DW Catalyst Fund Limited
Annual Report and Audited Financial Statements 2016
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
31 December 2016
The Directors of DW Catalyst Fund Limited announce the results
for the year ended 31 December 2016.
The Annual Report and Audited Financial Statements will shortly be
available via the Company's website www.dwcatalystltd.com and
will shortly be available for inspection online at
www.morningstar.co.uk/uk/NSM.
For the year ended 31 December
2016, DW Partners, LP, was the commodity pool operator of DW
Catalyst Fund Limited (the “Company”) and filed a claim of
exemption with the Commodity Futures Trading Commission (the
“CFTC”) in respect of the Company pursuant to Section 4.7 of the
CFTC regulations.
CHAIR’S STATEMENT
During 2016, I am pleased to say, performance turned around and
the Company again delivered positive returns to its shareholders.
The NAV per share of the Company appreciated 4.2% (net of fees) in
2016.
All strategies were positive for the year, with gains led by
Corporate Credit & Special Situations and Structured Finance.
Returns in Corporate Credit & Special Situations accelerated
into year-end as specific events and catalysts unlocked value in a
range of long and short positions. Structured Finance profited
throughout the year as the legacy RMBS portfolio was traded and
harvested. Commercial Real Estate struggled through the first three
quarters amid weakness in the CMBS market but recovered in Q4 to
end the year in positive territory.
The Company's strong performance, particularly in 2016, was
gratifying to see. Consistent with DW Partners, LP’s (the
“Manager”) mission, returns were driven by idiosyncratic events:
company earnings and announcements, bankruptcy processes and
negotiations, commercial mortgage loan payoffs and foreclosure
outcomes and residential MBS sales at lower yields. While credit
markets experienced large beta moves in 2016, the Manager continued
to focus on situations and securities with identifiable catalysts
and attractive risk-reward opportunities.
As we enter 2017, the investing world may now face meaningful
inflection points with respect to fiscal, tax, trade, central bank
and regulatory policy. As we engage this transforming landscape, DW
will continue with the same approach to managing the Catalyst Fund
portfolio, with an aim, as always, to create a bottom-up built
portfolio with:
•
asymmetric investments, some that other investors would deem
“complex”, based on deep fundamental research;
•
substantial portfolio diversification with modest idiosyncratic
risks;
• a
conservative level of fund leverage; and
•
ample liquidity.
Against this backdrop, however, shares in the Company have
continued to trade at an average discount of 11.29% to NAV
throughout the year, ending December at 8.67%. This persistent
discount led to a Discount Trigger meeting being held on the
9 March 2017.
The Company subsequently announced the results of the Discount
Trigger Meeting at which the Discount Trigger Resolution contained
in the circular to shareholders dated 17
February 2017 (the “Circular”) was passed on a poll.
Accordingly, the Company will redeem all shares which were voted in
favour of the Discount Trigger Resolution in accordance with the
expected timetable set out in notes to financial statements of this
report.
The votes cast in respect of the Discount Trigger Resolution
(which was passed as an ordinary resolution) were as follows:
Votes
for:
5,389,739 (91.73%)
Votes
against:
486,219 (8.27%)
Votes
withheld:
0 (0.00%)
Redeeming Shares will be redeemed by the Company beginning on
1 August 2017 and paid out over four
quarters according to the payment schedule outlined in the
Circular.
Following the share redemption on 1
August 2017, there will be 3,959,578 Sterling shares in
issue.
Following the meeting the Board will now consider all options
available to the Company and make decisions on the strategic
direction of the Company in the coming months. The Company will
revert to Shareholders in due course.
The performance of the Catalyst Fund in 2016 was achieved on the
back of a year with significant market and political turbulence.
The Board continues to have full confidence in DW and future return
prospects for the Company.
Charlotte Valeur
Chair
31 March 2017
BOARD MEMBERS
The Directors of the Company, all of whom are non-executive, are
listed below:
Charlotte Valeur
(Chair), age 53
Charlotte Valeur is the Managing
Director of GFG Ltd, a Governance consultancy, which she founded in
2011. Ms Valeur has in excess of 30 years’ experience in the
financial markets. Prior to GFG, Ms Valeur was the Managing Partner
at Brook Street Partners Ltd from January
2003. Prior to Brook Street Partners, she worked in the
City of London as a director in
Capital Markets with various international banks. She began her
career in Copenhagen in 1982 with
Nordea A/S. In 1991, she moved to the London office of Nordea A/S. Ms Valeur
currently serves as a non-executive director on boards and
committees of listed and unlisted companies including NED of
JPMorgan Global Convertibles Income Fund Limited and NTR Plc. She
is the Chair of Kennedy Wilson Europe Real Estate Plc and of
Blackstone/GSO Loan Financing Limited. Ms Valeur is a member of the
Institute of Directors and is regulated by the Jersey Financial
Services Commission in the conduct of Trust Company business. She
is a resident of Jersey. Ms Valeur is the Chair of the
Company’s Board of Directors. Ms Valeur was appointed to the Board
in 2010.
Keith Dorrian
(Senior Independent Director), age
70
Keith Dorrian has over 40 years’
experience in the offshore finance industry. Joining Manufacturers
Hanover in 1973, he moved to First National Bank of Chicago in 1984. In 1989, he joined
ANZ Bank (Guernsey) where as a
director of the Bank and Fund Management company he was closely
involved in the banking and fund management services of the ANZ
group. He took up the position of “Investment Manager - Corporate
Clients” at the Bank of Bermuda Guernsey in 1999 and was appointed
local Head of Global Fund Services, CEO and managing director of
their fund administration company in 2001, retiring on 31 December 2003. He is currently a Director of a
number of fund and fund management companies. He is a Director of
the following listed companies: AB Alternative Strategies PCC
Limited, AB International Fund PCC Limited, IIAB PCC Limited,
Master Capital Fund Limited and Third Point Offshore Investors
Limited. Mr Dorrian holds the Institute of Directors Diploma in
Company Direction. Mr Dorrian has been elected a Fellow of the
Institute of Directors. He is a resident of Guernsey. Mr Dorrian
was appointed to the Board in 2010 and has indicated his intention
not to put himself forward for re-election at the 2017 Annual
General Meeting.
Patrick Firth, age
55
Patrick Firth qualified as a
Chartered Accountant with KPMG in 1991 where he gained experience
of the audit of a variety of financial services companies and
investment funds. He joined Rothschild Asset Management (C.I.)
Limited in 1992, where he assumed responsibility for the fund
administration team. On the acquisition of the company by BISYS
Fund Services in February 1999, Mr
Firth became Head of Operations and subsequently Managing Director
before moving to become Managing Director of Butterfield Fund
Services (Guernsey) Limited (subsequently Butterfield Fulcrum Group
(Guernsey) Limited), a company providing third party fund
administration services, where he worked from April 2002 until June
2009. He is a member of the Institute of Chartered
Accountants in England and
Wales and the Chartered Institute
for Securities and Investment. He is also a Director of a number of
offshore funds and management companies, including JZ Capital
Partners Limited, ICG-Longbow Senior Secured UK Property Debt
Investments Limited, Riverstone Energy Limited and NextEnergy Solar
Fund Limited. He is Chairman of GLI Finance Limited. He is a
resident of Guernsey. Mr Firth was appointed to the Board in
2010.
Christopher
Waldron, age 52
Christopher Waldron has extensive
experience in international asset management and is a Director of a
number of listed and unlisted companies, including GBD Limited,
Multi Investment Manager Investment Programmes PCC Limited, JZ
Capital Partners Limited and Crystal Amber Fund Limited. He is also
Chairman of UK Mortgages Limited and Ranger Direct Lending Fund Plc
and a member of the States of Guernsey’s Investment and Bond
Management Sub-Committee. He began his career with James Capel as a graduate in 1986, working
initially as an institutional equity broker and later specialising
in equity derivatives. He subsequently held investment management
positions with Bank of Bermuda,
the Jardine Matheson Group and Fortis before joining the Edmond de
Rothschild Group in Guernsey as Investment Director in 1999,
overseeing a team of Investment Managers specialising in fixed
income and alternative investment strategies. He was appointed
Managing Director of the Edmond de Rothschild companies in Guernsey
in 2008, a position he held until 2013, when he stepped down to
devote more time to non-executive work and investment consultancy.
He is a graduate of London and
Cranfield Universities and a Fellow of the Chartered Institute for
Securities and Investment. He is a Guernsey resident. Mr Waldron
was appointed to the Board in 2010.
Andrew Rosenthal, age
58
Andrew Rosenthal was the Chief
Operating Officer of DW Partners, LP from January 2010 until May
2016. He currently serves on the Board of the DW Catalyst
Master Fund Limited. Before joining DW, Andrew spent 13 years at
Morgan Stanley where most recently he was an Executive Director in
the Securitised Products Group in charge of principal investments
in distressed consumer credit (2005-2007). Prior, he served as the
Securitised Products Group’s Operations Officer and was a member of
the Global Large Loan Committee. From 1994 to 1999, Mr Rosenthal
was co-head of Morgan Stanley’s mortgage-backed derivatives trading
effort. Prior to joining Morgan Stanley, Mr Rosenthal spent six
years at Credit Suisse First Boston as head of mortgage-backed
derivatives trading (1988-1994) and four years at Bear Stearns
trading collateralised mortgage obligation residuals. He began his
career as an Analyst in Morgan Stanley’s Mergers and Acquisitions
Department (1980-1982). Mr Rosenthal has a BS in Economics, cum
laude, from the Wharton School of the University of Pennsylvania and an MBA from
Harvard University. He is a resident of
the United States of America. Mr
Rosenthal was appointed to the Board in 2015.
STRATEGIC REPORT
The Company
DW Catalyst Fund Limited (the “Company”) is a registered
closed-ended collective investment scheme incorporated with limited
liability in Guernsey on 19 October
2010, with registration number 52520.
The Company was admitted to a Premium Listing on the Official
List of the London Stock Exchange (“LSE”) on 14 December
2010.
At the Extraordinary General Meeting held on 19 December 2014, shareholders approved the
Company’s new investment policy, new management agreement, name
change of the Company and amendments to the Company’s Articles of
Incorporation with effect from 1 January
2015.
The Company changed its name to DW Catalyst Fund Limited from BH
Credit Catalysts Limited and changed its Manager to DW Partners, LP
(“DW” or “Manager”) from Brevan Howard Capital Management LP
(“BHCM”).
Full details were set out in the Circular dated 28 November 2014 which is available on the
Company’s website, www.dwcatalystltd.com.
The Company initially issued Sterling and US Dollar share
classes. On 29 March 2016, the Company announced that as
at 29 February 2016, the net asset
value of its US Dollar share class had fallen below US$25 million. Below this level, the Articles of
Incorporation allow the Directors to convert all of the shares of
the affected class into shares of another class. Thus, the Company
decided to convert the outstanding US Dollar shares into Sterling
shares by reference to the respective net asset values of each
class of shares as at 31 March 2016.
The compulsory conversion of the US Dollar shares into Sterling
shares took place on 26 April 2016, following which the US
Dollar share class was closed. The Company now has only Sterling
shares in issue and the Company’s share class conversion facility
was withdrawn.
The Board
The Board is responsible for the overall stewardship of the
Company, including general management, structure, finance,
corporate governance, marketing, risk management, compliance, asset
allocation and performance. Biographical details of the Directors,
all of whom are non-executive, are listed on the Board Members
section and on the Company Information. Andrew Rosenthal is not independent of the
Manager for the purposes of LR 15.2.12-A as he serves as a director
of DW Catalyst Master Fund, Ltd, which is also managed by the
Manager. The Company has no executive directors or employees.
The Board has contractually delegated to external parties
various functions as disclosed in the Corporate Governance
Statement.
Investment Policy
The Company’s investment objective is to seek to generate high
absolute returns through exposure to financial assets predominantly
in the real estate, energy assets, private equity, corporate
credit, mortgage-backed securities and asset-backed securities
markets.
Previously, the Company’s investment policy was to invest all of
its assets in Brevan Howard Credit Catalysts Master Fund Limited
(“BHCC”, now known as DW Catalyst Master Fund, Ltd. (the “Master
Fund”)), an open-ended investment company with limited liability
formed under the laws of the Cayman
Islands.
The Company’s current investment policy is to invest its assets
in the DW Catalyst Offshore Fund, Ltd. (the “Feeder Fund,” together
with the DW Catalyst Master Fund, Ltd. (the “Master Fund”) the
“Catalyst Fund”). The Feeder Fund holds its investment in the
Master Fund via an intermediate entity, DW Catalyst Investments Ltd
(the “Cayman Corporation”), a Cayman corporation, which is wholly
owned by the Feeder Fund. The Cayman Corporation acts as a
corporate blocker for US federal income tax purposes and its only
asset is its shareholding in the Master Fund.
The Cayman Corporation is consolidated in the Financial
Statements of the Feeder Fund.
The Financial Statements of the Company should be read in
conjunction with the Consolidated Financial Statements of the
Master Fund and the Consolidated Financial Statements of the Feeder
Fund, which can be found on the Company’s website,
www.dwcatalystltd.com.
The Master Fund seeks to employ a multi-strategy approach to
investing in order to generate attractive risk- adjusted returns
via careful investment selection, portfolio construction, and risk
management. The Master Fund makes fundamental research-based
investments, opportunistically deploying capital across a broad
range of asset types and strategies including, but not limited to
the following: distressed; long/short credit and equity; event
driven and special situations; securitised and structured product
strategies involving a wide range of collateral including, but not
limited to residential mortgages, commercial mortgages, student
loans, corporate loans and derivatives, consumer loans, equipment
leases and other collateral types as well as direct investments in
real estate, energy assets and private equity. The Master Fund
invests globally, taking positions in both developed and emerging
markets. Positions may be in the form of securities, derivatives,
claims, real assets or other asset types.
The Master Fund and Feeder Fund are permitted to acquire
holdings in illiquid investments for which there may be no
immediate readily assessable market value.
In instances in which the Investment Manager of the Feeder Fund
determines, in its sole and absolute discretion, that it would be
appropriate to do so for tax, regulatory, operational or other
reasons, the Feeder Fund may invest a portion of its assets in
investments that are held through specifically formed holding
entities (“Specific Investments”), rather than through the Master
Fund. Specific Investments are required to be consistent with the
Master Fund’s investment objective, strategy and approach. As at
31 December 2016, 5.45% of the Feeder Fund’s NAV was held in
Specific Investments. For additional information, refer to the
Feeder Fund’s audited financial statements.
The Feeder Fund, the Master Fund and the Cayman Corporation,
through their investment manager, DW, have agreed with the Company
that for so long as the Company is invested in the Feeder Fund, (a)
the Master Fund will hold at least 20 different investments and, at
the time of investment, no investment will represent more than 20%
of its gross assets and (b) at the time of investment, no more than
30% of the gross assets of the Feeder Fund will be invested in
Specific Investments with no one Specific Investment (or, where a
Specific Investment consists of a number of underlying investments,
no one such underlying investment) representing more than 20% of
the gross assets of the Feeder Fund. Neither the Master Fund nor
the Feeder Fund will be required to liquidate any portion of its
portfolio to remain within these diversification requirements. In
addition, in determining whether an investment in an index complies
with these diversification requirements, compliance will be
determined by reference to the index constituents (by number and by
weighting of the constituents) and not by treating the index as a
single investment or security.
The Company may not incur borrowings other than for the purpose
of financing share repurchases or redemptions or satisfying working
capital requirements, and subject to outstanding borrowings being
in compliance with the borrowing limit in its articles of
incorporation of 20% of the net asset value of the Company,
calculated as at the time of borrowing. The Master Fund and the
Feeder Fund are not subject to any limitations on their ability to
incur leverage.
