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As Of Filer Filing For·On·As Docs:Size Issuer Agent 6/10/11 Multi-Manager Master Port, LLC N-CSR 3/31/11 5:1.0M Vintage/FA |
Document/Exhibit Description Pages Size 1: N-CSR Certified Annual Shareholder Report of a HTML 318K Management Investment Company 5: EX-99.(A)(4) Miscellaneous Exhibit HTML 21K 4: EX-99.906CERT Miscellaneous Exhibit HTML 14K 3: EX-99.CERT Miscellaneous Exhibit HTML 26K 2: EX-99.CODE ETH Miscellaneous Exhibit HTML 36K
Unassociated Document |
Investment Company Act file number:
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GenSpring Family Offices, LLC
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3801 PGA Blvd. Suite 555
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(Address of principal executive offices)
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Growth Capital Master Portfolio, LLC
(A Limited Liability Company)
Annual Report
March 31, 2011
Annual Report
i
We are pleased to enclose the annual report for the Growth Capital Portfolios (“GCP”) for the fiscal year ended March 31, 2011. As always, we appreciate your support and continued investment in the GCP. Assets of the GCP stood at approximately $716 million as of March 31.
As you are aware, we’ve recently undergone a change of leadership in our investment group at GenSpring, and our new leadership is working to enhance our goals-based investment platform. The GCP will continue to be an integral component of our platform, specifically within the non-directional hedge allocation of families’ portfolios. With the GCP, clients are able to benefit from GenSpring’s size through a commingled structure, and obtain access to a diversified portfolio of high quality managers (some of whom are closed to new investment) at a fraction of the cost of other fund-of-funds. The long-term goal of the GCP is to preserve and grow capital over a full market cycle through a broad range of investment strategies. In general, our goal is for the GCP to produce returns with medium to low volatility in most market circumstances and not to match solid equity returns when they occur. It is also designed to avoid extreme negative surprises, with only modest draw-downs during difficult times.
The inception to date return of the GCP Master Portfolio was approximately 9.4% through March 31, 2011, and approximately 5.2% on an annualized basis through the same time period, with positive returns in 16 out of 21 months. The GCP’s standard deviation of returns over the same time period has been approximately 4.0%. The GCP continues to invest in five strategies: credit strategies, multi-strategy, global trading, equity strategies, and special situations. Since inception, credit strategies, global trading, equity strategies and multi-strategy have produced positive contributions, while the special situations category has detracted. We acknowledge that recent performance has been disappointing. For the 12 months ended March 31, 2011, the GCP returned 1.83%, which was below the returns of hedge fund-of-funds indices. Performance lagged over this time period for a few reasons. First, with the exception of credit and global trading, manager performance over the time period was disappointing. Equity strategies detracted from performance slightly, and equity market neutral strategies were particularly challenged. While multi-strategy managers were additive to performance, the particular funds in which the GCP has invested underperformed their respective comparable peer groups. Finally, the special situations category has detracted from the GCP’s performance and has represented an opportunity cost due to an illiquid investment in that category.
We are working towards refining the process for the way in which we manage the portfolio, such that we have a more structured portfolio construction process which will allow us to more effectively measure the success of our strategy allocation and manager selection decisions. While these refinements will not guarantee better performance, they should ensure that unsuccessful decisions are more quickly identified and corrective action is taken sooner. We look forward to sharing more details on this process with you in the near future.
Please do not hesitate to contact us with any questions or comments.
Sincerely,
Maria Elena Lagomasino | Jean L.P. Brunel | |
President, Growth Capital Portfolios | Chief Investment Officer |
1
To the Board of Directors and Members of Growth Capital Master Portfolio, LLC:
We have audited the accompanying statement of assets, liabilities and members’ capital of Growth Capital Master Portfolio, LLC (the Fund), including the schedule of investments, as of March 31, 2011, and the related statements of operations and cash flows for the year then ended, and the statements of changes in members’ capital for each of the two years in the period then ended. These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of March 31, 2011, by correspondence with the custodians or management of the underlying investment funds. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Growth Capital Master Portfolio, LLC at March 31, 2011, the results of its operations and its cash flows for the year then ended and the changes in its members’ capital for each of the two years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Columbus, Ohio
May 26, 2011
2
Assets |
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Investments in Investment Vehicles, at fair value (cost $569,730,583) | $ | 615,544,207 | ||
Investments in Mutual Funds, at fair value (cost $10,362,658) | 10,861,856 | |||
Investments in Affiliated Mutual Funds, at fair value (cost $12,090,056) | 15,422,960 | |||
Total investments (cost $592,183,297) | 641,829,023 | |||
Cash and cash equivalents | 42,479,655 | |||
Interest receivable | 1,165 | |||
Receivable from investments sold | 29,150,968 | |||
Prepaid contributions to Investment Vehicles | 10,000,000 | |||
Prepaid expenses and other assets | 67,430 | |||
Total assets | $ | 723,528,241 | ||
Liabilities and Members’ Capital |
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Contributions received in advance | $ | 1,250,003 | ||
Withdrawals payable | 5,732,522 | |||
Administration fees payable | 95,485 | |||
Accounts payable and accrued expenses | 235,927 | |||
Total liabilities | 7,313,937 | |||
Members’ capital | 716,213,209 | |||
Managing member’s capital | 1,095 | |||
Total members’ capital | 716,214,304 | |||
Total liabilities and members’ capital | $ | 723,528,241 | ||
Members’ Capital |
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Represented by: |
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Net capital contributions | $ | 666,568,578 | ||
Accumulated net unrealized appreciation/depreciation from investments and affiliated investment | 49,645,726 | |||
$ | 716,214,304 |
See accompanying notes to financial statements.
3
Acquisition Date |
Cost | Shares | Fair Value |
% of Members’ Capital |
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Investments in Investment Vehicles (85.94% of Members’ Capital) |
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Credit Strategies (9.30% of Members’ Capital) |
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Distressed Debt |
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Cygnus Utilities, Infrastructure & Renewables, LLC | 9/1/2010 | $ | 5,000,000 | $ | 5,127,949 | 0.71 | % | |||||||||||||
Long-Short Credit |
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Brigade Leveraged Capital Structures Fund, LP | 7/1/2009 | 16,513,211 | 20,542,855 | 2.87 | % | |||||||||||||||
Caspian Capital Partners, LP, SIV | 7/1/2009 | 931,675 | 735,899 | 0.10 | % | |||||||||||||||
GSO Special Situations Fund, LP | 7/1/2009 | 6,028,005 | 8,380,796 | 1.17 | % | |||||||||||||||
Litespeed Partners, LP | 7/1/2009 | 8,454,461 | 12,015,496 | 1.68 | % | |||||||||||||||
Mariner Opportunities Fund, LP | 7/1/2009 | 2,525,169 | 2,590,620 | 0.36 | % | |||||||||||||||
Total Long-Short Credit (Cost $34,452,521) | 44,265,666 | |||||||||||||||||||
Mortgage Related |
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Magnetar Structured Credit Fund, LP(1) | 1/1/2011 | 10,000,000 | 10,209,092 | 1.43 | % | |||||||||||||||
Tricadia Distressed and Special Situations Fund, LP(1) | 7/1/2009 | 5,417,756 | 7,024,834 | 0.98 | % | |||||||||||||||
Total Mortgage Related (Cost $15,417,756) | 17,233,926 | |||||||||||||||||||
Total Credit Strategies | 66,627,541 | |||||||||||||||||||
Equity Strategies (36.60% of Members’ Capital) |
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Long-Short Asia |
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Penta Asia Domestic Partners, LP | 7/1/2009 | 16,172,769 | 12,550,371 | 1.75 | % | |||||||||||||||
Long-Short Emerging |
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Sansar Capital Special Opportunity Fund, LP(1) | 7/1/2009 | 7,079,528 | 9,929,584 | 1.39 | % | |||||||||||||||
Long-Short Global |
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Orange Capital Domestic I, LP | 7/1/2009 | 18,917,474 | 21,585,028 | 3.01 | % | |||||||||||||||
Long-Short Non-U.S. |
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The Alphagen Octanis Fund Limited – Class A | 7/1/2009 | 18,602,438 | 98,888 | 19,804,799 | 2.76 | % | ||||||||||||||
Long-Short U.S. |
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Greenlight Capital Qualified, LP | 7/1/2009 | 59,835,763 | 71,456,445 | 9.98 | % | |||||||||||||||
P2 Capital Fund, LP | 7/1/2009 | 1,658,687 | 2,305,744 | 0.32 | % | |||||||||||||||
P2 Capital II Fund, LP(2) | 7/1/2009 | 9,162,957 | 12,606,257 | 1.76 | % | |||||||||||||||
Total Long-Short U.S. (Cost $70,657,407) | 86,368,446 | |||||||||||||||||||
Low Net Sector |
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Durban Capital, LP(1) | 7/1/2009 | 5,253,590 | 5,311,807 | 0.74 | % | |||||||||||||||
Low Net U.S. |
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Axial Capital Institutional, LP(1) | 7/1/2009 | 56,314,302 | 41,590,689 | 5.81 | % | |||||||||||||||
Halcyon Asset Backed Value Fund, LP(1) | 9/1/2010 | 20,000,000 | 22,242,134 | 3.11 | % | |||||||||||||||
Marble Arch QP Partners, LP(1) | 7/1/2009 | 12,122,826 | 17,990,491 | 2.51 | % | |||||||||||||||
Soundpost Capital, LP(1) | 7/1/2009 | 12,698,820 | 11,313,987 | 1.58 | % | |||||||||||||||
Spring Point Opportunity Partners, LP | 7/1/2009 | 13,315,121 | 13,485,580 | 1.88 | % | |||||||||||||||
Total Low Net U.S. (Cost $114,451,069) | 106,622,881 | |||||||||||||||||||
Total Equity Strategies | 262,172,916 | |||||||||||||||||||
Global Trading (11.32% of Members’ Capital) |
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Energy |
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BlueGold Global Fund, LP | 7/1/2009 | 19,606,512 | 23,178,256 | 3.24 | % | |||||||||||||||
Global Macro |
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Abbey Capital Macro Fund – Class A(1) | 10/1/2009 | 17,500,000 | 155,080 | 17,659,176 | 2.47 | % | ||||||||||||||
Managed Futures |
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ACL Alternative Fund Limited | 10/1/2009 | 37,500,000 | 146,674 | 40,219,832 | 5.61 | % | ||||||||||||||
Total Global Trading | 81,057,264 | |||||||||||||||||||
Multi-Strategy (24.18% of Members’ Capital) |
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D.E. Shaw Composite Fund, LLC | 7/1/2009 | 42,116,119 | 46,238,365 | 6.46 | % | |||||||||||||||
Elliott Associates, LP | 7/1/2009 | 84,184,034 | 97,968,236 | 13.68 | % | |||||||||||||||
Skybridge Capital Partners, LP | 7/1/2009 | 1,208,288 | 1,212,632 | 0.17 | % |
See accompanying notes to financial statements.
