UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-23814
Destiny Alternative Fund (TEI) LLC
(Exact name of registrant as specified in charter)
c/o UMB Fund Services, Inc.
235 West Galena Street
Milwaukee, WI 53212
(Address of principal executive offices) (Zip code)
Ann Maurer
235 West Galena Street
Milwaukee, WI 53212
(Name and address of agent for service)
registrant's telephone number, including area code: (414) 299-2217
Date of fiscal year end: March 31
Date of reporting period: September 30, 2022
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
ITEM 1.(a) REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
Destiny Alternative Fund (TEI) LLC
Table of Contents
This report and the financial statements contained herein are provided for the general information of the shareholders of the Destiny Alternative Fund (TEI) LLC (the “Fund”). This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by the Fund’s Confidential Private Placement Memorandum.
Destiny Alternative Fund (TEI) LLC | |||
Statement of Assets, Liabilities and Members' Capital | |||
As of September 30, 2022 (Unaudited) |
Assets: | ||||
Investments in Destiny Alternative Fund LLC, at fair value (Cost $15,605,010) | $ | 15,571,020 | ||
Total Assets | 15,571,020 | |||
Liabilities: | ||||
Payables: | ||||
Auditing fees | 10,000 | |||
Blue Sky Fees | 5,000 | |||
Chief Compliance Officer fees | 1,176 | |||
Accounting and administration fees | 1,635 | |||
Transfer agent fees and expenses | 235 | |||
Custody fees | 438 | |||
Insurance fees | 900 | |||
Total liabilities | 19,384 | |||
Members' Capital | $ | 15,551,636 | ||
Members' Capital consists of: | ||||
Members' Capital paid-in capital | $ | 16,089,046 | ||
Total accumulated deficit | (537,410 | ) | ||
Total Members' Capital | $ | 15,551,636 | ||
Units issued and outstanding | 160,890 | |||
Members' Capital per Unit | $ | 96.66 |
See accompanying Notes to Financial Statements.
1
Destiny Alternative Fund (TEI) LLC | ||
Statement of Operations | ||
For the Period June 30, 2022 (commencement of operations) to September 30, 2022 (Unaudited) |
Investment income (loss) allocated from Destiny Alternative Fund LLC | ||||
Dividends | $ | 4,474 | ||
Interest | 15 | |||
Expenses | (97,056 | ) | ||
Net investment loss allocated from Destiny Alternative Fund LLC | (92,567 | ) | ||
Fund Expenses: | ||||
Auditing fees | 10,000 | |||
Blue Sky Fees | 5,000 | |||
Chief Compliance Officer fees | 3,528 | |||
UMB Accounting fees | 3,268 | |||
Insurance fees | 900 | |||
Custody fees | 576 | |||
Transfer agent fees and expenses | 235 | |||
Miscellaneous | 600 | |||
Net Expenses | 24,107 | |||
Net Investment Loss | (116,674 | ) | ||
Realized and unrealized gain (loss) on investments allocated from Destiny Alternative Fund LLC | ||||
Net realized loss on investments | (386,746 | ) | ||
Net change in unrealized appreciation/depreciation | (33,990 | ) | ||
Net realized and unrealized loss on investments | (420,736 | ) | ||
Net change in Members' Capital from operations | $ | (537,410 | ) |
See accompanying Notes to Financial Statements.
2
Destiny Alternative Fund (TEI) LLC | ||
Statement of Changes in Members' Capital |
For the Period | ||||
June 30, 2022* | ||||
Through | ||||
September 30, 2022 | ||||
(Unaudited) | ||||
Increase (Decrease) in Net Assets From: | ||||
Operations: | ||||
Net Investment Loss | $ | (116,674 | ) | |
Net realized loss on investments | (386,746 | ) | ||
Net change in unrealized appreciation/depreciation | (33,990 | ) | ||
Net change in Members' Capital from operations | (537,410 | ) | ||
Capital Transactions: | ||||
Sale of Fund units | 16,089,046 | |||
Net change in Members' Capital from capital transactions | 16,089,046 | |||
Total Increase in Members' Capital | 15,551,636 | |||
Members' Capital | ||||
Beginning of period | - | |||
End of period | $ | 15,551,636 | ||
Capital Share Transactions: | ||||
Units sold | 160,890 | |||
Net Increase in Capital Share Transactions | 160,890 |
* Commencement of operations.
See accompanying Notes to Financial Statements.
3
Destiny Alternative Fund (TEI) LLC | ||||
Financial Highlights | ||||
Per unit operating performance. | ||||
For a single unit outstanding throughout the period. |
For the Period | ||||
June 30, 2022* | ||||
Through | ||||
September 30, 2022 | ||||
(Unaudited) | ||||
Members' Capital, beginning of period | $ | 100.00 | ||
Income from Investment Operations: | ||||
Net investment loss1 | (0.73 | ) | ||
Net realized and unrealized gain (loss) on investments | (2.61 | ) | ||
Total from investment operations | (3.34 | ) | ||
Members' Capital, end of period | $ | 96.66 | ||
Total return 2 | (3.34 | )% | ||
Ratios and Supplemental Data: | ||||
Members' Capital, end of period (in thousands) | $ | 15,552 | ||
Ratio of average Members' Capital: 3 | ||||
Total expenses4 | 3.04 | % | ||
Net investment loss4 | (2.93 | )% | ||
Portfolio turnover rate 2, 5 | 102 | % |
* | Commencement of operations. | |
1 | Based on average units outstanding for the period. | |
2 | Not annualized. | |
3 | The ratios include the Fund's proportionate share of income and expenses allocated from Destiny Alternative Fund LLC. | |
4 | Annualized. | |
5 | Portfolio turnover presented is for Destiny Alternative Fund LLC. |
See accompanying Notes to Financial Statements.
4
Destiny Alternative Fund (TEI) LLC
Notes to Financial Statements (Unaudited)
1. ORGANIZATION
Destiny Alternative Fund (TEI) LLC (the “Fund”) is a Delaware limited liability company registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”), as a non-diversified, closed-end management investment company on July 1, 2022. The Fund commenced operations on June 30, 2022. Prior to November 22, 2022, the Fund was known as Destiny Alternative Fund (Tax Exempt) LLC.
The Fund is designed for investment primarily by U.S. tax-exempt and tax-deferred investors. The Fund’s investment objective is to seek long-term capital appreciation. The Fund seeks to achieve its objective by investing all or substantially all of its assets in the Destiny Alternative Fund Limited (the “Offshore Fund”), a Cayman Islands exempted company with the same investment objective as the Fund. The Offshore Fund in turn invests all or substantially all of its assets in Destiny Alternative Fund LLC (the “Master Fund”), a Delaware limited liability company registered under the Investment Company Act as a non-diversified, closed-end management investment company. The Master Fund and the Offshore Fund have the same investment objective as the Fund. The financial statements of the Master Fund, including the Schedule of Investments, should be read in conjunction with the Fund’s financial statements.
The Offshore Fund will serve solely as an intermediate entity through which the Fund will invest in the Master Fund. The Offshore Fund will make no independent investment decisions and will have no investment or other discretion over the Fund’s investable assets.
The Master Fund is a “fund of funds” that intends to invest primarily in hedge funds, private equity funds, growth equity funds, venture capital funds, credit funds, real estate funds, co-investment vehicles, managed accounts, open-end and closed-end registered investment companies (including exchange traded funds) and other types of investment vehicles (collectively, the “Underlying Funds”) that employ a broad range of investment strategies, including relative value, long/short equity, event driven, private equity, growth equity, venture capital, and real estate strategies, and invest or trade in a wide range of securities. An Underlying Fund will be managed by a third-party investment adviser (each, an “Underlying Manager” and collectively, the “Underlying Managers”).
Each prospective investor in the Fund will be required to certify that it is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”). In addition, Units are generally being offered only to investors that are U.S. persons for U.S. federal income tax purposes and that are exempt from U.S. federal income taxation (including tax-deferred accounts that are not subject to U.S. federal income taxation).
First Trust Capital Management L.P. serves as the investment adviser (the “Investment Adviser”) of the Master Fund. The Investment Adviser provides day-to-day investment management services to the Master Fund, including management of the Master Fund’s portfolio.
The Fund’s Board of Managers (the “Board”) has overall responsibility for the management and supervision of the business operations of the Fund. The Master Fund's Board of Managers, which currently has the same composition as the Board, has overall responsibility for the management and supervision of the business operations of the Master Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates. The Fund is an investment company and follows the accounting and reporting guidance in Financial Accounting Standards Board Accounting Standards Codification Topic 946.
5
Destiny Alternative Fund (TEI) LLC
Notes to Financial Statements (Continued) (Unaudited)
a. Valuation of Investments
UMB Fund Services, Inc., the Fund’s Administrator, calculates the NAV’s for the Fund, the Offshore Fund and the Master Fund as of the close of business on the last day of each quarter and at such other times as the Board may determine, including in connection with repurchases of Units, in accordance with the procedures described below or as may be determined from time to time in accordance with policies established by the Board.
Because the Fund invests all or substantially all of its assets in the Master Fund (through the Offshore Fund), the value of the assets of the Fund will depend on the value of its pro rata interest in the Master Fund. The Board and the Master Fund Board have approved valuation procedures for the Fund and the Master Fund, which are in substance identical (the “Valuation Procedures”).