The Manager
With effect from 1 January 2015,
the Company entered into a new management agreement with DW (the
“DW Management Agreement”) regarding the management of the Company
and terminated the existing management agreement between the
Company and BHCM (the “BH Management Agreement”).
Following the implementation of the DW Management Agreement, the
Company appointed DW as manager. Prior to 1 January 2015, DW
served as investment manager for BHCC, responsible for the
underlying investment of the Company’s funds since its inception.
Since 1 January 2015, DW assumed
management responsibilities for the Company, the Feeder Fund, the
Master Fund and the Cayman Corporation.
DW is registered with the US Securities Exchange Commission as
an investment adviser under the United States Investment Advisers
Act of 1940, as amended. DW is also registered with the US
Commodities and Futures Trading Commission (“CFTC”) as a commodity
pool operator and is a member of the US National Futures Authority.
DW is exempt from registration with the CFTC as a commodity trading
advisor.
The general partner of DW is DW Investment Partners, LLC. For
the purposes of the third country marketing provisions of the
Alternative Investment Fund Managers Directive, DW is the
Alternative Investment Fund Manager (“AIFM”) of the Company for the
purposes of the European Union Alternative Investment Fund Manager
Directive (“AIFMD”).
Performance
An outline of performance and market reviews of the year under
consideration, as well as outlook is provided in the Chair’s
Statement and the Manager’s Report.
Key Performance Indicators
(“KPI’s”)
At each quarterly Board meeting, the Board considers a number of
performance measures to assess the Company’s success in achieving
its objectives. Below are the main KPI’s for Sterling Shares which
have been identified by the Board for determining the progress of
the Company:
|
|
|
|
|
|
31.12.16 |
|
31.12.15 |
Net asset
value per share |
|
|
|
£12.99 |
|
£12.47 |
Market price per
share |
|
|
|
|
|
11.86p |
|
11.17p |
Ongoing charges |
|
|
|
|
|
3.06% |
|
2.83% |
The Board evaluates these KPI’s on both their absolute values
and on a relative basis compared with the Company’s peers.
Shareholder Value
The Board reviews on an ongoing basis the performance of the
Manager and considers whether the investment strategy utilised is
likely to achieve the Company’s investment objective. The Board has
agreed that the interests of the shareholders as a whole are best
served by the continuing appointment of the Manager on the terms
agreed.
Principal Risks and Uncertainties
The Board is responsible for the Company’s system of internal
control and for reviewing its effectiveness. As stated within the
Corporate Governance Statement, the Board is satisfied that by
using the Company’s risk matrix, the Board has carried out a robust
assessment of the principal risks and uncertainties facing the
Company.
The principal risks which have been identified and the steps
which are taken by the Board to mitigate them are as follows:
· Investment Risks: The Company is
exposed to the risk that its portfolio fails to perform in line
with the Company’s objectives if it is inappropriately invested or
markets move adversely. The consequence of this may be a widening
discount to the Net Asset Value (“NAV”). The Board reviews reports
from the Manager at each quarterly Board meeting, paying particular
attention to the diversification of the portfolio and to the
performance and volatility of underlying investments. Further
details on Investment Risks are disclosed in the Manager’s
Report;
· Market Risks: The Company and the
Feeder Fund expect to be exposed to a number of market risks as a
result of the types of investments that the Feeder Fund makes and
the investment entities in which it invests. The Board believes
that this exposure to market risks will relate primarily to changes
in the values of publicly traded and over-the-counter securities,
and a variety of direct investments that are held for investment,
the credit risk of counterparties, movements in prevailing interest
rates, changes in foreign currency exchange rates, risks arising
from hedging arrangements and the risk of insolvency of any of its
prime brokers and custodians. The Feeder Fund may seek to mitigate
such risks through the use of hedging arrangements and derivative
instruments, which could subject it to additional risks and which
may not be completely effective. The Board reviews reports provided
by the Manager on the controls in place to mitigate these risks at
each quarterly Board meeting;
· Operational Risks: The Company is
exposed to the risks arising from any failure of systems and
controls in the operations of the Manager, the Master Fund’s
Administrator (IFS) or Prime Brokers, or Northern Trust
International Fund Administration Services (Guernsey) Limited (the
“Administrator”). The Board receives reports annually from the
Manager and Administrator on their internal controls and reviews
pricing reports covering the valuations of underlying investments
at each quarterly Board meeting;
· Accounting, Legal and Regulatory
Risks: The Company is exposed to risk if it fails to comply with
the regulations of the UK Listing Authority, Guernsey Financial
Services Commission, or if it fails to maintain accurate accounting
records. The Administrator as well as the Company’s auditors and
external legal counsel all provide the Board with regular reports
on changes in regulations and accounting requirements; and
· Financial Risks: The financial risks
faced by the Company, include market, credit and liquidity risk.
These risks and the controls in place to mitigate them are reviewed
at each quarterly Board meeting. For additional information in
relation to the Master Fund’s financial risks, refer to note 9 of
the Master Fund’s audited financial statements.
The Board reviews and updates the risk matrix at each quarterly
Board Meeting to reflect any changes in the control
environment.
Viability Statement
In accordance with the AIC Code of Corporate Governance (the
“AIC Code”), the Board has assessed the prospect of the Company
over a longer period than the 12 months minimum required by the
‘Going Concern’ provision. Following the reduction of the size of
the Company resulting from the Discount Trigger EGM and the
possibility of a further continuation vote after December 2017, the Board considers that two years
is an appropriate period to assess the viability of the Company
(the “Viability Period”). This determination was based on a review
of the Company’s investment horizon, anticipated cash flows,
management arrangements as well as the liquidity of the Company’s
investment in the Feeder Fund.
The Board’s assessment of the Company over the Viability Period
has been made with reference to the Company’s current position and
prospects, the Company’s strategy, and the Board’s risk appetite
having considered each of the Company’s principal risks and
uncertainties summarised above. Additionally, the Board has
reviewed the Company’s investment in the Feeder Fund and considered
the consequences of the Discount Trigger EGM held on 9 March
2017, which will result in a significant reduction in the size of
the Company.
The investment objective of the Company is to invest nearly all
of its assets in the Feeder Fund. The Feeder Fund holds its
investment in the Master Fund via the Cayman Corporation (together
with the Feeder Fund, the Master Fund and Specific Investments, the
“Catalyst Funds”). The Company’s performance and operations
therefore depend upon the performance of the Catalyst Funds and the
Manager. In assessing the viability of the Company, the Board pays
particular attention to the risks facing the Catalyst Funds. As
part of this review, the Board considered the performance,
projected capital activity, results of stress tests, and recent
trading activity of the Catalyst Funds. This information is
provided to the Board for review by the Manager on a regular basis.
Additionally, the Board engages the Manager in on-going discussions
around the risk management processes governing the Catalyst Funds’
investments.
The continuation of the Company in its present form is dependent
on the DW Management Agreement remaining in place during the
Viability Period. The Board acknowledges the twenty four month
notice period required of the Company’s Manager when serving notice
under the DW Management Agreement. To mitigate this risk, the Board
meets regularly with the Manager to review the Company’s
performance, and through the Management Engagement Committee they
monitor the relationship with the Manager.
The Board is considering all strategic options available to the
Company following the recent Discount Trigger EGM, and will liaise
with the Manager and shareholders to formulate the most appropriate
structure to preserve and enhance future value for
shareholders.
Shares trading at a discount to NAV for an extended period may
impact the viability of the Company. The potential for the
Company’s shares to trade at a significant discount to NAV, and the
potential inability of the Board to manage such a share price
discount to NAV may cause shareholder dissatisfaction. The
Company’s discount management programme is described within note 7
including details as to conditions that are required to meet the
Discount Trigger Extraordinary Meeting. The Board monitors the
share price in relation to NAV on a regular basis and utilises its
ability to repurchase shares.
Based on the Company’s processes for monitoring operating costs,
share price discount, the Manager’s compliance with the investment
objective and robust assessment of the principal risks and
uncertainties facing the Company, the Board has concluded that
there is a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due
over the 24 Month Viability Period.
Future Developments
The future performance of the Company depends upon the success
of the Company’s investment strategy in the light of economic
factors, costs and expenses and regional market developments.
Further comments from the Manager on the outlook for the Investment
Strategy of the Master Fund for the next for the next 12 months are
set out in both the Chair’s Statement and the Manager’s Report.
DIRECTORS’ REPORT
The Directors submit their Annual Report together with the
Company’s Audited Statement of Assets and Liabilities, Audited
Statement of Operations and Performance Allocation, Audited
Statement of Changes in Net Assets, Audited Statement of Cash
Flows, and the related notes for the year ended 31 December 2016 (collectively, the “Audited
Financial Statements”). The Directors’ Report together with the
Audited Financial Statements (the “Financial Statements”) and their
related notes give a true and fair view of the financial position
of the Company. They have been prepared properly, in conformity
with United States Generally Accepted Accounting Principles (“US
GAAP”) and are in accordance with any relevant enactment for the
time being in force and are in agreement with the accounting
records.
The Company
Details of the Company and its organisation are set out in the
Strategic Report.
Investment Policy
The Company’s investment policy is set out in the Strategic
Report.
Results and Dividends
The results for the year are set out in the Audited Statement of
Operations and Performance Allocation. The Directors do not
recommend the payment of a dividend.
Share Capital
The number of shares in issue at the year end is disclosed in
note 4 to the Financial Statements.
Going Concern
After making enquiries and given the nature of the Company and
its investment, the Board is satisfied that it is appropriate to
continue to adopt the going concern basis in preparing these
Financial Statements and, after due consideration, the Board
considers that the Company is able to continue for the foreseeable
future. In reaching this conclusion the Board is mindful of the
nature of the assets that underlie its investment in the Feeder
Fund via the Master Fund, the Cayman Corporation and Specific
Investments, including the Feeder Fund’s liquidity and has
concluded that adverse investment performance will not have a
material impact on the Company’s ability to meet its liabilities as
they fall due on account of the liquidity of the investments in the
Master Fund.
In accordance with the Articles of Incorporation of the Company,
a Discount Trigger Meeting is held if the average discount to NAV
over a calendar year exceeds 5%. During 2016, the Company
recorded an average discount to NAV of 11.14% and as such the
relevant Discount Trigger EGM conditions were met.
Following the passing of the Discount Trigger Resolution at the
EGM on 9 March 2017, 5,389,739 shares
will be redeemed. This will reduce the size of the Company and
consequently the Board has considered the ongoing cost of running
the Company and whether an increased Total Expense Ratio (“TER”)
would adversely affect the Company’s ability to cover future
liabilities. The Board noted that the Company could, under the
terms of the Management Agreement, redeem sufficient shares in the
Feeder Fund to cover ongoing expenses, therefore guaranteeing the
future viability of the Company. The Board recognises the need to
manage the TER to ensure it doesn’t become excessive. With this
expense management in mind, the Board have made the decision not to
replace Mr Dorrian who is not offering himself forward for
re-election at the 2017 AGM.
The Board has considered the Company’s reduced size, its ability
to redeem from the Feeder Fund and the confirmation it has received
from the Investment Manager indicating their willingness to
continue in their current capacity, and therefore the Board has
concluded that the Company is able to continue as a going
concern.
International Tax Reporting
For purposes of the US Foreign Account Tax Compliance Act
(“FATCA”), the Company registered with the US Internal Revenue
Services (“IRS”) as a Guernsey reporting Foreign Financial
Institution (“FFI”), received a Global Intermediary Identification
Number (KT2S8Y.9999.SL.831), and can be found on the IRS FFI
list.
The Common Reporting Standard (“CRS”) is a global standard for
the automatic exchange of financial account information developed
by the Organisation for Economic Co-operation and Development
(“OECD”), which has been adopted by Guernsey and which came into
effect on 1 January 2016. The CRS replaced the
intergovernmental agreement between the UK and Guernsey to improve
international tax compliance that had previously applied in respect
of 2014 and 2015.
The Board will take necessary actions to ensure that the Company
is compliant with Guernsey regulations and guidance in this
regard.
Discount Management Programme
The Directors review the share price in relation to NAV on a
regular basis and utilise their ability to make market purchases of
the Company’s shares. For additional information, refer to note 7
of the notes to the Financial Statements.
Shareholders with any queries in relation to the above should
contact the Administrator in the first instance, whose contact
details can be found on the Company’s website,
www.dwcatalystltd.com/contacts.
Statement of Directors’ Responsibility
in respect of the Annual Report and Audited Financial
Statements
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable laws and
regulations.
Guernsey company law requires the Directors to prepare Financial
Statements for each financial year. Under that law they have
elected to prepare the Financial Statements in conformity with US
GAAP.
The Financial Statements are required by law to give a true and
fair view of the state of affairs of the Company and of the profit
or loss of the Company for that year.
In preparing these Financial Statements the Directors are
required to:
· select suitable accounting
policies and then apply them consistently;
· make judgements and estimates
that are reasonable and prudent;
· state whether applicable
accounting standards have been followed subject to any material
departures disclosed and explained in the Financial Statements;
and
· prepare the Financial Statements
on a going concern basis unless it is inappropriate to presume that
the Company will continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the Financial Statements comply with the Companies (Guernsey) Law,
2008, as amended. They have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Company and to prevent and detect fraud and other
irregularities.
We confirm to the best of our knowledge that:
· so far as each of the Directors
is aware, there is no relevant audit information of which the
Company’s Independent Auditor is unaware, and each has taken all
the steps they ought to have taken as a Director to make themselves
aware of any relevant information and to establish that the
Company’s Independent Auditor is aware of that information;
· the Annual Report and Audited
Financial Statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for the
shareholders to assess the Company’s performance, business model
and strategy;
· these Financial Statements have
been prepared in conformity with US GAAP and give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company; and
· the Annual Report and Financial
Statements include information detailed in the Chair’s Statement,
the Directors’ Report, the Audit and Risk Committee Report,
Strategic Report and the Manager’s Report, which provides a fair
view of the information required by:
a) DTR 4.1.8 of the
Disclosure and Transparency Rules, being a fair review of the
Company’s business and a description of the principal risks and
uncertainties facing the Company;
b) DTR 4.1.11 of the Disclosure and Transparency Rules,
being an indication of important events that have occurred since
the end of the financial year and the likely future development of
the Company; and
c) DTR 4.1.12 of the Disclosure and Transparency Rules,
being that the Financial Statements are prepared in accordance with
the applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and that the Annual Report and Audited
Financial Statements includes a fair review of the development and
performance of the business and position of the Company together
with a description of the principal risks and uncertainties that it
faces.
Signed on behalf of the Board by:
Charlotte
Valeur
Chair
Patrick
Firth
Director
31 March 2017
CORPORATE GOVERNANCE STATEMENT
In accordance with the UK Listing Regime, the Company must
comply with the requirements of the UK Corporate Governance Code
(“UK Code”). The Company is also required to comply with the Code
of Corporate Governance issued by the Guernsey Financial Services
Commission.
The Company is a member of the Association of Investment
Companies (the “AIC”) and by complying with the AIC Code of
Corporate Governance (previously defined as the “AIC Code”) is
deemed to comply with both the UK and Guernsey Codes of Corporate
Governance.
The AIC Code and the AIC Guide are available on the AIC’s
website, www.theaic.co.uk. The UK Code is available on the
Financial Reporting Council’s website, www.frc.org.uk.
The Board has considered the principles and recommendations of
the AIC Code, by reference to the guidance notes provided by the
AIC (“AIC Guide”), and consider that reporting against these will
provide appropriate information to shareholders. To ensure ongoing
compliance with these principles, the Board receives and reviews a
report from the Corporate Secretary, at each quarterly meeting,
identifying how the Company is in compliance and identifying any
changes that might be necessary.
Throughout the accounting year, the Company has complied with
the recommendations of the AIC Code and thus the relevant
provisions of the UK Code, except as set out below.