4
Acquisition Date |
Cost | Shares | Fair Value |
% of Members’ Capital |
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Investments in Investment Vehicles – Continued |
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Multi-Strategy – Continued |
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Taconic Opportunity Fund, LP | 7/1/2009 | $ | 23,269,621 | $ | 27,741,931 | 3.87 | % | |||||||||||||
Total Multi-Strategy | 173,161,164 | |||||||||||||||||||
Special Situations (4.54% of Members’ Capital) |
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Environmental |
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Lyrical Calhoun Partners, LP(2) | 7/1/2009 | 36,187,853 | 30,454,857 | 4.25 | % | |||||||||||||||
Mortgage Related |
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Tourmalet Matawin Fund, LP | 7/1/2009 | 796,235 | 874,049 | 0.12 | % | |||||||||||||||
Private Investment |
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BI Holdings, LP | 7/1/2009 | 411,784 | 445,947 | 0.06 | % | |||||||||||||||
Fox & Hound Holdings, LP | 7/1/2009 | 945,585 | 750,469 | 0.11 | % | |||||||||||||||
Total Private Investment (Cost $1,357,369) | 1,196,416 | |||||||||||||||||||
Total Special Situations | 32,525,322 | |||||||||||||||||||
Total Investments in Investment Vehicles (Cost $569,730,583) | 615,544,207 | |||||||||||||||||||
Investments in Mutual Funds (3.67% of Members’ Capital) |
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Credit Strategies (1.52% of Members’ Capital) |
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Long-Short Credit |
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Iron Strategic Income Fund(3) | 906,666 | 10,861,856 | 1.52 | % | ||||||||||||||||
Equity Strategies (2.15% of Members’ Capital) |
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Fundamental Long Bias |
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Auer Growth Fund(4) | 2,026,670 | 15,422,960 | 2.15 | % | ||||||||||||||||
Total Investments in Mutual Funds (Cost $22,452,714) | 26,284,816 | |||||||||||||||||||
Total Investments (89.61% of Members’ Capital) (Cost $592,183,297) | 641,829,023 | |||||||||||||||||||
Other Assets in Excess of Liabilities (10.39% of Members’ Capital) | 74,385,281 | |||||||||||||||||||
Total Members’ Capital (100%) | $ | 716,214,304 |
For certain Investment Vehicles for which the Master Portfolio has a capital commitment, the Master Portfolio may allocate its pro-rata share of expenses prior to having to fund a capital call for such expenses. As of March 31, 2011, the Master Portfolio had outstanding capital commitments of $2,250,000.
All securities are non-income producing unless noted otherwise.
Refer to Note 5, Investments in Portfolio Securities, for information regarding the liquidity of the Master Portfolio’s investments.
(1) | Investment Vehicles in which ownership by the Master Portfolio exceeds 5%. Refer to Note 5, Investments in Portfolio Securities, for additional information. |
(2) | Investment Vehicles in which ownership by the Master Portfolio exceeds 25%. Refer to Note 5, Investments in Portfolio Securities, for additional information. |
(3) | Income producing security. |
(4) | Affiliated investment. Refer to Note 5, Investments in Portfolio Securities, for additional information. |
SIV | Structured Investment Vehicle |
See accompanying notes to financial statements.
5
Investment income: |
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Dividend income | $ | 503,793 | ||
Interest income | 16,655 | |||
Other income | 15,453 | |||
Total investment income | 535,901 | |||
Expenses: |
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Administration fees | 577,306 | |||
Directors fees | 211,500 | |||
Audit fees | 102,188 | |||
Custodian fees | 114,620 | |||
Insurance expense | 269,564 | |||
Tax fees | 90,283 | |||
Other expenses | 145,939 | |||
Total expenses | 1,511,400 | |||
Net investment loss | (975,499 | ) | ||
Net realized and unrealized gain (loss) from investments and affiliated investment: |
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Net realized gain from investments | 20,012,208 | |||
Net realized loss from affiliated investment | (909,944 | ) | ||
Change in unrealized appreciation/depreciation from investments | (7,451,420 | ) | ||
Change in unrealized appreciation/depreciation from affiliated investment | 3,155,126 | |||
Net realized and unrealized gain from investments and affiliated investment | 14,805,970 | |||
Net increase in members’ capital resulting from operations | $ | 13,830,471 |
See accompanying notes to financial statements.
6
Year Ended March 31, 2011 | ||||||||||||
Members | Managing Member |
Total | ||||||||||
Members’ capital at March 31, 2010 | $ | 739,205,257 | $ | 1,074 | $ | 739,206,331 | ||||||
Increase (decrease) from members’ capital transactions: |
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Contributions | 110,136,991 | — | 110,136,991 | |||||||||
Withdrawals | (146,959,489 | ) | — | (146,959,489 | ) | |||||||
Net decrease in members’ capital from capital transactions | (36,822,498 | ) | — | (36,822,498 | ) | |||||||
Increase (decrease) in members’ capital resulting from operations: |
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Net investment loss | (975,499 | ) | — | (975,499 | ) | |||||||
Net realized gain from investments and affiliated investment | 19,102,236 | 28 | 19,102,264 | |||||||||
Change in unrealized appreciation/depreciation from investments and affiliated investment | (4,296,287 | ) | (7 | ) | (4,296,294 | ) | ||||||
Net increase in members’ capital resulting from operations | 13,830,450 | 21 | 13,830,471 | |||||||||
Members’ capital at March 31, 2011 | $ | 716,213,209 | $ | 1,095 | $ | 716,214,304 |
Period Ended March 31, 2010* | ||||||||||||
Members | Managing Member |
Total | ||||||||||
Members’ capital at July 1, 2009 | $ | — | $ | — | $ | — | ||||||
Increase (decrease) from members’ capital transactions: |
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Contributions received in-kind | 518,960,763 | — | 518,960,763 | |||||||||
Contributions | 192,400,645 | 1,000 | 192,401,645 | |||||||||
Withdrawals | (20,161,657 | ) | — | (20,161,657 | ) | |||||||
Net increase in members’ capital from capital transactions | 691,199,751 | 1,000 | 691,200,751 | |||||||||
Increase (decrease) in members’ capital resulting from operations: |
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Net investment loss | (1,485,641 | ) | — | (1,485,641 | ) | |||||||
Net realized loss from investments | (4,450,792 | ) | (7 | ) | (4,450,799 | ) | ||||||
Change in unrealized appreciation/depreciation from investments | 53,941,939 | 81 | 53,942,020 | |||||||||
Net increase in members’ capital resulting from operations | 48,005,506 | 74 | 48,005,580 | |||||||||
Members’ capital at March 31, 2010 | $ | 739,205,257 | $ | 1,074 | $ | 739,206,331 |
* | Growth Capital Master Portfolio, LLC commenced operations on July 1, 2009. |
See accompanying notes to financial statements.