The Master Fund values its investments in private Underlying Funds (generally private funds that are excluded from the definition of “investment company” pursuant to Sections 3(c)(1) or 3(c)(7) of the Investment Company Act). In accordance with the Valuation Procedures, fair value as of each quarter-end or other applicable accounting periods, as applicable, ordinarily will be the value determined as of such date by each private Underlying Fund in accordance with the private Underlying Fund’s valuation policies and reported at the time of the Master Fund’s valuation. As a general matter, the fair value of the Fund’s interest in a private Underlying Fund will represent the amount that the Fund could reasonably expect to receive from the private Underlying Fund if the Master Fund’s interest was redeemed at the time of valuation, based on information reasonably available at the time the valuation is made and that the Master Fund believes to be reliable. The Master Fund will determine the fair value of such private Underlying Fund based on the most recent final or estimated value reported by the private Underlying Fund, as well as any other relevant information available at the time the Master Fund values its portfolio. Using the nomenclature of the hedge fund industry, any values reported as “estimated” or “final” values are expected to reasonably reflect market values of securities when available or fair value as of the Master Fund’s valuation date. A substantial amount of time may elapse between the occurrence of an event necessitating the pricing of the Master Fund assets and the receipt of valuation information from the Underlying Manager of a private Underlying Fund.
To the extent the Fund or the Master Fund invests in securities or other instruments that are not investments in Underlying Funds, the Fund or the Master Fund, as applicable, will generally value such assets as described below. Securities traded (1) on one or more of the U.S. national securities exchanges or the OTC Bulletin Board will be valued at their last sales price, and (2) on NASDAQ will be valued at the NASDAQ Official Closing Price (“NOCP”), at the close of trading on the exchanges or markets where such securities are traded for the business day as of which such value is being determined. Securities traded on NASDAQ for which the NOCP is not available will be valued at the mean between the closing bid and ask prices in this market. Securities traded on a foreign securities exchange generally will be valued at their closing prices on the exchange where such securities are primarily traded and translated into U.S. dollars at the current exchange rate. If an event occurs between the close of the foreign exchange and the computation of the Fund’s NAV that would materially affect the value of the security, the value of such a security will be adjusted to its fair value. Except as specified above, the value of a security, derivative, or synthetic security that is not actively traded on an exchange shall be determined by an unaffiliated pricing service that may use actual trade data or procedures using market indices, matrices, yield curves, specific trading characteristics of certain groups of securities, pricing models, or combinations of these. If the Investment Adviser believes that the value received from the pricing service is incorrect, then the value of the security will be its fair value as determined in accordance with the Valuation Procedures.
Debt securities will be valued in accordance with the Valuation Procedures, which generally provide for using a third-party pricing system, agent, or dealer selected by the Investment Adviser, which may include the use of valuations furnished by a pricing service that employs a matrix to determine valuations for normal institutional size trading units. Debt securities with remaining maturities of 60 days or less, absent unusual circumstances, will be valued at amortized cost, so long as such valuations are determined by the Fund or its Valuation Designee to represent fair value.
Assets and liabilities initially expressed in foreign currencies will be converted into U.S. dollars using foreign exchange rates provided by a pricing service. Trading in foreign securities generally is completed, and the values of such securities are determined, prior to the close of securities markets in the United States. Foreign exchange rates are also determined prior to such close. On occasion, the values of securities and exchange rates may be affected by events occurring between the time as of which determination of such values or exchange rates are made and the time as of which the NAV of the Fund or the Master Fund is determined. When such events materially affect the values of securities held by the Fund or the Master Fund or its liabilities, such securities and liabilities may be valued at fair value as determined in good faith in accordance with procedures approved by the Board.
6
Destiny Alternative Fund (TEI) LLC
Notes to Financial Statements (Continued) (Unaudited)
In general, fair value represents a good faith approximation of the current value of an asset and will be used when there is no public market or possibly no market at all for the asset. The fair values of one or more assets may not be the prices at which those assets are ultimately sold.
The Fund will generally value shares of ETFs at the last sale price on the exchange on which the ETF is principally traded. The Fund will generally value shares of open-end investment companies and closed-end investment companies that do not trade on one or more of the U.S. national securities exchanges at their respective NAVs.
b. Summary of Taxation
The Fund and Master Fund intend to operate and be treated as partnerships for U.S. federal income tax purposes, and the Offshore Fund intends to operate and be treated as a corporation for U.S. federal income tax purposes. As partnerships, the Fund and Master Fund will not be subject to federal income tax. Each of them will file annual partnership information returns with the Internal Revenue Service, reporting the results of their operations. The Offshore Fund will be treated as a foreign corporation for U.S. federal income tax purposes, and will be subject to U.S. federal income tax and branch profits tax with respect to any income effectively connected to a U.S. trade or business as well as a 30% withholding tax on dividends and certain other passive income from U.S. sources. None of the Master Fund or Underlying Funds are expected to generate unrelated business taxable income (“UBTI”) for a tax-exempt investor of the Fund. However, a tax-exempt investor may recognize UBTI if it incurs indebtedness to finance its investment in the Fund.
Accounting for Uncertainty in Income Taxes (the “Income Tax Statement”) requires an evaluation of tax positions taken (or expected to be taken) in the course of preparing the Fund’s tax returns to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations.
The Income Tax Statement requires management of the Fund to analyze tax positions expected to be taken in the Fund’s tax returns, as defined by Internal Revenue Service (the “IRS”) statute of limitations for all major jurisdictions, including federal tax authorities and certain state tax authorities. For the period from the commencement of the Fund’s operations on July 1, 2022 through September 30, 2022, the Fund did not have a liability for any unrecognized tax benefits. The Fund has no examination in progress and is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Organizational and Offering Costs
Organizational costs consist of the costs of forming the Fund, drafting of the Limited Liability Company Agreement, administration, custody and transfer agency agreements and legal services in connection with the initial meeting of managers. Offering costs consist of the costs of preparation, review and filing with the Securities and Exchange Commission (“SEC”) the Fund’s registration statement, the costs of preparation, review and filing of any associated marketing or similar materials, the costs associated with the printing, mailing or other distribution of the Confidential Private Placement Memorandum, Statement of Additional Information and/or marketing materials, and the amounts of associated filing fees and legal fees associated with the offering. The aggregate amount of the organizational costs and offering costs as of the date of the accompanying financial statements are $36,632 and $15,514, respectively.
Organizational costs incurred by the Fund are subject to recoupment by the Investment Adviser in accordance with the Fund's expense limitation agreement discussed in Note 3. Offering costs, which are also subject to the Fund’s expense limitation agreement discussed in Note 3, are amortized to expense over twelve months on a straight-line basis.
7
Destiny Alternative Fund (TEI) LLC
Notes to Financial Statements (Continued) (Unaudited)
d. Fund Expenses
The Fund bears its own and the Offshore Fund’s operating expenses (including, without limitation, its offering expenses), and, through its investment in the Master Fund (via the Offshore Fund), a pro rata portion of the operating expenses of the Master Fund.
e. Income Tax Information & Distributions to Shareholders
It is expected that distributions of cash will generally not be made to Members. However, the Board has the right to cause distributions to be made in cash or in-kind to the Members in its sole discretion. Whether or not these distributions are made, however, each Member may be liable each year for applicable U.S. federal, state and local income taxes on the Member’s allocated share of the Fund’s taxable income. Any income received by the Offshore Fund will be distributed to the Fund as dividend income.
f. Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Fund’s 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 increases and decreases in Members’ Capital from operations during the reporting period. Actual results could differ from those estimates.
3. INVESTMENT MANAGEMENT AND OTHER AGREEMENTS
Through its investment in the Master Fund (via the Offshore Fund), the Fund bears a proportionate share of the investment management fee (the “Investment Management Fee”) paid by the Master Fund to the Investment Adviser in consideration of the advisory and other services provided by the Investment Adviser to the Master Fund.
The Master Fund pays to the Investment Adviser compensation at the following annual rates, payable quarterly in arrears on the 60th business day of the succeeding quarter, based upon the Master Fund’s net assets as of the last business day of each calendar quarter:
Investment | ||||
Net Asset Value of the Master Fund | Management Fee Rate | |||
(as of the last Business Day* of each calendar quarter) | (per annum) | |||
$30,000,000 or less | 0.75 | % | ||
Between $30,000,001 and $40,000,000 | 0.70 | % | ||
Between $40,000,001 and $50,000,000 | 0.65 | % | ||
Greater than $50,000,000 | 0.60 | % |
* A “Business Day” is a day (other than a Saturday or Sunday) on which banks and relevant financial markets are open for business in Chicago, Illinois (provided that, where applicable, such day is also a business day for the relevant Underlying Fund).
The Investment Adviser has entered into an expense limitation and reimbursement agreement (the “Expense Limitation and Reimbursement Agreement”) with the Fund, whereby the Investment Adviser has agreed to waive fees that it would otherwise have been paid, and/or to assume expenses of the Fund (including the Fund’s pro rata share of the Master Fund’s investment management fee and other fees and expenses) (a “Waiver”), in the amount necessary to ensure that Total Annual Expenses of the Fund (including the Fund’s pro rata share of the Master Fund’s Total Annual Expenses, but excluding any taxes, leverage interest, brokerage commissions, dividend and interest expenses on short sales, acquired fund fees and expenses (as determined in accordance with SEC Form N-2), expenses incurred in connection with any merger or reorganization, and extraordinary expenses, such as litigation expenses) do not exceed 2.50% of the annualized net assets of the Fund (the “Expense Limit”) through July 1, 2023. The Expense Limitation and Reimbursement Agreement may not be terminated before that date by the Fund or the Investment Adviser. After the initial one-year term, the Fund or the Investment Adviser may terminate the Expense Limitation and Reimbursement Agreement upon 30 days’ written notice. Unless it is terminated, the Expense Limitation and Reimbursement Agreement automatically renews from year to year. For a period not to exceed three years from the date on which a Waiver is made, the Investment Adviser may recoup amounts waived or assumed, provided it is able to effect such recoupment without causing the Fund’s expense ratio (after recoupment) to exceed the lesser of (i) the Expense Limit in effect at the time of the waiver and (ii) the Expense Limit in effect at the time of the recoupment. For the period from the commencement of the Fund’s operations on July 1, 2022 through September 30, 2022, the Investment Adviser did not waive any fees under this agreement.