The UK Code includes provisions relating to:
· the role of the chief executive;
· executive directors’ remuneration (see
Directors’ Remuneration Report);
· Remuneration Committee;
· the need for an internal audit
function (see Audit and Risk Committee Report); and
· the whistle-blowing policy
For the reasons set out in the AIC Guide, and as explained in
the UK Code, the Board considers these provisions are not relevant
to the position of the Company as it is an externally managed
investment company. The Company has therefore not reported further
in respect of these provisions. The Directors are non-executive and
the Company does not have employees, hence no whistle-blowing
policy is required. However, the Directors have satisfied
themselves that the Company’s service providers have appropriate
whistle-blowing policies and procedures and have received
confirmation from the service providers that nothing has arisen
under those policies and procedures which should be brought to the
attention of the Board.
The Company has adopted a policy that the composition of the
Board of Directors, which is required by the Company’s Articles to
comprise at least two persons, is at all times such that a majority
of the Directors are independent of the Manager and any company in
the same group as the Manager; the Chair of the Board of Directors
is free from any conflicts of interest and is independent of the
Manager and of any company in the same group as the Manager; and
that no more than one director, partner, employee or professional
adviser to the Manager or any company in the same group as the
Manager may be a Director of the Company at any one time.
Andrew Rosenthal is not independent
of the Manager as he serves as a director of the Master Fund, which
is also managed by the Manager.
The Company’s risk exposure and the effectiveness of its risk
management and internal control systems are reviewed by the Audit
and Risk Committee at its meetings and annually by the Board. As at
31 December 2016 and at the date of this Report, the Board
believes that the Company has adequate and effective systems in
place to identify, mitigate and manage the risks to which it is
exposed and that the Company complies with the FRC’s guidance on
risk management, internal control and related financial and
business reporting. The Company’s principal risks and uncertainties
are outlined in the Strategic Report.
The Board
The Board is the Company’s governing body and has overall
responsibility for maximising the Company’s success by directing
and supervising the affairs of the business, for safeguarding the
Company’s assets, for the determination of the investment policy of
the Company, for reviewing the performance of the Manager, and the
other service providers, meeting the appropriate interests of
shareholders and relevant stakeholders, while enhancing the value
of the Company and also ensuring protection of investors. A summary
of the Board responsibilities is as follows:
· statutory obligations and public
disclosure;
· strategic matters and financial
reporting;
· risk assessment and management
including reporting compliance, governance, monitoring and control;
and
· other matters having a material effect
on the Company.
The Board responsibilities for the Annual Report and Audited
Financial Statements are set out in the Statement of Directors’
Responsibility.
The Board consists solely of non-executive Directors.
Keith Dorrian is the Senior
Independent Director of the Board. The Board meets at least four
times a year and between these formal meetings there is regular
contact with the Manager and the Corporate Secretary. The Directors
are kept fully informed of investment and financial controls, and
other matters that are relevant to the business of the Company and
should be brought to the attention of the Directors. The Directors
also have access to the Administrator, and where necessary, in the
furtherance of their duties, to independent professional advice at
the expense of the Company. In addition to these scheduled
meetings, 10 ad hoc meetings of committee of the Board were held to
deal with matters such as the conversions between share classes as
well as the meetings related to the USD share class closure. These
ad hoc meetings were attended by those Directors available at the
time.
On 22 June 2016, at the Annual
General Meeting (“AGM”) of the Company, shareholders re-elected all
Directors of the Company. Section 21.3 of the Company’s Articles
requires any Directors who held office at the time of the two
preceding AGMs and who did not retire at either of them, shall
retire from office and may offer themselves for re-election.
However in order to ensure continuity of experience, at least one
Independent Director will retire each year and may offer themselves
for re-election.
Chair
The Chair is Charlotte Valeur.
The Chair of the Board must be independent for the purposes of
Chapter 15 of the Listing Rules. Charlotte
Valeur is considered independent because she:
· has no current or historical
employment with the Manager; and
· has no current directorships in any
other investment funds managed by the Manager.
The Directors are listed on the Board Members section and on the
inside back cover. Andrew Rosenthal
is not independent of the Manager for the purposes of LR15.2.12-A
and otherwise.
Board Diversity
The Board continues to give careful consideration to the
recommendations of the Davies Report on women on boards and as
recommended in that report has reviewed its composition and
believes that it has available an appropriate range of skills and
experience. In order to extend its diversity, the Board is
committed to implementing the recommendations of the Davies Report,
if possible within the timescales proposed in the Davies Report,
and to that end will ensure that women candidates are considered
when appointments to the Board are under consideration – as indeed
has always been its practice.
Board Evaluation and Succession
Planning
The Board and its Committees undertake an evaluation of their
own performance every year, and every third year the Board intends
to commission an external evaluation of its performance. The Board
undertook its first externally facilitated evaluation in early
September 2013 by Trust Associates.
The report of the evaluation confirmed that the Company observes a
high standard of Corporate Governance and, accordingly, the Board
has conducted self-appraisals in 2014, 2015 and in 2016. The Board
will consider commissioning a further independent study after the
Extraordinary General Meeting of the Company (a “Discount Trigger
EGM”) in 2017.
The Board and Committees of the Board undertake an evaluation of
their own performance and that of individual Directors on an annual
basis. In order to review their effectiveness, the Board and its
Committees carry out a process of formal self-appraisal.
The Board and Committees of the Board consider how they function
as a whole and also review the individual performance of its
members. This process is conducted by the respective Chair
reviewing each member’s performance, contribution and commitment to
the Company. Keith Dorrian as Senior
Independent Director, takes the lead in reviewing the performance
of the Chair. Keith Dorrian has
indicated his intention not to offer himself forward for
re?election at the 2017 AGM.
The Board considers it has a breadth of experience relevant to
the Company, and the Directors believe that any changes to the
Board composition can be managed without undue disruption. An
induction programme will be available for any future Director
appointments.
Training is an ongoing matter for the Board as is discussion on
the overall strategy of the Company and the Board has visited DW at
their offices and elsewhere during the year to discuss these
matters. Such meetings will be an ongoing occurrence. The Directors
regularly review their requirements for continuous professional
development and take actions as necessary to ensure they are up to
date and current with their professional development requirements,
where appropriate.
Committees of the Board
The Board has established Audit and Risk, Management Engagement
and Nomination Committees and approved their terms of reference,
copies of which can be obtained from the Administrator.
Audit and Risk Committee
The Audit and Risk Committee comprises Patrick Firth (Chairman), Keith Dorrian and Christopher Waldron. The Audit and Risk
Committee meets formally at least twice a year and each meeting is
attended by the external auditor and the Administrator.
Appointment to the Audit and Risk Committee is for a period up
to three years which may be extended for two further three year
periods provided that the majority of the Audit and Risk Committee
remain independent of the Manager. Patrick
Firth and Christopher Waldron
are currently serving their second term of three years. On
27 January 2016, the Audit Committee Terms of Reference was
amended to allow for staggered re-appointments. As a result,
Christopher Waldron and Patrick Firth were re-appointed for a term of 1
year, 2 years and 3 years, respectively. Keith Dorrian was appointed for a term of
1 year from 27 January 2016, which has been extended
until the 2017 AGM where he has indicated his intention not to put
himself forward for re-election.
A report of the Audit and Risk Committee detailing
responsibilities and activities is presented on the Audit and Risk
Committee Report.
Management Engagement Committee
The Management Engagement Committee comprises all independent
Directors of the Board. Charlotte
Valeur is Chair of the Management Engagement Committee. The
Management Engagement Committee meets formally at least once a
year.
The Management Engagement Committee has formal duties and
responsibilities. The function of the Management Engagement
Committee is to ensure that the Company’s management agreement is
competitive and reasonable for the shareholders, along with the
Company’s agreements with all other third party service providers
(other than the external auditors). The Committee also reviews
annually, the performance of the Manager with a view to determining
whether to recommend to the Board that the Manager’s mandate be
renewed, subject to the specific notice period requirement of the
agreement. The other third party service providers are also
reviewed on an annual basis.
The principal contents of the Manager’s contract and notice
period are contained in note 3 to the Financial Statements.
At its meeting on 26 September
2016, the Management Engagement Committee concluded that the
continued appointment of the Manager on the terms agreed would be
in the best interests of the Company’s shareholders as a whole.
Subsequent to 31 December 2016, the Company announced the
creation of a new share class (“Class B”) with a reduced management
fee of 1.5% per annum payable to DW Partners, LP. See note 10 for
further details.
At the date of this report the Board continued to be of the same
opinion.
Nomination Committee
The Nomination Committee comprises all independent Directors of
the Board, with the Chair of the Company being appointed as Chair
of the Nomination Committee. For new appointments to the Board,
nominations are sought from the Directors and from other relevant
parties and candidates are then interviewed by the Nomination
Committee. In the event that a replacement for the Chair is being
sought it would normally be expected that the Senior Independent
Director would chair the Committee.
The Nomination Committee held its most recent meeting on
26 September 2016.
Remuneration Committee
In view of its non-executive and independent nature, the Board
considers that it is not appropriate for there to be a separate
Remuneration Committee as anticipated by the AIC Code. The Audit
and Risk Committee make all representations to the Board regarding
Directors remuneration. The Board as a whole fulfils the functions
of the Remuneration Committee, although the Board has included a
separate Directors’ Remuneration Report of this Annual Report.
Board and Committee Meetings
The next table sets out the number of Board, Audit and Risk,
Management Engagement and Nomination Committee meetings held during
the year ended 31 December 2016 and,
where appropriate, the number of such meetings attended by each
Director.
Attendance at scheduled Board and Committee meetings:
|
|
Board |
|
Audit
and Risk |
|
Management Engagement |
|
Nominations |
No of
meetings |
5 |
|
4 |
|
1 |
|
1 |
Attendance |
|
|
|
|
|
|
|
|
Charlotte
Valeur |
5 |
|
4* |
|
1 |
|
1 |
Keith Dorrian |
|
5 |
|
4 |
|
1 |
|
1 |
Patrick Firth |
|
5 |
|
4 |
|
1 |
|
1 |
Christopher Waldron |
5 |
|
4 |
|
1 |
|
1 |
Andrew
Rosenthal |
5 |
|
4* |
|
1 |
|
1 |
* as invitee
Directors’ Interests
Directors’ interests in other companies are disclosed in the
Board Members section.
The Directors had the following interests in the Company, held
either directly or beneficially at 31
December 2016:
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
31.12.16 |
|
31.12.15 |
|
31.12.16 |
|
31.12.15 |
Charlotte
Valeur |
|
Nil |
|
Nil |
|
4,236 |
|
4,236 |
Keith
Dorrian |
|
Nil |
|
Nil |
|
Nil |
|
Nil |
Partick Firth |
|
|
Nil |
|
Nil |
|
500 |
|
500 |
Christopher Waldron |
|
Nil |
|
Nil |
|
500 |
|
500 |
Andrew
Rosenthal |
|
Nil |
|
Nil |
|
Nil |
|
Nil |
The Company has adopted a Code of Directors’ dealings in shares,
which is based on the Model Code for Directors’ dealings contained
in the London Stock Exchange’s Listing Rules.
Directors’ Indemnity
Directors’ and officers’ liability insurance cover is in place
in respect of the Directors. The Directors entered into indemnity
agreements with the Company which provide for, subject to the
provisions of the Companies (Guernsey) Law, 2008, as amended, an
indemnity for Directors in respect of costs which they may incur
relating to the defence of proceedings brought against them arising
out of their positions as Directors, in which they are acquitted or
judgement is given in their favour by the Court. The agreement does
not provide for any indemnification for liability which attaches to
the Directors in connection with any negligence, unfavourable
judgements, breach of duty or trust in relation to the Company.
Internal Controls
The Board is ultimately responsible for establishing and
maintaining the Company’s system of internal control and for
maintaining and reviewing its effectiveness and to achieve this, a
risk management process has been established which seeks to:
· Review the risks faced by the Company
and the controls in place to address those risks;
· Identify and report changes in the
risk environment;
· Identify and report changes in the
operational controls;
· Identify and report on the
effectiveness of controls and errors arising; and
· Ensure no override of controls by its
service providers, the Manager or Administrator.
The Company’s risk matrix continues to be used as the basis for
analysing the Company’s system of internal control. The risk matrix
is prepared and maintained by the Audit and Risk Committee which
initially identifies the risks facing the Company and then
collectively assesses the likelihood of each risk, the impact of
those risks and the strength of the controls operating over each
risk. The Company’s system of internal control is designed to
manage rather than to eliminate the risk of failure to achieve
business objectives and by their nature can only provide reasonable
and not absolute assurance against misstatement and loss.
These controls aim to ensure that assets of the Company are
safeguarded, proper accounting records are maintained and the
financial information for publication is reliable. The Board
confirms that there is an ongoing process for identifying,
evaluating and managing the significant risks faced by the
Company.
The AIC Code requires the Board to conduct at least annually a
review of the Company’s system of internal control, covering all
controls, including financial, operational, compliance and risk
management. The Board has evaluated the systems of internal
controls of the Company. In particular, it has prepared a process
for identifying and evaluating the significant risks affecting the
Company and the policies by which these risks are managed. The
Board considers the Company’s risk management framework and the
risk profile that is acceptable in order to achieve the Company’s
strategic objectives. As a result, it is considered that the Board
has fulfilled its obligations under the AIC Code and that the Board
concluded that the Company’s internal controls are effective.
The Company’s risk matrix is tabled and discussed at the Board
meeting quarterly setting out the risks identified, their potential
impact, the controls in place to mitigate them, the residual risk
assessment and any exceptions identified during the period under
review.
Further reports are received and reviewed from the Administrator
in respect of compliance, London Stock Exchange continuing
obligations and other matters. The Board also receives confirmation
from the Administrator of its accreditation under its Service
Organisation Controls 1 report.
Anti-Bribery and Corruption Policy
The Board has adopted a formal Anti-bribery and Corruption
Policy. The policy applies to the Company and to each of its
Directors. Furthermore, the policy is shared with each of the
Company’s service providers.
Shareholder Engagement
The Board welcomes shareholders’ views and places great
importance on communication with its shareholders. Shareholders
wishing to meet with the Chair and other Board members should
contact the Company’s Administrator.
The Board receives regular reports on the views of its
shareholders from its brokers, JP Morgan Cazenove and Fidante
Capital, marketing consultants, Kepler Partners LLP and Peregrine
Communications and from DW. In addition, the Chair has conducted
and continues to conduct meetings with a number of major
shareholders in order to receive their views on the Company.
The Company’s AGM provides a forum for shareholders to meet and
discuss issues of the Company and shareholders with the opportunity
to vote on the resolutions as specified in the Notice of AGM.
The Company provides weekly unaudited estimates of the NAVs and
month-end unaudited NAVs. The Company provides a quarterly
newsletter. These are published via regulatory announcements and
are also available on the Company’s website, www.dwcatalystltd.com.
Risk reports are also available on the Company’s website.
The Manager maintains regular dialogue with institutional
shareholders, the feedback from which is reported to the Board.