7
Cash flows from operating activities: |
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Net increase in members’ capital resulting from operations | $ | 13,830,471 | ||
Adjustments to reconcile net increase in members’ capital resulting from operations to net cash provided by operating activities: |
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Purchases of investments | (94,236,421 | ) | ||
Proceeds from disposition of investments | 183,653,657 | |||
Amortization of offering costs | 3,095 | |||
Net realized gain from investments and affiliated investment | (19,102,264 | ) | ||
Change in unrealized appreciation/depreciation from investments and affiliated investment | 4,296,294 | |||
Increase in interest receivable | (184 | ) | ||
Decrease in prepaid contributions to Investment Vehicles | 19,100,000 | |||
Increase in receivable from investments sold | (28,066,217 | ) | ||
Increase in prepaid expenses and other assets | (96 | ) | ||
Decrease in administration fees payable | (41,571 | ) | ||
Decrease in accounts payable and accrued expenses | (66,067 | ) | ||
Net cash provided by operating activities | 79,370,697 | |||
Cash flows from financing activities: |
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Proceeds from contributions | 93,199,194 | |||
Payments for withdrawals | (142,554,617 | ) | ||
Net cash used in financing activities | (49,355,423 | ) | ||
Net increase in cash and cash equivalents | 30,015,274 | |||
Cash and cash equivalents at beginning of period | 12,464,381 | |||
Cash and cash equivalents at end of period | $ | 42,479,655 |
See accompanying notes to financial statements.
8
Growth Capital Master Portfolio, LLC (the “Master Portfolio”) is a limited liability company organized under the laws of the State of Delaware on May 1, 2009. The Master Portfolio is registered with the Securities and Exchange Commission (the “SEC”) as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Master Portfolio is the master fund in a master-feeder structure in which there are currently two feeder funds that are registered with the SEC under the 1940 Act and one feeder fund that is a limited duration company organized under Cayman law (Growth Capital Cayman Portfolio, LDC) and is used for investments in the Master Portfolio made by non-U.S. investors.
Under Delaware law and the Master Portfolio Limited Liability Company Agreement (the “LLC Agreement”), each member will be liable for the debts, obligations and liabilities of the Master Portfolio only to the extent of any contributions to the capital of the Master Portfolio (plus any accretions in value thereto) and a member, in the sole discretion of the Board (as hereinafter defined), may be obligated to return to the Master Portfolio amounts distributed to the member in accordance with the LLC Agreement in certain circumstances where after giving effect to the distribution, certain liabilities of the Master Portfolio exceed the fair market value of the Master Portfolio’s assets.
The Master Portfolio’s investment objective is to achieve growth of capital. The Master Portfolio seeks to achieve its investment objective by allocating assets and investing in a diversified portfolio of private investment companies, typically referred to as hedge funds, and closed-end investment companies (each an “Investment Vehicle” and collectively, “Investment Vehicles”), open-end registered investment companies, exchange-traded funds, and segregated managed accounts. The Master Portfolio may also invest directly in equity securities, fixed income securities, mortgage-backed and asset-backed securities, foreign investments and derivatives.
The Board of Directors (the “Board”) has overall responsibility for the management and supervision of the operations of the Master Portfolio. Under the supervision of the Board, GenSpring Family Offices, LLC (“GenSpring”), a Florida limited liability company and majority-owned subsidiary of SunTrust Banks, Inc. (a financial holding company), oversees the management of the day-to-day operations of the Master Portfolio.
GenSpring is the managing member of, and adviser to, the Master Portfolio (the “Managing Member” or “Adviser”). The Adviser is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended. Under an investment advisory agreement with the Master Portfolio (the “Advisory Agreement”), the Adviser is responsible for developing, implementing, and supervising the Master Portfolio’s investment program, under the supervision of the Board.
Under the Master Portfolio’s organizational documents, the Master Portfolio’s officers and directors and the Adviser are indemnified against certain liabilities arising out of the performance of their duties and responsibilities with respect to the Master Portfolio. In the normal course of business, the Master Portfolio enters into contracts with service providers, which also provide for indemnifications by the Master Portfolio for certain liabilities arising out of their duties and responsibilities for the Master Portfolio. The Master Portfolio’s maximum exposure under these arrangements is unknown, as this would involve any future potential claims that may be made against the Master Portfolio. However, based on experience, the Managing Member expects the risk of loss to be remote. In addition, the Master Portfolio has purchased a Directors and Officers/Errors and Omissions insurance policy, which provides coverage for certain liabilities arising out of the performance of the Master Portfolio’s officers and directors duties and responsibilities for the Master Portfolio, subject to various exclusions. The Adviser also has similar insurance coverage for its errors and omissions and other liabilities arising out of its duties and responsibilities for the Master Portfolio.
9
The accounting and reporting policies of the Master Portfolio conform with U.S. generally accepted accounting principles (“GAAP”).
The Master Portfolio considers all unpledged temporary cash with a maturity date at the time of purchase of three months or less to be cash equivalents.
The Master Portfolio records securities transactions on a trade-date basis.
Generally, the investments in Investment Vehicles are recorded whereby the Master Portfolio records the investment at its acquisition cost and adjusts for additional contributions to or withdrawals from the Investment Vehicles. Distributions from Investment Vehicles, if any, will be classified as investment income or realized gains in the Statement of Operations, or alternatively, as a decrease to the cost of the investments based on the characteristics of the distribution if such information is available. In cases where the characteristics of a distribution from an Investment Vehicle are not available, such distribution will be classified as investment income.
Realized gains and losses on investments, including Investment Vehicles, are calculated using the specific lot identification method to determine cost.
The valuation of the Master Portfolio’s investments is determined on the last business day of each month by the Master Portfolio’s Valuation Committee. The valuation procedures of the Master Portfolio with respect to the valuation of its underlying investments are considered by the Valuation Committee that was established to determine the valuation of the Master Portfolio’s underlying investments.
Investments held and valued by the Master Portfolio are as follows:
• | Investment Vehicles — Investments in Investment Vehicles are ordinarily carried at fair value based on the Master Portfolio’s ownership interest in the net asset value of the Investment Vehicle, as provided to the Master Portfolio by the investment managers or the administrators of such Investment Vehicles. These Investment Vehicles value their underlying investments in accordance with policies as described by such Investment Vehicles in their financial statements and operating agreements. Prior to investing in any Investment Vehicle, the Adviser, as part of the due diligence process, conducts a review of the management and operations of that Investment Vehicle. Based on this due diligence review of the Investment Vehicles, the Adviser reasonably believes that valuation policies of the Investment Vehicles in which the Master Portfolio invests require that portfolio securities that are publicly traded or traded through the dealer market are valued at their market value, and that all other securities, including privately placed and otherwise illiquid securities, are valued at their fair value. All of the Master Portfolio’s valuations utilize financial information supplied by each Investment Vehicle and are net of management and estimated performance/incentive fees or allocations payable to the Investment Vehicles’ managers pursuant to the Investment Vehicles’ agreements. |
10
The Adviser will also consider terms and conditions of the Master Portfolio’s agreement with the respective Investment Vehicle and other market considerations that may affect its fair value to determine whether it is appropriate to adjust the reported value to reflect estimated fair value. Generally, the fair value of the Master Portfolio’s interest in an Investment Vehicle will represent the amount that the Adviser believes it could reasonably expect to receive from an Investment Vehicle if the Master Portfolio’s interest were redeemed at the time of valuation, based on information reasonably available at the time the valuation is made and that the Adviser believes to be reliable. Because of the inherent uncertainty of valuation, fair value may differ from the value that would have been used had a ready market for the investments in Investment Vehicles existed and such differences may be material.
• | Restricted Securities — All of the Master Portfolio’s investments, except for investments in open-end registered investment companies and exchange-traded funds, are restricted as to resale. Restricted securities are securities that may not be sold to the public without an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”) or that may be sold only in a privately negotiated transaction or pursuant to an exemption from registration. |
• | Mutual Funds — Investments in open-end investment companies are valued at net asset value. |
Investment Vehicles held by the Master Portfolio may utilize various types of investments and investment strategies, including those described below. Although the Master Portfolio did not invest in any investments other than Investment Vehicles and mutual funds during the year ended March 31, 2011, the Master Portfolio is permitted to directly invest in the same types of investments and investment strategies. The discussion below applies to the Investment Vehicles and to the Master Portfolio.