8
Destiny Alternative Fund (TEI) LLC
Notes to Financial Statements (Continued) (Unaudited)
Each of the Fund, Offshore Fund and the Master Fund has retained UMB Fund Services, Inc. (the “Administrator”) to provide services for fund administration, fund accounting, tax regulation and compliance, transfer agent and record keeping, and custody administration services provided by the Administrator or its affiliates. UMB Bank, n.a. (the “Custodian”), an affiliate of the Administrator, serves as the primary custodian of the assets of each the Fund, Offshore Fund and the Master Fund.
A manager and certain officers of the Fund are employees of the Administrator. The Fund does not compensate managers and officers affiliated with the Fund’s Administrator. For the period from the commencement of the Fund’s operations on July 1, 2022 through September 30, 2022, the Fund’s allocated fees incurred for managers are reported on the Master Fund’s Statement of Operations.
Vigilant Compliance, LLC provides Chief Compliance Officer (“CCO”) services to the Fund. The Fund’s allocated fees incurred for CCO services for the period from the commencement of the Fund’s operations on July 1, 2022 through September 30, 2022 are reported on the Statement of Operations.
4. SHAREHOLDER SERVICING FEE
The Fund is relying on exemptive relief from the SEC that allows the Fund, subject to certain conditions, to adopt a Shareholder Service Plan with respect to its Units in compliance with Rule 12b-1 under the Investment Company Act. Under the Shareholder Service Plan, the Fund will be permitted to pay as compensation up to 0.25% on an annualized basis of the net assets of the Fund attributable to Units (the “Shareholder Servicing Fee” or “Servicing Fee”) to certain qualified recipients under the Shareholder Service Plan. For the period from the commencement of the Fund’s operations on July 1, 2022 through September 30, 2022, the Fund did not accrue any Shareholder Servicing Fees.
5. INDEMNIFICATIONS
In the normal course of business, the Fund enters into contracts that contain a variety of representations, which provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund expects the risk of loss to be remote.
6. REPURCHASE OF UNITS
At the discretion of the Board and provided that it is in the best interests of the Fund and Members to do so, the Fund intends to provide a limited degree of liquidity to the Members by conducting repurchase offers. However, because all or substantially all of the Fund’s assets will be invested in the Master Fund (through its investment in the Offshore Fund), the Fund will generally find it necessary to liquidate a portion of its interests in the Master Fund (via the Offshore Fund) in order to satisfy repurchase requests. Because the interests in the Master Fund may not be transferred, the Fund may withdraw a portion of its interests in the Master Fund only pursuant to repurchase offers by the Master Fund. Therefore, the Fund does not expect to conduct a repurchase offer for Units unless the Master Fund contemporaneously conducts a repurchase offer for interests in the Master Fund. The Investment Adviser currently expects that it will generally recommend to the Master Fund Board that the Master Fund offer to repurchase Units from Members biannually (but not more than four times a year) with tender offer valuation dates occurring on the last business day of June and December (each, a “Valuation Date”); however, there can be no assurance that any such tender offers will be conducted on a biannual basis or at all.
9
Destiny Alternative Fund (TEI) LLC
Notes to Financial Statements (Continued) (Unaudited)
Subject to the Master Fund Board’s discretion, each tender offer will ordinarily be for an amount that is not more than 5% of the Master Fund’s NAV. To preserve the partnership tax treatment of the Master Fund, any such repurchases may be subject to significant restrictions and delays, including the restriction that no more than the Units representing 10% of the total interests in Master Fund capital or profits may be repurchased in any one taxable year. A 2.00% early repurchase fee will be charged by the Fund with respect to any repurchase of a Member’s Units at any time prior to the day immediately preceding the one-year anniversary of the Member’s purchase of the Units.
For the period from the commencement of the Fund’s operations on July 1, 2022 through September 30, 2022 the Fund did not conduct any repurchase offers.
7. RISK FACTORS
An investment in the Fund involves various risks. The Master Fund invests in and actively trades securities and other financial instruments using a variety of strategies and investment techniques with significant risk characteristics, including the risks arising from the volatility of the equity and fixed income securities.
No guarantee or representation is made that the investment program will be successful.
The global outbreak of coronavirus (COVID-19) has disrupted economic markets and the prolonged economic impact is uncertain. Although vaccines for COVID-19 are widely available, it is unknown how long circumstances related to the pandemic will persist, whether they will reoccur in the future, whether efforts to support the economy and financial markets will be successful, and what additional implications may follow from the pandemic. The impact of these events and other epidemics or pandemics in the future could adversely affect Fund performance.
In February 2022, Russia commenced a military attack on Ukraine. The outbreak of hostilities between the two countries and the threat of wider-spread hostilities could have a severe adverse effect on the region and global economies, including significant negative impacts on the markets for certain securities and commodities, such as oil and natural gas. In addition, sanctions imposed on Russia by the United States and other countries, and any sanctions imposed in the future, could have a significant adverse impact on the Russian economy and related markets. The price and liquidity of investments may fluctuate widely as a result of the conflict and related events. How long the armed conflict and related events will last cannot be predicted. These tensions and any related events could have a significant impact on Fund performance and the value of Fund investments.
8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND REGULATORY UPDATES
In March 2020, the FASB issued ASU No. 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in ASU 2020-04 provide optional temporary financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of LIBOR and other interbank-offered based reference rates as of the end of 2021. ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management is currently evaluating the impact of the guidance.
In December 2020, the SEC adopted a new rule providing a framework for fund valuation practices (“Rule 2a-5”). Rule 2a-5 establishes requirements for determining fair value in good faith for purposes of the Investment Company Act. Rule 2a-5 permits fund boards to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the Investment Company Act and the threshold for determining whether a fund must fair value a security. Effective September 8, 2022, and pursuant to the requirements of Rule 2a-5, the Board designated the Investment Adviser as its valuation designee to perform fair value determinations and approved new Valuation Procedures for the Fund.
9. EVENTS SUBSEQUENT TO THE PERIOD END
In preparing these financial statements, management has evaluated subsequent events through the date of issuance of the financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure or would require to be recognized in the financial statements.
10
Destiny Alternative Fund (TEI) LLC
September 30, 2022 (Unaudited)
Availability of Quarterly Portfolio Schedules
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT. The Fund’s Form N-PORT is available on the SEC website at www.sec.gov or without charge and upon request by calling the Fund at (877) 779-1999.
Proxy Voting Record
Information regarding how the Fund voted proxies for portfolio securities, if applicable, during the most recent 12-month period ended June 30, is also available, without charge and upon request by calling the Fund at (877)-779-1999 or by accessing the Fund’s Form N-PX on the SEC’s website at www.sec.gov.
Proxy Voting Policies and Procedures
A description of the Fund’s proxy voting policies and procedures related to portfolio securities is available without charge, upon request, by calling the Fund at (877) 779-1999 or on the SEC website at www.sec.gov.
Destiny Alternative Fund (TEI) LLC
235 West Galena Street
Milwaukee, WI 53212
Toll Free: (877) 779-1999
11
Destiny Alternative Fund (TEI) LLC
(Unaudited)
FACTS | WHAT DOES THE FUND DO WITH YOUR PERSONAL INFORMATION? | |||
Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. | |||
What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include:
· Social Security number · Account balances · Account transactions · Transaction history · Wire transfer instructions · Checking account information
When you are no longer our customer, we continue to share your information as described in this notice.
| |||
How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers ' personal information; the reasons funds choose to share; and whether you can limit this sharing. | |||
Reasons we can share your personal information | Does the Fund share? | Can you limit this sharing? | ||
For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus | Yes | No | ||
For our marketing purposes – to offer our products and services to you | No | We don’t share | ||
For joint marketing with other financial companies | No | We don’t share | ||
For our affiliates’ everyday business purposes – information about your transactions and experiences | Yes | No | ||
For our affiliates’ everyday business purposes – information about your creditworthiness | No | We don’t share | ||
For our affiliates to market to you | No | We don’t share | ||
For nonaffiliates to market to you | No | We don’t share | ||
Questions? | Call 1-844-440-4450 | |||
12
Destiny Alternative Fund (TEI) LLC
PRIVACY POLICY - Continued
(Unaudited)
What we do | |
How does the Fund protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.
|
How does the Fund collect my personal information? | We collect your personal information, for example, when you
· Open an account · Provide account information · Give us your contact information · Make a wire transfer · Tell us where to send the money
We also collect your information from others, such as credit bureaus, affiliates, or other companies.
|
Why can’t I limit all sharing? | Federal law gives you the right to limit only
· Sharing for affiliates’ everyday business purposes – information about your creditworthiness · Affiliates from using your information to market to you · Sharing for nonaffiliates to market to you
State laws and individual companies may give you additional rights to limit sharing.
|
Definitions | |
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies.
Our affiliates include companies such as Alternative Fund Advisor LLC.
|
Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies.
The Fund doesn’t share with nonaffiliates so they can market to you.
|
Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you.
The Fund doesn’t jointly market.
|
13
Table of Contents
This report and the financial statements contained herein are provided for the general information of the Destiny Alternative Fund LLC (the “Fund”). This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by the Fund’s Confidential Private Placement Memorandum.