Significant Shareholders
Shareholders with holdings of more than 3.0% of the Shares of
the Company at 31 December 2016 and 29 March 2017
were as follows:
|
|
As at 31 December 2016 |
|
As at 29 March 2017 |
|
|
Total
shares |
|
%
holdings |
|
Total
shares |
|
%
holdings |
Significant Shareholders |
held |
|
in
class |
|
held |
|
in
class |
Nortrust
Nominees Limited |
1,655,748 |
|
17.67% |
|
1,633,448 |
|
15.72% |
Vidacos
Nominees Limited |
1,649,250 |
|
17.60% |
|
1,669,831 |
|
16.07% |
Roy
Nominees Limited |
676,825 |
|
7.22% |
|
676,824 |
|
6.51% |
HSBC
Global Custody Nominee (UK) Limited |
577,632 |
|
6.16% |
|
577,965 |
|
5.56% |
BBHISL Nominees
Limited |
|
529,611 |
|
5.65% |
|
529,611 |
|
5.10% |
Credit
Suisse Client Nominees (UK) Limited |
523,700 |
|
5.59% |
|
476,909 |
|
4.59% |
The Bank
Of New York (Nominees) Limited |
358,864 |
|
3.83% |
|
648,253 |
|
6.24% |
Harewood Nominees
Limited |
|
349,600 |
|
3.73% |
|
349,600 |
|
3.36% |
CGWL
Nominees Limited |
328,223 |
|
3.50% |
|
194,966 |
|
1.88% |
Ongoing Charges
Ongoing charges for the years ended 31
December 2016 and 31 December
2015 have been calculated in accordance with the AIC’s
recommended methodology.
The following table presents the Ongoing Charges of the
Company:
|
|
|
shares |
|
shares |
|
Sterling shares |
|
|
|
31.12.16 |
|
31.12.15 |
|
31.12.16 |
|
31.12.15 |
Company -
Ongoing Charges |
|
0.42% |
|
0.48% |
|
0.61% |
|
0.47% |
Feeder
Fund - Ongoing Charges |
|
2.29% |
|
2.33% |
|
2.45% |
|
2.36% |
Ongoing
Charges |
|
2.71% |
|
2.81% |
|
3.06% |
|
2.83% |
Effective from 1 January 2015, the
Feeder Fund Ongoing Charges represent the portion of the Feeder
Fund’s operating expenses which have been allocated to the Company.
The Company invests substantially all of its investible assets in
the A Class Shares issued by the Feeder Fund. These shares were not
subject to management fees and performance fees allocation within
the Feeder Fund; however they are subject to a management and
performance fee allocation at the level of the Master Fund and at
the level of Specific Investments (see note 3).
Effective 1 January 2017, the Feeder Fund has announced the
creation of a new share class (“Class B”) with a reduced management
fee. See note 10 for further details.
AUDIT AND RISK COMMITTEE REPORT
31 December 2016
Dear Shareholder,
Below, we present the Audit and Risk Committee’s Report for
2016, setting out the responsibilities of the Audit and Risk
Committee and its key activities in 2016. As in previous years, the
Committee has reviewed the Company’s financial reporting, the
independence and effectiveness of the external auditor and the
internal control and risk management systems of the Company’s
service providers. The Audit and Risk Committee considered whether
the Annual Report and Audited Financial Statements are fair,
balanced and understandable and whether they provided the necessary
information for shareholders to access the Company’s performance,
business model and strategy before recommending them to the Board
for approval. In order to assist the Audit and Risk Committee in
discharging these responsibilities, regular reports are received
and reviewed from the Manager, Administrator and external
auditor.
A member of the Audit and Risk Committee will continue to be
available at each Annual General Meeting to respond to any
shareholder questions on the activities of the Audit and Risk
Committee.
Patrick Firth
Chairman, Audit and Risk Committee
Responsibilities
The Audit and Risk Committee reviews and recommends to the Board
the Financial Statements of the Company and is the forum through
which the external auditor reports to the Board of Directors. The
external auditor and the Audit and Risk Committee will meet
together without representatives of either the Administrator or
Manager being present if either party considers this to be
necessary.
Members of the Audit and Risk Committee meet with the Manager at
least annually to discuss the valuation process in relation to
compliance and risk management.
The role of the Audit and Risk Committee is to:
· monitor the integrity of the published
Financial Statements of the Company;
· review and report to the Board on the
significant issues and judgements made in the preparation of the
Company’s published Financial Statements, (having regard to matters
communicated by the external auditors) and other financial
information;
· monitor and review the quality and
effectiveness of the external auditors and their independence;
· consider and make recommendations to
the Board on the appointment, reappointment, replacement and
remuneration to the Company’s external auditor;
· review the Company’s procedures for
prevention, detection and reporting of fraud, bribery and
corruption;
· monitor and review the internal
control and risk management systems of the service providers;
and
· consider and make representations to
the Board regarding Director’s remuneration.
The Audit and Risk Committee’s full terms of reference can be
obtained by contacting the Administrator.
Key Activities of the Audit and Risk
Committee - 2016
The following sections discuss the assessments made by the Audit
and Risk Committee during the year:
Financial reporting:
The Audit and Risk Committee’s review of the annual financial
statements focused on the following significant areas:
The Company’s investment in the Feeder Fund was valued at
US$147.17 million as at 31 December 2016 which represented the majority
of the net assets of the Company and as such is the single biggest
factor in relation to the accuracy of the Financial Statements. The
valuation of the investment is determined in accordance with the
accounting policy in note 2 to the Financial Statements. For
additional information in relation to the Master Fund’s and Feeder
Fund’s valuation policy, refer to note 2 of the Master Fund’s
audited financial statements.
The consolidated financial statements of both the Master Fund
and Feeder Fund for the year ended 31
December 2016 were audited by Ernst & Young LLP who
issued an unqualified audit opinion dated 30
March 2017. The Audit and Risk Committee considered the
financial statements of the Master Fund and its accounting policy
in determining that the stated value of the Company’s investment in
the Feeder Fund is reasonable.
The external auditor reported to the Audit and Risk Committee
that no material misstatements were found in the course of their
work. Furthermore, the Manager and Administrator confirmed to the
Audit and Risk Committee that they were not aware of any material
misstatements including matters relating to the Financial Statement
presentation. The Audit and Risk Committee confirms that it is
satisfied that the external auditor has fulfilled its
responsibilities with diligence and professional scepticism.
Following a review of the presentations and reports from the
Administrator and consulting where necessary with the external
auditor, the Audit and Risk Committee is satisfied that the
Financial Statements appropriately address the critical judgements
and key estimates (both in respect to the amounts reported and the
disclosures). The Audit and Risk Committee is also satisfied that
any significant assumptions used for determining the value of
assets and liabilities have been appropriately scrutinised,
challenged and are sufficiently robust.
Risk management:
The Audit and Risk Committee continued to consider the process
for managing the risk of the Company and its service providers.
Risk management procedures for the Company, as detailed in the
Company’s risk assessment matrix, were reviewed and approved by the
Audit and Risk Committee. During the year there were no issues
noted.
Fraud, bribery and corruption:
The Audit and Risk Committee continues to monitor the
anti-fraud, bribery and corruption policies of the Company. The
Board receives a confirmation from all service providers that they
are not aware of any instances of fraud, bribery or corruption.
The External Auditor
Ernst & Young LLP has been the Company’s independent
external auditor since 31 December 2015, replacing KPMG
Channel Islands Limited, who was the Company’s independent external
auditor since the date of the initial listing on the London Stock
Exchange.
Independence, objectivity and
fees:
The independence and objectivity of the external auditor is
reviewed by the Audit and Risk Committee which also reviews the
terms under which the external auditor is appointed to perform
non-audit services. The Audit and Risk Committee has established
pre-approval policies and procedures for the engagement of the
auditor to provide audit, assurance and tax services. These are
that the external auditors may not provide a service which:
· places them in a position to audit
their own work;
· creates a mutuality of interest;
· results in the external auditor
developing close relationships with service providers of the
Company;
· results in the external auditor
functioning as a manager or employee of the Company; and
· puts the external auditor in the role
of advocate of the Company.
The Company does not utilise external auditors for internal
audit purposes, secondments or valuation advice. Services which are
not in the nature of audit, such as tax compliance, tax
structuring, private letter rulings, accounting advice, quarterly
reviews and disclosure advice are normally permitted but are
subject to prior approval by the Audit and Risk Committee.
The Audit and Risk Committee has examined the scope and results
of the audit and the independence and objectivity of the external
auditor, with particular regard to non-audit fees, and considers
Ernst & Young LLP as external auditor, to be independent of the
Company.
The following table summarises the remuneration payable to Ernst
& Young LLP and KPMG Channel Islands Limited for audit and
non-audit services provided to the Company during the years ended
31 December 2016 and 31 December 2015.
|
|
|
|
|
01.01.16 to |
|
01.01.15 to |
|
|
|
|
|
31.12.16 |
|
31.12.15 |
|
|
|
|
|
£ |
|
£ |
Ernst
& Young LLP |
|
|
|
|
|
|
Annual Audit |
|
|
|
|
35,000 |
|
35,000 |
Auditor's
interim review |
|
|
|
47,000 |
|
- |
|
|
|
|
|
|
|
|
KPMG
Channel Islands Limited |
|
|
|
|
|
|
Auditor's
interim review |
|
|
|
- |
|
8,750 |
In line with the policies and procedures above, the Audit and
Risk Committee did not consider the provision of non-audit services
by Ernst & Young LLP, which comprised only the auditor’s
interim review, to have been a threat to their objectivity and
independence whilst in office. The Audit and Risk Committee has
also considered the overall level of services provided by Ernst
& Young LLP member firms to the wider DW organisation and does
not consider these to pose a threat to the external auditor’s
independence.
The recent revisions to the UK Corporate Governance Code
introduced a recommendation that the external audit be put out to
tender every ten years. The Audit and Risk Committee has noted this
and will develop a plan for tendering at the appropriate time.
Performance and effectiveness:
During the year, when considering the effectiveness of the
external auditors, the Audit and Risk Committee has taken into
account the following factors:
· The audit plan presented to them
before each audit;
· The post audit report including
variations from the original plan;
· Changes in audit personnel;
· The external auditors own internal
procedures to identify threats to independence; and
· Feedback received from both the
Manager and Administrator.
The Audit and Risk Committee reviewed and discussed the audit
plan and the audit findings report of the independent auditor and
concluded that the audit plan sufficiently identified audit risks
and that the audit findings report indicated that the audit risks
were sufficiently addressed and that there were no variations from
the audit plan. The Audit and Risk Committee considered reports
from the external auditors on their procedures to identify threats
to independence and concluded that the procedures were sufficient
to identify potential threats to independence.
Reappointment of external
auditors:
Consequent to this review process, the Audit and Risk Committee
has recommended to the Board that a resolution be put to the 2017
AGM for the re-appointment of Ernst & Young LLP as external
auditor. The Board has accepted this recommendation.
Internal Control and Risk Management
Systems
Additional work performed by the Audit and Risk Committee in the
areas of internal control and risk management are disclosed on the
Corporate Governance Statement.
The Audit and Risk Committee has also reviewed the need for an
internal audit function. The Audit and Risk Committee has decided
that the systems and procedures employed by the Manager and the
Administrator, which included an on-site visit by the Manager,
including their internal control functions, provide sufficient
assurance that a sound system of internal control, which safeguards
the Company’s assets, is maintained. An internal audit function
specific to the Company is therefore considered unnecessary.
Therefore, in finalising the Audited Financial Statements for
recommendation to the Board for approval, the Audit and Risk
Committee is satisfied that, taken as a whole, the Annual Report
and Audited Financial Statements are fair, balanced and
understandable.
Patrick Firth
Chairman of the Audit and Risk
Committee
31 March 2017
DIRECTORS’ REMUNERATION REPORT
As at 31
December 2016
Introduction
An ordinary resolution for the approval of the Directors’
Remuneration Report will be put to the shareholders at the AGM to
be held in 2017.
Remuneration Policy
In view of its non-executive and independent nature, the Board
considers that it is not appropriate for there to be a separate
Remuneration Committee as anticipated by the AIC Code. The Audit
and Risk Committee makes all representations to the Board regarding
Directors remuneration. The Board as a whole fulfils the functions
of the Remuneration Committee. No advice or services were provided
by any external person in respect of its consideration of the
Directors’ remuneration.
The Company’s policy is that the fees payable to the Directors
should reflect the time spent by the Directors on the Company’s
affairs and the responsibilities borne by the Directors and be
sufficient to attract, retain and motivate Directors of a quality
required to run the Company successfully. The Chair of the Board is
paid a higher fee in recognition of her additional
responsibilities, as is the Chairman of the Audit and Risk
Committee. The policy is to review fee rates periodically, although
such a review will not necessarily result in any changes to the
rates, and account is taken of fees paid to directors of comparable
companies.
There are no long term incentive schemes provided by the Company
and no performance fees are paid to Directors.
No Director has a service contract with the Company but each of
the Directors is appointed by a letter of appointment which sets
out the main terms of their appointment. The Directors were
appointed to the Board for an initial term of three years. Section
21.3 of the Company’s Articles requires any Directors who held
office at the time of the two preceding AGM’s and who did not
retire at either of them, shall retire from office and may offer
themselves for re-election. In addition, any Director who is
considered not independent of the Manager for the purpose of UK
Listing Rules is subject to annual re-election. Director
appointments can also be terminated in accordance with the
Company’s Articles. Should shareholders vote against a Director
standing for re-election, the Director affected will not be
entitled to any compensation. There are no set notice periods and a
Director may resign by notice in writing to the Board at any
time.
Directors are remunerated in the form of fees, payable quarterly
in arrears, to the Director personally. No other remuneration or
compensation was paid or payable by the Company during the year
ended 31 December 2016 to any of the
Directors apart from the reimbursement of allowable expenses.
Directors’ Fees
The Company’s Articles limit the fees payable to Directors in
aggregate to £500,000 per annum. The fees are £66,000 per annum for
the Chair, £40,000 per annum for the Chair of the Audit and Risk
Committee and £33,000 per annum for Keith
Dorrian and Christopher
Waldron. Effective 1 October
2016, Andrew Rosenthal is
entitled to a fee of £30,000 per annum as a result of resigning
from DW Partners, LP as Chief Operating Officer.
The fees payable by the Company in respect of each of the
Directors who served during the year ended
31 December 2016 and 31 December
2015, were as follows:
|
|
|
|
|
|
01.01.16 to |
|
01.01.15 to |
|
|
|
|
|
|
31.12.16 |
|
31.12.15 |
|
|
|
|
|
|
£ |
|
£ |
Charlotte Valeur |
|
|
|
|
|
66,000 |
|
66,000 |
Keith Dorrian |
|
|
|
|
|
33,000 |
|
33,000 |
Patrick Firth |
|
|
|
|
|
40,000 |
|
40,000 |
Christopher Waldron |
|
|
|
|
33,000 |
|
33,000 |
Andrew
Rosenthal* |
|
|
|
|
7,500 |
|
- |
|
|
|
|
|
|
179,500 |
|
172,000 |
* Effective 1 October 2016,
Andrew Rosenthal is entitled to a
Director fee of £30,000 per annum which had previously been
waived.
Signed on behalf of the Board by:
Charlotte
Valeur
Chair
Patrick
Firth
Director
31 March 2017
MANAGER’S REPORT
DW (hereinafter “we” or “us”) is the Manager of the Company and
of the DW Catalyst Offshore Fund (as previously defined).
DW has been responsible for the underlying investment decisions
of the Company’s funds since its inception, and following a vote of
shareholders on 19 December 2014, DW
assumed the corresponding management responsibilities for the
Company, the Master Fund, the Cayman Corporation and the Feeder
Fund effective from 1 January
2015.