• | Securities Listed on a Securities Exchange or Over-the-Counter Exchanges — In general, the Investment Vehicles value securities at their last sales price on the date of determination, or if no sale occurred on such date, then at their composite “bid” prices for securities held long, or their composite “ask” prices for securities held short. If no such prices are readily available, the securities are valued at fair value as determined in good faith in accordance with procedures approved by the Investment Vehicle. |
• | Short Sales — The Investment Vehicles may engage in short sales (selling securities they do not own) as a part of their normal investment activities. The Investment Vehicles incur a loss if the price of the security increases between the date of the short sale and the date on which the Investment Vehicle replaces the borrowed security. The Investment Vehicles realize a gain if the price of the security declines between those dates. Short selling involves the risk of potentially unlimited increase in the market value of the security sold short, which could result in potentially unlimited loss for the Investment Vehicles. |
• | Repurchase Agreements — The Investment Vehicles may purchase securities from financial institutions, such as banks and broker-dealers, subject to the seller’s agreement to repurchase them at an agreed upon time and price (“Repurchase Agreement”). A third party custodian bank takes possession of the underlying securities (“collateral”) of a Repurchase Agreement, the value of which exceeds the principal amount of the repurchase transaction, including accrued interest. In the event of default on the obligation to repurchase, the Investment Vehicles have the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the counterparty to the Repurchase Agreement, realization and/or retention of the collateral or proceeds may be subject to legal proceedings. |
• | Reverse Repurchase Agreements — The Investment Vehicles may sell securities to financial institutions, such as banks and broker-dealers, subject to the buyer’s simultaneous agreement to repurchase them at an agreed upon time and price (“Reverse Repurchase Agreement”). These |
11
transactions involve a risk that the other party will be unable or unwilling to complete the transaction as scheduled, which may result in losses to the Investment Vehicles. Reverse Repurchase Agreements also involve the risk that the market value of the portfolio security sold by the Investment Vehicles may decline below the price of the securities the Investment Vehicles are obligated to purchase. |
• | Distressed Securities — Certain companies in whose securities the Investment Vehicles may invest could be considered distressed. These companies may be in transition, out of favor, financially leveraged or troubled, potentially troubled, and may be or have recently been involved in major strategic actions, restructurings, bankruptcy, reorganization or liquidation. |
The companies’ securities may be considered speculative, and the ability of the companies to pay their debts on schedule could be affected by adverse interest rate movements, changes in the general economic climate, economic factors affecting a particular industry or specific developments within the companies. A significant portion of the obligations and preferred stock in which the Investment Vehicles may invest may be less than investment grade (commonly referred to as junk bonds), which may result in the Investment Vehicles experiencing greater risks than they would if investing in higher rated instruments, however this also may offer the potential for high returns.
• | Options — Options that are listed or quoted on a securities exchange or traded over-the-counter are valued at the mean between the closing bid and ask prices for such options on the date of determination, or if no such prices were quoted on such date, the mean between the bid and ask prices on the most immediate prior date on which such prices were quoted. Securities which are not so listed or quoted are valued at their last closing bid prices if held long and at their last closing ask prices if held short. |
• | Securities Lending — The Investment Vehicles may lend their securities to brokers, dealers and other financial institutions needing to borrow securities to complete certain transactions. The Investment Vehicles are entitled to payments in amounts equal to the interest, dividends, or other distributions payable in respect of the loaned securities, which affords the Investment Vehicles an opportunity to earn interest on the amount of the loan and on the loaned securities’ collateral. In connection with any such transaction, the Investment Vehicles receive collateral consisting of cash, U.S. Government securities or irrevocable letters of credit that will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. Risks associated with lending securities include, but are not limited to, loan default, devaluation of collateral and insufficient earnings from the collateral to cover expenses associated with the loan. |
The Master Portfolio may purchase or sell options and enter into swap agreements as part of a strategy to create investment exposure consistent with the Master Portfolio’s investment objectives. For the year ended March 31, 2011, the Master Portfolio had no direct derivative activity.
The books and records of the Master Portfolio are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis: (i) fair value of investment securities, other assets and liabilities at the rate of exchange as of the reporting date; and (ii) purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions. The Master Portfolio does not isolate the portion of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments and foreign currency contracts. For the year ended March 31, 2011, the Master Portfolio had no foreign currency activity.
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For investments in securities, including shares of mutual funds, dividend income is recorded on the ex-dividend date, net of withholding taxes (where applicable). Interest income is recorded as earned on the accrual basis and includes amortization or accretion of premiums or discounts, respectively.
Unless otherwise voluntarily or contractually assumed by the Adviser or another party, the Master Portfolio bears all expenses incurred in its business, including but not limited to, the following: all costs and expenses related to investment transactions and positions for the Master Portfolio; administrative expenses and fees, transfer agency expenses and fees, legal fees; accounting, auditing and tax preparation fees; recordkeeping and custodial fees; costs of computing the Master Portfolio’s net asset value; fees for data and software providers; research expenses; costs of insurance; registration expenses; certain offering costs; expenses of meetings of members; directors fees; all costs with respect to communications to members; transfer taxes, offshore withholding tax and taxes withheld on non-U.S. dividends; and other types of expenses as may be approved from time to time by the Board. Offering costs are amortized over a 12-month period or less from the date they are incurred.
The Investment Vehicles bear various expenses in connection with their operations similar to those incurred by the Master Portfolio. The Investment Vehicles are managed by various investment managers who generally assess asset-based fees to and receive performance-based fees from the Investment Vehicles, which effectively reduce the investment return of the Investment Vehicles. These expenses and fees of the Investment Vehicles that are paid by their investors may be significant and are in addition to those incurred by the Master Portfolio itself and will not have any impact on the expense ratios presented in the financial highlights of the Master Portfolio.
The Master Portfolio is organized and operated as a limited liability company and is treated as a partnership for federal income tax purposes, and therefore is not subject to income taxes as a separate entity. Such taxes are the responsibility of the individual members. Accordingly, no provision for income taxes has been made in the Master Portfolio’s financial statements. The Master Portfolio may serve as withholding agent for U.S. offshore withholding tax, for the offshore feeder fund.
The Managing Member has evaluated the tax positions expected to be taken in the course of preparing the Master Portfolio’s tax returns to determine whether the tax position will “more-likely-than-not” be sustained by the Master Portfolio upon challenge by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold and that would result in a tax benefit or expense to the Master Portfolio are recorded as a tax benefit or expense. For the year ended March 31, 2011, the Master Portfolio did not recognize any amounts for unrecognized tax benefits. A reconciliation of unrecognized tax benefits is not provided herein, as the beginning and ending amounts are zero, with no interim additions, reductions or settlements. Tax positions taken that remain open under the statute of limitations (generally three years for federal income tax purposes) will be subject to examination by tax authorities.
The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results, including the ultimate amount realized upon the sale of investments valued at fair value, could differ from those estimates, and such differences may be material to the financial statements.
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In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2010-06 to Accounting Standards Codification (“ASC”) 820-10, “Fair Value Measurements and Disclosures — Overall” (“ASU 2010-06”). ASU 2010-06 requires the disclosure of input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements for Level 2 and Level 3 positions. (Refer to Note 3, Fair Value Measurements, below.) In addition, transfers between all levels must be disclosed, including the reasons for the transfers. Purchases, sales, issuances, and settlements in the Level 3 rollforward must be disclosed on a gross basis. The amendment is effective for interim and annual reporting periods beginning after December 15, 2009, while disclosures about purchases, sales, issuances, and settlements in the Level 3 rollforward of activity is effective for interim and fiscal periods beginning after December 15, 2010. The Master Portfolio has adopted a policy of recognizing significant transfers between Levels at reporting period end. As of March 31, 2011, there were no significant transfers between Levels 1, 2, or 3 from the valuation input levels used on March 31, 2010.
The inputs used to determine the fair value of the Master Portfolio’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets. |
• | Level 2 — fair value of investments in Investment Vehicles that have the ability to redeem at net asset value as of the measurement date, or within ninety days of the measurement date. |
• | Level 3 — fair value of investments in Investment Vehicles that do not have the ability to redeem at net asset value within ninety days of the measurement date. |
The inputs or methodology used to value investments are not necessarily an indication of the risk associated with investing in those investments.
When determining the fair value of the Master Portfolio’s investments, additional consideration is given to those assets or liabilities that have experienced a decrease in volume or level of activity or have identified circumstances that indicate that a transaction is not orderly.