Destiny Alternative Fund LLC
As of September 30, 2022 (Unaudited)
Investment Name | Percentage
of Net Assets | Fair Value | Cost | Country | Redemption Frequency | Initial Acquisition Date | Redemption Notice Period | |||||||||||||
Investments with managers | ||||||||||||||||||||
Credit | ||||||||||||||||||||
DSC Meridian Credit Opportunities Fund LP a,b,c | 10.98 | % | $ | 2,936,195 | $ | 3,334,925 | United States | Quarterly | 8/1/2021 | 75 days | ||||||||||
Total credit | 10.98 | 2,936,195 | 3,334,925 | |||||||||||||||||
Event Driven | ||||||||||||||||||||
Sachem Head L.P. a,b,c | 9.39 | 2,512,749 | 3,223,447 | United States | Quarterly | 8/1/2021 | 70 days | |||||||||||||
Total event driven | 9.39 | 2,512,749 | 3,223,447 | |||||||||||||||||
Long/Short Equity | ||||||||||||||||||||
Cooper Square Fund II, LP a,b | 3.48 | 929,683 | 1,100,000 | United States | Quarterly | 8/1/2022 | 60 days | |||||||||||||
SEG Partners II, L.P. a,b | 19.51 | 5,220,303 | 4,806,309 | United States | Quarterly | 10/1/2020 | 45 days | |||||||||||||
SoMa Partners LP a,b,c | 6.99 | 1,869,429 | 2,531,512 | United States | Quarterly | 11/1/2020 | 70 days | |||||||||||||
RA Capital Healthcare Fund, LP a,b,d | 7.36 | 1,969,310 | 3,666,267 | United States | Quarterly | 10/1/2020 | 95 days | |||||||||||||
Point72 Capital, LP a,b | 16.22 | 4,339,797 | 4,001,099 | United States | Quarterly | 10/1/2020 | 45 days | |||||||||||||
Total long/short equity | 53.56 | 14,328,522 | 16,105,187 | |||||||||||||||||
Private Equity | ||||||||||||||||||||
137 HOLDINS SXVII, LLC a,b | 1.12 | 300,000 | 300,430 | United States | Not Permitted | 6/1/2022 | NA | |||||||||||||
Hedosophia Partners III L.P. a,b | 6.59 | 1,762,183 | 1,081,205 | United States | Not Permitted | 10/30/2020 | NA | |||||||||||||
Hedosophia Partners V L.P. a,b | 1.36 | 365,110 | 348,973 | Guernsey | Not Permitted | 12/31/2021 | NA | |||||||||||||
Hedosophia Partners V Parallel L.P. a,b | 0.62 | 165,237 | 149,658 | Guernsey | Not Permitted | 12/31/2021 | NA | |||||||||||||
Blackstone Capital Partners Asia II L.P. a,b | -0.11 | (30,723 | ) | - | United States | Not Permitted | 5/1/2021 | NA | ||||||||||||
Blackstone Growth L.P. a,b | 4.74 | 1,267,267 | 1,218,974 | United States | Not Permitted | 12/4/2020 | NA | |||||||||||||
Blackstone Tactical Opportunities Fund (Songs Co-Invest) L.P. a,b | 0.31 | 82,085 | 80,158 | United States | Not Permitted | 3/1/2022 | NA | |||||||||||||
RA Capital Nexus International Fund II, LP a,b | 1.90 | 507,751 | 545,761 | United States | Not Permitted | 10/23/2020 | NA | |||||||||||||
RA Capital Nexus Fund II, LP a,b | 1.21 | 324,348 | 341,261 | United States | Not Permitted | 10/23/2020 | NA | |||||||||||||
Point72 Hyperscale International, L.P. a,b | 0.67 | 180,209 | 167,195 | Cayman Islands | Not Permitted | 4/8/2021 | NA | |||||||||||||
Point72 Hyperscale, L.P. a,b | 0.69 | 184,399 | 171,456 | United States | Not Permitted | 4/8/2021 | NA | |||||||||||||
Total private equity | 19.10 | 5,107,866 | 4,405,071 | |||||||||||||||||
Investments with managers | 93.03 | % | $ | 24,885,332 | $ | 27,068,630 |
a Non-income producing.
b Investments with managers are issued in private placement transactions and as such are restricted to resale.
c Investments with managers can institute a gate provision on redemptions at the investor level of 25% of the fair value of the investment in the Investments with mangers.
d Investments with managers can institute a gate provision on redemptions at the fund level of 20-25% of the fair value of the investment in the Investments with mangers.
See accompanying Notes to Financial Statements.
1
Destiny Alternative Fund LLC
SCHEDULE OF INVESTMENTS - CONTINUED
As of September 30, 2022 (Unaudited)
Percentage of Net Assets | Fair Value | Cost | ||||||||||
Investment in securities, at fair value | ||||||||||||
Mutual Funds | ||||||||||||
United States | ||||||||||||
Financials | ||||||||||||
Janus Henderson Developed World Bond Fund | 0.60 | % | $ | 160,615 | $ | 201,101 | ||||||
RiverNorth/DoubleLine Strategic Income Fund | 0.65 | 173,963 | 209,271 | |||||||||
Voya Securitized Credit Fund | 0.75 | 201,797 | 213,799 | |||||||||
Total Mutual Funds | 2.00 | % | $ | 536,375 | $ | 624,171 | ||||||
Total investment in securities, at fair value | 2.00 | % | $ | 536,375 | $ | 624,171 | ||||||
Total investments with managers and investments in securities | 95.03 | 25,421,707 | ||||||||||
Assets in excess of other liabilities | 4.97 | 1,328,775 | ||||||||||
Total Net Assets | 100.00 | % | $ | 26,750,482 |
See accompanying Notes to Financial Statements.
2
Destiny Alternative Fund LLC
STATEMENT OF ASSETS AND LIABILITIES
As of September 30, 2022 (Unaudited)
Assets: | ||||
Investments with managers, at fair value (cost $27,068,630) | $ | 24,885,332 | ||
Investments in securities, at fair value (cost $624,171) | 536,375 | |||
Cash | 380,445 | |||
Receivables: | ||||
Receivable for investments redeemed | 776,498 | |||
Deferred organizational and offering costs (see Note 2) | 268,724 | |||
Due from Adviser | 109,020 | |||
Dividends | 1,679 | |||
Prepaid expenses and other assets | 1,833 | |||
Total Assets | 26,959,906 | |||
Liabilities | ||||
Payables: | ||||
Legal fees | 79,789 | |||
Management fee | 52,300 | |||
Redemptions | 32,103 | |||
Auditing fees | 31,733 | |||
Blue Sky Fees | 5,000 | |||
Managers' fees and expenses | 4,000 | |||
Accounting and administration fees | 974 | |||
Chief Compliance Officer fees | 1,384 | |||
Insurance fees | 1,200 | |||
Custody fees | 537 | |||
Transfer agent fees and expenses | 404 | |||
Total liabilities | 209,424 | |||
Net Assets | $ | 26,750,482 | ||
Net assets consit of: | ||||
Paid-in capital | $ | 27,789,419 | ||
Total accumulated deficit | (1,038,937 | ) | ||
Net Assets | $ | 26,750,482 | ||
Units issued and outstanding (unlimited units authorized) | 276,322 | |||
Net Asset Value per Unit | $ | 96.81 |
See accompanying Notes to Financial Statements.
3
Destiny Alternative Fund LLC
For the Nine Months Ended September 30, 2022 (Unaudited)
Investment Income: | ||||
Dividends | $ | 31,596 | ||
Interest | 36 | |||
Total Investment income | 31,632 | |||
Expenses: | ||||
Legal fees | 215,134 | |||
Sub-Advisory fees | 189,352 | |||
Management fees | 153,989 | |||
Organizational expenses (see Note 2) | 85,032 | |||
Offering costs (see Note 2) | 26,649 | |||
Auditing fees | 13,333 | |||
Accounting and Administration fees | 11,697 | |||
Members' fees and expenses | 12,192 | |||
Blue Sky Fees | 5,000 | |||
Chief Compliance Officer fees | 4,150 | |||
Insurance fees | 1,200 | |||
Custody fees | 537 | |||
Transfer agent fees and expenses | 404 | |||
Miscellaneous | 9,942 | |||
Total Operating Expenses | 728,611 | |||
Expense Waiver | (109,020 | ) | ||
Net Expenses | 619,591 | |||
Net Investment Loss | (587,959 | ) | ||
Realized and Unrealized Gain (Loss) on Investments: | ||||
Net realized gain on investments with managers | 1,642,076 | |||
Net realized loss on investments in securities | (83,212 | ) | ||
Net change in unrealized appreciation (depreciation) on investments with managers | (5,897,871 | ) | ||
Net change in unrealized appreciation (depreciation) on investments in securities | (105,032 | ) | ||
Net realized and change in unrealized loss on Investments | (4,444,039 | ) | ||
Net decrease in net assets resulting from operations | $ | (5,031,998 | ) |
See accompanying Notes to Financial Statements.
