — | | | | — | |
| Series 36 | | | 37,000.00 | | | | 3,700,000 | | | | — | | | | — | | | | — | | | | — | |
| Series 37 | | | 34,000.00 | | | | 3,400,000 | | | | — | | | | — | | | | — | | | | — | |
| Series 38 | | | 38,700.00 | | | | 3,870,000 | | | | — | | | | — | | | | — | | | | — | |
| Series 39 | | | 31,750.00 | | | | 3,175,000 | | | | — | | | | — | | | | — | | | | — | |
| Series 40 | | | 51,000.00 | | | | 5,100,000 | | | | — | | | | — | | | | — | | | | — | |
| Series 41 | | | 75,000.00 | | | | 7,500,000 | | | | — | | | | — | | | | — | | | | — | |
| Series 42 | | | 54,000.00 | | | | 5,400,000 | | | | — | | | | — | | | | — | | | | — | |
| Series 43 | | | 27,750.00 | | | | 2,775,000 | | | | — | | | | — | | | | — | | | | — | |
| Series 44 | | | 34,000.00 | | | | 3,400,000 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | | 430,805.00 | | | $ | 43,080,500 | | | | 418,830.00 | | | $ | 41,883,000 | | | | 2,253,291.93 | | | $ | 225,329,193 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-16
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2007 | | | Year ended December 31, 2006 | | | Year ended December 31, 2005 | |
| | | Units | | | Amount | | | Units | | | Amount | | | Units | | | Amount | |
| |
| Redemptions Class A | | | | | | | | | | | | | | | | | | | | | | | | |
| Series 1 | | | 671,424.67 | | | $ | 98,845,744 | | | | 1,650,633.46 | | | $ | 217,648,572 | | | | 3,549,600.61 | | | $ | 441,034,885 | |
| Series 9 | | | — | | | | — | | | | — | | | | — | | | | 34,090.66 | | | | 3,553,991 | |
| Series 10 | | | — | | | | — | | | | — | | | | — | | | | 52,240.59 | | | | 5,492,810 | |
| Series 11 | | | — | | | | — | | | | — | | | | — | | | | 10,000.00 | | | | 1,041,174 | |
| Series 12 | | | — | | | | — | | | | — | | | | — | | | | 19,000.00 | | | | 1,989,089 | |
| Series 13 | | | — | | | | — | | | | — | | | | — | | | | 25,850.01 | | | | 2,747,295 | |
| Series 14 | | | — | | | | — | | | | — | | | | — | | | | 17,500.01 | | | | 1,852,717 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 671,424.67 | | | $ | 98,845,744 | | | | 1,650,633.46 | | | $ | 217,648,572 | | | | 3,708,281.88 | | | $ | 457,711,961 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
At December 31, 2007, 2006 and 2005, members’ equity consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2007 | | | Year ended December 31, 2006 | | | Year ended December 31, 2005 | |
| | | Units | | | Amount | | | Units | | | Amount | | | Units | | | Amount | |
| |
Non-managing
members Class A | | | | | | | | | | | | | | | | | | | | | | | | |
| Series 1 | | | 4,157,699.15 | | | $ | 635,635,467 | | | | 4,509,409.53 | | | $ | 618,241,552 | | | | 4,412,514.52 | | | $ | 554,854,668 | |
| Series 9 | | | — | | | | — | | | | — | | | | — | | | | 210,475.70 | | | | 22,009,240 | |
| Series 10 | | | — | | | | — | | | | — | | | | — | | | | 494,654.82 | | | | 52,022,308 | |
| Series 11 | | | — | | | | — | | | | — | | | | — | | | | 303,250.00 | | | | 31,573,596 | |
| Series 12 | | | — | | | | — | | | | — | | | | — | | | | 263,000.00 | | | | 27,533,177 | |
| Series 13 | | | — | | | | — | | | | — | | | | — | | | | 279,367.65 | | | | 29,690,733 | |
| Series 14 | | | — | | | | — | | | | — | | | | — | | | | 276,499.99 | | | | 29,272,927 | |
| Series 15 | | | — | | | | — | | | | — | | | | — | | | | 128,500.00 | | | | 13,455,578 | |
| Series 16 | | | — | | | | — | | | | — | | | | — | | | | 52,500.00 | | | | 5,421,351 | |
| Series 17 | | | — | | | | — | | | | — | | | | — | | | | 10,000.00 | | | | 1,023,103 | |
| Series 18 | | | — | | | | — | | | | — | | | | — | | | | 51,262.50 | | | | 5,179,803 | |
| Series 19 | | | — | | | | — | | | | — | | | | — | | | | 12,000.00 | | | | 1,233,270 | |
| Series 20 | | | — | | | | — | | | | — | | | | — | | | | 13,100.00 | | | | 1,329,129 | |
| Series 21 | | | — | | | | — | | | | 20,000.00 | | | | 2,180,597 | | | | — | | | | — | |
| Series 22 | | | — | | | | — | | | | 126,060.00 | | | | 13,362,621 | | | | — | | | | — | |
| Series 23 | | | — | | | | — | | | | 17,500.00 | | | | 1,846,363 | | | | — | | | | — | |
| Series 24 | | | — | | | | — | | | | 16,500.00 | | | | 1,713,051 | | | | — | | | | — | |
| Series 25 | | | — | | | | — | | | | 26,000.00 | | | | 2,660,197 | | | | — | | | | — | |
| Series 26 | | | — | | | | — | | | | 5,000.00 | | | | 521,404 | | | | — | | | | — | |
| Series 27 | | | — | | | | — | | | | 19,000.00 | | | | 1,990,075 | | | | — | | | | — | |
| Series 28 | | | — | | | | — | | | | 79,750.00 | | | | 8,361,171 | | | | — | | | | — | |
| Series 29 | | | — | | | | — | | | | 20,000.00 | | | | 2,081,244 | | | | — | | | | — | |
| Series 30 | | | — | | | | — | | | | 6,020.00 | | | | 630,689 | | | | — | | | | — | |
| Series 31 | | | — | | | | — | | | | 39,000.00 | | | | 4,025,172 | | | | — | | | | — | |
| Series 32 | | | — | | | | — | | | | 44,000.00 | | | | 4,460,338 | | | | — | | | | — | |