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The following is a summary categorization as of March 31, 2011, of the Master Portfolio’s investments based on the level of inputs utilized in determining the value of such investments:
Level 1 | Level 2 | Level 3 | ||||||||||||||
Investment Securities |
Investment Vehicles |
Investment Vehicles |
Total Investments |
|||||||||||||
Investments |
||||||||||||||||
Credit Strategies |
||||||||||||||||
Distressed Debt | $ | — | $ | 5,127,949 | $ | — | $ | 5,127,949 | ||||||||
Long-Short Credit | 10,861,856 | 20,542,855 | 23,722,811 | 55,127,522 | ||||||||||||
Mortgage Related | — | — | 17,233,926 | 17,233,926 | ||||||||||||
Equity Strategies |
||||||||||||||||
Long-Short Asia | — | 12,550,371 | — | 12,550,371 | ||||||||||||
Long-Short Emerging | — | — | 9,929,584 | 9,929,584 | ||||||||||||
Long-Short Global | — | 21,585,028 | — | 21,585,028 | ||||||||||||
Long-Short Non-U.S. | — | — | 19,804,799 | 19,804,799 | ||||||||||||
Long-Short U.S. | — | 71,456,445 | 14,912,001 | 86,368,446 | ||||||||||||
Low Net Sector | — | 5,311,807 | — | 5,311,807 | ||||||||||||
Low Net U.S. | — | 84,380,747 | 22,242,134 | 106,622,881 | ||||||||||||
Fundamental Long Bias | 15,422,960 | — | — | 15,422,960 | ||||||||||||
Global Trading |
||||||||||||||||
Energy | — | — | 23,178,256 | 23,178,256 | ||||||||||||
Global Macro | — | 17,659,176 | — | 17,659,176 | ||||||||||||
Managed Futures | — | 40,219,832 | — | 40,219,832 | ||||||||||||
Multi-Strategy |
||||||||||||||||
Multi-Strategy | — | 97,968,236 | 75,192,928 | 173,161,164 | ||||||||||||
Special Situations |
||||||||||||||||
Environmental | — | — | 30,454,857 | 30,454,857 | ||||||||||||
Mortgage Related | — | — | 874,049 | 874,049 | ||||||||||||
Private Investments | — | — | 1,196,416 | 1,196,416 | ||||||||||||
Total Investments | $ | 26,284,816 | $ | 376,802,446 | $ | 238,741,761 | $ | 641,829,023 |
The categorization of investments amongst Levels 1 through 3 does not reflect the fact that some of the underlying investments held by the Investment Vehicles included in Level 3, if owned directly by the Master Portfolio, might be classified as Level 1 investments.
For each Level 3 investment, some or all of the following may have been used to determine fair value: market conditions, liquidity, and security type. For investments in private investment companies and direct private investments, additional data regarding the operations and financial conditions of the investment, including monthly financial reports, are considered. In the case of investments having lock-ups or suspension of withdrawal rights under certain circumstances, additional consideration is given to these restrictions in the determination of fair value.
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The following is a reconciliation of Level 3 investments based on the inputs used to determine fair value:
Investment Vehicles | ||||||||||||||||||||||||
Balance as of March 31, 2010 |
Net Purchases (Sales) |
Transfers In/Out |
Net Realized Gains (Losses) |
Change in Unrealized Appreciation/ Depreciation |
Balance as of March 31, 2011 |
|||||||||||||||||||
Investment Vehicles |
||||||||||||||||||||||||
Credit Strategies |
||||||||||||||||||||||||
Long-Short Credit | $ | 41,082,670 | $ | (25,534,776 | ) | $ | 1,735,166 | $ | 6,118,644 | $ | 321,107 | $ | 23,722,811 | |||||||||||
Mortgage Related | 13,535,883 | 2,034,400 | — | 1,417,215 | 246,428 | 17,233,926 | ||||||||||||||||||
Equity Strategies |
||||||||||||||||||||||||
Long-Short Emerging | — | 6,260 | 10,516,010 | — | (592,686 | ) | 9,929,584 | |||||||||||||||||
Long-Short Global | 21,254,836 | — | (21,585,028 | ) | — | 330,192 | — | |||||||||||||||||
Long-Short Sector | 23,676,315 | (23,943,950 | ) | — | 1,470,017 | (1,202,382 | ) | — | ||||||||||||||||
Long-Short Non-U.S. | 18,811,955 | — | — | — | 992,844 | 19,804,799 | ||||||||||||||||||
Long-Short U.S. | 21,612,413 | (7,726,424 | ) | — | 1,966,253 | (940,241 | ) | 14,912,001 | ||||||||||||||||
Low Net U.S. | 87,883,408 | 10,000,000 | (70,895,167 | ) | (1,128,341 | ) | (3,617,766 | ) | 22,242,134 | |||||||||||||||
Low Net Sector | 5,363,101 | — | (5,311,807 | ) | — | (51,294 | ) | — | ||||||||||||||||
Global Trading |
||||||||||||||||||||||||
Energy | 19,732,388 | — | — | — | 3,445,868 | 23,178,256 | ||||||||||||||||||
Multi-Strategy |
||||||||||||||||||||||||
Multi-Strategy | 74,343,516 | (1,903,078 | ) | — | 313,057 | 2,439,433 | 75,192,928 | |||||||||||||||||
Special Situations |
||||||||||||||||||||||||
Environmental | 34,789,331 | 750,000 | — | — | (5,084,474 | ) | 30,454,857 | |||||||||||||||||
Mortgage Related | 1,087,370 | (250,000 | ) | — | 29,008 | 7,671 | 874,049 | |||||||||||||||||
Private Investments | 1,824,539 | (340,853 | ) | — | (329,737 | ) | 42,467 | 1,196,416 | ||||||||||||||||
Reinsurance | 30,689,379 | (28,896,734 | ) | — | 2,366,476 | (4,159,121 | ) | — | ||||||||||||||||
Total Investment Vehicles | $ | 395,687,104 | $ | (75,805,155 | ) | $ | (85,540,826 | ) | $ | 12,222,592 | $ | (7,821,954 | ) | $ | 238,741,761 |
The net realized gains (losses) and change in unrealized appreciation/depreciation in the table above are reflected in the accompanying Statement of Operations.
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The Master Portfolio is permitted to measure the fair value of alternative investment entities that do not have a readily determinable fair value, based on the net asset value per share (the “NAV”), or its equivalent such as ownership interest in partners’ capital or members’ capital of the investment as of the reporting date as a practical expedient, without further adjustment, unless it is probable that the investment will be sold at a value significantly different than the NAV. If the practical expedient NAV is not as of the reporting entity’s measurement date, then the NAV is adjusted to reflect any significant events that would materially affect the value of the investment and the NAV of the Master Portfolio as of the valuation date. In using the NAV as a practical expedient, certain attributes of the investment that may impact the fair value of the investment, are not considered in measuring fair value. Attributes of those investments include, but are not limited to, restrictions on the investor’s ability to withdraw its capital at the measurement date, any withdrawal fees, any unfunded commitments, and the investment strategies of the investees. The Master Portfolio has invested in alternative investments that do not have a readily determinable fair value, and as such, has elected to use the NAV as a practical expedient. A listing of such investments held by the Master Portfolio and their attributes as of March 31, 2011, are shown in the table below.
Investment Category | Investment Strategy | Fair Value (in 000's) |
Unfunded Commitments (in 000's) |
Remaining Life |
Redemption Frequency* |
Notice Period (in Days)* |
Redemption Restrictions and Terms* |
|||||||||||||||||||||
Credit Strategies(a) | Long and short positions in fixed income and other debt securities of both U.S. and non-U.S. issuers. |
$ | 66,628 | $ | — | N/A | Quarterly – Annual |
45 – 90 days | 0 – 1 year; 5% – 25% limits on soft locks |
|||||||||||||||||||
Equity Strategies(b) | Long and short positions in common stocks, preferred stocks and convertible securities issued by U.S. companies. |
262,173 | — | N/A | Monthly – Annual |
30 – 90 days | 0 – 1 year; 3 year rolling lock; up to 5% redemption fee |
|||||||||||||||||||||
Global Trading(c) | Publicly traded equity securities issued by non-U.S. companies. |
81,057 | — | N/A | Daily – Monthly |
3 – 90 days | 0 – 2 years | |||||||||||||||||||||
Multi-Strategy(d) | Seek to deliver consistently positive returns, regardless of the directional movement of markets, through the use of multiple strategies to smooth returns and reduce volatility. |
173,161 | — | N/A | Quarterly – Semi-Annual |
45 – 90 days | 0 – 3 years; maximum withdrawal per quarter up to 6.25% |
|||||||||||||||||||||
Special Situations(e) | Seek to profit from changes in the prices of securities of companies facing major corporate events, such as mergers, acquisitions, restructurings, spin-offs and significant litigation. |
32,525 | 2,250 | N/A | Quarterly – Annual |
70 – 90 days | 0 – 5 years; approximately 3% is illiquid |
|||||||||||||||||||||
$ | 615,544 | $ | 2,250 |
* | The information summarized in the table above represents the general terms for the specified asset class. Individual Investment Vehicles may have terms that are more or less restrictive than those terms indicated for the asset class as a whole. Certain Investment Vehicles may impose further restrictions on redemptions, commonly referred to as gates and lock-up periods. These restrictions may cause the Investment Vehicle to become less liquid, i.e. moving from a 90 day or less redemption period to greater than 90 days. |
For each of the categories below (except where noted), the fair value of the Investment Vehicles has been estimated using the net asset value of the Investment Vehicles.