4
Destiny Alternative Fund LLC
Nine Months Ended | ||||||||
September 30, 2022 | Year Ended | |||||||
(Unaudited) | December 31, 2021 | |||||||
Increase (Decrease) in Net Assets From: | ||||||||
Operations: | ||||||||
Net Investment Loss | $ | (587,959 | ) | $ | (617,988 | ) | ||
Net realized gain on investments with managers | 1,642,076 | 1,043,805 | ||||||
Net realized loss on investments in securities | (83,212 | ) | 4,672 | |||||
Net change in unrealized appreciation (depreciation) on investments with managers | (5,897,871 | ) | 1,647,275 | |||||
Net change in unrealized appreciation (depreciation) on investments in securities | (105,032 | ) | (23,611 | ) | ||||
Net change in net assets resulting from operations | (5,031,998 | ) | 2,054,153 | |||||
Capital Transactions:1 | ||||||||
Capital contributions | 1,901,000 | 6,515,000 | ||||||
Capital withdrawals | (645,009 | ) | (12,016,572 | ) | ||||
Net change in net assets resulting from capital transactions | 1,255,991 | (5,501,572 | ) | |||||
Total decrease in net assets | (3,776,007 | ) | (3,447,419 | ) | ||||
Beginning of period | 30,526,489 | 33,973,908 | ||||||
End of period | $ | 26,750,482 | $ | 30,526,489 | ||||
Units Transactions:1,2 | ||||||||
Issuance of Member's Capital as Units; July 1, 2022 | 273,842 | |||||||
Units issued | 2,510 | |||||||
Units redeemed | (30 | ) | ||||||
Net change in units | 276,322 |
1 | Includes transactions from the Destiny Alternative Limited Fund (the "Offshore Fund") a Cayman Islands exempted company with the same investment objective. The Offshore Fund serves solely as an intermediate entity through which the Destiny Alternative Fund (TEI) LLC, a Feeder to the Fund, invests in the Fund. | |
2 | Prior to July 1, 2022 the Fund did not issue shares or units. |
See accompanying Notes to Financial Statements.
5
Destiny Alternative Fund LLC
For the Nine Months Ended September 30, 2022 (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES | ||||
Net decrease in net assets resulting from Operations | $ | (5,031,998 | ) | |
Adjustments to reconcile net decrease in net assets resulting from operations to net cash used for operating activities: | ||||
Contributions in investments with managers | (28,047,659 | ) | ||
Proceeds from sales of investments in securities | 1,443,646 | |||
Withdrawals from investments with managers | 27,335,341 | |||
Increase in receivable for investments redeemed | (776,498 | ) | ||
Increase in deferred organizational and offering costs (see Note 2) | (268,724 | ) | ||
Increase in due from adviser | (109,020 | ) | ||
Decrease in due from broker | 7,384 | |||
Increase in dividends | (1,679 | ) | ||
Decrease in prepaid expenses and other assets | 85,295 | |||
Increase in legal fees | 79,789 | |||
Decrease in management fee | (53,196 | ) | ||
Increase in redemptions | 32,103 | |||
Increase in auditing fees | 31,733 | |||
Increase in blue sky fees | 5,000 | |||
Increase in managers' fees and expenses | 4,000 | |||
Increase in accounting and administration fees | 974 | |||
Increase in chief compliance officer fees | 1,384 | |||
Increase in insurance fees | 1,200 | |||
Increase in custody fees | 537 | |||
Increase in transfer agent fees and expenses | 404 | |||
Decrease in sub-advisor fee | (95,283 | ) | ||
Decrease in accrued other liabilities | (44,031 | ) | ||
Net realized gain on investments with managers | (1,642,076 | ) | ||
Net realized loss on investments in securities | 83,212 | |||
Net change in unrealized appreciation (depreciation) on investments with managers | 5,897,871 | |||
Net change in unrealized appreciation (depreciation) on investments in securities | 105,032 | |||
Net cash used for operating activities | (955,259 | ) | ||
Cash flows provided by (used for) financing activities: | ||||
Capital contributions and change in advance capital contribution | 1,851,000 | |||
Capital withdrawals and change in capital withdrawals payable | (875,879 | ) | ||
Net cash provided by (used for) financing activities | 975,121 | |||
Net increase in cash | 19,862 | |||
Cash: | ||||
Cash at beginning of period | 360,583 | |||
Cash at end of period | $ | 380,445 |
See accompanying Notes to Financial Statements.
6
Destiny Alternative Fund LLC
Per unit operating performance.
For a single unit outstanding throughout the period.
For the Period | ||||||||||||
Nine Months Ended | October 1, 2020** | |||||||||||
September 30, 2022* | Year Ended | through | ||||||||||
(Unaudited) | December 31, 2021 | December 31, 2020 | ||||||||||
Net asset value, beginning of period | $ | 111.68 | $ | 105.98 | $ | 100.00 | ||||||
Income from Investment Operations: | ||||||||||||
Net investment loss1 | (2.14 | ) | (2.26 | ) | (0.52 | ) | ||||||
Net realized and unrealized gain (loss) | (12.73 | ) | 7.96 | 6.50 | ||||||||
Total change in per unit value from investment operations | (14.87 | ) | 5.70 | 5.98 | ||||||||
Net asset value, end of period | $ | 96.81 | $ | 111.68 | $ | 105.98 | ||||||
Total return | (13.32 | )%2,3 | 5.38 | % | 5.98 | %3 | ||||||
Ratios and Supplemental Data: | ||||||||||||
Net Assets, end of period (in thousands) | $ | 26,750 | $ | 30,526 | $ | 33,974 | ||||||
Ration of expenses to average net assets: | ||||||||||||
Before fees waived and expenses absorbed 4 | 3.55 | %5 | 2.34 | % | 2.68 | %5 | ||||||
After fees waived and expenses absorbed 4 | 3.02 | %5 | 2.34 | % | 2.68 | %5 | ||||||
Ratio of net investment income (loss) to average net assets: | ||||||||||||
Before fees waived and expenses absorbed 4 | (3.39 | )%5 | (2.16 | )% | (2.08 | )%5 | ||||||
After fees waived and expenses absorbed 4 | (2.86 | )%5 | (2.16 | )% | (2.08 | )%5 | ||||||
Portfolio turnover rate | 102 | %3 | 32 | % | 0 | %3,6 |
* | Prior to July 1, 2022 the Fund operated as a private fund known as Destiny Alternative Fund I LLC and did not issue shares. For presentation purposes the per share information presented has been recalculated to reflect the Tax Exempt net asset value for prior periods from inception, October 1, 2020. | |
** | Commencement of operations. | |
1 | Based on average units outstanding for the period. Average units were recalculated for periods prior to July 1, 2022. | |
2 | Total return would have been lower had fees not been waived or absorbed by the Advisor. | |
3 | Not annualized. | |
4 | The ratios do not include investment income, expenses, or incentive allocations of the Portfolio Funds in which the Fund invests. | |
5 | Annualized. | |
6 | Amount represents less than 0.5%. |
See accompanying Notes to Financial Statements.
7
Destiny Alternative Fund LLC
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. ORGANIZATION
Destiny Alternative Fund LLC (the “Fund”) (formerly known as Destiny Alternative Fund I LLC) is a Delaware limited liability company registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”), as a non-diversified, closed-end management investment company. The Fund was organized as a limited liability company on August 14, 2020, commencing operations on October 1, 2020 and currently operates under an Amended and Restated Limited Liability Company Agreement (“LLC Agreement”) dated July 1, 2022. On July 1, 2022, the Fund registered with the Securities and Exchange Commission under the 1940 Act. As of the date of the LLC Agreement the fund issued limited liability company units (“Units”) from the total Members’ Capital. Total Units issued was 273,841.67 at $100 per Unit.
First Trust Capital Management L.P. serves as the investment adviser (the “Investment Adviser”) of the Fund. The Investment Adviser is an investment adviser registered with the Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended. Destiny Wealth Partners, LLC, a Florida limited liability company, served as the Sub-Advisor of the Fund (the “Sub-Advisor”). Effective July 1, 2022, the sub-advisory agreement was terminated.
The investment objective of the Fund is to seek long-term capital appreciation. The Fund is a “fund of funds” that intends to invest primarily in hedge funds, private equity funds, growth equity funds, venture capital funds, credit funds, real estate funds, co-investment vehicles, managed accounts, open-end and closed-end registered investment companies (including exchange traded funds) and other types of investment vehicles (collectively, the “Underlying Funds”) that employ a broad range of investment strategies and invest or trade in a wide range of securities. The Fund, and the Underlying Funds in which it invests, may invest directly in U.S. and foreign securities, including emerging markets. An underlying Fund will be managed by a third-party investment adviser (each, an “Underlying Manager” and collectively, the “Underlying Managers”).
The Units will generally be offered as of the first business day of each calendar quarter or at such other times and/or more or less frequently as may be determined by the Board of Managers of the Fund (the “Board”). Units will be issued at net asset value per Unit. No member who is admitted as a member of the Fund (“Member”) will have the right to require the Fund to redeem its Units. Each prospective investor in the Fund will be required to certify that it is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”).
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates. The Fund is an investment company and follows the accounting and reporting guidance in Financial Accounting Standards Board Accounting Standards Codification Topic 946.
a. Valuation of Investments
UMB Fund Services, Inc., the Fund’s Administrator, calculates the Fund’s NAV as of the close of business on the last day of each quarter and at such other times as the Board may determine, including in connection with repurchases of Units, in accordance with the procedures described below or as may be determined from time to time in accordance with policies established by the Board.