Net Asset Value Summary
The NAV per share of the Company’s GBP currency class
appreciated by approximately 4.19% in 2016. The USD currency class
was closed and converted to GBP as of 31 March 2016. The
month-by-month performance of each currency class is stated
below:
GBP |
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
YTD |
2011* |
1.74 |
1.54 |
0.95 |
2.08 |
0.05 |
(2.16) |
0.51 |
(0.33) |
(0.93) |
(0.50) |
(1.49) |
(0.47) |
0.89 |
2012 |
0.64 |
1.15 |
2.40 |
1.5 |
1.22 |
(0.06) |
1.40 |
1.36 |
1.62 |
0.81 |
0.75 |
1.26 |
14.95 |
2013 |
1.76 |
0.27 |
1.20 |
1.05 |
1.81 |
(0.52) |
0.18 |
1.06 |
1.13 |
1.71 |
1.68 |
1.54 |
13.62 |
2014 |
1.08 |
1.43 |
0.53 |
1.51 |
0.88 |
1.48 |
0.63 |
(1.01) |
(0.77) |
(0.71) |
0.03 |
0.38 |
5.55 |
2015 |
(0.02) |
0.48 |
0.34 |
1.23 |
(0.11) |
(0.74) |
(2.58) |
(0.96) |
(1.41) |
(2.05) |
(2.94) |
(1.08) |
(9.48) |
2016 |
(2.23) |
(0.89) |
(1.40) |
1.73 |
0.33 |
0.28 |
0.37 |
1.37 |
0.36 |
1.43 |
0.68 |
2.17 |
4.19 |
2017 |
0.34 |
0.14 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
0.48 |
USD |
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
YTD |
2011* |
1.78 |
1.55 |
0.91 |
2.14 |
(0.03) |
(2.16) |
0.50 |
(0.37) |
(0.96) |
(0.50) |
(1.49) |
(0.50) |
0.81 |
2012 |
0.64 |
1.15 |
2.36 |
1.51 |
1.17 |
(0.10) |
1.38 |
1.39 |
1.65 |
0.8 |
0.73 |
1.26 |
14.83 |
2013 |
1.73 |
0.24 |
1.19 |
1.07 |
1.74 |
(0.52) |
0.16 |
1.07 |
1.18 |
1.68 |
1.7 |
1.52 |
13.5 |
2014 |
1.07 |
1.43 |
0.49 |
1.51 |
0.85 |
1.47 |
0.58 |
(1.00) |
(0.76) |
(0.72) |
0.04 |
0.35 |
5.39 |
2015 |
(0.04) |
0.48 |
0.31 |
1.23 |
(0.10) |
(0.76) |
(2.60) |
(0.97) |
(1.42) |
(2.08) |
(2.92) |
(1.00) |
(9.52) |
2016 |
(2.07) |
(0.89) |
(1.45) |
- |
- |
- |
- |
- |
- |
- |
- |
- |
(4.34) |
Source: The Company’s NAV data is provided by the Administrator.
Monthly NAV data is unaudited and net of all fees and expenses
payable by the Company. Shares in the Company do not
necessarily trade at a price equal to the prevailing NAV per
Share.
Past performance is not indicative of future results.
* December 2011 is 1% lower than
these figures due to the deduction of the expenses of the initial
public offering borne by the Company in December 2010. See financial highlights.
Investment Profile
The evolution of the strategy profile* of the Master Fund, as
measured as a percentage of total Market Value**, is summarised
below:
Strategy |
31 December 2016 |
31 December 2015 |
|
Long
(%) |
Short
(%) |
Long
(%) |
Short
(%) |
Commercial Real
Estate |
29% |
(69%) |
34% |
(107%) |
Corporate Credit &
Special Sits. |
56% |
(98%) |
85% |
(101%) |
Structured
Finance |
21% |
(6%) |
47% |
(14%) |
Domain Real
Estate |
4% |
- |
2% |
- |
Middle Markets
Distressed |
2% |
- |
2% |
- |
Energy Direct
Investments |
2% |
(2%) |
- |
- |
Total |
114% |
(175%) |
170% |
(222%) |
* Investment profile is subject to change.
** Market Values are shown as a percentage of Fund NAV,
excluding positions in US Treasuries. Market Value for derivatives
is calculated in bond-equivalent terms, as underlying notional less
current replacement cost. For example, a $100mm notional credit
default swap trading at 5 points upfront creates $95mm of Market
Value..
Performance Review
The NAV of the Company increased by 4.19% (in the GBP share
class) over 2016. The Company recorded a net loss in USD terms but
a gain in GBP per share due to share class hedging.
Portfolio Overview
The Catalyst Fund’s performance for the first half of 2016 was
marked by a difficult first quarter, where idiosyncratic bonds
traded off as more “beta-oriented” assets rallied, followed by a
more typical quarter for the fund where Corporate strategies
outperformed. Over the remainder of the year, beginning in April,
fund performance rebounded as the fund generated solid
risk-adjusted “alpha”-oriented returns from idiosyncratic positions
in Corporate Credit & Special Situations, Commercial Real
Estate and Structured Finance strategies. Hedges were the biggest
detractor for Q4 and the whole of 2016. With high yield bond
spreads trading at their tightest levels since June 2014 and many bonds trading above par and
close to their call prices, the cost to maintain shorts has
continued to fall. Our Corporate Credit & Special Situations
team is increasing its focus on idiosyncratic short positions and
paired long/short trades that can generate alpha this year while
also providing protection or convexity in market selloffs.
In corporate credit, the high yield market had a stellar
recovery in 2016. While the level of dispersion in credit spreads
remains elevated compared to mid-2014, absolute yields for many
stressed high yield bonds have recovered to more normal levels and
we have reduced our exposure in these situations. Looking ahead, we
see some of the best opportunities in companies that did not
survive the downturn and have been, or are being, reorganised into
less leveraged capital structures. The Fund’s Q4 gains in
Seventy-Seven and Energy XXI are representative of the types of
idiosyncratic, catalyst-driven gains that we expect from these
positions. Moreover, the broad rally has created opportunities for
shorting leveraged corporates where we think the market is
mispricing the likelihood that a company will be able to refinance
or repay its debt. As High Yield corporate spreads approach
tightness not seen since 2014, our corporate team is sifting
through potential short ideas either as low-cost alternatives to
traditional hedges or outright alpha shorts. Andrew Beckman’s
transition to Corporate Credit & Special Situations strategy
head has afforded us the opportunity to re-underwrite positions in
this portfolio. We have continued to reduce the number of
line-items and exit positions as prices change or events are
realised. We’re extremely pleased with how Andrew has taken on the
leadership of this portfolio.
Legacy CMBS securities remain a large exposure at ~25% of Fund
capital. Continued uncertainty around the outcome of overleveraged
underlying loans, concerns around recoveries on other properties
that will default, and the complexity of CMBS structures have kept
risk premium both high and difficult for many market participants
to analyse. In contrast, investors have embraced longer-dated,
newly issued subordinated CMBS that are pricing at mid-single digit
spreads, reflecting investor expectations that newer vintages of
commercial real estate loans will experience minimal issues in the
next recession. We have continued to avoid these lower spread
longer-dated CMBS while focusing on idiosyncratic legacy CMBS about
to mature.
Given strong housing markets, and as we get further away from
the housing crisis, the fundamental and technical outlook for the
RMBS market continues to improve. As has been the case for at least
the past couple of years, the market increasingly accepts many of
these securities as “safer,” and we are selling to the ongoing
buyers or holders who like these securities at low-to-mid-single
digit yields. We continue to hold RMBS with wider yields where we
believe catalysts will play out over the next year or two,
including select securities backed by second lien or option-ARM
mortgages. We have strong performance expectations for these
positions in 2017, albeit at a smaller percentage of the Fund’s
portfolio. Apart from RMBS, we are back to more ‘normal’
securitisation markets and so there are fewer fresh opportunities
in secondary ABS. But select opportunities persist for market
participants willing to embrace complexity, and Amit Senapaty and
Brian Zola are analysing a number of
situations, particularly in the student loan sector. While we have
harvested gains on most of our legacy private student loan
mezzanine positions as spreads tightened, we see exciting
asymmetric potential in select residual positions as well as whole
loans with an eye towards securitisation.
Opportunity Set
I have never felt more confident and optimistic about the firm
and our ability to identify excellent return opportunities for our
shareholders. My view is that the current investing period is for
the domain expert, the investor who has spent his or her
career developing deeper and deeper understanding of a sector or
product. And now is the time we need to capitalise on all of that
collective experience to find the asymmetric investments that will
do the best and have the near-term catalysts to win for you. The
nine strategy leaders at DW who are our domain experts have both
years and depth of market experience in their domains. Along with
Bob Clark and me, we have a deep and
experienced investment team here at DW, a team aligned and focused
on maximising performance for you. We are confident that we can
find a wide array of public securities (and a small sprinkling of
privates) to invest, long and short, and produce strong absolute
returns reasonably uncorrelated to market returns.
David Warren
Chief Investment Officer
DW Partners, LP
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DW CATALYST FUND
LIMITED
Opinion on financial statements
In our opinion the financial statements:
· give a true and fair view of the state
of the Company’s affairs as at 31 December
2016 and of its net decrease in net assets resulting from
operations for the year then ended;
· have been properly prepared in
accordance with United States Generally Accepted Accounting
Principles; and
· have been prepared in accordance with
the requirements of The Companies (Guernsey) Law, 2008.
What we have audited
DW Catalyst Fund Limited (the “Company”) financial statements
comprise:
· statement of assets and
liabilities;
· statement of operations and
performance allocation;
· statement of changes in net
assets;
· statement of cash flows; and
· related notes 1 to 10.
The financial reporting framework that has been applied in their
preparation is applicable law and United States Generally Accepted
Accounting Principles.
Overview of our audit approach
Risk of material
misstatement
· Incorrect valuation of investment in
the Feeder Fund.
· Incorrect calculation and recording of
foreign currency gains and losses arising on translation of
allocations from the Feeder Fund and translation differences
between functional and presentation currency.
Audit scope
We performed an audit of the Company for the year ended
31 December 2016. The audit was led
from Guernsey and included team members from Ernst & Young LLP
in the USA. We operated as an
integrated team across both jurisdictions.
Materiality
$3m which represents 2% of net
assets.
Our assessment of risk of material
misstatement
We identified the risks described below as those which would
have the greatest effect on our overall audit strategy, the
allocation of resources and directing the efforts of the audit
team. In addressing these risks, we have performed the procedures
below which were designed in the context of the financial
statements as a whole and, consequently, we do not express any
opinion on this individual area.
Risk |
Our response to the risk |
What we concluded to the Audit
Committee |
|
|
|
Investment
valuation
Incorrect valuation of the investment in the Feeder Fund.
See also Audit and Risk Committee report. |
We confirmed the valuations of the
Feeder Fund and the Master Fund with their independent
administrators and we agreed the valuation to the audited financial
statements of the Feeder fund. |
We confirmed that there were no
material matters identified during our audit work on investment
valuation that we wanted to bring to the attention of the Audit
Committee. |
Foreign currency
gains and losses
Incorrect calculation and recording of foreign currency gains and
losses arising on translation of allocations from the Feeder Fund
and translation differences between functional and presentation
currency. |
We reviewed the
allocation schedules provided by the independent administrator of
the Feeder Fund.
We reperformed the foreign currency translations.
We reviewed the financial statement disclosures related to foreign
currency gains and losses to ensure the amounts have been properly
classified. |
We confirmed that there were no
material matters identified during our audit work on investment
valuation that we wanted to bring to the attention of the Audit
Committee. |
The scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit scope
and this enables us to form an opinion on the financial
statements.
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our opinion.
Materiality
“Materiality” is the magnitude of an omission or misstatement
that, individually or in aggregate, could reasonably be expected to
influence the economic decisions of the users of financial
statements. Materiality provides a basis for determining the nature
and extent of our audit procedures.
We determined materiality for the Company to be $3m which is approximately 2% of net assets. This
provided a basis for determining the nature timing and extent of
risk assessment procedures. We used net assets as a basis for
determining planning materiality because the Company’s primary
performance measures for internal and external reporting are based
on net assets.
During the course of our audit we reassessed initial materiality
and noted no factors leading us to amend materiality levels from
those originally determined at the audit planning stage.
Performance materiality
“Performance materiality” is the application of materiality at
the individual account or balance level. It is set at an amount to
reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our
assessment of the Company’s overall control environment our
judgement was that overall performance materiality (i.e. our
tolerance for misstatement in an individual account balance) for
the Company should be 50% of materiality, namely $1.5m.
Our objective in adopting this approach was to ensure that total
uncorrected and undetected audit differences in the Financial
Statements did not exceed our materiality level.
Reporting threshold
“Reporting threshold” is an amount below which identified
misstatements are considered as being clearly trivial.
We agreed with the Audit Committee at audit planning stage that
we would report to them all audit differences in excess of
$150,000 which is set at 5% of
planning materiality, as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds.
We evaluated any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
Scope of the Audit of the Financial
Statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Company’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the financial statements. In addition, we
read all the financial and non-financial information in the Annual
Report and financial statements to identify material
inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired
by us in the course of performing the audit. If we become aware of
any apparent material misstatements or inconsistencies we consider
the implications for our report.
Respective responsibilities of
directors and auditor
As explained more fully in the Statement of Directors’
Responsibility set out on the Directors’ Report, the directors are
responsible for the preparation of the financial statements and for
being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and in accordance with
International Standards on Auditing (UK & Ireland).
This report is made solely to the Company’s members, as a body,
in accordance with Section 262 of The Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Matters on which we are required to
report by exception
ISAs (UK and Ireland)
We are required to report to you, if in our opinion, financial
and non-financial information in the Annual Report is:
· materially inconsistent with the
information in the financial statements
· apparently materially incorrect based
on, or materially inconsistent with, our knowledge of the Company
acquired in the course of performing our audit; or
· otherwise misleading
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge acquired
during the audit and the directors’ statement that they consider
the annual report is fair, balanced and understandable and whether
the annual report appropriately discloses those matters that we
communicated to the audit committee which we consider should have
been disclosed.
We have no exceptions to report.
Listing Rules review requirements
We are required to review:
· the Directors’ statement in relation
to going concern, set out in the Directors’ Report, and longer term
viability, set out in the Strategic Report; and
· the part of the Corporate Governance
Statement relating to the Company’s compliance with the provisions
of the UK Corporate Governance Code specified for our review.
We have no exceptions to report.
Companies (Guernsey) Law, 2008
requirements
We are required to report to you, if, in our opinion:
- proper accounting records have not been kept; or
- the financial statements are not in agreement with the
accounting records; or
- we have not received all the information and explanations
required for the audit.
We have no exceptions to report.
Statement on the Directors’ assessment
of the principal risks that would threaten the solvency or
liquidity of the entity
ISAs (UK and Ireland) reporting
We are required to give a statement as to whether we have
anything material to add or to draw attention to in relation
to:
· the Directors’ confirmation in the
Annual Report that they have carried out a robust assessment of the
principal risks facing the entity, including those that would
threaten its business model, future performance, solvency or
liquidity;
· the disclosures in the Annual Report
that describe those risks and explain how they are being managed or
mitigated;
· the Directors’ statement in the
financial statements about whether they considered it appropriate
to adopt the going concern basis of accounting in preparing them,
and their identification of any material uncertainties to the
entity’s ability to continue to do so over a period of at least
twelve months from the date of approval of the financial
statements; and
· the Directors’ explanation in the
Annual Report as to how they have assessed the prospects of the
entity over what period they have done so and why they consider
that period to be appropriate, and their statement as to whether
they have a reasonable expectation that the entity will be able to
continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or
assumptions.
We have nothing material to add or to draw attention to.
Michael Bane
For and on behalf of Ernst & Young LLP
Guernsey
31 March 2017
INDEPENDENT AUDITOR’S REPORT TO THE DIRECTORS OF DW CATALYST
FUND LIMITED
We have audited the accompanying financial statements of DW
Catalyst Fund Limited (the “Company”), which comprise the Statement
of Assets and Liabilities as of 31 December
2016, and the related Statement of Operations and
Performance Allocation, Statement of Changes in Net Assets and
Statement of Cash Flows for the year then ended, and the related
notes to the financial statements.