(a) | This category includes Investment Vehicles that invest primarily in fixed income securities including bonds, notes and debentures issued by U.S. and non-U.S. corporations, debt securities, municipal securities, mortgage-backed securities and asset backed securities. |
17
(b) | This category includes Investment Vehicles that invest primarily in publicly-traded equity securities issued by U.S. companies. These securities will typically trade on one of the major U.S. stock exchanges. Investment Vehicles in this category may include long/short funds. |
(c) | This category includes Investment Vehicles that invest primarily in publicly-traded equity securities issued by foreign companies or securities issued on U.S. stock exchanges that represent ownership of a foreign corporation. Investment Vehicles in this category may include long/short funds. |
(d) | This category includes Investment Vehicles that invest across a range of strategies including but not limited to relative value strategies, merger arbitrage, high yield/distressed securities and other special situations. |
(e) | This category includes Investment Vehicles that typically include investments in common and preferred equities and various types of debt (often based on the probability that a particular event will occur). These may include merger or risk arbitrage investments (securities of companies that announce acquisition offers) and distressed or Special Situations investments (securities of companies that are experiencing difficult business situations). This category may also include Investment Vehicles invested in certain non-security financial assets. |
Upon receipt from eligible investors of initial or additional capital contributions to purchase interests in the Master Portfolio (“Interests”), which contributions are generally accepted as of the first day of each month, the Master Portfolio issues new Interests. The required minimum initial and additional capital contribution amounts are $100,000 and $50,000, respectively, and all issuances are subject to the receipt of payment in the full amount of the subscription no later than at the close of business on the third business day prior to the applicable subscription date. Interests have not been registered under the Securities Act, or the securities laws of any state. The Master Portfolio issues Interests only in private placement transactions in accordance with Regulation D (or other applicable exemptions under the Securities Act) and similar provisions under state securities laws. No public market exists for Interests, and none is expected to develop. The Master Portfolio is not required, and does not intend, to hold annual meetings of its members. Interests are subject to substantial restrictions on transferability and resale and may not be transferred or resold except as permitted under the Master Portfolio’s limited liability company agreement. The Master Portfolio reserves the right to reject any applications for subscriptions of Interests.
The $1,250,003 in Contributions received in advance as of March 31, 2011 represents subscriptions for Interests received prior to the April 1, 2011 closing.
Net profits or net losses of the Master Portfolio are generally allocated among and credited to or debited against the capital accounts of all members as of the last day of each fiscal period in accordance with the members’ respective capital account ownership percentage for the fiscal period. Net profits or net losses are measured as the net change in the value of the assets of the Master Portfolio, including any net change in unrealized appreciation or depreciation of investments and income, net of expenses, and realized gains or losses during a fiscal period. Net profits or losses are allocated after giving effect for any capital contributions, which generally are made at the beginning of the month, and before any withdrawals of capital.
From time to time, members have been provided with the opportunity to have all or any portion of their Interests repurchased by the Master Portfolio pursuant to repurchase offers approved by the Board. Repurchase offers have been made on a semi-annual basis. However, no member has the right to require the Master Portfolio to repurchase its Interest. The Board, in its sole discretion, may elect to postpone, suspend or
18
terminate an offer to repurchase Interests. Under the procedures that govern repurchase offers by the Master Portfolio, there will be a substantial period of time between the date as of which members must tender their Interests for repurchase and the date they can expect to receive payment for their Interests from the Master Portfolio.
As of March 31, 2011, the Master Portfolio’s investments were primarily in Investment Vehicles. The agreements related to investments in Investment Vehicles provide for compensation to the Investment Vehicles’ managers/managing members or advisers in the form of management fees ranging from 1% to 2.5% of net assets annually. In addition, Investment Vehicles typically also provide for performance-based incentive fees/allocations generally ranging from 10% to 20% of an Investment Vehicle’s net profits, although it is possible that such ranges may be exceeded for certain Investment Vehicles.
For the year ended March 31, 2011, the aggregate cost of purchases and proceeds from sales/withdrawals of investments were $94,236,421 and $183,391,442, respectively.
The cost of the Master Portfolio’s underlying investments for Federal income tax purposes is adjusted for items of taxable income allocated to the Master Portfolio from such investments. The allocated taxable income is generally reported to the Master Portfolio by its underlying investments on Schedule K-1, Forms 1099 or PFIC statements. The underlying investments generally do not provide the Master Portfolio with tax reporting information until well after year end and as a result, the Master Portfolio is unable to calculate the year end tax cost of its investments until after year end, when the Master Portfolio tax return is complete. The Master Portfolio’s book cost of investments as of March 31, 2011 was $592,183,297, resulting in accumulated net unrealized appreciation of $49,645,726 consisting of $75,500,459 in gross unrealized appreciation and $25,854,733 in gross unrealized depreciation.
The Investment Vehicles in which the Master Portfolio invests are generally illiquid. The Master Portfolio may make investments in, or withdrawals from, the Investment Vehicles only at certain times specified in the governing documents of the Investment Vehicles. In addition, the Investment Vehicles may impose certain restrictions on withdrawals, such as lock-ups, gates, or suspension of withdrawal rights under certain circumstances, during which time the Master Portfolio may not withdraw all or part of its interest in an Investment Vehicle, or may withdraw only by paying a penalty (early redemption fee). If adverse market conditions were to develop during any period in which the Master Portfolio is unable to sell Investment Vehicle interests, the Master Portfolio might obtain a less favorable price than that which prevailed when it decided to buy or sell.
The Investment Vehicles in which the Master Portfolio invests have a greater amount of both market and liquidity risk than many other investments. These investments may trade, if at all, in a limited market and may not be able to be immediately liquidated by the Master Portfolio if needed. Values assigned to these investments may differ significantly from the values that would have been used had a broader market for the investments existed.
19
The Master Portfolio’s investments in Investment Vehicles are categorized in three levels of liquidity, as determined by the Advisor. The categories and percent of total investments in each are as follows at March 31, 2011:
Liquidity Categories | Investments | Category Definition | ||||||
Category 1 Funds | 80.37 | % | Investment Vehicles that offer at least quarterly withdrawal rights and a lock up period of less than two years. | |||||
Category 2 Funds | 10.35 | % | Investment Vehicles that offer at least quarterly withdrawal rights after a maximum two-year lock up period. | |||||
Category 3 Funds | 5.18 | % | Investment Vehicles that (i) offer at least annual withdrawal rights after a lock up period of greater than two years or (ii) do not meet this definition or the definition of Categories 1 or 2. | |||||
95.90 | % |
Investments in mutual funds, which are considered liquid, represent the remaining 4.10% of total investments at March 31, 2011.
Some of the Investment Vehicles may hold a portion of their assets in “side pockets,” which are sub-funds within the Investment Vehicles that have restricted liquidity, potentially extending over a much longer period than the typical liquidity an investment in the Investment Vehicles themselves. Should the Master Portfolio seek to liquidate its investment in an Investment Vehicle that maintains these side pockets, the Master Portfolio might not be able to fully liquidate its investment without delay, which could be considerable. In such cases, until the Master Portfolio is permitted to fully liquidate its interest in the Investment Vehicle, the value of its investment will fluctuate based on adjustments to the fair value of the side pocket as determined by the Investment Vehicle’s investment manager.