8
Destiny Alternative Fund LLC
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
The Board has approved valuation procedures for the Fund (the “Valuation Procedures”). The Valuation Procedures provide that the Fund will value its investments in direct investments and Underlying Funds at fair value. The Fund values its investments in private Underlying Funds (generally private funds that are excluded from the definition of “investment company” pursuant to Sections 3(c)(1) or 3(c)(7) of the Investment Company Act). In accordance with the Valuation Procedures, fair value as of each quarter-end or other applicable accounting periods, as applicable, ordinarily will be the value determined as of such date by each private Underlying Fund in accordance with the private Underlying Fund’s valuation policies and reported at the time of the Fund’s valuation. As a general matter, the fair value of the Fund’s interest in a private Underlying Fund will represent the amount that the Fund could reasonably expect to receive from the private Underlying Fund if the Fund’s interest was redeemed at the time of valuation, based on information reasonably available at the time the valuation is made and that the Fund believes to be reliable. The Fund will determine the fair value of such private Underlying Fund based on the most recent final or estimated value reported by the private Underlying Fund, as well as any other relevant information available at the time the Fund values its portfolio. Using the nomenclature of the hedge fund industry, any values reported as “estimated” or “final” values are expected to reasonably reflect market values of securities when available or fair value as of the Fund’s valuation date. A substantial amount of time may elapse between the occurrence of an event necessitating the pricing of Fund assets and the receipt of valuation information from the underlying manager of a private Underlying Fund.
The Valuation Procedures provide that, where deemed appropriate by the Investment Adviser and consistent with the Investment Company Act, investments in Underlying Funds may be valued at cost. Cost will be used only when cost is determined to best approximate the fair value of the particular security under consideration.
To the extent the Fund or the Master Fund invests in securities or other instruments that are not investments in Underlying Funds, the Fund or the Master Fund, as applicable, will generally value such assets as described below. Securities traded (1) on one or more of the U.S. national securities exchanges or the OTC Bulletin Board will be valued at their last sales price, and (2) on NASDAQ will be valued at the NASDAQ Official Closing Price (“NOCP”), at the close of trading on the exchanges or markets where such securities are traded for the business day as of which such value is being determined. Securities traded on NASDAQ for which the NOCP is not available will be valued at the mean between the closing bid and asked prices in this market. Securities traded on a foreign securities exchange generally will be valued at their closing prices on the exchange where such securities are primarily traded and translated into U.S. dollars at the current exchange rate. If an event occurs between the close of the foreign exchange and the computation of the Fund’s NAV that would materially affect the value of the security, the value of such a security will be adjusted to its fair value. Except as specified above, the value of a security, derivative, or synthetic security that is not actively traded on an exchange shall be determined by an unaffiliated pricing service that may use actual trade data or procedures using market indices, matrices, yield curves, specific trading characteristics of certain groups of securities, pricing models, or combinations of these. If the Investment Adviser believes that the value received from the pricing service is incorrect, then the value of the security will be its fair value as determined in accordance with the Valuation Procedures.
Debt securities will be valued in accordance with the Valuation Procedures, which generally provide for using a third-party pricing system, agent, or dealer selected by the Investment Adviser, which may include the use of valuations furnished by a pricing service that employs a matrix to determine valuations for normal institutional size trading units. Debt securities with remaining maturities of 60 days or less, absent unusual circumstances, will be valued at amortized cost, so long as such valuations are determined by the Fund or its Valuation Designee to represent fair value.
Assets and liabilities initially expressed in foreign currencies will be converted into U.S. dollars using foreign exchange rates provided by a pricing service. Trading in foreign securities generally is completed, and the values of such securities are determined, prior to the close of securities markets in the United States. Foreign exchange rates are also determined prior to such close. On occasion, the values of securities and exchange rates may be affected by events occurring between the time as of which determination of such values or exchange rates are made and the time as of which the NAV of the Fund or the Master Fund is determined. When such events materially affect the values of securities held by the Fund or the Master Fund or its liabilities, such securities and liabilities may be valued at fair value as determined in good faith in accordance with procedures approved by the Board.
In general, fair value represents a good faith approximation of the current value of an asset and will be used when there is no public market or possibly no market at all for the asset. The fair values of one or more assets may not be the prices at which those assets are ultimately sold.
The Fund will generally value shares of ETFs at the last sale price on the exchange on which the ETF is principally traded. The Fund will generally value shares of open-end investment companies and closed-end investment companies that do not trade on one or more of the U.S. national securities exchanges at their respective NAVs.
9
Destiny Alternative Fund LLC
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
b. Summary of Taxation
The Fund operates and is treated as a partnership for U.S. federal income tax purposes. The Fund will not be subject to U.S. federal income tax, and each Member, in computing its own U.S. federal income tax liability, will be required to take into account its allocable share of the Fund’s income, gain, loss, deduction and credit, regardless of whether it has received any distributions from the Fund.
In accordance with accounting guidance, there are financial accounting and disclosure requirements for recognition and measurement of tax positions taken or expected to be taken on an income tax return.
The Fund has reviewed the tax positions for the open tax year ended as of December 31, 2021 and for material investments and has determined that the provisions of FASB Accounting Standards Codification (ASC) 740, Income Taxes did not have an impact on the Fund’s financial statements or require additional disclosure. No interest or penalty expense was recorded by the Fund for the year ended December 31, 2021, or accrued for as of December 31, 2021. Generally, open tax years for federal tax return purposes and most states will be three years from the date the return is filed. However, the statute can be extended if there was a failure to file a necessary tax return.
c. Organizational and Offering Costs
Organizational costs consist of the costs of forming the Fund, drafting of the LLC Agreement, administration, custody and transfer agency agreements, legal services in connection with the initial meeting of managers. Offering costs consist of the costs of preparation, review and filing with the SEC the Fund’s registration statement, the costs of preparation, review and filing of any associated marketing or similar materials, the costs associated with the printing, mailing or other distribution of the Confidential Private Placement Memorandum, Statement of Additional Information and/or marketing materials, and the amounts of associated filing fees and legal fees associated with the offering. The aggregate amount of the organizational costs and offering costs as of the date of the accompanying financial statements are $273,808 and $106,597, respectively.
Organizational costs incurred by the Fund are subject to recoupment by the Investment Adviser in accordance with the Fund's expense limitation agreement discussed in Note 3. Offering costs, which are also subject to the Fund’s expense limitation agreement discussed in Note 3, are amortized to expense over twelve months on a straight-line basis.
d. Fund Expenses
The Fund bears its own operating expenses (including, without limitation, its offering expenses not paid by the Investment Adviser).
e. Income Tax Information & Distributions to Members
It is expected that distributions of cash will generally not be made to Members. However, the Board has the right to cause distributions to be made in cash or in-kind to the Members in its sole discretion. Whether or not these distributions are made, however, each Member may be liable each year for applicable U.S. federal, state and local income taxes on the Member’s allocated share of the Fund’s taxable income.
Each Member whose Units are registered in its own name will automatically be a participant under the Fund’s dividend reinvestment program (the “DRIP”) and have all income dividends and/or capital gains distributions automatically reinvested in Units unless such Member, at any time, specifically elects to receive income dividends and/or capital gains distributions in cash.
f. Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Fund’s 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 increases and decreases in Net Assets from operations during the reporting period. Actual results could differ from those estimates.
10
Destiny Alternative Fund LLC
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
3. INVESTMENT MANAGEMENT AND OTHER AGREEMENTS
The Fund pays to the Investment Adviser a management fee (the “Investment Management Fee”) in consideration of the advisory and other services provided by the Investment Adviser to the Fund. Pursuant to an investment management agreement with the Fund, the Investment Adviser is entitled to the Investment Management Fee calculated at an annual rate, payable quarterly in arrears on the 60th day of the succeeding quarter, based upon the Fund’s net assets as of the last business day of each calendar quarter.
The Fund pays the Investment Adviser as described below:
Investment | ||||
Net Asset Value of the Fund | Management Fee Rate | |||
(as of the last Business Day* of each calendar quarter) | (per annum) | |||
$30,000,000 or less | 0.75 | % | ||
Between $30,000,001 and $40,000,000 | 0.70 | % | ||
Between $40,000,001 and $50,000,000 | 0.65 | % | ||
Greater than $50,000,000 | 0.60 | % |
* A “Business Day” is a day (other than a Saturday or Sunday) on which banks and relevant financial markets are open for business in Chicago, Illinois (provided that, where applicable, such day is also a business day for the relevant Underlying Fund).
The Investment Adviser has entered into an expense limitation and reimbursement agreement (the “Expense Limitation and Reimbursement Agreement”) with the Fund, whereby the Investment Adviser has agreed to waive fees that it would otherwise have been paid, and/or to assume expenses of the Fund (a “Waiver”), in the amount necessary to ensure that Total Annual Expenses of the Fund (excluding any taxes, leverage interest, brokerage commissions, dividend and interest expenses on short sales, acquired fund fees and expenses (as determined in accordance with SEC Form N-2), expenses incurred in connection with any merger or reorganization, and extraordinary expenses, such as litigation expenses) do not exceed 2.50% of the annualized net assets of the Fund (the “Expense Limit”) through July 1, 2023. The Expense Limitation and Reimbursement Agreement may not be terminated before that date by the Fund or the Investment Adviser. After the initial one-year term, the Fund or the Investment Adviser may terminate the Expense Limitation and Reimbursement Agreement upon 30 days’ written notice. Unless it is terminated, the Expense Limitation and Reimbursement Agreement automatically renews from year to year. For a period not to exceed three years from the date on which a Waiver is made, the Investment Adviser may recoup amounts waived or assumed, provided it is able to effect such recoupment without causing the Fund’s expense ratio (after recoupment) to exceed the lesser of (i) the Expense Limit in effect at the time of the waiver and (ii) the Expense Limit in effect at the time of the recoupment.
For the period ended September 30, 2022, the Adviser waived fees and reimbursed expenses of $109,020. At September 30, 2022, $109,020 is subject to recoupment through March 31, 2026
The Fund is relying on exemptive relief from the SEC that allows the Fund, subject to certain conditions, to adopt a Shareholder Service Plan with respect to its Units in compliance with Rule 12b-1 under the Investment Company Act. Under the Shareholder Service Plan, the Fund will be permitted to pay as compensation up to 0.25% on an annualized basis of the net assets of the Fund attributable to Units (the “Shareholder Servicing Fee”) to qualified recipients under the Shareholder Service Plan.