Management’s Responsibility for the
Financial Statements
Management is responsible for the preparation and fair
presentation of these financial statements in conformity with
United States generally accepted
accounting principles; this includes the design, implementation,
and maintenance of internal control relevant to the preparation and
fair presentation of financial statements that are free of material
misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance
with auditing standards generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
Company’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control.
Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the financial statements referred to above
present fairly, in all material respects, the statement of assets
and liabilities of DW Catalyst Fund Limited at 31 December 2016 and 2015, and the results of its
operations and performance allocation, changes in net assets and
its cash flows for the year then ended, in conformity with
United States generally accepted
accounting principles.
Ernst & Young LLP
Guernsey
31 March 2017
AUDITED STATEMENT OF ASSETS AND
LIABILITIES
As at 31 December 2016
(Expressed in ‘000 US Dollars)
|
|
|
|
|
|
31.12.16 |
|
31.12.15 |
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
Investment
in the Feeder Fund |
147,169 |
|
190,317 |
Prepaid
expenses |
|
|
|
|
43 |
|
19 |
Cash and
bank balances denominated in Sterling |
|
|
|
|
3,500 |
|
164 |
Cash and
bank balances denominated in US Dollars |
|
|
|
|
- |
|
43 |
Total
assets |
|
|
|
|
150,712 |
|
190,543 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Redemptions in respect of buybacks payable |
|
|
|
|
133 |
|
- |
Directors'
fees and expenses payable |
|
|
|
|
62 |
|
65 |
Accrued
expenses and other liabilities |
|
|
|
|
74 |
|
42 |
Administration fees payable (note 3) |
|
|
|
|
33 |
|
33 |
Registrar
fees payable (note 3) |
|
|
|
|
- |
|
5 |
Total
liabilities |
|
|
|
|
302 |
|
145 |
|
|
|
|
|
|
|
|
|
Net
assets |
|
|
|
|
150,410 |
|
190,398 |
|
|
|
|
|
|
|
|
|
Number
of shares in issue (note 4) |
|
|
|
|
|
|
|
US Dollar
shares |
|
|
|
|
- |
|
2,211,203 |
Sterling
shares |
|
|
|
|
9,371,817 |
|
8,856,566 |
|
|
|
|
|
|
|
|
|
Net
asset value per share (notes 6 and 8) |
|
|
|
|
|
|
|
US Dollar
shares |
|
|
|
|
- |
|
US$12.40 |
Sterling
shares |
|
|
|
|
£12.99 |
|
£12.47 |
The financial statements were approved by the Board of Directors
on 31 March 2017 and signed on its
behalf by:
Charlotte
Valeur
Chair
Patrick
Firth
Director
See accompanying notes and attached
Audited Annual Financial Statements of DW Catalyst Offshore Fund
Ltd. and DW Catalyst Master Fund Ltd.
AUDITED STATEMENT OF OPERATIONS AND
PERFORMANCE ALLOCATION
For the year ended 31 December
2016
(Expressed in ‘000 US Dollars)
|
|
|
|
01.01.16 |
|
01.01.15 |
|
|
|
|
to
31.12.16 |
|
to
31.12.15 |
Investment gain allocated from the Feeder Fund |
|
|
|
|
|
Interest |
|
|
|
41,621 |
|
35,041 |
Dividend
income (net of withholding tax of: US$360,016) |
|
|
1,281 |
|
100 |
Other income |
|
|
|
204 |
|
- |
Expenses |
|
|
|
(5,320) |
|
(4,576) |
Management fees (note
3) |
|
|
|
(3,226) |
|
(4,254) |
Investment gain
allocated from the Feeder Fund |
|
|
|
34,560 |
|
26,311 |
|
|
|
|
|
|
|
Company
income |
|
|
|
|
|
|
Foreign exchange gains
(note 2) |
|
|
|
- |
|
2 |
Total Company
income |
|
|
|
- |
|
2 |
|
|
|
|
|
|
|
Company
expenses |
|
|
|
|
|
|
Other expenses |
|
|
|
523 |
|
663 |
Directors' fees and
expenses |
|
|
|
240 |
|
264 |
Administration fees
(note 3) |
|
|
|
201 |
|
200 |
Registrar fees (note
3) |
|
|
|
30 |
|
32 |
Foreign exchange
losses (note 2) |
|
|
|
18 |
|
- |
Total Company
expenses |
|
|
|
1,012 |
|
1,159 |
|
|
|
|
|
|
|
Net investment
gain |
|
|
|
33,548 |
|
25,154 |
|
|
|
|
|
|
|
Net
realised loss and change in unrealised depreciation on investments
allocated from the Feeder Fund |
|
|
|
Net realised loss on
investments |
|
|
|
(19,246) |
|
(10,909) |
Net
unrealised depreciation on investments |
|
|
(8,749) |
|
(35,117) |
Net loss
on foreign currency hedges (note 2) |
|
|
(30,181) |
|
(8,746) |
Net
realised loss and unrealised depreciation |
|
|
|
|
|
on investments allocated from the Feeder Fund |
|
|
(58,176) |
|
(54,772) |
|
|
|
|
|
|
|
Net
decrease in net assets resulting from operations after performance
allocation |
(24,628) |
|
(29,618) |
See accompanying notes and attached
Audited Annual Financial Statements of DW Catalyst Offshore Fund
Ltd. and DW Catalyst Master Fund Ltd.
AUDITED STATEMENT OF CHANGES IN NET
ASSETS
For the year ended 31 December
2016
(Expressed in ‘000 US Dollars)
|
|
|
|
|
|
01.01.16 |
|
01.01.15 |
|
|
|
|
|
|
to
31.12.16 |
|
to
31.12.15 |
Net
decrease in net assets resulting from operations |
|
|
|
|
|
Net
investment gain |
|
|
|
|
33,548 |
|
25,154 |
Net
realised loss on investments allocated from |
|
|
|
|
|
the
Feeder Fund |
|
|
|
|
(19,246) |
|
(10,909) |
Net change
in unrealised depreciation on investments |
|
|
|
|
|
allocated from the Feeder Fund |
|
|
|
(8,749) |
|
(35,117) |
Net loss
on foreign currency hedges allocated from |
|
|
|
|
|
the
Feeder Fund |
|
|
|
|
(30,181) |
|
(8,746) |
|
|
|
|
|
|
(24,628) |
|
(29,618) |
|
|
|
|
|
|
|
|
|
Share
capital transactions |
|
|
|
|
|
|
|
Purchase
of own shares into treasury (note 4) |
|
|
(15,360) |
|
- |
|
|
|
|
|
|
(15,360) |
|
- |
|
|
|
|
|
|
|
|
|
Net
decrease in net assets |
|
|
|
|
(39,988) |
|
(29,618) |
Net
assets at the beginning of the year |
|
|
190,398 |
|
220,016 |
Net
assets at the end of the year |
|
|
150,410 |
|
190,398 |
See accompanying notes and attached
Audited Annual Financial Statements of DW Catalyst Offshore Fund
Ltd. and DW Catalyst Master Fund Ltd
AUDITED STATEMENT OF CASH FLOWS
For the year ended 31 December
2016
(Expressed in ‘000 US Dollars)
|
|
|
|
01.01.16 |
|
01.01.15 |
|
|
|
|
to
31.12.16 |
|
to
31.12.15 |
Cash flows from
operating activities |
|
|
|
|
|
|
Net
decrease in net assets resulting from operations |
|
|
(24,628) |
|
(29,618) |
Adjustments to reconcile net decrease in net assets |
|
|
|
|
|
resulting from operations to net cash generated from
operating activities |
|
|
|
|
Net
investment gain allocated from the Feeder Fund |
|
|
(34,560) |
|
(26,311) |
Net
realised loss on investments allocated from the Feeder Fund |
|
|
19,246 |
|
10,909 |
Net change
in unrealised depreciation on investments |
|
|
|
|
|
allocated from
the Feeder Fund |
|
|
|
8,749 |
|
35,117 |
Net loss
on foreign currency hedges allocated from the Feeder Fund |
|
|
30,181 |
|
8,746 |
Net
proceeds from sale of investment in the Feeder Fund |
|
|
19,532 |
|
4,545 |
Increase in prepaid
expenses |
|
|
|
(24) |
|
(19) |
Decrease in
performance fees payable |
|
|
|
- |
|
(2,856) |
Decrease in management
fees payable |
|
|
|
- |
|
(379) |
Decrease
in Directors' fees and expenses payable |
|
|
(3) |
|
(2) |
Increase
in accrued expenses and other liabilities |
|
|
32 |
|
11 |
Decrease in registrar
fees payable |
|
|
|
(5) |
|
(6) |
Net
cash generated from operating activities |
|
|
18,520 |
|
137 |
|
|
|
|
|
|
|
Cash flows from
financing activities |
|
|
|
|
|
|
Purchase of own
shares |
|
|
|
(15,227) |
|
- |
Net cash used in
financing activities |
|
|
|
(15,227) |
|
- |
|
|
|
|
|
|
|
Change in
cash |
|
|
|
3,293 |
|
137 |
Cash, beginning of
the year |
|
|
|
207 |
|
70 |
Cash, end of the
year |
|
|
|
3,500 |
|
207 |
|
|
|
|
|
|
|
Cash, end of the
year |
|
|
|
|
|
|
Cash and
bank balances denominated in Sterling |
|
|
3,500 |
|
164 |
Cash and
bank balances denominated in US Dollars |
|
|
- |
|
43 |
|
|
|
|
3,500 |
|
207 |
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
In specie
divestment from the Master Fund (note 9) |
|
|
- |
|
220,828 |
In specie
investment in the Feeder Fund (note 9) |
|
|
- |
|
(220,828) |
See accompanying notes and attached
Audited Annual Financial Statements of DW Catalyst Offshore Fund
Ltd. and DW Catalyst Master Fund Ltd.
NOTES TO THE ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
For the year ended 31 December
2016
1. The Company
Details of the Company and its organisation are set out in the
Strategic Report.
2. Significant accounting Policies
Basis of presentation
The Annual Report and Audited Financial Statements, which give a
true and fair view, are prepared in conformity with United States
Generally Accepted Accounting Principles and comply with the
Companies (Guernsey) Law, 2008. Prior to the US Dollar share class
closure on 26 April 2016, the functional and reporting
currency of the Company was US Dollars. With effect from
26 April 2016, the Company’s
functional currency changed to Sterling. The presentation currency
of the Company is United States Dollars.
The Company is an Investment Entity which has applied the
provisions of ASC 946. U.S. GAAP requires investments of an
investment company to be recorded at their estimated fair value.
The unrealised gains and/or losses in the investment’s fair value
need to be recognised on a current basis in the Statement of
Operations and Performance Allocation. US GAAP requires investments
of an investment company to be recorded at their estimated fair
value and are not to be consolidated. Under the investment company
rules and regulations pursuant to the AICPA Audit and Accounting
Guide for Investment Companies, the Company is precluded from
consolidating any entity other than another investment company or
an operating company that provides services to the Company.
Investments in other investment companies or funds are recorded at
fair value in the accompanying financial statements. The carrying
value of all other assets and liabilities approximates fair
value.
Going concern
Having reassessed the principal risks; the Directors considered
it appropriate to adopt the going concern basis of accounting in
preparing the Annual Report and Audited Financial Statements.
In accordance with the Articles of Incorporation of the Company,
a Discount Trigger Meeting is held if the average discount to NAV
over a calendar year exceeds 5%. During 2016, the Company
recorded an average discount to NAV of 11.14% and as such the
relevant Discount Trigger EGM conditions were met.
Following the passing of the Discount Trigger Resolution at the
EGM on 9 March 2017, 5,389,739 shares
will be redeemed. This will reduce the size of the Company and
consequently the Board has considered the ongoing cost of running
the Company and whether an increased Total Expense Ratio (“TER”)
would adversely affect the Company’s ability to cover future
liabilities. The Board noted that the Company could, under the
terms of the Management Agreement, redeem sufficient shares in the
Feeder Fund to cover ongoing expenses, therefore guaranteeing the
future viability of the Company. The Board recognises the need to
manage the TER to ensure it doesn’t become excessive. With this
expense management in mind, the Board have made the decision not to
replace Mr Dorrian who is not offering himself forward for
re?election at the 2017 AGM.
The Board has considered the Company’s reduced size, its ability
to redeem from the Feeder Fund and the confirmation it has received
from the Investment Manager indicating their willingness to
continue in their current capacity, and therefore the Board has
concluded that the Company is able to continue as a going
concern.
The following are significant accounting policies adopted by the
Company:
Valuation of investments
In accordance with Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 820 “Fair Value
Measurement”, fair value is defined as the price the Company would
receive upon selling a security in a timely transaction to an
independent buyer in the principal or most advantageous market of
the security. The Company records its investment in Class A shares
of the Feeder Fund at fair value. Fair value is determined as the
Company’s proportionate share of the Feeder Fund’s net assets. At
31 December 2016, the Company’s
Sterling capital account represented 11.18% (31 December 2015: 7.69% and 1.29% of Sterling and
US Dollar shares respectively) of the Feeder Fund’s capital. For
further information refer to the Audited Consolidated Financial
Statements of the Feeder Fund.
The Company’s investment in the Master Fund via the Feeder Fund
and the Cayman Corporation is determined as the Company’s
proportionate share of the Master Fund’s net assets. At
31 December 2016 the Company’s
Sterling capital account represented 8.01% (31 December 2015: 4.85% and 0.82% of Sterling and
US Dollar shares respectively) of the Master Fund’s capital. For
further information refer to the Master Fund’s Audited Consolidated
Financial Statements.
The Company’s investment in the Class A shares of Feeder Fund is
subject to an 85 day notice period on redemptions. These
redemptions are paid on a quarterly basis.
The valuation and classification of securities held by the
Master Fund, Feeder Fund and Cayman Corporation are discussed in
the notes to the Audited Consolidated Financial Statements of the
Master Fund and the Audited Consolidated Financial Statements of
the Feeder Fund which are available on the Company’s website,
www.dwcatalystltd.com.
ASC 820 establishes a three-level hierarchy to maximise the use
of observable market data and minimise the use of unobservable
inputs and to establish classification of fair value measurements
for disclosure purposes. Inputs refer broadly to the assumptions
that market participants would use in pricing the asset or
liability, including assumptions about risk, for example, the risk
inherent in a particular valuation technique used to measure fair
value including such a pricing model and/or the risk inherent in
the inputs to the valuation technique. Inputs may be observable or
unobservable.
As a result of the changes in ASC 820 “Fair Value Measurements”,
the Company is using the practical expedient and therefore is not
using fair value hierarchy.
Income and expenses
The Company records monthly its proportionate share of the
Feeder Fund’s income, expenses and realised and unrealised gains
and losses, which in turn records its proportionate share of the
Master Fund’s income, expenses and realised and unrealised gains
and losses. In addition, the Company accrues its own income and
expenses, which until the US Dollar share class closure, were
allocated proportionately to the US Dollar and Sterling share
classes based on their respective NAVs.
Use of estimates
The preparation of Financial Statements in conformity with US
GAAP requires Management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
those 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.
Change in functional currency
As a consequence of the closure of the US Dollar share class, a
decision was made by the Directors to change the functional
currency from US Dollars to Sterling. It is acknowledged that the
Company’s price quotation on the LSE is now only Sterling and
performance is reported in Sterling. The Company invests in a
single investment through a Sterling Share class, and substantially
all of the Company’s cash flows are now in Sterling. The
presentation currency remains unchanged as US Dollars.
Foreign exchange
Purchases and sales of investments and income and expense items
denominated in foreign currencies are translated into Sterling, the
Company's functional currency, at the date of such transactions.
Exchange differences arising on translation are included in the
Statement of Operations and Performance Allocation.
Investment securities and other assets and liabilities are
translated into US Dollars, the Company's reporting currency, using
exchange rates at the reporting date. Transactions reported in the
Statement of Operations and Performance Allocation are translated
into US Dollar amounts at the average exchange rate for the period.