20
At March 31, 2011, the Master Portfolio held certain investments in which it owns more than 5% of the investments’ outstanding shares or capital. A listing of these investments (including activity for the year ended March 31, 2011) is shown below:
For the Year Ended March 31, 2011 | ||||||||||||||||||||||||||||
Investments | Shares 3/31/2011 | Fair Value 3/31/2010 | Cost of Purchases | Cost of Sales | Change in Appreciation/ Depreciation |
Realized Gain/(Loss) on Investments |
Fair Value 3/31/2011 |
|||||||||||||||||||||
Abbey Capital Macro Fund – Class A | 155,080 | $ | 17,572,657 | $ | — | $ | — | $ | 86,519 | $ | — | $ | 17,659,176 | |||||||||||||||
Auer Growth Fund* | 2,026,670 | 8,177,778 | 10,000,000 | 5,000,000 | 3,155,126 | (909,944 | ) | 15,422,960 | ||||||||||||||||||||
Axial Capital Institutional, LP | 46,063,919 | — | — | (4,473,230 | ) | — | 41,590,689 | |||||||||||||||||||||
Durban Capital, LP | 5,363,101 | — | — | (51,294 | ) | — | 5,311,807 | |||||||||||||||||||||
Halcyon Asset Backed Value Fund, LP | — | 20,000,000 | — | 2,242,134 | — | 22,242,134 | ||||||||||||||||||||||
Lyrical Calhoun Partners, LP** | 34,789,331 | 750,000 | — | (5,084,474 | ) | — | 30,454,857 | |||||||||||||||||||||
Magnetar Structured Credit Fund, LP | — | 10,000,000 | — | 209,092 | — | 10,209,092 | ||||||||||||||||||||||
Marble Arch QP Partners, LP | 16,621,932 | — | — | 1,368,559 | — | 17,990,491 | ||||||||||||||||||||||
P2 Capital II Fund, LP** | 11,878,920 | — | — | 727,337 | — | 12,606,257 | ||||||||||||||||||||||
Sansar Capital Special Opportunity Fund, LP | 10,516,010 | 6,260 | — | (592,686 | ) | — | 9,929,584 | |||||||||||||||||||||
Soundpost Capital, LP | 25,197,557 | — | 10,000,000 | (2,755,229 | ) | (1,128,341 | ) | 11,313,987 | ||||||||||||||||||||
Tricadia Distressed and Special Situations Fund, LP |
13,535,883 | 2,719,598 | 10,685,198 | 37,336 | 1,417,215 | 7,024,834 | ||||||||||||||||||||||
$ | 189,717,088 | $ | 43,475,858 | $ | 25,685,198 | $ | (5,130,810) | $ | (621,070) | $ | 201,755,868 |
* | Investment deemed to be an affiliated person for purposes of Section 2(a)(3) of the 1940 Act, primarily because the Master Portfolio owns more than 5% of the investment’s outstanding shares. |
** | Ownership by the Master Portfolio exceeds 25% of the Investment Vehicle’s capital. |
The Adviser has entered into the Advisory Agreement with the Master Portfolio, effective June 30, 2009. The Advisory Agreement provides that the Adviser is responsible, subject to the supervision of the Board, for formulating a continuing investment program for the Master Portfolio. The Adviser is authorized to make all decisions regarding the Master Portfolio’s purchase and withdrawal of interests in Investment Vehicles.
The Master Portfolio does not pay the Adviser an investment management fee for services provided by the Adviser. However, the Adviser charges its family office clients a separate individualized fee for providing a variety of investment management services to them. The fee charged to the Adviser’s family office clients is not intended to cover the fees and expenses of the Adviser in providing investment management services to the Master Portfolio.
In consideration for administration, accounting, and recordkeeping services, the Master Portfolio pays Citi Fund Services Ohio, Inc. (the “Administrator”) a monthly administration fee based on the month-end members’ capital of the Master Portfolio. The Master Portfolio is charged at the annual rates of 0.065% on the Master Portfolio members’ capital of up to $500 million, 0.055% on the Master Portfolio members’ capital between the amounts of $500 million and $1 billion and 0.045% on the Master Portfolio members’ capital over $1 billion. The fee is payable monthly in arrears and subject to a $567,000 annual minimum fee.
21
The administration services fees are paid out of the Master Portfolio’s members’ capital, which decreases the net profits or increases the net losses of members in the Master Portfolio. The total administration fees incurred for the year ended March 31, 2011 were $577,306.
The Master Portfolio, Growth Capital Portfolio, LLC and Growth Capital TEI Portfolio, LLC together pay each of the Directors who is not an “interested person” of any of these companies, as defined in the 1940 Act (the “Independent Directors”) an annual retainer of $30,000 ($37,500 for the Board chairman), which is paid quarterly, a fee of $3,000 ($3,700 for the Board chairman and $3,500 for the Audit and Nominating Committee chairman) per regular Board meeting, a fee of $1,500 ($1,875 for the Board chairman) per off-cycle Board meeting, and a fee of $1,500 ($2,000 for the Audit and Nominating Committee chairman) per off-cycle Audit Committee meeting. The Master Portfolio, Growth Capital Portfolio, LLC and Growth Capital TEI Portfolio, LLC compensated the Directors $211,500 in meeting and retainer fees for the year ended March 31, 2011.
The Master Portfolio may borrow money in connection with its investment activities, for temporary cash management purposes, to meet withdrawal requests, or for temporary or emergency purposes. The Master Portfolio generally intends to borrow money only in limited circumstances when attractive investment opportunities are available and sufficient cash or other liquid resources are not otherwise available. The Master Portfolio will repay any borrowing incurred using the first available funds, including proceeds from withdrawals from Investment Vehicles or proceeds from the offering of Interests, in order to minimize the interest expense and other borrowing costs. As of March 31, 2011, the Master Portfolio did not have a credit facility in place.
Financial highlights are summarized as follows:
Year ended March 31, 2011 | Period ended March 31, 2010* | |||||||
Net investment loss to average members’ capital(1) | (0.13 | )% | (0.29 | )% | ||||
Gross expenses to average members’ capital(1) | 0.20 | % | 0.37 | % | ||||
Net expenses to average members’ capital(1) | 0.20 | % | 0.37 | % | ||||
Portfolio turnover(2) | 13.40 | % | 8.85 | % | ||||
Total return(3) | 1.83 | % | 7.46 | % | ||||
Members’ capital, end of period (in 000’s) | $ | 716,214 | $ | 739,206 |
A member’s total return and operating ratios may vary from those reflected based on the timing of capital transactions.
* | Master Portfolio commenced operations on July 1, 2009. |
(1) | Average members’ capital is measured at the end of each month during the period. Ratios have been annualized for periods less than one year. |
(2) | This ratio has not been annualized for periods less than one year. |
(3) | Calculated as geometrically linked monthly returns for each month in the period. Total returns are not annualized for periods less than one year. |
The Master Portfolio accepts initial or additional applications for Interests generally as of the first day of the month. There were no investor subscriptions for Interests for May 1, 2011.
22
Based on the members’ capital of the Master Portfolio, the Adviser recommended to the Board that a tender offer in an amount of up to $106,685,323 of the Master Portfolio’s members’ capital to those members who elect to tender their Interests prior to the April 21, 2011 expiration date of the June 30, 2011 tender offer. In response to the number of members electing to tender their Interests, the Board approved, at a Special Telephonic Meeting held on April 19 – 20, 2011, to increase the tender offer amount to an aggregate of $225,000,000 of Interests and extend the tender offer to May 5, 2011. A total of 321 requests were received and approximately $225,166,450 of Interests were elected to be tendered.
Management has evaluated events and transactions through the date these financial statements were issued for purposes of recognition or disclosure in these financial statements. Based on this evaluation, no adjustments were required to the financial statements.
23
The Master Portfolio’s operations are managed under the direction and oversight of the Board of Directors (the “Board” and each member a “Director”). Each Director serves for an indefinite term or until he or she reaches mandatory retirement, if any, as established by the Board. The Board appoints the officers of the Master Portfolio who are responsible for the Master Portfolio’s day-to-day business decisions based on policies set by the Board. The officers serve at the pleasure of the Board.
The Directors and Officers of the Master Portfolio may also be directors or officers of some or all of the other registered investment companies managed by the Adviser or its affiliates (the “Portfolio Complex”). The address of the Directors and Officers is c/o GenSpring Family Offices, LLC, 3801 PGA Blvd, Suite 555, Palm Beach Gardens, FL 33410. The tables below show, for each Director and Officer, his or her full name, age, present position held with the Master Portfolio, the length of time served in that position, his or her principal occupations during the last five years, the number of portfolios in the Portfolio Complex overseen by the Director, and other directorships held by such Director.