| Series 33 | | | 10,000.00 | | | | 1,115,107 | | | | — | | | | — | | | | — | | | | — | |
| Series 34 | | | 10,010.00 | | | | 1,098,794 | | | | — | | | | — | | | | — | | | | — | |
| Series 35 | | | 27,595.00 | | | | 3,005,067 | | | | — | | | | — | | | | — | | | | — | |
| Series 36 | | | 37,000.00 | | | | 3,993,991 | | | | — | | | | — | | | | — | | | | — | |
F-17
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2007 | | | Year ended December 31, 2006 | | | Year ended December 31, 2005 | |
| | | Units | | | Amount | | | Units | | | Amount | | | Units | | | Amount | |
| |
| Series 37 | | | 34,000.00 | | | | 3,611,289 | | | | — | | | | — | | | | — | | | | — | |
| Series 38 | | | 38,700.00 | | | | 4,022,981 | | | | — | | | | — | | | | — | | | | — | |
| Series 39 | | | 31,750.00 | | | | 3,283,841 | | | | — | | | | — | | | | — | | | | — | |
| Series 40 | | | 51,000.00 | | | | 5,280,566 | | | | — | | | | — | | | | — | | | | — | |
| Series 41 | | | 75,000.00 | | | | 7,918,349 | | | | — | | | | — | | | | — | | | | — | |
| Series 42 | | | 54,000.00 | | | | 5,608,852 | | | | — | | | | — | | | | — | | | | — | |
| Series 43 | | | 27,750.00 | | | | 2,785,064 | | | | — | | | | — | | | | — | | | | — | |
| Series 44 | | | 34,000.00 | | | | 3,424,714 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Subtotal | | | 4,588,504.15 | | | $ | 680,784,082 | | | | 4,928,239.53 | | | $ | 662,074,474 | | | | 6,507,125.18 | | | $ | 774,598,883 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Managing member | | | | | | | — | | | | | | | | — | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total members’ equity | | | | | | $ | 680,784,082 | | | | | | | $ | 662,074,474 | | | | | | | $ | 774,598,883 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Note 9 – | Financial highlights |
Financial highlights for the Company for the year ended December 31, 2007, 2006 and 2005 are as follows:
| | | | | | | | | | | | | |
| | | 2007
| | | 2006
| | | 2005
| |
| | | Class A
| | | Class A
| | | Class A
| |
| | | Series 1 | | | Series 1 | | | Series 1 | |
| |
| Per unit operating performance: | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 137.10 | | | $ | 125.75 | | | $ | 120.25 | |
| Income from operations: | | | | | | | | | | | | |
| Net trading profit/(loss) | | | 18.63 | | | | 13.67 | | | | 7.44 | |
| Net investment income/(loss)(1)(2) | | | (2.85 | ) | | | (2.32 | ) | | | (1.94 | ) |
| | | | | | | | | | | | | |
| Total income/(loss) from operations | | | 15.78 | | | | 11.35 | | | | 5.50 | |
| | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 152.88 | | | $ | 137.10 | | | $ | 125.75 | |
| | | | | | | | | | | | | |
| Ratios to average net assets(3) | | | | | | | | | | | | |
| Expenses | | | 1.42 | % | | | 1.36 | % | | | 1.36 | % |
| Incentive allocation | | | 0.57 | % | | | 0.46 | % | | | 0.22 | % |
| | | | | | | | | | | | | |
| Total expenses and incentive allocation | | | 1.99 | % | | | 1.82 | % | | | 1.58 | % |
| | | | | | | | | | | | | |
| Net investment income/(loss) | | | (1.95 | )% | | | (1.76 | )% | | | (1.57 | )% |
| | | | | | | | | | | | | |
| Total return (prior to incentive allocation)(4) | | | 12.12 | % | | | 9.51 | % | | | 4.79 | % |
| Incentive allocation(4) | | | (0.61 | )% | | | (0.48 | )% | | | (0.22 | )% |
| | | | | | | | | | | | | |
| Total return(4) | | | 11.51 | % | | | 9.03 | % | | | 4.57 | % |
| | | | | | | | | | | | | |
| | |
| (1) | | Net investment income/(loss) is calculated based on average units outstanding during the period. |
| |
| (2) | | Includes incentive allocation. |
| |
| (3) | | The ratios of expenses and net investment/(loss) to average net assets are calculated by dividing total expenses and net investment income/(loss), respectively, by the month end average net assets for the period. The ratios to average net assets calculated above do not include the Company’s proportionate share of the net investment income and expenses of the Investees. The ratios to average net assets for each member may vary based on individualized fee structures and the timing of capital transactions. |
F-18
| | |
| (4) | | The components of total return are calculated by dividing the change in the per share value of each component for the period by the NAV per share at the beginning of the period. The total return for Class A Series 1 is calculated taken as a whole. The total return for each member may vary based on individualized fee structures and the timing of capital transactions. |
Per share operating performance, expense ratio and total return are calculated and presented for the initial series.
| |
| Note 10 – | Subsequent events |
Effective January 1, 2008, Class A Series 33 through Class A Series 44 units were collapsed into Class A Series 1 units, as provided in the Company’s private placement memorandum.
F-19