The share capital and other capital reserve accounts are translated
at the historic rate ruling at the date of the transaction.
Exchange differences arising on translation into the reporting
currency are offset against exchange differences arising on
translation into the functional currency. Certain comparative
figures have been reclassified in the Statement of Operations and
Performance Allocation to conform with the current year
presentation.
Cash and bank balances
Cash and cash equivalents comprise cash in bank and demand
deposits with original maturities of less than 90 days.
Treasury shares
Where the Company may purchase its own share capital, the
consideration paid, which includes any directly attributable costs,
is recognised as a deduction from equity shareholders’ funds
through the share capital account. When such shares are
subsequently sold or reissued to the market, any consideration
received, net of any directly attributable incremental transaction
costs, is recognised as an increase in equity shareholders’ funds
through the share capital account. Where the Company cancels
treasury shares, no further adjustment is required to the share
capital account of the Company at the time of cancellation. Shares
held in treasury are excluded from calculations when determining
NAV per share as detailed in note 6 or in the Financial Highlights
in note 8.
Allocation of results of the Feeder
and Master Funds
Net realised and unrealised gains/losses of the Feeder Fund and
Master Fund are allocated to the Company’s share classes based upon
the percentage ownership of the equivalent Feeder Fund and Master
Fund class.
Leverage
The Company, subject to Board approval, may not incur leverage
other than for the purpose of financing share repurchases or
satisfying working capital requirements, and subject to outstanding
borrowings being in compliance with the borrowing limit in the
Articles of 20% of the NAV of the Company, calculated as at the
time of borrowing.
Recent standards and
pronouncements
In August 2014, the FASB issued
ASU 2014-15 – Presentation of Financial Statements – Going Concern
(Subtopic 205-40)(“ASU 2014-15”). The pronouncement defined
management’s responsibility regarding the assessment of the
Company’s ability to continue as a going concern, even if the
Company’s liquidation is not imminent. Under this guidance, during
each period on which financial statements are prepared, management
needs to evaluate whether there are conditions or events that, in
the aggregate, raise substantial doubt about the Company’s ability
to continue as a going concern within one year after the date the
financial statements are issued. Substantial doubt exists if these
conditions or events indicate that the Company will be unable to
meet its obligations as they become due. If such conditions or
events exist, management should develop a plan to mitigate or
alleviate these conditions or events. Regardless of management’s
plan to mitigate, certain disclosures must be made in the financial
statements. ASU 2014-15 is effective for annual periods ending on
or after 15 December 2016. Having reassessed the principal
risks, the Directors considered it appropriate to adopt the going
concern basis of accounting in preparing the Audited Financial
Statements.
In May 2015, the FASB issued ASU
2015-07, Disclosures for Investments in Certain Entities that
Calculate Net Asset Value per Share (or its equivalent) (“ASU
2015-07”), in which certain investments measured at fair value
using the net asset value per share method (or its equivalent) as a
practical expedient are not required to be categorised in the fair
value hierarchy. The Company has adopted this standard in the year
ended 31 December 2015.
In January 2016, the FASB issued
Accounting Standards Update No. 2016-01 (ASU 2016-01) “Financial
Instruments-Overall (Subtopic 825-10): Recognition and measurement
of Financial Assets and Financial Liabilities.” ASU 2016-01 amends
various aspects of the recognition, measurement, presentation, and
disclosure for financial instruments. ASU 2016-01 is effective for
annual reporting periods, and interim periods within those years
beginning after 15 December 2017. The Directors have not
yet assessed the impact of this standard on the financial
statements.
3. Management, Performance,
Administration and Registrar fees
Management and performance fees
Per the DW Management Agreement, the Manager is entitled to a
management fee and performance allocation at the level of the
Master Fund and the holding entities of Specific Investments but
not payment of management and performance fees by the Company.
Instead, the Company will indirectly bear a portion of the
management fee and performance allocation charged by the Manager to
the Master Fund and to any holding entity of a Specific
Investment.
The DW Management Agreement may be terminated by either party
giving the other party not less than 24 months written notice. In
certain circumstances the Company will be obliged to pay
compensation to the Investment Manager of the aggregate management
fees which would otherwise have been payable on the Company’s
indirect interests in the Master Fund and the Specified Investments
during the 24 months following the date of such notice and the
Company will be obliged to pay any other related costs.
Compensation is not payable if more than 24 months’ notice of
termination is given. In certain circumstances, the management
agreement may be terminated by the Company giving the Investment
Manager not less than 30 days’ or 90 days’ notice.
Administration fee
The Company has appointed Northern Trust International Fund
Administration Services (Guernsey) Limited as Administrator and
Corporate Secretary. The Administrator is paid fees based on the
NAV of the Company, payable quarterly in arrears. The fee is at a
rate of 0.025% per annum of the first US$750
million of net assets of the Company and then 0.015% per
annum thereafter, subject to a minimum fee of US$200,000 per annum.
The Administrator is entitled to be reimbursed out-of-pocket
expenses incurred in the course of carrying out its duties. The fee
will be reviewed on an annual basis.
During the year ended 31 December
2016, US$201,000 (31 December 2015: US$200,000) was earned by the Administrator as
administration fees. At 31 December
2016, US$33,228 (31 December 2015: $33,155) of the fee remained outstanding.
Registrar fee
The Company appointed Computershare Investor Services (Guernsey)
Limited as Registrar, with effect from 19 November 2010. The
Registrar is paid fees according to the agreement, subject to a
minimum fee of £6,000 per annum, payable quarterly in arrears.
During the year ended 31 December
2016, US$29,821 (31 December 2015: US$32,344) were charged by the Registrar. At
31 December 2016: US$nil
(31 December 2015: US$5,184) of the fee remained outstanding.
4. Share Capital
Issued and authorised share
capital
The Company was incorporated with the authority to issue up to
one billion shares of no par value in each class, which authority
expired on 19 October 2015. As
approved by the shareholders at the AGM held on 22 June 2016, the Directors have the power to
issue 3,464,332 Sterling shares. Such power expires fifteen months
after the passing of the resolution or on the conclusion of the
next AGM of the Company, whichever is earlier. The Articles require
any further issues of shares for cash to be made on a pre-emptive
basis to holders of shares of the same class, except to the extent
that such pre-emption rights have been disapplied by shareholders
in general meeting. The shares may be issued in differing currency
classes of ordinary redeemable shares including C shares (described
in the Company’s Prospectus) at the discretion of the Board. At
31 December 2016 and 31 December 2015, no C shares were in issue.
For the year ended 31 December 2016
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
Number
of ordinary shares |
|
|
|
|
|
|
In issue
at 1 January 2016 |
|
|
|
2,211,203 |
|
8,856,566 |
Share
conversions from US Dollar shares to Sterling shares |
|
|
|
(2,211,203) |
|
1,537,466 |
Purchase
of own shares into treasury |
|
|
|
- |
|
(1,022,215) |
In
issue at 31 December 2016 |
|
|
|
- |
|
9,371,817 |
|
|
|
|
|
|
|
|
Number
of treasury shares |
|
|
|
|
|
|
In issue
at 1 January 2016 |
|
|
|
- |
|
- |
Shares
purchased and held in treasury during the year: |
|
|
|
|
|
|
-
On market purchases |
|
|
|
- |
|
1,022,215 |
In
issue at 31 December 2016 |
|
|
|
- |
|
1,022,215 |
Percentage of class |
|
|
|
- |
|
9.83% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Total |
|
|
|
US$'000 |
|
£'000 |
|
US$'000 |
Share
capital account |
|
|
|
|
|
|
At 1 January 2016 |
|
|
12,346 |
|
93,762 |
|
157,615 |
Share
conversions from US Dollar shares to Sterling shares |
(12,346) |
|
18,345 |
* |
- |
Purchase of own shares
into treasury |
|
|
- |
|
(11,389) |
|
(15,360) |
At 31
December 2016 |
|
- |
|
100,718 |
|
142,255 |
*Including cumulative gains on US Dollar shares converted to
Sterling shares.
For the year ended 31 December 2015
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
Number
of ordinary shares |
|
|
|
|
|
|
In issue
at 1 January 2015 |
|
|
|
3,024,729 |
|
8,332,877 |
Share
conversions from US Dollar shares to Sterling shares |
|
|
|
(910,568) |
|
586,303 |
Share
conversions from Sterling shares to US Dollar shares |
|
|
|
97,042 |
|
(62,614) |
In
issue at 31 December 2015 |
|
|
|
2,211,203 |
|
8,856,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Total |
|
|
|
US$'000 |
|
£'000 |
|
US$'000 |
Share
capital account |
|
|
|
|
|
|
At 1
January 2015 |
|
23,360 |
|
86,635 |
|
157,615 |
Share
conversions from US Dollar shares to Sterling shares |
|
(12,335) |
|
7,984 |
|
- |
Share
conversions from Sterling shares to US Dollar shares |
|
1,321 |
|
(857) |
|
- |
At 31
December 2015 |
|
12,346 |
|
93,762 |
|
157,615 |
Share classes
On 26 April 2016, all of the
Company’s US Dollar shares were converted into Sterling shares,
based on 31 March 2016 NAV, following
which the US Dollar share class was closed. The Company now has
only Sterling shares in issue. Any increase or decrease in the NAV
of the Feeder Fund is allocated in full to the Sterling Share
class.
Prior to the compulsory US Dollar share conversion, a separate
class account was established in the books of the Company in
respect of each class of shares. An amount equal to the aggregate
proceeds of issue of each share class was credited to the relevant
class account. Any increase or decrease in the NAV of the Feeder
Fund’s US Dollars shares and the Feeder Fund’s Sterling shares as
calculated by the Feeder Fund was allocated to the relevant class
account in the Company.
Share issue expenses
Share issue expenses of US$1,592,065 were borne by the Company and were
charged against the share capital account at launch (the “Offer”).
In accordance with the Placing Agreement dated 19 November 2010, BHCM paid the costs and
expenses of, and incidental to, the Offer (including all costs
related to the establishment of the Company) (the “Offer Costs”)
which were in excess of 1% of the gross proceeds of the Offer. The
Offer Costs paid by BHCM amounted to US$3,261,054. Shares which were voted in favour
of the Discount Trigger Resolution will have their proportion of
the Offer Costs deducted from the first instalment of their
redemption proceeds. The DW Management Agreement replicates the
provisions in the BH Management Agreement regarding repayment of
BHCM’s outstanding costs incurred in connection with the Company’s
IPO.
Pursuant to the terms of the DW Management Agreement, the
Company must repay to DW a fraction of these Offer Costs for every
US Dollar by which repurchases, redemptions or cancellations of the
Company’s shares reduce the current US Dollar NAV of the Company
below its NAV at the time of the Company’s listing, being
US$157,614,394. The current US Dollar
NAV is calculated using the exchange rates ruling at the time of
the Company’s listing and at 31 December 2016 stood at
US$192,001,132.
The amount of these Offer Costs to be repaid for every US Dollar
by which the Company’s NAV is reduced will be up to 2.07 cents (or such lower amount as may result
from any reduction in the Offer Costs actually paid by the
Manager), being the figure obtained by dividing the Offer Costs by
the NAV of the Company at the time of its listing.
In addition, if the DW Management Agreement were to be
terminated for certain reasons before the seventh anniversary of
admission to the London Stock Exchange, being 14 December 2017, the Company will be required to
reimburse the Manager in respect of the offer costs borne by the
Manager. The Directors consider the likelihood of the DW Management
Agreement terminating and as a consequence the contingent liability
described above arising as remote and therefore no provision has
been made within these Financial Statements.
The Directors confirm that there are no other contingent
liabilities that require disclosure or provision.
Voting rights
Ordinary redeemable shares carry the right to vote at general
meetings of the Company and to receive any dividends, attributable
to the ordinary shares as a class, declared by the Company and, in
a winding-up will be entitled to receive, by way of capital, any
surplus assets of the Company attributable to the ordinary shares
as a class in proportion to their holdings after settlement of any
outstanding liabilities of the Company.
Each shareholder shall have one vote for each share denominated
in the base class held by them. As prescribed in the Company’s
Articles, the different classes of ordinary shares have different
values attributable to their votes. The attributed values have been
calculated on the basis of the Weighted Voting Calculation (as
described in the Articles) which takes into account the prevailing
exchange rates on the date of initial issue of ordinary shares.
Currently, a single Sterling ordinary share has 1 vote. Prior to
the closure of the US Dollar share class, a single US Dollar share
had 1 vote and a single Sterling ordinary share had 1.5774
votes.
Treasury shares do not have any voting rights.
Repurchase of shares
The Directors have been granted authority to purchase in the
market up to 1,558,066 of Sterling shares and they intend to seek
annual renewal of this authority from shareholders which was last
granted on 22 June 2016. The
Directors may, at their discretion, utilise this share repurchase
authority to address any imbalance between the supply of and demand
for shares.
Distributions
The Directors may from time to time authorise dividends and
distributions to be paid to shareholders on a class by class
basis.
The amount of such dividends or distributions paid in respect of
one class may be different from that of another class.
The Feeder Fund does not expect to pay dividends to its
investors. Therefore, the Directors of the Company do not expect to
declare any dividends. This does not prevent the Directors of the
Company from declaring a dividend at any time in the future if the
Directors consider payment of a dividend to be appropriate in the
circumstances.
As announced on 15 January 2014,
the Company intends to be operated in such a manner to ensure that
its shares are not categorised as non-mainstream pooled
investments. This may mean that the Company may pay dividends in
support of any income that it receives or is deemed to receive for
UK tax purposes so that it would qualify as an investment trust if
it were UK tax-resident.
Treasury shares are not entitled to distributions.
Deferred share
The Company has issued one, non-participating, non voting, non
redeemable deferred share having the right to the payment of £1 on
liquidation of the Company. The deferred share was issued on
19 October 2010 and has a right to
vote only if there are no other classes of voting share in
issue.
Annual partial capital return
offer
Commencing on or after 1 January
2012, for each calendar year the Directors may, in their
absolute discretion, determine that the Company should make an
offer to redeem such number or value of shares as they may
determine provided that the minimum amount distributed shall not be
less than 33% and not more than 100% of the increase in the NAV of
the Company in the prior calendar year.
The Directors shall, in their absolute discretion, determine the
particular class or classes of shares in respect of which an Annual
Partial Capital Return Offer will be made, the timetable for that
Annual Partial Capital Return Offer and the price at which the
shares of each relevant class will be redeemed.
Whether a return of capital is made in any particular year and,
if so, the amount of the return, may depend, among other things, on
prevailing market conditions, the ability of the Company to
liquidate its investment to fund the capital return, the success of
prior capital returns and applicable legal, regulatory and tax
considerations.
Notwithstanding the Discount Trigger vote, the Directors
determined that the Company will not offer an annual partial
capital return during 2017.
Share conversion scheme
Previously, the Company implemented a Share Conversion Scheme.
The scheme provided shareholders with the ability to convert some
or all of their shares in the Company of one class into shares of
another class. Shareholders, at the discretion of the Board, were
able to convert ordinary shares on the last business day of every
month. Each conversion was based on NAV (note 6) of the share
classes converted. Following the closure of the US Dollar share
class on 26 April 2016, the share
conversion scheme was withdrawn.
5. Taxation
Overview
The Company is exempt from taxation in Guernsey under the
provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance
1989 and pays an annual fee of £1,200 (2015: £1,200). Accordingly,
no provision for Guernsey income tax is included in these Audited
Financial Statements.