The Fund has retained UMB Fund Services, Inc. (the “Administrator”) to provide services for fund administration, fund accounting, tax regulation and compliance, transfer agent and record keeping, and custody administration services provided by the Administrator or its affiliates. UMB Bank, n.a. (the “Custodian”), an affiliate of the Administrator, serves as the primary custodian of the assets of the Fund. Prior to July 1, 2022, NAV Consulting, Inc. served as the administrator.
11
Destiny Alternative Fund LLC
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
A manager and certain officers of the Fund are employees of UMBFS. The Fund does not compensate managers and officers affiliated with the Fund’s administrator. For the period from July 1, 2022 through September 30, 2022, the Fund’s allocated fees incurred for managers are reported on the Statement of Operations.
Vigilant Compliance, LLC provides Chief Compliance Officer (“CCO”) services to the Fund. The Fund’s allocated fees incurred for CCO services for the period ended September 30, 2022 are reported on the Statement of Operations.
4. INVESTMENT TRANSACTIONS
For the period ended September 30, 2022, purchases and sales of investments, excluding short-term investments, were $28,047,659 and $28,812,069, respectively.
5. INDEMNIFICATIONS
In the normal course of business, the Fund enters into contracts that contain a variety of representations, which provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund expects the risk of loss to be remote.
6. UNFUNDED COMMITMENTS
The following table summarizes the unfunded commitments of the underlying funds as of September 30, 2022.
Investments with Managers | Unfunded Commitment | |||
Blackstone Capital Partners Asia II L.P. | $ | 1,500,000 | ||
Blackstone Growth L.P. | 459,126 | |||
Blackstone Tactical Opportunities Fund (Songs Co-Invest) L.P. | 120,155 | |||
Hedosophia Partners III L.P. | 7,776 | |||
Hedosophia Partners V L.P. | 1,369 | |||
RA Capital Nexus International Fund II, LP | 96,628 | |||
RA Capital Nexus Fund II, LP | 61,639 | |||
Point72 Hyperscale International, L.P. | 442,198 | |||
Point72 Hyperscale, L.P. | 443,251 | |||
$ | 3,132,142 |
7. REPURCHASE OF UNITS
At the discretion of the Board and provided that it is in the best interests of the Fund and Members to do so, the Fund intends to provide a limited degree of liquidity to the Members by conducting repurchase offers. The Investment Adviser currently expects that it will generally recommend to the Board that the Fund offer to repurchase Units from Members biannually (but not more than four times a year) with tender offer valuation dates occurring on the last business day of June and December (each, a “Valuation Date”); however, there can be no assurance that any such tender offers will be conducted on a biannual basis or at all.
Subject to the Board’s discretion, each tender offer will ordinarily be for an amount that is not more than 5% of the Fund’s NAV. To preserve the partnership tax treatment of the Fund, any such repurchases may be subject to significant restrictions and delays, including the restriction that no more than Units representing 10% of the total interests in Fund’s capital or profits may be repurchased in any one taxable year.
A 2.00% early repurchase fee will be charged by the Fund with respect to any repurchase of a Member’s Units at any time prior to the day immediately preceding the one-year anniversary of the Member’s purchase of the Units.
12
Destiny Alternative Fund LLC
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
8. FAIR VALUE MEASUREMENTS AND DISCLOSURE
Fair Value Measurements and Disclosures defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair value measurements. It also provides guidance on determining when there has been a significant decrease in the volume and level of activity for an asset or a liability, when a transaction is not orderly, and how that information must be incorporated into a fair value measurement.
Under Fair Value Measurements and Disclosures, various inputs are used in determining the value of the Fund’s investments. These inputs are summarized into three broad levels as described below:
· | Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. |
· | Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on 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 Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
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 security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
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.
In accordance with Accounting Standards Update (“ASU”) 2015-7, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), investments valued at the net asset value as practical expedient are no longer included in the fair value hierarchy. As such, investments in Closed-End Funds, Real Estate Investment Trusts and Private Investment Funds with a fair value of $24,885,332 are excluded from the fair value hierarchy as of September 30, 2022.
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. The following table summarizes the Fund’s investments that are measured at fair value by level within the fair value hierarchy as of September 30, 2022:
Level 1 | Level 2 | Level 3* | Total | |||||||||||||
Assets | ||||||||||||||||
Investments | ||||||||||||||||
Mutual funds | $ | 536,375 | $ | - | $ | - | $ | 536,375 | ||||||||
Subtotal | $ | 536,375 | $ | - | $ | - | $ | 536,375 | ||||||||
Investments with Managers | 24,885,332 | |||||||||||||||
Total Investments | $ | 25,421,707 |
* The Fund did not hold any Level 3 securities at the period end.
13
Destiny Alternative Fund LLC
NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited)
9. RISK FACTORS
An investment in the Fund involves various risks. The Fund invests in and actively trades securities and other financial instruments using a variety of strategies and investment techniques with significant risk characteristics, including the risks arising from the volatility of the equity and fixed income securities.
No guarantee or representation is made that the investment program will be successful.
The global outbreak of coronavirus (COVID-19) has disrupted economic markets and the prolonged economic impact is uncertain. Although vaccines for COVID-19 are widely available, it is unknown how long circumstances related to the pandemic will persist, whether they will reoccur in the future, whether efforts to support the economy and financial markets will be successful, and what additional implications may follow from the pandemic. The impact of these events and other epidemics or pandemics in the future could adversely affect Fund performance.
In February 2022, Russia commenced a military attack on Ukraine. The outbreak of hostilities between the two countries and the threat of wider-spread hostilities could have a severe adverse effect on the region and global economies, including significant negative impacts on the markets for certain securities and commodities, such as oil and natural gas. In addition, sanctions imposed on Russia by the United States and other countries, and any sanctions imposed in the future, could have a significant adverse impact on the Russian economy and related markets. The price and liquidity of investments may fluctuate widely as a result of the conflict and related events. How long the armed conflict and related events will last cannot be predicted. These tensions and any related events could have a significant impact on Fund performance and the value of Fund investments.
10. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND REGULATORY UPDATES
In March 2020, the FASB issued ASU No. 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in ASU 2020-04 provide optional temporary financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of LIBOR and other interbank-offered based reference rates as of the end of 2021. ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management is currently evaluating the impact of the guidance.
In December 2020, the SEC adopted a new rule providing a framework for fund valuation practices (“Rule 2a-5”). Rule 2a-5 establishes requirements for determining fair value in good faith for purposes of the Investment Company Act. Rule 2a-5 permits fund boards to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the Investment Company Act and the threshold for determining whether a fund must fair value a security. Effective September 8, 2022, and pursuant to the requirements of Rule 2a-5, the Board designated the Investment Adviser as its valuation designee to perform fair value determinations and approved new Valuation Procedures for the Fund.
11. EVENTS SUBSEQUENT TO THE PERIOD END
In preparing these financial statements, management has evaluated subsequent events through the date of issuance of the financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure or would require to be recognized in the financial statements.
14
Destiny Alternative Fund LLC
September 30, 2022 (Unaudited)
Approval of the Investment Management Agreement
At the meeting of the Board of Managers of the Destiny Alternative Fund LLC (the “Fund”) held on June 21, 2022 (the “Meeting”), by a unanimous vote, the Board, including a majority of Managers who are not “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act (the “Independent Managers”), approved the Investment Management Agreement between First Trust Capital Management, LP (the “Investment Adviser”) and the Fund. Pursuant to relief granted by the U.S. Securities and Exchange Commission in light of the COVID-19 pandemic (the “Order”) and a determination by the Board that reliance on the Order was appropriate due to circumstances related to the current or potential effects of COVID-19, the “Meeting was held by videoconference.
In advance of the Meeting, the Independent Managers requested and received materials from the Investment Adviser, respectively, to assist them in considering the approval of the Investment Management Agreement. The Board did not consider any single factor as controlling in determining whether or not to approve the Investment Management Agreement, nor are the items described herein all-encompassing of the matters considered by the Board.
The Board engaged in a detailed discussion of the materials with management of the Investment Adviser. The Independent Managers then met separately with independent counsel to the Independent Managers at the Meeting for a full review of the materials. Following these sessions, the full Board reconvened and after further discussion determined that the information presented provided a sufficient basis upon which to approve the Investment Management Agreement.
NATURE, EXTENT AND QUALITY OF SERVICES
The Board reviewed and considered the nature and extent of the investment advisory services proposed to be provided by the Investment Adviser to the Fund under the Investment Management Agreement, including the selection of Fund investments. The Board also reviewed and considered the nature and extent of the non-advisory, administrative services to be provided by the Investment Adviser, including, among other things, providing office facilities, equipment, and personnel. The Board also reviewed and considered the qualifications of the key personnel of the Investment Adviser who would provide the investment advisory and/or administrative services to the Fund. The Board determined that the Investment Adviser’s key personnel are well-qualified by education and/or training and experience to perform the services in an efficient and professional manner. The Board also took into account the Investment Adviser’s compliance policies and procedures. The Board concluded that the overall quality of the advisory and administrative services to be provided was satisfactory.
PERFORMANCE
The Board considered the investment experience of the Investment Adviser. The Board noted that the Investment Adviser acts as the investment adviser to similarly structured investment products and reviewed relevant performance history of the Fund prior to its registration as an investment company under the Investment Company Act of 1940 and concluded that the performance was satisfactory.