Name and Age | Position with the Master Portfolio and Length of Time Served(2) |
Principal Occupation(s) in the Past 5 Years |
Number of Portfolios in Portfolio Complex(3) Overseen by Director |
Other Directorships Held by Director |
||||
Interested Director |
||||||||
Jean Brunel(1) (61) | Director, since inception | Managing Principal, Brunel Associates, LLC | 3 | None. | ||||
Non-Interested Directors |
||||||||
Jeffrey M. Biggar (61) | Director and Chairman of the Board, since inception | Managing Director (November 2010 – present) Little Mountain Group, LLC; Chief Operating Officer (2008 – March 2010) Cedar Brook Financial Partners LLC; Retired (2006 – March 2008) |
53 | None. | ||||
George C. Guynn (67) | Director, since inception | Retired. President and Chief Executive Officer (1996 – October 2006) Federal Reserve Bank of Atlanta | 53 | Genuine Parts Company; Oxford Industries; John Wieland Homes and Neighborhoods, Inc.; Acuity Brands, Inc. | ||||
Sidney E. Harris (61) | Director, since inception | Professor (since 1997) and Dean (1997 – 2004) J. Mack Robinson College of Business, Georgia State University | 53 | Total System Services, Inc. |
24
Name and Age | Position with the Master Portfolio and Length of Time Served(2) |
Principal Occupation(s) in the Past 5 Years |
Number of Portfolios in Portfolio Complex(3) Overseen by Director |
Other Directorships Held by Director |
||||
Joel Katzman(4) (57) | Director, since inception | Retired. Private consultant (since 2005); President and Chief Executive Officer of J.P. Morgan Alternative Asset Management, Inc. (1995 – 2005) | 3 | None |
(1) | This person’s status as an “interested” director arises from his affiliation with the Adviser. |
(2) | The term of office for a Director is indefinite, until he or she resigns, is removed or a successor is elected and qualified. |
(3) | The Portfolio Complex consists of the Master Portfolio, the Growth Capital Portfolio, LLC, the Growth Capital TEI Portfolio, LLC and the RidgeWorth Funds. |
(4) | Effective April 26, 2011, Mr. Katzman is no longer a director of the Portfolios. |
Name and Age | Position with Master Portfolio and Length of Time Served |
Principal Occupation(s) in the Past 5 Years | ||
Maria Elena (Mel) Lagomasino (61) | President and Chief Executive Officer (since inception) | Chief Executive Officer of the Adviser (since 2005); Prior to that, Chairman and CEO of JP Morgan Private Bank | ||
Martin R. Dean (47) | Treasurer, Chief Financial Officer and Chief Accounting Officer (since inception) | Senior Vice President, Citi Fund Services | ||
Bashir C. Asad (47) | Assistant Treasurer (since November 2010) | Senior Vice President, Citi Fund Services (since 2010); Vice President, Citi Fund Services (2007 to 2010); prior to that, Vice President of Finance, Central Benefits Mutual Insurance Company | ||
V. Suzanne Carlisle (50) |
Secretary (since August 2010) | Director of Operational Due Diligence of the Adviser (since 2007); prior to that, Independent Due Diligence Consultant | ||
Daniel J. Igo (40) | Assistant Secretary (since August 2009) | Vice President, Citi Fund Services (since 2007); Legal Services Manager, Citi Fund Services (2004 to 2006) | ||
Frederick J. Schmidt (51) |
Chief Compliance Officer (since July 2010) | Director and Chief Compliance Officer, CCO Services, Citi Fund Services (2011 to present); Senior Vice President and Chief Compliance Officer, CCO Services, Citi Fund Services (2004 to 2010) |
25
The following chart indicates the allocation of investments among the asset classes in the Master Portfolio as of March 31, 2011.
Asset Class(1) | Fair Value | % | ||||||
Credit Strategies | $ | 77,489,397 | 12.07 | |||||
Equity Strategies | 277,595,876 | 43.26 | ||||||
Global Trading | 81,057,264 | 12.63 | ||||||
Multi-Strategy | 173,161,164 | 26.98 | ||||||
Special Situations | 32,525,322 | 5.06 | ||||||
$ | 641,829,023 | 100.00 |
(1) | The complete list of investments included in the following asset class categories are included in the Schedule of Investments of the Master Portfolio. |
The Master Portfolio files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Master Portfolio’s Form N-Q is available on the Securities and Exchange Commission website at http://www.sec.gov. The Master Portfolio’s Form N-Q may be reviewed and copied at the Securities and Exchange Commission Public Reference Room in Washington, DC and information regarding operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
A description of the policies and procedures that the Master Portfolio uses to determine how to vote proxies relating to portfolio securities is available (i) without charge, upon request, by calling 1-800-338-3559; and (ii) on the Securities and Exchange Commission website at http://www.sec.gov.
Information regarding how the Master Portfolio voted proxies relating to portfolio securities during the period ended June 30 is available (i) without charge, upon request, by calling 1-800-338-3559; and (ii) on the Securities and Exchange Commission website at http://www.sec.gov.
26
|
(a) The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. This code of ethics is included as Exhibit 12(a)(1).
|
|
(b) During the period covered by the report, with respect to the registrant's code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions; there have been no amendments to, nor any waivers granted from, a provision that relates to any element of the code of ethics definition enumerated in paragraph (b) of this Item 2.
|
Current Year
|
Previous Year
|
|
Audit Fees
|
$ 93,608
|
$ 85,000
|
Audit-Related Fees
|
$ -
|
$ -
|
Tax Fees
|
$ -
|
$ -
|
All Other Fees
|
$ -
|
$ -
|
Current Year
|
Previous Year
|
0%
|
0%
|
Current Year
|
Previous Year
|
$0
|
$0
|
Other Registered
Investment Companies Managed by the Portfolio Managers |
Pooled Investment
Vehicles Managed by the Portfolio Manager |
Other Accounts Managed by
the Portfolio Manager |
||||||||||||||
Name of Portfolio’s Portfolio Manager
|
Number
|
Total Assets
|
Number
|
Total Assets (mm)
|
Number
|
Total Assets
|
||||||||||
Jean Brunel**
|
0
|
$
|
0
|
0
|
$
|
0
|
0
|
$
|
0
|
|||||||
Michael Murgio
|
0
|
$
|
0
|
22
|
$
|
282.0
|
0
|
$
|
0
|
|||||||
Chris Battifarano
|
0
|
$
|
0
|
22
|
$
|
282.0
|
0
|
$
|
0
|
|||||||
John Tassone
|
0
|
$
|
0
|
22
|
$
|
282.0
|
0
|
$
|
0
|
|||||||
Ted Mayden
|
0
|
$
|
0
|
22
|
$
|
282.0
|
0
|
$
|
0
|
|||||||
Suzanne Carlisle
|
0
|
$
|
0
|
22
|
$
|
282.0
|
0
|
$
|
0
|
Portfolio Manager
|
Range of Securities
Owned ($) |
|
Jean Brunel*
|
None
|
|
Michael Murgio
|
None
|
|
Chris Battifarano
|
None
|
|
John Tassone
|
None
|
|
Ted Mayden
|
None
|
|
Suzanne Carlisle
|
None
|
|
* Information is as of June 9, 2011.
|
Period
|
(a)
Total Number
of Shares
(or Units)
Purchased
|
(b)
Average Price
Paid per
Share
(or Unit)
|
(c)
Total Number
of Shares
(or Units)
Purchases as
Part of
Publicly
Announced
Plans or
Programs
|
(d)
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs
|
||||||||
April 1, 2010 through April 30, 2010
|
$ | - | N/A | N/A | N/A | |||||||
May 1, 2010 through May 31, 2010
|
$ | - | N/A | N/A | N/A | |||||||
June 1, 2010 through June 30, 2010
|
$ | - | N/A | N/A | N/A | |||||||
July 1, 2010 through July 31, 2010
|
$ | 58,134,875 | N/A | N/A | N/A | |||||||
August 1, 2010 through August 31, 2010
|
$ | - | N/A | N/A | N/A | |||||||
September 1, 2010 through September 30, 2010
|
$ | - | N/A | N/A | N/A | |||||||
October 1, 2010 through October 31, 2010
|
$ | - | N/A | N/A | N/A | |||||||
November 1, 2010 through November 30, 2010
|
$ | - | N/A | N/A | N/A | |||||||
December 1, 2010 through December 31, 2010
|
$ | 58,004,282 | N/A | N/A | N/A | |||||||
January 1, 2011 through January 31, 2011
|
$ | 30,488,043 | N/A | N/A | N/A | |||||||
February 1, 2011 through February 28, 2011
|
$ | - | N/A | N/A | N/A | |||||||
March 1, 2011 through March 31, 2011
|
$ | - | N/A | N/A | N/A | |||||||
Total
|
$ | 146,627,200 |
This ‘N-CSR’ Filing | Date | Other Filings | ||
---|---|---|---|---|
6/30/11 | N-PX, N-Q | |||
Filed on / Effective on: | 6/10/11 | |||
6/9/11 | ||||
5/26/11 | ||||
5/25/11 | ||||
5/23/11 | ||||
5/5/11 | ||||
5/1/11 | ||||
4/26/11 | 4 | |||
4/21/11 | SC TO-I/A | |||
4/1/11 | ||||
For Period End: | 3/31/11 | N-CSR/A, NSAR-B, NSAR-B/A | ||
3/1/11 | ||||
2/28/11 | N-Q | |||
2/1/11 | ||||
1/31/11 | ||||
1/1/11 | ||||
12/31/10 | N-Q | |||
12/15/10 | ||||
12/1/10 | ||||
11/30/10 | ||||
11/1/10 | ||||
10/31/10 | ||||
10/1/10 | ||||
9/30/10 | N-CSRS, NSAR-A | |||
9/1/10 | ||||
8/31/10 | ||||
8/1/10 | ||||
7/31/10 | ||||
7/1/10 | ||||
6/30/10 | N-PX, N-Q | |||
6/1/10 | ||||
5/31/10 | ||||
5/1/10 | ||||
4/30/10 | ||||
4/1/10 | ||||
3/31/10 | N-CSR, NSAR-B | |||
12/15/09 | ||||
7/1/09 | POS AMI | |||
6/30/09 | N-PX | |||
5/1/09 | ||||
List all Filings |