Uncertain tax positions
The Company recognises the tax benefits of uncertain tax
positions only where the position is more likely than not (i.e. the
likelihood is greater than 50 per cent) to be sustained assuming
examination by a tax authority based on the technical merits of the
position. In evaluating whether a tax position has met the
recognition threshold, the Company must presume that the position
will be examined by the appropriate taxing authority that has full
knowledge of all relevant information. A tax position that meets
the more-likely-than-not recognition threshold is measured to
determine the amount of benefit to recognise in the Company’s
Audited Financial Statements. Income tax and related interest and
penalties would be recognised by the Company as tax expense in the
Consolidated Statement of Operations and Performance Allocation if
the tax positions were deemed not to meet the 50% likelihood
threshold.
The Company analyses all open tax years for all major taxing
jurisdictions. Open tax years are those that are open for
examination by taxing authorities, as defined by the Statute of
Limitations in each jurisdiction. The Company identifies its major
tax jurisdictions as the Cayman
Islands and foreign jurisdictions where the Company makes
significant investments. The Company has no examinations by tax
authorities in progress.
The Directors have analysed the Company’s tax positions, and
have concluded that no liability for unrecognised tax benefits
should be recorded related to uncertain tax positions. Further, the
Directors are not aware of any tax positions for which it is
reasonably possible that the total amounts of unrecognised tax
benefits will significantly change in the next twelve months.
6. Publication and Calculation of Net
Asset Value
The NAV of the Company is equal to the value of its total assets
less its total liabilities. The NAV per share of each class is
calculated by dividing the NAV of the relevant share class by the
number of shares of the relevant class in issue on that day.
The Company publishes the NAV per share for each class of shares
as calculated by the Administrator based in part on information
provided by the Feeder Fund, monthly in arrears, as at each month
end.
The Company also publishes an estimate of the NAV per share for
each class of shares as calculated by the Administrator based in
part on information provided by the Feeder Fund, weekly in
arrears.
Shares held in treasury are excluded from calculations when
determining NAV per share.
7. Discount Management Programme
The Company’s discount management programme includes the ability
to make market purchases of shares and the obligation to convene a
Discount Trigger EGM if, in any calendar year, the average daily
closing market price of the relevant class of shares is less than
95% of the average NAV per share of the relevant class taken over
the 12 monthly NAVs in that year. This is described more fully in
the Company’s Articles.
The discount management measures will be funded by and subject
to the Company’s ability to make partial redemptions of the
Company’s investment in the Feeder Fund.
During 2016, the Company recorded an average discount to NAV of
11.14% and consequently the relevant Discount Trigger EGM
conditions described above were met.
The Board convened a Discount Trigger EGM on 9 March 2017 and proposed an ordinary resolution,
which, if passed, would require the Company to compulsorily redeem
the shares which were voted in favour of the resolution.
The price at which the shares will be redeemed will be based on
the NAV per share of the relevant class, less:
i. any costs and expenses (including
redemption fees) incurred in relation to the Discount Trigger EGM;
and
ii. a fractional share of any Offer Costs paid
by the Manager (note 4).
As the resolution was passed, the Company will redeem all shares
which were voted in favour of the Discount Trigger Resolution (the
“Redeeming Shares”). All Redeeming Shares will be redeemed by the
Company on 1 August 2017.
Redeeming shareholders will receive the redemption proceeds in
four quarterly instalments following each of 1 August and
1 November 2017 and 1 February and
1 May 2018, subject to the retention
of a Hold-back Amount in certain circumstances, as more fully
described in the Circular dated 17 February
2017 available on the Company’s website:
www.dwcatalystltd.com.
The Annual Partial Capital Return Offer described in note 4
which enables a partial return of capital also forms part of the
discount management programme.
Also, during the year, the Company utilised its ability to buy
back shares, repurchasing 1,022,215 Sterling shares at a cost of
£11,389,130 at an average discount to NAV of 9.98%.
8. Financial Highlights
The following tables include selected data for a single ordinary
share of each of the ordinary share classes in issue at the year
end and other performance information derived from the Audited
Financial Statements.
The per share amounts and ratios which are shown reflect the
income and expenses of the Company for each class of ordinary
share.
|
|
|
01.01.16 to |
|
01.01.16 to |
|
01.01.15 to |
|
01.01.15 to |
|
|
|
31.12.16 |
|
31.12.16 |
|
31.12.15 |
|
31.12.15 |
|
|
|
US
Dollar shares |
^ |
Sterling shares |
|
US
Dollar shares |
|
Sterling shares |
|
|
|
US$ |
|
£ |
|
US$ |
|
£ |
Per
share operating performance |
|
|
|
|
|
|
|
|
Net
asset value at beginning of the year |
|
12.40 |
|
12.47 |
|
13.71 |
|
13.77 |
|
|
|
|
|
|
|
|
|
|
Income
from investment operations |
|
|
|
|
|
|
|
|
Net
investment gain 1 |
|
0.93 |
|
2.34 |
|
1.47 |
|
1.63 |
Net
realised loss and unrealised depreciation on investment* |
|
(1.47) |
|
(1.88) |
|
(2.83) |
|
(2.92) |
Other
capital items 2 |
|
- |
|
0.06 |
|
0.05 |
|
(0.01) |
Total
(loss)/gain |
|
(0.54) |
|
0.52 |
|
(1.31) |
|
(1.30) |
|
|
|
|
|
|
|
|
|
|
Conversion
of US Dollar shares to Sterling shares |
|
(11.86) |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
Net
asset value, end of the year |
|
- |
|
12.99 |
|
12.40 |
|
12.47 |
|
|
|
|
|
|
|
|
|
|
Total
(loss)/gain |
|
(4.34%) |
|
4.19% |
|
(9.52%) |
|
(9.48%) |
^ Returns of the US Dollar share class have been calculated up
to 31 March 2016.
*Foreign exchange hedge loss allocated from the Feeder Fund and
currency translation gain arising due to translation of USD
allocations to GBP functional currency each amounted to £2.35 per
share (31 December 2015: £0.67 per
share).
Total return reflects the net return for an investment made at
the beginning of the year and is calculated as the change in the
NAV per ordinary share during the year to 31
December 2016 and 31 December
2015. An individual shareholder’s return may vary from these
returns based on the timing and entry price of their purchase or
sale of shares.
|
|
|
01.01.16 to |
|
01.01.16 to |
|
01.01.15 to |
|
01.01.15 to |
|
|
|
31.12.16 |
|
31.12.16 |
|
31.12.15 |
|
31.12.15 |
|
|
|
US
Dollar shares |
^^ |
Sterling shares |
|
US
Dollar shares |
|
Sterling shares |
|
|
|
US$ |
|
£ |
|
US$ |
|
£ |
Supplemental data |
|
|
|
|
|
|
|
|
Net
asset value, beginning of the year |
|
27,425 |
|
110,397 |
|
41,462 |
|
114,748 |
Net
asset value, prior to final share conversion |
|
23,238 |
|
107,621 |
|
- |
|
- |
Net
asset value, end of the year |
|
- |
|
121,720 |
|
27,425 |
|
110,397 |
Average
net asset value for the year |
|
25,884 |
|
117,688 |
|
36,688 |
|
115,109 |
^^ The US Dollar share class NAV at the end of the year is
the NAV as at the 31 March 2016.The average US Dollar share class
NAV for the year is calculated based on published NAVs from the
start of the year to 31 March
2016.
|
|
|
01.01.16 to |
|
01.01.16 to |
|
01.01.15 to |
|
01.01.15 to |
|
|
|
31.12.16 |
|
31.12.16 |
|
31.12.15 |
|
31.12.15 |
|
|
|
US
Dollar shares |
|
Sterling shares |
|
US
Dollar shares |
|
Sterling shares |
|
|
|
US$ |
|
£ |
|
US$ |
|
£ |
Ratio
to average net assets |
|
|
|
|
|
|
|
|
Operating
expense |
|
|
|
|
|
|
|
|
|
Company
expenses 3 |
|
0.10% |
|
0.61% |
|
0.55% |
|
0.54% |
Feeder
Fund expenses 4 |
|
0.57% |
|
2.45% |
|
2.33% |
|
2.36% |
Feeder
Fund interest expenses 5 |
|
0.64% |
|
2.76% |
|
1.75% |
|
1.82% |
|
|
|
1.31% |
|
5.82% |
|
4.63% |
|
4.72% |
|
|
|
|
|
|
|
|
|
|
Net investment gain 1 |
|
|
|
|
|
|
|
7.67% |
|
18.92% |
|
10.91% |
|
12.05% |
1. The net investment gain
figures disclosed above do not include net realised and unrealised
gains/losses on investments allocated from the Feeder Fund and
Master Fund.
2. Included in other capital
items are share issue costs and the discounts and premiums on
conversions between share classes during the year as compared to
the NAV per share at the beginning of the year.
3. Company expenses are as
disclosed in the Statement of Operations.
4. The Feeder’s expenses are
the operating expenses of the Feeder and its allocation of the
Master Fund expenses.
5. Feeder and Master Fund
interest expense includes interest and dividend expenses on
investments sold short.
9. Related Party Transactions
Parties are considered to be related if one party has the
ability to control or exercise significant influence over the other
party in making financial or operational decisions.
On 1 January 2015, the Company
redeemed, in specie, $41,646,556 of
the US Dollar shares and £115,151,649 of the Sterling shares it
held in BHCC, amounting to an equivalent amount of US$220,828,279, and in return received Class A
Shares of the Feeder Fund (a company managed by the Manager) in US
Dollar and Sterling classes in
proportions matching the relative number of US Dollar and Sterling
Shares of the Company in issue at the time.
Management fees are disclosed in note 3.
Directors’ fees are disclosed in the Directors’ Remuneration
Report.
Directors’ interests are disclosed in the Corporate Governance
Statement with further disclosures in the Board Members
section.
At 31 December 2016, David Warren - the Chief Investment Officer of
DW – held 173,257 Sterling shares (31 December 2015:
52,270 US Dollar shares and 135,512
Sterling shares) in the Company.
10. Subsequent Events
The Financial Statements were approved for issuance by the
Directors on 31 March 2017.
Subsequent events have been evaluated up to this date.
The Company announced on 11 January
2017 that effective 1 January
2017, DW Catalyst Offshore Fund, Ltd. (the “Feeder Fund”)
has announced the creation of a new share class (“Class B”) with a
reduced management fee of 1.5% per annum payable to DW
Partners, LP and an extended redemption notice period from 85 to 90
days. The Company invests substantially all of its assets in the
Feeder Fund and, effective 1 January
2017, has transferred into Class B to receive the benefit of
the reduced fee (previously the Company invested in Class A shares
with a 2.0% per annum management fee and an 85 day redemption
notice period). The new share class is not subject to performance
fee allocation.
The Company announced on 9 February
2017 that the Discount Trigger Resolution procedure
contained in the Company’s Articles of Incorporation had been
triggered in respect of the year ended 31
December 2016. This is because the average daily closing
market price of the Company’s shares during 2016 was less than 95%
of the average NAV per share, based on the average of the NAV per
share over the twelve month-end NAV calculation dates occurring in
2016.
A publication of Discount Trigger Meeting Circular (the
“Circular”) was circulated to shareholders on 17 February
2017. The Circular sets out an explanation of the business to be
considered at the Discount Trigger Meeting, and the consequences of
the Discount Trigger Resolution being approved or rejected by
shareholders.
The earliest that another Discount Trigger Resolution may be
required to be proposed under the Articles would be in respect of
the year ending 31 December 2017, depending on the share price
performance of the Shares compared to the Company’s NAV.
As the Discount Trigger Resolution (the “Resolution”) was
passed, the Company will redeem all shares which were voted in
favour of the Resolution (the “Redeeming Shares”). Shares which
were voted against the Resolution, or where no election was made,
will not be redeemed pursuant to the Resolution. The Redeeming
Shares represent approximately 57.6% of the 9,349,317 shares
currently in issue (excluding shares held in treasury).
All Redeeming Shares will be redeemed by the Company on
1 August 2017.
Redeeming Shareholders will receive the Redeeming Share
Redemption Proceeds (the “Proceeds”) in four quarterly instalments
following the calculation of each of the quarterly redemption NAVs,
the dates of which are 1 August and 1 November 2017 and 1
February and 1 May 2018. Although the
Redemption proceeds are calculated on the aforementioned NAVs,
payment will be received sometime later. Proceeds are subject to
the retention of a hold-back amount in certain circumstances, as
more fully described in the Circular.
Subsequent to the year end and up to the date of this report,
the Company purchased the following shares of the Company to be
held as treasury shares:
|
Number of shares |
|
Cost |
|
Cost |
Treasury shares |
|
|
purchased |
|
£ |
|
US$ |
Sterling shares |
|
|
22,500 |
|
270,299 |
|
332,041 |
In addition to the buyback of the above shares, 22,500 ordinary
shares were also cancelled.
Following the purchase and cancellation of shares, the Company
has 9,349,317 ordinary shares in issue.
No further subsequent events have occurred.
HISTORIC PERFORMANCE SUMMARY
As at 31 December 2016
(Expressed in ‘000 US Dollars)
|
|
|
|
|
31.12.16 |
|
31.12.15 |
|
|
|
|
|
|
|
|
Net
decrease in net assets resulting from operations |
|
|
(24,628) |
|
(29,618) |
Total
assets |
|
|
|
150,712 |
|
190,543 |
Total
liabilities |
|
|
|
(302) |
|
(145) |
Net
assets |
|
|
|
150,410 |
|
190,398 |
|
|
|
|
|
|
|
|
Number
of shares in issue |
|
|
|
|
|
|
US Dollar
shares |
|
|
|
- |
|
2,211,203 |
Sterling
shares |
|
|
|
9,371,817 |
|
8,856,566 |
|
|
|
|
|
|
|
|
Net
asset value per share |
|
|
|
|
|
|
US Dollar
shares |
|
|
|
- |
|
US$12.40 |
Sterling shares |
|
|
|
|
£12.99 |
|
£12.47 |
AFFIRMATION OF THE COMMODITY POOL OPERATOR
31 December 2016
To the best of my knowledge and belief, the information detailed
in this Annual Report and these Audited Financial Statements is
accurate and complete:
By:
Name: Shawn R. Singh, Esq.
Title: General Counsel
DW Partners, LP, acting by its general partner DW Investment
Partners, LLC, the manager and commodity pool
operator of DW Catalyst Fund Limited.
31 March 2017
COMPANY INFORMATION
Directors
Charlotte Valeur* (Chair)
(appointed 31 October
2010)
Keith Dorrian* (Senior
Independent Director)
(appointed 31 October
2010)
Patrick Firth* (Chair of Audit
and Risk Committee)
(appointed 31 October
2010)
Christopher Waldron*
(appointed 31 October
2010)
Andrew Rosenthal
(appointed 8 April 2015)
(All Directors are non-executive)
* These Directors are independent for the purpose of
LR15.2.12-A.
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St. Peter Port
Guernsey
GY1 3QL
Manager
DW Partners, LP
590 Madison Avenue
13th Floor
New York
NY 10022
Administrator and Corporate Secretary
Northern Trust International Fund
Administration Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St. Peter Port
Guernsey
GY1 3QL
Independent Auditor
Ernst & Young LLP
PO Box 9, Royal Chambers
St Julian’s Avenue
St Peter Port
Guernsey
GY1 4AF
Registrar and CREST Service Provider
Computershare Investor Services (Guernsey) Limited
1st Floor, Tudor House
Le Bordage
St. Peter Port
Guernsey
GY1 1DB
Legal Advisors (Guernsey Law)
Carey Olsen
Carey House
Les Banques
St. Peter Port
Guernsey
GY1 4BZ
Legal Advisors (UK Law)
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London
EC4Y 1HS
Corporate Brokers
JPMorgan Cazenove
25 Bank Street
London
E14 5JP
Fidante Capital
1 Tudor Street
London
EC4Y 0AH
For the latest information www.dwcatalystltd.com