FEES AND EXPENSES
The Board reviewed the proposed advisory fee rate and estimated total expense ratio of the Fund. The Board compared the advisory fee and pro-forma total expense ratio for the Fund with various comparative data, including a report of other comparable funds prepared by an independent third party. In addition, the Board noted that the Investment Adviser proposed to contractually limit total annual operating expenses for at least a year. The Board concluded that the advisory fees to be paid by the Fund and pro-forma total expense ratio were reasonable and satisfactory in light of the services proposed to be provided.
15
Destiny Alternative Fund LLC
Other Information
September 30, 2022 (Continued) (Unaudited)
BREAKPOINTS AND ECONOMIES OF SCALE
The Board reviewed the structure of the Fund's advisory fees under the Investment Management Agreement. The Board noted that the Fund’s advisory fee had breakpoints, and the Fund would potentially benefit from economies of scale as the Fund grew over time. The Board considered the Fund’s advisory fee rate and concluded that it was reasonable and satisfactory in light of the services to be provided.
PROFITABILITY OF INVESTMENT ADVISER
The Board considered and reviewed pro-forma information concerning the estimated costs to be incurred and profits expected to be realized by the Investment Adviser from its relationship with the Fund. Although the Board considered and reviewed pro-forma information concerning the Investment Adviser’s expected profits, the Board made no determination with respect to profitability.
ANCILLARY BENEFITS AND OTHER FACTORS
The Board also discussed other benefits to be received by the Investment Adviser from the management of the Fund, including, the ability to market other funds managed by the Investment Adviser. The Board noted that the Investment Adviser did not have affiliations with the Fund’s transfer agent, administrator or custodian and therefore would not derive any benefits from the relationships these parties may have with the Fund. The Board concluded that the advisory fees were reasonable in light of any fall-out benefits.
GENERAL CONCLUSION
Based on its consideration of all factors that it deemed material, and assisted by the advice of its counsel, the Board concluded it would be in the best interest of the Fund and its shareholders to approve the Investment Management Agreement for an initial two-year term.
16
Destiny Alternative Fund LLC
Other Information
September 30, 2022 (Continued) (Unaudited)
Availability of Quarterly Portfolio Schedules
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Part F of Form N-PORT. The Fund’s Form N-PORT is available on the SEC website at www.sec.gov or without charge and upon request by calling the Fund at (877)-779-1999.
Proxy Voting Record
Information regarding how the Fund voted proxies for portfolio securities, if applicable, during the most recent 12-month period ended June 30, is also available, without charge and upon request by calling the Fund at (877)-779-1999 or by accessing the Fund’s Form N-PX on the SEC’s website at www.sec.gov.
Proxy Voting Policies and Procedures
A description of the Fund’s proxy voting policies and procedures related to portfolio securities is available without charge, upon request, by calling the Fund at (877) 779-1999 or on the SEC website at www.sec.gov.
Destiny Alternative Fund LLC
235 West Galena Street
Milwaukee, WI 53212
Toll Free: (877) 779-1999
17
Destiny Alternative Fund LLC
(Unaudited)
FACTS | WHAT DOES THE FUND DO WITH YOUR PERSONAL INFORMATION? | ||
Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. | ||
What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include:
· Social Security number · account balances · account transactions · transaction history · wire transfer instructions · checking account information
Even when you are no longer our customer, we continue to share your information as described in this notice. | ||
How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons funds choose to share; and whether you can limit this sharing. | ||
Reasons we can share your personal information | Does the Fund share? | Can you limit this sharing? | |
For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus | Yes | No | |
For our marketing purposes – to offer our products and services to you | No | We don’t share | |
For joint marketing with other financial companies | No | We don’t share | |
For our affiliates’ everyday business purposes – information about your transactions and experiences | Yes | No | |
For our affiliates’ everyday business purposes – information about your creditworthiness | No | We don’t share | |
For our affiliates to market to you | No | We don’t share | |
For nonaffiliates to market to you | No | We don’t share | |
18
Destiny Alternative Fund LLC
PRIVACY POLICY ‐ Continued
(Unaudited)
What we do | |
How does the Fund protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.
|
How does the Fund collect my personal information? | We collect your personal information, for example, when you
· open an account · provide account information · give us your contact information · make a wire transfer · tell us where to send money
We also collect your information from others, such as credit bureaus, affiliates, or other companies.
|
Why can’t I limit all sharing? | Federal law gives you the right to limit only
· sharing for affiliates’ everyday business purposes – information about your creditworthiness · sharing for affiliates from using your information to market to you · sharing for nonaffiliates to market to you
State laws and individual companies may give you additional rights to limit sharing.
|
Definitions | |
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies.
· Our affiliates include companies such as Vivaldi Asset Management, LLC. |
Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies.
· The Fund doesn’t share with nonaffiliates so they can market to you.
|
Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you.
· The Fund doesn’t jointly market.
|
19
ITEM 1.(b) Not applicable.
ITEM 2. CODE OF ETHICS.
Not applicable to semi-annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
(a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. |
(b) | Not applicable. |
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to semi-annual reports.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) | Not applicable to semi-annual reports. |
(b) | Not applicable. |
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant's board of trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17CFR 229.407), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT COMPANIES.
Not applicable.
ITEM 13. EXHIBITS.
(a)(1) Not applicable to semi-annual reports.
(a)(3) Not applicable.
(a)(4) Not applicable.
(b) Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) | Destiny Alternative Fund (TEI) LLC | |
By (Signature and Title)* | /s/ Michael Peck | |
Michael Peck, President | ||
(Principal Executive Officer) |
Date | December 9, 2022 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* | /s/ Michael Peck | |
Michael Peck, President | ||
(Principal Executive Officer) |
Date | December 9, 2022 |
By (Signature and Title)* | /s/ Chad Eisenberg | |
Chad Eisenberg, Treasurer | ||
(Principal Financial Officer) |
Date | December 9, 2022 |
* Print the name and title of each signing officer under his or her signature.
EX-99.CERT
CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT
I, Michael Peck, certify that:
1. I have reviewed this report on Form N-CSR of Destiny Alternative Fund (TEI) LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: | December 9, 2022 | /s/ Michael Peck | |
Michael Peck, President | |||
(Principal Executive Officer) |
CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT
I, Chad Eisenberg, certify that:
1. I have reviewed this report on Form N-CSR of Destiny Alternative Fund (TEI) LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: | December 9, 2022 | /s/ Chad Eisenberg | |
Chad Eisenberg, Treasurer | |||
(Principal Financial Officer) |
,&0_&.[2W*RQHA9I(E(+.N0,ODDX/!]:YL <5U]SJ7AM;I3;V-
ML(MR@#RV;]WO&000/FVY&>>OWB<$1Z;J7AX(TE[8P-.40$%&";0TFX 'YBO
ME8/'0_,#R:3LMA-7>YRE+74V&L:9!(P$=O 3;>0DAM]V"UNRN6X)/[S;S@G!
M...*Y4G S5)W): D 9-1&0YX'%(S%OI24Q%BDI:>JXY/6D6Q%7 R:=1VHI %
M%%-9L?6F(&;'UJ.@T4#"BBE )- " 9-2@8H %% A:2EI.E !TJ-FS]*&;)]
MJ;0 4444T E2*O
2<9]!@5O*K%S
:=J7A[P?JCO+$C))&".A(%4?#OBO4_$=KJU[J#0_V
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M..;DC_V0?KT]:^@E540(BA548 P *2.-(HUCC14C0!551@*!T %.KSJE1S=
MV=L(**L@HJMJ-Y_9^F7=[LW_ &>%Y=F<;MH)QGMTK)@\3(OEK>Q(DDB!@MJT
MDP&?,ZDQK@ 1DY_#TSF78WZ*RK36AJ/VA;*V=GCB62,S9C23=G W $@<=<&J
M^G^)!-:6;W]NMM/=*CJD+M,JJ[!5RY1<$L0,8H_K^ON%=6N;M%8L_B>RBWB*
M.>=DECB=8XSP7D$8Z^Y_2K U&YFU*6"WM8FM;9_+N)I)BKJVP-A$"'=PR]2.
MO>CI<+FE16)%XKTN8XB>9MIPY$+$1\@?,<>'Y^QQ%;>+;&2P2ZN4DMT>18
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MY[FVM_D0+Y>Y_P#6$QJ^.G&-P'U!H;M?R%?8U:*YBV\:6MW
)ERQTBOQ\PHHHKT#R@HHHH **** "BBB@ H
MHHH **** "BBB@ HHHH **** "BBB@ HHHH **** "BBB@ HHHH **** "BB
MB@ HHHH **** "BBB@ HHHH **** "BBB@ HHHH **** "BBB@ HHHH ****
M "BBB@ HHHH **** "BBB@ HHHH **** "BBB@ HHHH **** "BBB@ HHHH
M**** "BBB@ HHHH ***H:OJUMHUBUS<'V1 >7/H*F4E%.4MBH0E.2C%7;$U?
M6+71K,SW+\G[D8^\Y]!7DVJ:I=:O>-(9KN01SJ/]K*E2?]H$9[BK5KH%Y?K:1ZG;
MV>GZ;:.)(M+LCN1F!RID;"@@'G:!C/))K=U%RI&*IOFN:^@F^.BVYU+/VOYO
M,SU^\](Y:M2^B"BBBNHYPHHHH **** "BBKVD:1?:[J<.G:= TUS,<*HZ =R3V
M ]:-@':+HM_X@U2+3M-@,UQ(>G0*.[$]@*^G/!7@RR\&Z.MM"%ENY/FN+G;@
MR-Z#T4=A3/!/@>P\&:9Y4.)KV4#[11GLH"T@
/Q /UYJ46X%Z;G<